US nonprofit hospitals have long offered accommodations—private, semiprivate, and ward beds—based on the ability of patients, or their insurance companies, to pay. The health care sector is now expanding the range of comfort and convenience it offers, targeting patients who can afford these extras. By providing high-margin, high-demand services, a nonprofit hospital can keep the affluent people who consume them from shifting to private clinics and ensure that the extra amount it receives for them helps to finance its historical mission. To succeed, though, it will be necessary to abandon any lingering misperceptions that catering to affluent patients would diminish the quality of care for less affluent ones.

Private clinics, and indeed some teaching and nonprofit hospitals, have already gone beyond private rooms to offer luxury suites, catered meals, and round-the-clock private nurses. In the realm of convenience, however, small medical entrepreneurs are the trailblazers. In Seattle, the team physician for a professional sports franchise opened a practice that charged patients $20,000 a year for 24-hour access to medical services and for the same level of personalized care he had provided to a small group of athletes. His success prompted doctors elsewhere to open similar high-end operations. In Minnesota, a chain of "cash-and-carry" medical clinics in shopping malls promises walk-in patients that they will be able to walk out within 30 minutes, for a premium of about 75 percent over customary fees. The chain has negotiated an alliance with a leading insurer and is planning to open additional clinics. Meanwhile, a chain of clinical laboratories operating mainly in the western United States offers people who walk into its labs test results, sent over a secure Internet connection, within 24 hours. Advertising directly to consumers, the chain charges three to four times more than conventional labs do and is planning to expand eastward.

The major nonprofit and teaching hospitals are well placed to offer a premium service, for their brands are associated with quality care

Although smaller operators have seized the initiative, major nonprofit and teaching hospitals are also well placed to offer a premium service because they have brands associated with quality health care and, often, access to the capital needed to finance such projects. The Lewis and John Dare Center, at the nonprofit Virginia Mason Medical Center, in Seattle, shows how.

The Dare Center, which Virginia Mason opened in January 2000, is a premium outpatient service. For $3,000 a year, it offers individual subscribers 24-hour access to internists by mobile telephone or e-mail, as well as house and office calls by physicians. In addition, the Dare Center’s doctors—who see 3 to 8 patients a day, compared with 20 to 25 for their colleagues at health maintenance organizations (HMOs)—spend more time with each subscriber. Revenue from subscriptions easily fills the gap between the higher fees charged for the longer, off-hour, off-site consultations and the insurers’ reimbursement payments, which are based on the standard charge for an office visit to an internist during normal hours.

About 850 people, mostly over 60 years of age, have subscribed, far exceeding expectations, and the Dare Center plans to expand. On average, members use it 7 or 8 times a year, while people in their US age cohort make an average of 6.8 visits to clinics a year. Despite the relatively high rate of use, the Dare Center manages to be profitable: it earns 32 percent margins on annual revenue of $2.5 million—money the hospital uses to support its free clinic and its heart and cancer programs.

In a fundamental shift from the usual practice of charging solely for services rendered, the flat fee the Dare Center charges for a subscription pays for the option of using the service. Such a plan more closely resembles an insurance product than a medical one. Partnerships between insurance companies and hospitals could well generate new service lines appealing to many people who might not need them immediately but could imagine doing so in the future.

Insurance companies have experience in managing risk, building local provider networks, and organizing offerings in price tiers based on patients’ patterns of use. Partnerships between leading hospital systems and insurers would combine the strengths of each: trusted brand names, existing customer relationships, and access to inexpensive capital. Various financial arrangements are possible, such as a base payment by the insurer to the hospital system to guarantee a supply of luxurious rooms or simply the sharing of income from premiums paid by policyholders in the higher tiers.

It shouldn’t be forgotten that insurers already have experience offering premium services to policyholders. Take the much-berated US HMOs, which originally restricted policyholders—often against their will—to a core group of doctors and specialists. By the mid-1990s, insurers had begun to offer point-of-service HMO products: after paying a premium of 6 to 8 percent over the standard fee, a policyholder could see specialists outside the group, without a doctor’s referral. About 20 percent of HMO policyholders have taken up the option, but fewer than 5 percent of the point-of-service subscribers actually exercise it. Such moderation bodes well for other premium health care options.

The emergence of such premium services shouldn’t reduce the quality of the clinical care available to the less affluent. On the contrary, the new revenues ought to enable nonprofit hospitals to improve the quality of service for all patients—especially those with the fewest resources. The task of realizing that outcome falls upon each hospital’s board of trustees, whose efforts must be monitored closely by government and private watchdogs.

For 15 years or more, hospitals have been squeezed economically. Although they confront an aging population that requires increasingly complicated care, access to medical specialists has narrowed and reimbursements from government and insurers have grown smaller in absolute terms. At a time when most nonprofit hospitals barely break even, premium services can attract money that will allow these institutions to extend their missions and to serve their communities more effectively.