Global budgets are used in national healthcare systems. Using the global budget, a government agency determines the total amount of money that it has available to reimburse all hospitals, physicians and clinics in the nation. The global budget can be further subdivided, so the agency can establish a maximum amount of spending for treating a specific disease or a maximum budget for each hospital in a state.
The purpose of the global budget is to cap healthcare bills. If the national healthcare system sets a reimbursement value of $100,000 when a physician treats a heart attack patient, it spends more than it expects if many people suffer heart attacks. Instead, the global budget can set a fixed budget for a malady, such as a fund of $20 million, which is available to all hospitals that treat heart attack patients.
A global budget allocation for a single institution can lead to healthcare rationing. If a hospital spends $2,000 to treat an asthma patient, and the global budget gives it $100,000 to treat asthma patients, it breaks even if it treats 50 patients, and it loses money if it treats more than 50 patients. The hospital has an incentive to turn away additional asthma patients, or accept asthma patients who can pay for their own treatment.
A global budget allocation that many hospitals share can lead to a tragedy of the commons situation. For example, if a field of grass can be accessed by any rancher, then each rancher who brings his goats to the field has an incentive to let his goats eat as much grass as possible, so the goats end up eating all of the grass and the field becomes barren. When a hospital is reimbursed for each patient out of a fund that is available to all hospitals, each hospital earns more money if it admits another patient, but admitting another patient reduces the amount every hospital receives per patient.
A global budget may require a hospital to provide medical treatment before it knows how much compensation it will receive for the treatment. For example, a hospital may estimate that there will be 400,000 flu patients in a state, and if the flu budget is $40 million, $100 is available per patient. If the count at the end of the year is 500,000 flu patients, the hospital receives $80 per patient.