How Expenditure Caps and Expenditure Targets Really Work

The United States recently has debated how to impose an "expenditure cap" or "expenditure target" on all spending for health or for physicians' services alone. European and Canadian experiences demonstrate the meaning, methods of administration, and pitfalls of these limits: caps are fixed sums within which all service must be provided; if cost overruns loom before the end of the year, benefits are denied or provider prices are reduced. Although organized financing systems can impose caps on hospitals, the medical profession rarely allows them. Rather, annual expenditure targets are becoming common in the physicians' sector. Following this blueprint, if predicted costs are exceeded in a year, reimbursement increases are less generous the following year. Medical associations always insist on negotiating limits and participating in their implementation. Government attempts to dictate these arrangements have never been successful. This article describes the details of setting and implementing limits.