(Cost and quality management) A joke making the rounds in Philadelphia-area doctors’ lounges goes like this:

Leonard Abramson, chief executive officer of U.S. Healthcare Inc., the big health-maintenance company, dies and goes to heaven, where he tells God what a great place it is. “Don’t get too comfortable,” God advised, “You’re only approved for a three-day stay.”

That’s the kind of cost control that the messianic Mr. Abramson under¬ stands. In the past 2 years, U.S. Healthcare has slashed the fees it pays to spe¬ cialists and hospitals by 12 percent to 20 percent and sometimes more, these providers say. In the past year, it has cut members’ days in hospitals by 11 percent. Increasingly, it asks specialists and hospitals to assume the financial risk for procedures that cost more than anticipated.

U.S. Healthcare is widely considered one of the country’s toughest HMO companies, and one of the most innovative. It keeps 30 cents of every premium dollar to pay for salaries, marketing, administration, and shareholder dividends, nearly 10 cents more than the industry average. It zealously tracks the perfor¬ mance of doctors and hospitals, paying more to those whose quality scores are high. It is earning robust profits—up 99 percent in the past 24 months—while rocking the tradition-bound health-care markets along the East Coast.

“Unless you change the culture of the community you’re working in, you’re not changing health care,” Mr. Abramson declares.

In the health-care community, U.S. Healthcare has both staunch supporters and critics. Consider the following additional information:

■ Last year, Mr. Abramson earned $9.8 million in salary, bonuses, and stock op¬ tions. Critics suggest this is excessive pay and takes resources that could otherwise have been applied to benefit patients. Mr. Abramson says, in a free-market econ¬ omy, large rewards flow to those who provide superior performance.

■ Critics claim U.S. Healthcare selects service providers based on price rather than quality.

■ The company pays doctors to take training courses, such as one in breast cancer screening techniques.

■ The company has an information system that allows it to rank hospitals ac¬ cording to infection rates of urology patients, by the length of stay for coronary-bypass surgery, or by the number of babies delivered by cesarean. The company shows the comparative data to its service providers and uses it as leverage in negotiations.

■ The company is increasingly using performance-based pay contracts for its service providers.

■ All of U.S. Healthcare’s HMOs have earned 3-year accreditation from the National Committee for Quality Assurance; this is the best performance of any U.S. managed-care company.

[SOURCE: Adapted from Ron Winslow, “HMO Juggernaut: U.S. Healthcare Cuts Costs, Grows Rapidly, and Irks Some Doctors; A Few Patients Are Slighted, Squeezed, Specialists Say; But Firm Also Gets Praise; How Katie Avoids Hospital,” Wall Street Journal (September 6, 1994), p. Al. Reprinted by permission of The Wall Street Journal, © 1994 Dow Jones & Company, Inc. All Rights Reserved Worldwide.]

704 PART V Cost Control Examine the preceding information and determine your opinion as to whether U.S. Healthcare is developing superior methods of delivering health care to U.S. citizens, or alternatively, uses its market power and information resources to exploit members and service providers. Support your conclusion with arguments by applying concepts provided in the chapter to the information provided in this case.

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