Executive View by Marshall Loeb: Managing those Medical Costs

The boss runs from home to the office almost every day, his hair flopping in the Tennessee breeze, his loping strides covering ten miles between 6:30 and 8 a.m. He confesses an addiction to LSD—long, slow distances. It began during the Viet Nam War, when Air Force brass threatened to dump him as flight surgeon because he weighed a puffy 220. Now he is down to 168. He is 41 years old, and he ran the Boston Marathon for the first time last year, then repeated this year. He wants to do all the big marathons. Last month it was London, this month it will be New York, next Hawaii. Health is his business, and, if they meet set minimums, he pays his employees an extra 4¢ for every mile that they ride on a bike, 16¢ for every mile they run, 64¢ for every mile they swim. The boss gets a special bonus. Says Dr. Thomas Frist Jr.: "Every time I run, I put my mind to developing one new idea."

The idea that has made Frist many millions was to bring modern management to hospitals/Only eleven years ago, he joined with his physician father and a local venture capitalist to take over a hospital back home in Nashville. They standardized procedures in what was a cottage industry, benefited from mass buying, brought in everything from simple cost controls to sophisticated equipment. Today the Hospital Corporation of America, of which Frist is president, owns or manages 130 hospitals in the U.S. plus eleven others in Saudi Arabia, Panama and Australia. Revenues this year will exceed $1 billion.

On this run to riches, Tom Frist has also acquired a lot of ideas for reducing inflation in medical costs. Perhaps, he says, the Government should cut back its funding for educating doctors. The U.S. is training too many of them, and the oversupply leads to too much unnecessary testing and surgery. On the other hand, tae trend to concentrating all medical specialties in just one hospital in a region is unwise because it creates costly monopolies. "If just one hospital offers open-heart surgery, for example, doctors practicing there can earn $500,000, $600,000, even $700,000 a year."

Yet it is also unwise to set federal ceilings on medical costs because hospitals will compensate by skimping. "The first year, they tighten up on small expenses; the second year, they cut some educational programs; the third and fourth years, they do away with certain services, like ambulatory care and obstetrics; the fifth and sixth years, the_y start trimming quality, maybe buying lesser brands of equipment." The same downward spiral afflicts countries that adopt national medical insurance, Frist believes. "Hospitals and doctors have to compete against other popular programs for Government money> and they often lose out. So medical care deteriorates, as it has in Britain, Canada and other countries."