Myopia of Health-Care Reform Using Business Models
Annals of the Royal College of Physicians and Surgeons of Canada
Background: Health-care institutions have looked to business for models to respond to the requirement for reform. This has changed the perspective of institutions that were founded on charitable principles, and managed with liberal employment policies and deficit budgeting. Using lesions from supply-side management, hospitals are fragmenting into independent programs with demands to balance budgets regardless of the source of cost.
Methods: Costs from the institution’s perspective are compared with those of the payer (province) using an example of a proposal to reduce costs in the surgical program by buying disposable drapes.
Results: The actual cost of disposable drapes bought from the United States seems favourable at $100,000 per annum compared with $110,000 for the purchase and laundry of reusable linen. However, 80 per cent of the reusable system’s costs are generated by wages, which from the province’s perspective, should be reduced by income tax, by total consumption taxes and by other impacts of employment. The net cost to the province of the reusable system is $62,348 accounting for taxes alone. The disposable system would represent a loss of $37,652 to the province.
Interpretation: Cost-referenced decisions in health care may differ depending on the perspective taken. Discounting labour costs by taxes collected may enable governments to understand the impact of such decisions.