A few years ago, virtually all hospital patients in the United States were billed on a fee-for-service basis. Today at Beth Israel Deaconess Medical Center in Boston (a two billion dollar operation), only about one-third of patients are charged on that basis.

Dr. Kevin Tabb, President and CEO of BI Deaconess, discussed the revolution in delivery of hospital care, and its implications for patient care generally, this morning at the Duane Morris law firm office in Boston (which was hosting an investor presentation by emerging life science/health care companies). The new hospital model establishes payment for treatments across the board, and it is up to the hospital to manage its business so that costs are contained and charges for non-essential tests and procedures are dis-incentivized.

Dr. Tabb noted that Boston is far ahead of the rest of the country in coming to terms with the new economics. Recently visiting California, where for example at Stanford the operational model is still fee-for-service, Dr. Tabb warned that this new reality was coming, and that it meant there would be less dollars; thus, delivery models would have to change in order to both maintain quality of service and solvency.

In his words, the “heads in beds” business model was obsolete. There likely would be: fewer hospitals; fewer beds; reorientation on the care delivery front in favor of fewer specialists and more general practitioners; and, greater reliance on mid-level service providers (such as nurse practitioners).