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Introduction to the U.S. Health Care System

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Title: Introduction to the U.S. Health Care System


1
Introduction to the U.S. Health Care System
  • Dr. Joe Saviak
  • Shi and Singh, Delivering Health Care in America
    A Systems Approach (2008, 2012)
  • Jonas, Goldsteen, Goldsteen, An Introduction to
    the U.S. Health Care System, 6th Edition, (2007)
  • Visuals by Google Images

2
Introduction
  • Course Objectives
  • To develop subject matter competency through a
    study of the U.S. health care system health
    care impacts you each day as patients, parents,
    caregivers, taxpayers, employees, managers, and
    employers. Whether you work in law enforcement,
    social services, the fire service, education or
    local government, you cannot avoid health care
    issues involving you, your workforce, or the
    citizens you serve.
  • To strengthen your problem-solving skills
    Students graduating from the Public
    Administration Program must have the ability to
    design evidence-based solutions to effectively
    address administrative challenges in their agency
    and real world problems within their community.
    During your careers, you will be asked to help
    develop plans to solve or make measurable
    progress on community challenges or public needs
    - your plans will always have to contain several
    key elements problem/need, service population,
    financing, means of delivery, timetable,
    evaluation, etc.. In this course, your team will
    research, develop, and present a proposal to
    effectively address a major challenge within the
    U.S. health care system.
  • To enhance your skills in conducting and
    evaluating a public policy debate.

3
Chapter 1
  • A Distinctive System of Health Care Delivery

4
Chapter 1
  • What is a health care system?
  • The sum of all institutions and processes that
    support the work of diagnosis healing (Jonas,
    Goldsteen, Goldsteen, 2007)
  • Major components of the system and processes that
    enable people to receive health care (Shi
    Singh, 2008)
  • Primary Objectives of a Health Care System (Shi
    Singh, 2008)
  • 1. To enable all citizens to receive healthcare
    services whenever needed universal access.
  • 2. To deliver services that are cost-effective
    and meet certain pre-established standards of
    quality.
  • Health a state of complete physical, mental,
    social well being and not merely the absence of
    disease or infirmity (World Health
    Organization,1948)

5
Chapter 1
  • Overview of Size Scope of the System
  • Total employment in U.S. health care is
    approximately 10 million
  • 744,00 active physicians
  • 2.2 million active nurses
  • 168,000 dentists
  • 226,000 pharmacists
  • More than 700,000 health care administrators
  • 5,760 hospitals
  • 16,100 nursing homes
  • 174.5 million Americans with private health
    insurance
  • 41.7 million Medicare beneficiaries
  • 42.5 million Medicaid recipients
  • 1,300 health insurance companies
  • 300 medical, dental, pharmacy schools

6
Chapter 1
  • Who are the major players in the U.S. health
    services system?
  • Key players in the system include physicians,
    administrators of health service institutions,
    insurance executives, large employers, and the
    government.
  • What main roles does the government play in the
    U.S. health services system?
  • 1. The government is a major financier of
    healthcare delivery through the Medicare and
    Medicaid programs more than 45 of the in the
    system is public - 4 roles in financing health
    care
  • 1) fund its own health care providers (i.e. VA
    Hospital)
  • 2) fund health services thru grants to state
    local govts.
  • 3) fund medical education research conducted by
    private non-profit entities
  • 4) fund government insurance programs which pay
    providers to deliver health care services
    (Medicaid, Medicare, SCHIP) - the government
    determines eligibility criteria as to who can
    receive services under these programs it also
    determines the reimbursement rates that providers
    will receive for rendering services to Medicaid
    and Medicare patients.
  • 2. The government also regulates the healthcare
    industry through licensing of personnel,
    healthcare establishments and health care
    products - licensing of physicians to
    certificates of need for new hospitals to
    approval of new pharmaceutical drugs regulation
    also includes environmental health.
  • 3. The government also designs and implements
    health policy provides the policy/legal/regulato
    ry framework for the financing delivery of
    health care affecting cost, access, quality.

7
Chapter 1
  • What main roles does the government play in the
    U.S. health services system?
  • 4. Govt. may also be more than the payer but also
    serve as the provider directly delivering health
    care services to specific patient populations
    such as veterans, Native Americans, the
    indigent when govt. is the direct provider of
    personal health services, it largely breaks out
    along these lines
  • At fed. level, it is population-specific -
    provided to specific categories of persons such
    as veterans Native Americans
  • At state level, it is disease-specific - mentally
    ill, TB
  • At local level, it is largely class-centered -
    indigent care
  • 5. Govt. also funds directs much medical
    research (i.e. NIH, CDC)
  • 6. Responsible for public health priorities and
    programs - Emersons Basic Six services of
    public health at state local level vital
    statistics, public health labs, communicable
    disease control, environmental health, maternal
    child health, and public health education
    consensus with private health care sector that
    these services are appropriate for state local
    govt. involvement/delivery

8
Chapter 1
  • Initial Analysis of the U.S. Health Care System
    Identifying Strengths Limitations
  • The U.S. leads the world in medical technology,
    medical training, research offers some of the
    most advanced institutions, products, processes
    in the delivery of health care
  • Pretty high degree of physician autonomy (even
    with rise of managed care) - most medical
    decisions in U.S. are physician-driven
    physician has discretion to order tests, admit to
    hospital, refer to specialist, generally
    influence course of treatment use of resources
    System costs and efficiency flow from the
    physicians pen. (physician orders all tests,
    appointment, treatments, referrals to
    specialists in this way physician autonomy
    operates as a key driver of system costs)
  • Functionally fragmented lack of coordination
    among institutions actors within the system
    not a system in the true sense (p. 2) no
    central planning for system-wide spending
    functions as occurs in government run models in
    other countries - American system is highly
    decentralized fragmented - not a nationally
    directed system like Britain is this a problem?
  • Not a free market but not a government run system
    either (not a pure market model and not a pure
    government model) a hybrid of public and
    private involvement in the financing and delivery
    of health care 55 of the money in the system
    is private 45 is public money highly
    regulated

9
Chapter 1
  • Initial Analysis of the U.S. Health Care System
    Identifying Strengths Limitations
  • ERs are overwhelmed - In 1986, Congress enacted
    the Emergency Medical Treatment Labor Act
    (EMTALA) to ensure public access to emergency
    services regardless of ability to pay. Section
    1867 of the Social Security Act imposes specific
    obligations on Medicare-participating hospitals
    that offer emergency services to provide a
    medical screening examination (MSE) when a
    request is made for examination or treatment for
    an emergency medical condition (EMC), including
    active labor, regardless of an individual's
    ability to pay. Hospitals are then required to
    provide stabilizing treatment for patients with
    EMCs. If a hospital is unable to stabilize a
    patient within its capability, or if the patient
    requests, an appropriate transfer should be
    implemented (USDHHS, 2009). A significant
    segment of patients utilize ERs as their primary
    care clinics high cost of defensive medicine
    (i.e. 1,500 instead of 100), patients wait
    until they are in worse condition, ER not
    designed to deliver primary care that is
    coordinated, comprehensive, or continuous, no
    prevention, cost of transport to local taxpayers
    patients with emergencies have to wait in
    congested ERs, huge cost of uncompensated care
    for hospitals who then have to cost shift to
    paying patients
  • EMTALA essentially means we currently have a
    system of universal access critical need to
    depopulate our ERs as this is helping to bankrupt
    American health care

10
Chapter 1
  • Initial Analysis of the U.S. Health Care System
    Identifying Strengths Limitations
  • System has significant issues of duplication,
    waste, inefficiency, complexity lack of
    coordination and planning at the macro-level - no
    one entity charged with system-wide cost
    containment (Everyone at the table is there to
    increase my costs Dr. Klepper)
  • We spend a lot have high tech but dont achieve
    what we should in terms of quality (IOM
    Crossing the Quality Chasm)
  • Lack of focus on prevention
  • Issue of health disparities - significant
    differences in health status among subpopulations
  • How do we best provide health care to the
    indigent and uninsured?
  • 3 issues define the debate over the future of
    American health care access, cost, and quality

11
Chapter 1
  • THE QUAD-FUNCTION MODEL
  • All systems have these 4 functional components of
    healthcare financing and delivery
  • depending on the type of system, these 4
    functions are organized differently
  • 1. Financing - to purchase insurance or to pay
    for healthcare services consumed can be private
    through employer-based health insurance or
    privately purchased by an individual can be
    government financed through Medicare or Medicaid
    most private insurance is employer-based (how
    did we end up with employer-based insurance and
    does it create any problems? Stay tuned!)
  • 2. Insurance - to protect against catastrophic
    risk, determines the package of services that
    insured individuals can receive specifies how
    where health care services will be received
    processes claims disburses funds to providers
  • 3. Delivery - to provide healthcare services a
    provider is any entity that delivers health care
    services and receives insurance payment directly
    for those services
  • 4. Payment - to reimburse providers for services
    delivered reimbursement is the determination of
    how much to pay for a certain service (not
    necessarily what it cost but how much it will be
    reimbursed) - funds come from premium paid to
    insurance company or from the government
    (Medicare, Medicaid) insurance company pays
    provider there may be an employee co-pay amount

12
Chapter 1
  • ACCESS
  • The ability of an individual to obtain health
    care services when needed
  • Access influenced by
  • Financing and insurance are the key predictors of
    access health insurance is the primary means
    for ensuring access. (p. 11)
  • Delivery and payment also influence access but
    more indirectly (i.e. too few physicians willing
    to see Medicaid patients due to low reimbursement
    rates from the government this impairs access)
  • Access is determined by four factors
  • 1. Ability to pay (health insurance)
  • 2. Availability of services (delivery) - for
    example, certain rural and remote areas lack
    adequate services
  • 3. Payment - for example, many providers do not
    accept patients covered under Medicaid because of
    low reimbursement limits from the government
    (payment rules influence access)
  • 4. Enablement barriers - for example, lack of
    transportation racial, cultural, and language
    barriers

13
Chapter 1
  • FINANCING AND INSURANCE MECHANISMS
  • 1. Employer-based health insurance private
  • 2. Privately purchased health insurance people
    purchase their insurance as individuals paying
    directly or they self insure paying out of pocket
    as health needs arise
  • 3. Government programs public health insurance
    programs include
  • Medicare - elderly and certain disabled people
    (age sets eligibility)
  • Medicaid low income individuals (income sets
    eligibility) this is a federal/state
    partnership (55 federal paid/45 state paid in
    Florida - 16.2 billion of Floridas budget in FY
    09/10)
  • SCHIP - children from low-income families who are
    not eligible for Medicaid this is a
    federal/state partnership

14
Chapter 1
  • How did we end up with a system of employer-based
    health insurance?
  • It was not an intentionally designed system based
    on evidence, research, best practices, successful
    pilot programs, and a deliberative legislative
    process crafting sound public policy
  • It is more accurately an unplanned national
    policy related to the imposition of wage controls
    and a change in tax law with far reaching
    consequences (the law of unintended consequences
    in full operation)

15
Chapter 1
  • We have become so accustomed to
    employer-provided medical care that we regard it
    as part of the natural order. Yet it is
    thoroughly illogical.
  • Why single out medical care? Food is more
    essential to life than medical care. Why not
    exempt the cost of food from taxes if provided by
    the employer? Why not return to the much-reviled
    company store when workers were in effect paid in
    kind rather than in cash? The revival of the
    company store for medicine has less to do with
    logic than pure chance. It is a wonderful example
    of how one bad government policy leads to
    another.
  • During World War II, the government financed much
    wartime spending by printing money while, at the
    same time, imposing wage and price controls. The
    resulting repressed inflation produced shortages
    of many goods and services, including labor.
    Firms competing to acquire labor at
    government-controlled wages started to offer
    medical care as a fringe benefit. That benefit
    proved particularly attractive to workers and
    spread rapidly. Initially, employers did not
    report the value of the fringe benefit to the
    Internal Revenue Service as part of their
    workers wages. It took some time before the IRS
    realized what was going on. When it did, it
    issued regulations requiring employers to include
    the value of medical care as part of reported
    employees wages. By this time, workers had
    become accustomed to the tax exemption of that
    particular fringe benefit and made a big fuss.
    Congress responded by legislating that medical
    care provided by employers should be tax-exempt.
    (Dr. Milton Friedman, 2001)

16
Chapter 1
  • WHY DO WE HAVE THE UNINSURED?
  • Its important to remember that the of
    uninsured in America has stayed relatively stable
    due to widespread employer-based health insurance
    and availability of government insurance programs
    15 is the highest figure widely disseminated
  • A key question for reform if 85 of Americans
    are currently insured (private public) and 15
    are uninsured, do we devise a solution for the
    15 uninsured or change the entire system for
    100 of Americans?
  • Among the uninsured, we need to analyze why
    people are uninsured as we may need to develop
    targeted solutions which address the specific
    underlying causes for different categories of the
    uninsured this is not a monolithic group (100
    identical) and once we examine the uninsured, we
    see that even the 15 figure among all Americans
    is probably overstated

17
Chapter 1
  • So Who Are the Uninsured?
  • 1. Unemployed - this matters in a system largely
    defined by employer-based insurance this would
    also include those who are between jobs and
    recent college grads who are now entering the
    workforce and looking for their first job
  • 2. Although many do, employers are not required
    to offer health insurance
  • 3. Although many accept it an employment benefit,
    employees are not required to purchase health
    insurance
  • 4. To participate in government programs, people
    must meet eligibility criteria BUT it is
    estimated that a sizable share of the uninsured
    are eligible for some public insurance program
    (Medicaid, Medicare) but have not enrolled
  • 5. Some individuals do the cost benefit analysis
    and choose to self insure or not carry coverage
    they may be young healthy able to afford
    insurance but prefer to spend their income on
    other priorities
  • 6. There is also the issue of illegal aliens and
    if they should be counted as uninsured they may
    be working off the books so when they are injured
    or sick, they go to the ER

18
Chapter 1
  • Managed Care
  • The premise is that utilization drives costs so
    if we manage utilization, we will manage costs
    it is true that utilization drives costs
  • Get control of payment, price, and utilization
    integrate all 4 functions of health care through
    managed care (financing, insurance, payment,
    delivery) to control costs
  • What is managed care? A system of health care
    delivery that (1) seeks to achieve efficiencies
    by integrating the basic functions of healthcare
    delivery, (2) employs mechanisms to control
    utilization of medical services and 3) determines
    the price at which the services are purchased and
    how much the providers get paid
  • Managed Care Organization (MCO) umbrella term
    for all types of managed care entities In 2006,
    93 of Americans not on Medicare enrolled in
    some type of MCO

19
Chapter 1
  • Managed Care
  • Why did managed care develop?
  • 1) Emergence of belief in new financial formula
    for health care reduced utilization reduced
    costs (shift profits from fee for service
    physician model to a managed care model so
    physicians lose but MCOs make )

  • 2) Pre-approval for services could decrease
    utilization
  • 3) MCOs felt they had more leverage due to
    oversupply of physicians competing for business
    (they could impose more conditions on providers
    who were happy to get a steady stream of business
    in a competitive environment) - historically,
    hospitals had doctors doctors had patients
    now, the MCO has the patients and the
    hospitals/physicians are the providers

20
Chapter 1
  • What are the tools of managed care?
  • Employer contracts with a managed care
    organization (MCO) who then offers a selected
    health plan to its employees the health plan
    engages certain providers from which the
    enrollees can choose to receive routine services
    the MCO has negotiated fee arrangements with
    the providers based on either capitation or
    discounts capitation is a payment mechanism in
    which all health care services are included under
    one set fee per individual (a predetermined fixed
    payment per member per month PCPM) discounts
    are the alternative mechanism to capitation
    occur when the MCO has negotiated discounts with
    providers lower than their customary fees for
    services (in return, they are getting access to a
    guaranteed pool of patients through the MCO)
  • Generally, HMOs use capitation and PPOs use
    discounts
  • Plans are based on an expected level of
    utilization so MCOs employ tools to manage
    utilization such as pre-approval to see a
    specialist or receive a specific treatment (if
    not, the risk will exceed the rate paid and
    premium will not cover claims)
  • The idea behind both tools is cost predictability

21
Chapter 1
  • Common types of MCOs 1) HMO 2) Preferred
    Provider Organization (PPO) network of
    pre-approved providers enrollees may go
    outside network but have to pay additional fee
    for doing so a set and pre-approved network of
    providers helps insurers track contain costs
    and for providers, it guarantees a steady stream
    of work 3) Exclusive Provider Organization (EPO)
    beneficiary must choose a physician on the
    insurers list 4) Independent Practice
    Organization (IPO) group of docs who deal with
    more than one insurer
  • HMO Characteristics

    1) package
    of health services delivered by pre-selected
    physicians hospitals under contract


    2) HMO serves an enrolled
    defined population
    3)
    HMO members enroll voluntarily

    4) HMO paid a fixed
    periodic payment from the 3rd party payer to
    cover the enrolled population


    5) provider assumes the risk if
    level of capitated payment is exceeded by
    services delivered to enrolled population
    (financial risk/loss then shifts from insurer to
    provider)

22
Chapter 1
  • Trends that impacted managed care
  • 1) physician consumer dissatisfaction
  • 2) MCOs had to relax controls to retain market
    share due to dissatisfaction
  • 3) MCOs changed significantly from the original
    1990s model

23
Chapter 1
  • PRIMARY CHARACTERISTICS OF THE US HEALTHCARE
    SYSTEM 10 defining characteristics which
    differentiate the U.S. health care system from
    other countries
  • 1. No central agency governs the system - global
    budgeting becomes impossible
  • 2. Partial access access is based on insurance
    coverage a segment of the population (15) is
    uninsured
  • 3. Health care is delivered under imperfect
    market conditions as a consumer, you dont know
    price performance like you do with the purchase
    of other goods services - moral hazard and
    supplier-induced demand
  • 4. Third-party insurers and payers - insurance
    entities (commercial insurance companies or
    managed care organizations) become an
    intermediary between the financing and delivery
    functions - this intermediary role results in
    higher administrative costs.
  • 5. Multiple payers make the system more complex
    and cumbersome.
  • 6. Balancing of power among various players
    prevents any single entity from dominating the
    system
  • 7. Legal risks influence practice behavior -
    legal actions lead to the practice of defensive
    medicine
  • 8. Development of new technology creates an
    automatic demand for its use
  • 9. New service settings have evolved along a
    continuum
  • 10. Quality is no longer accepted as an
    unachievable goal in the delivery of health care

24
Chapter 1
  • 1 - No Central Agency
  • No central agency monitors total expenditures
    through global budgets and controls the
    availability and utilization of services (p. 11)
  • A global budget is a tool of public policy where
    the national government sets a nationwide cap for
    annual spending on all health care there are
    consequences to global budgets 1) utilization
    has to be controlled 2) access to specialists and
    more expensive treatments/technology will be
    restricted in cross-national comparisons over
    national levels of health care spending, nations
    which employ global budgets will always spend
    less than the U.S. where no single central entity
    such as the federal government annually caps all
    health care spending
  • Even though we lack the degree of central
    planning found in other systems, it would be
    wildly inaccurate to suggest that the federal
    government or state governments do not exert any
    influence over spending and utilization in
    American health care health care is highly
    regulated for example, for providers who want
    to be certified to deliver services to Medicare,
    Medicaid, SCHIP beneficiaries receive
    reimbursement, they must adhere to standards of
    participation

25
Chapter 1
  • 2 Partial Access
  • In theory, we are a partial access system based
    on an individuals ability to pay and in theory,
    single payer nations offer a universal access
    system based on government financing and
    delivering of all health care
  • In reality, ability to pay does not truly govern
    access in America due to public insurance
    programs and ER access and in reality, universal
    access promised is not truly universal access
    delivered due to rationing, delays, and denial of
    care we need to have a full appreciation for
    what access is in theory and in reality across
    competing models
  • How is access to health care in the U.S.
    obtained?
    1) those who have
    employer-based health insurance
    2)
    those covered under a government health program
  • 3) those who can purchase insurance out of their
    own private funds
    4) those who can pay for services out
    of pocket
    5) those who go to
    the ER

26
Chapter 1
  • 3 A Imperfect Market (thats putting it
    mildly)
  • Health care in the U.S. does not operate as a
    free market - consumers lack information about
    price and quality/performance of providers
    there is limited choice and competition (often
    the result of government regulation and not
    market forces) prices are often not set by the
    market (i.e. prices set by MCOs or by the
    government payer) the consumer is often not the
    payer it is not a traditional customer-producer
    market transaction it is a 3rd party payer
    system - the consumer orders the service, the
    provider delivers it, and someone else gets the
    bill
  • It is financed via insurance but insurance is
    designed for major expenses associated with an
    unlikely and unexpected event health care is a
    routine need, it is likely and predictable yet we
    utilize the insurance model to finance its
    delivery - Employer financing of medical care
    has caused the term insurance to acquire a rather
    different meaning in medicine than in most other
    contexts. We generally rely on insurance to
    protect us against events that are highly
    unlikely to occur but that involve large losses
    if they do occurmajor catastrophes, not minor,
    regularly recurring expenses. We insure our
    houses against loss from fire, not against the
    cost of having to cut the lawn. We insure our
    cars against liability to others or major damage,
    not against having to pay for gasoline. Yet in
    medicine, it has become common to rely on
    insurance to pay for regular medical examinations
    and often for prescriptions. (Friedman, 2001)

27
Chapter 1
  • 3 A Imperfect Market (thats putting it
    mildly)
  • With insurance, patients are insulated from the
    effects of the full cost of their decisions to
    utilize and consume health care services When
    its an open bar, everyone orders top shelf
    brands (Dr. Bebber) health insurance and a
    third party payer system contribute to the
    problem of moral hazard - people behave
    differently when they are not paying out of
    pocket every time they use a service encourages
    utilization costs go up
  • Insurance is premium paid based upon risk (risk
    sets rate - higher risk higher premium lower
    risk lower premium) when the govt. legislates
    that insurers cannot know or calculate
    pre-existing conditions into setting premium, how
    can the insurance model operate in the financing
    of health care? (disconnects risk from rate
    higher risk customers will pay less than they
    should lower risk customers will pay more than
    they should)
  • Another symptom of an imperfect market is
    supplier-induced demand where those who have a
    financial interest in additional treatments also
    create artificial demand (p. 15) rather than
    the market generating demand, the producer
    inflates demand - physicians may prescribe more
    appointments, tests, or treatment than is
    clinically necessary this may be profit-seeking
    or defensive medicine (ER doc orders full range
    of tests) this may also be a function of low
    reimbursement rates for Medicare and Medicaid
    (make up for it with volume) or it may be fraud
    in the system which is another form of
    supplier-induced demand (see Medicaid/Medicare
    expenses Miami)

28
Chapter 1
  • 3 A Imperfect Market (thats putting it
    mildly)
  • Two simple observations are key to explaining
    both the high level of spending on medical care
    and the dissatisfaction with that spending. The
    first is that most payments to physicians or
    hospitals or other caregivers for medical care
    are made not by the patient but by a third
    partyan insurance company or employer or
    governmental body. The second is that nobody
    spends somebody elses money as wisely or as
    frugally as he spends his own. No third party is
    involved when we shop at a supermarket. We pay
    the supermarket clerk directly the same for
    gasoline for our car, clothes for our back, and
    so on down the line. Why, by contrast, are most
    medical payments made by third parties?
  • The answer for the United States begins with the
    fact that medical care expenditures are exempt
    from the income tax if, and only if, medical care
    is provided by the employer. If an employee pays
    directly for medical care, the expenditure comes
    out of the employees after-tax income. If the
    employer pays for the employees medical care,
    the expenditure is treated as a tax-deductible
    expense for the employer and is not included as
    part of the employees income subject to income
    tax. That strong incentive explains why most
    consumers get their medical care through their
    employers or their spouses or their parents
    employer. In the next place, the enactment of
    Medicare and Medicaid in 1965 made the government
    a third-party payer for persons and medical care
    covered by those measures. (Dr. Friedman, p. 6,
    2001).

29
Chapter 1
  • The US healthcare market is imperfect because it
    does not meet the criteria of a free market.
  • 1. The health plans acting as intermediaries for
    the patients typically function as buyers of
    healthcare services. The patient (customer) is
    not actually making the purchase.
  • 2. Patients lack the information necessary to
    make prudent decisions. Patients generally do not
    know all the diagnostic methods, intervention
    techniques, and drugs available to treat their
    specific conditions. Information on price and
    quality is also extremely difficult to obtain
    this makes it difficult to comparison shop
    between competitors as we do with other
    goods/services.
  • 3. Prices are often set by the health plans. They
    are not determined by the interaction of the
    forces of supply and demand.
  • 4. The consolidation of buying power into the
    hands of private health plans is forcing
    providers to form alliances and integrated
    delivery systems on the supply side, thus
    restricting competition at the individual level
    (both buyers and producers are consolidating).
  • 5. Health insurance shields patients against the
    cost of health care. Health insurance does not
    always serve the purpose of true insurance, which
    is to protect against catastrophic risks. For
    basic and routine care, health insurance acts as
    prepayment for health services. There is a moral
    hazard that once enrollees have purchased health
    insurance, they will utilize healthcare services.
  • 6. The utilization of health care is generally
    determined by need rather than price-based
    demand. Providers can often induce demand for
    their own financial benefit.

30
Chapter 1
  • 4 - Third-party insurers and payers
  • The patient is the first party, the provider is
    the second party, the insurer/payer is the
    third party in the relationship structuring the
    relationship like this has real consequences
    the insurer lacks the incentive to be the
    patients advocate in terms of quality the
    patient is insulated from the true effects of
    cost and is unable to shop among competing
    providers on the basis of cost and quality the
    patient can usually only complain to their
    employer who may be reluctant to switch plans
    the provider is responsible to both the patient
    and payer and their interests may conflict
    (patient wants a specific treatment but payer
    wants to contain cost)
  • 5 - Multiple payers make the system more complex
    and cumbersome.
  • With different patients covered by different
    plans, providers have difficulty knowing which
    services are covered by which plans, claims
    processors must be hired to handle billing
    multiple plans monitoring payment, payments can
    be denied to providers for failure to follow all
    rules, denied claims generate rebilling,
    collection efforts can be costly time
    consuming, government programs have complex
    regulations governing payment the end result of
    third party payers and multiple payers is that
    the U.S. spends more on administrative costs than
    other health care systems combined cost of
    billing, collection, bad debts, maintaining
    medical records

31
Chapter 1
  • 6 - Balancing of power among various players
    prevents any single entity from
  • dominating the system
  • Different players have different interests
    resulting in conflict and consequences for the
    overall system physicians want to preserve
    income and autonomy, insurers MCOs want to
    maintain market share, hospital executives want
    to maximize reimbursement from private public
    insurers, employers want to minimize health care
    costs, and the government wants to contain costs
    while also keeping or expanding benefits to
    constituents
  • 7 - Legal risks influence practice behavior -
    legal actions lead to the practice of
  • defensive medicine
  • Costs increase as physicians order tests and
    follow-up visits and keep copious documentation
    for non-medical reasons fear of litigation

32
Chapter 1
  • 8 - Development of new technology creates an
    automatic demand for its use
  • Several factors converge which almost guarantee
    that the latest and best technology will be
    demanded and utilized
  • 1) Patients are much more aware of medical
    technology compared to previous generations -
    patients now basically order specific tests
    treatments rather than the physician first
    telling them it should be done this is a new
    phenomenon compared to earlier generations
    direct marketing of medical products via TV
    other advertising to consumers who have insurance
    so they make the diagnosis and recommend the
    specific treatment to their physician they want
    the newest best technology
  • 2) Hospitals and physicians compete on the basis
    of having the latest technology
  • 3) Concern over litigation may discourage
    providers health plans from denying use of
    technology
  • 4) Sunk costs we made the capital expenditure
    now, we have to recoup our investment through
    utilization

33
Chapter 1
  • 9 - New service settings have evolved along a
    continuum
  • There was a time when much medical care was
    delivered in either the hospital or the
    physicians office inpatient care meant the
    hospital and outpatient care meant your
    physicians office
  • Today, health care is provided in a wide range of
    settings see Table 1-2 on p. 18 shows the
    different delivery settings depending on the type
    of health care service
  • Home health care, outpatient surgical centers,
    public health community programs, and
    preventive care achieved in the setting of
    personal lifestyles are just a few examples
  • 10 - Quality is no longer accepted as an
    unachievable goal in the delivery of health care
  • Higher expectations for improved health outcomes
    at the individual and community levels greater
    focus on evidence-based medicine
  • Public, private, and non-profit organizations now
    employing tools to incentivize quality and
    disincentive errors (i.e. pay for performance,
    accreditation standards such as JCAHO, public
    disclosure laws of error rates, performance
    measures, licensing requirements, etc.) foster
    a culture of continuous improvement in American
    health care we no longer accept this is as
    good as it is going to get

34
Chapter 1
  • Competing Models for Health Care Systems
  • In theory, universal access is provided by a
    healthcare delivery system that (1) is managed by
    the government and (2) provides a defined set of
    healthcare services to all citizens.
  • Three models of national systems
  • 1. National Health Insurance (NHI) a
    tax-supported national healthcare program in
    which services are financed by the government but
    are rendered by private providers. 3 of the 4
    functions directly done by government most
    provinces utilize global budgets (Canada).
  • 2. National Health System (NHS) - tax-supported
    national healthcare program in which the
    government finances and also controls the service
    infrastructure government operates most medical
    institutions - providers are either government
    employees or organized in a publicly managed
    institution - government oversees all 4 functions
    global budget (Great Britain).
  • 3. Socialized Health Insurance (SHI) - health
    care is financed through government-mandated
    contributions by employers and employees, health
    care is delivered by private providers, and
    private non-profit insurance companies called
    sickness funds are responsible for collecting the
    contributions paying the hospitals and
    physicians global budgets utilized government
    in control of the system (Germany, Israel, and
    Japan).
  • Shi and Singh provide brief descriptions of
    specific characteristics of several national
    health care systems in different countries on pp.
    22-28.
  • A major focus of this course will be to examine,
    discuss, and debate how we should design,
    implement, and evaluate a health care system for
    America - thinking of the 4 major functions of a
    health care system (financing, insurance,
    delivery, payment), how should it be organized
    a government model, a market model, or a hybrid?

35
Chapter 1
  • Trends and Directions
  • Cost, access, and quality are the 3 dominant
    themes in American health care
  • Goal improve quality while reducing costs
  • Lets change the question to a patient entering a
    hospital to Whats wrong? instead of Whats
    your insurance? (Friedman, 2001)
  • Changing the focus/shifting the emphasis from
    (Shi Singh, 2008)
  • Illness to wellness
  • Acute care to primary care
  • Inpatient care to outpatient care
  • Individual health to community well-being
  • Fragmented care to managed care
  • Independent institutions to integrated systems
  • Service duplication to a continuum of services

36
Chapter 1
  • Trends and Directions
  • E-medicine electronic health records
    (EHRs)/personal medical records (PMRs)/electronic
    information sharing networks have been proposed
    to improve quality, reduce errors, boost
    efficiency most small private physician
    practices still depend on paper records the
    advent of e-medicine could facilitate better
    tracking of population level health trends
    further enable better identification of clinical
    interventions which hold the most promise
    reduce defensive medicine permit a patient to
    walk into any clinic or hospital with their full
    medical records could encourage patients to
    become more active in their health/disease
    management - telehealth - physicians
    communicating via the Internet - syndromic
    surveillance (monitor for epidemics) - many
    issues to overcome (trust, technology, system
    security, cultural, leadership, privacy, etc.) -
    electronic information integration remains a
    major challenge for U.S. health care
  • Other priority issues increasing the supply of
    primary care physicians, improving health
    literacy, reducing health disparities, and
    targeting specific worsening health challenges
    (i.e. diabetes)
  • Lastly, what will be the results of health
    reforms at the national level?

37
Chapter 1 Key Terms Learning the Language of
Health Care
  • Access - Refers to the ability of an individual
    to receive healthcare services when needed. In
    this context, need is primarily determined by the
    patient. It is secondarily determined by a
    referring physician, especially for higher-level
    services.
  • Administrative costs - Incidental to the delivery
    of health services. These costs are not only
    associated with the billing and collection of
    claims for services delivered, but also include
    numerous other costs, such as time and effort
    incurred by employers for the selection of
    insurance carriers, costs incurred by insurance
    and managed care organizations to market their
    products, time and effort involved in the
    negotiation of rates, and resources used in the
    completion and maintenance of medical records.
  • Capitation - A payment mechanism in which all
    healthcare services are included under one set
    fee per covered individual. The fee is generally
    paid per month, hence it is also referred to as
    per-member-per-month (PMPM). The fee covers all
    services an enrollee may need during the entire
    year. A charge is the fee (or price) set by the
    provider. The charge is the amount the provider
    generally bills for services delivered. The payer
    may reimburse the charges only partially, which
    may necessitate balance billing to the patient.
  • Defensive medicine - Involves the delivery of
    services and maintenance of documentation
    undertaken primarily to guard against the risk of
    malpractice lawsuits. These additional efforts do
    not generally add to the quality of care.
  • Demand - The quantity of health care demanded by
    consumers based solely on the price of those
    services. Enabling services, such as
    transportation or translation services,
    facilitate access when an individual already has
    health insurance coverage.

38
Chapter 1 Key Terms Learning the Language of
Health Care
  • An enrollee - An individual enrolled in a health
    plan and therefore entitled to receive health
    services the plan provides.
  • A free market - Characterized by the unencumbered
    operation of the forces of supply and demand when
    numerous buyers and sellers freely interact in a
    competitive market.
  • Global budgets - Used to control costs in
    centrally managed systems. System-wide healthcare
    expenditures are budgeted. Resources are
    allocated within the budgetary limits.
    Availability of services and payments to
    providers are subject to such budgetary
    constraints.
  • Health plan - Two basic meanings (1) It can
    refer to any type of health insurance plan. (2)
    From a macro-systemic perspective, a managed care
    organization (MCO) responsible for furnishing
    services under a health plan is also referred to
    as the health plan, in contrast to an insurance
    company or carrier for a traditional health
    insurance plan.
  • Inpatient care - Refers to a patient who is
    institutionalized (the state of being in an
    institution) or to services provided in
    institutional settings that require an overnight
    stay.
  • Managed care - Seeks to manage the utilization
    of medical services, the price at which these
    services are purchased, and consequently, how
    much the providers get paid. Managed care also
    seeks to achieve better efficiencies in these
    areas by integrating the basic functions of
    healthcare delivery.
  • Medicaid - The government insurance program for
    the indigent.
  • Medicare - The government insurance program for
    the elderly and certain disabled individuals.

39
Chapter 1 Key Terms Learning the Language of
Health Care
  • Moral hazard - The term used to explain the
    increased utilization of healthcare services when
    people have health insurance coverage.
  • National Health insurance (NHI) - A tax-supported
    health plan that ensures universal access.
    Services are financed by the government but are
    rendered by private providers.
  • National Health System (NHS) - A tax-supported
    health plan that ensures universal access but in
    this case, the government also controls the
    service infrastructure.
  • Need for health services (in contrast to demand
    for health services) is based on individual
    judgment. The patient makes the primary
    determination of the need for health care and,
    under most circumstances, initiates contact with
    the system. The physician may make a professional
    judgment and determine need for referral to
    higher-level services.
  • Outpatient care - Refers to a patient who
    receives services in an outpatient setting or to
    the services that are delivered on an outpatient
    basis. Such services are also referred to as
    ambulatory services.
  • Premium cost sharing - Refers to the common
    practice by employers that require their
    employees to pay a portion of the health
    insurance cost.
  • Primary care - Basic and routine care delivered
    by a general practitioner. In a managed care
    system, the primary care physician also makes the
    determination for the need for higher-level
    services.
  • A provider - Can be an individual health care
    professional, a group, or an institution that
    delivers healthcare services and receives
    reimbursement directly for those services. A
    registered nurse who is employed by a hospital is
    not a provider since his or her services cannot
    be billed for reimbursement. The same registered
    nurse working as a nurse practitioner in private
    practice could be a provider if he or she can
    bill for services.
  • The Quad-Function Model - Includes the key
    functions of financing, insurance, delivery, and
    payment.

40
Chapter 1 Key Terms
  • Reimbursement - The amount paid to a provider by
    the insurer. The payment may be only a portion of
    the actual charge.
  • SCHIP - State Childrens Health Insurance
    Program. Joint federal/state program to provide
    insurance coverage to children from low income
    families who are ineligible for Medicaid.
  • Single-payer system - Refers to a system in which
    there is a single payer as opposed to multiple
    payers. The single payer is generally the
    government, as is the case in a national health
    insurance program.
  • In a Socialized Health Insurance (SHI) system,
    such as in Germany, health care is financed
    through government-mandated contributions by
    employers and employees. Health care is delivered
    by private providers.
  • Standards of participation - Minimum quality
    standards established by government regulatory
    agencies to certify providers for delivery of
    services to Medicare and Medicaid patients.
  • Supplier-induced demand - Refers to the demand
    for healthcare services created by providers for
    their own financial benefit.
  • System - A network of interrelated components
    that have been designed to work together
    coherently.
  • Third party - An intermediary between patients
    and providers. Third parties carry out the
    functions of insurance and payment for healthcare
    delivery.
  • Uninsured - People who are without health
    insurance coverage.
  • Universal access - Means that all citizens have
    access to at least a basic package of healthcare
    services.
  • Utilization - Refers to the quantity of health
    care consumed.

41
Critical Concepts Chapter 1
  • What main roles does the government play in the
    U.S. health services system?
  • 1. The government is a major financier of
    healthcare delivery through the Medicare and
    Medicaid programs 45 of the in the system is
    public - 4 roles in financing health care
  • 1) directly fund its own health care providers
    (i.e. VA Hospital) 2) indirectly fund health
    services thru grants to state local govts. 3)
    indirectly fund medical education research
    conducted by private non-profit entities and 4)
    fund government insurance programs which pay
    providers to deliver health care services
    (Medicaid, Medicare, SCHIP) - the government
    determines eligibility criteria as to who can
    receive services under these programs it also
    determines the reimbursement rates that providers
    will receive for rendering services to Medicaid
    and Medicare patients.
  • 2. The government also regulates the healthcare
    industry through licensing of personnel,
    healthcare establishments and health care
    products - licensing of physicians to
    certificates of need for new hospitals to
    approval of new pharmaceutical drugs regulation
    also includes environmental health.
  • 3. The government also designs and implements
    health policy provides the policy/legal/regulato
    ry framework for the financing delivery of
    health care affecting cost, access, quality.
  • 4. Govt. may also be more than the payer but also
    serve as the provider directly delivering health
    care services to specific patient populations
    such as veterans, Native Americans, the
    indigent when govt,. is the direct provider of
    personal health services, it largely breaks out
    along these lines
  • At fed. level, it is population-specific -
    provided to specific categories of persons such
    as veterans Native Americans
  • At state level, it is disease-specific - mentally
    ill, TB
  • At local level, it is largely class-centered -
    indigent care
  • 5. Govt. also funds directs much medical
    research (i.e. NIH, CDC)
  • 6. Responsible for public health priorities and
    programs - Emersons Basic Six services of
    public health at state local level vital
    statistics, public health labs, communicable
    disease control, environmental health, maternal
    child health, and public health education
    consensus with private health care sector that
    these services are appropriate for state local
    govt. involvement/delivery

42
Critical Concepts Chapter 1
  • How did we end up with a system of employer-based
    health insurance?
  • The revival of the company store for medicine
    has less to do with logic than pure chance. It is
    a wonderful example of how one bad government
    policy leads to another. During World War II, the
    government financed much wartime spending by
    printing money while, at the same time, imposing
    wage and price controls. The resulting repressed
    inflation produced shortages of many goods and
    services, including labor. Firms competing to
    acquire labor at government-controlled wages
    started to offer medical care as a fringe
    benefit. That benefit proved particularly
    attractive to workers and spread rapidly.
    Initially, employers did not report the value of
    the fringe benefit to the Internal Revenue
    Service as part of their workers wages. It took
    some time before the IRS realized what was going
    on. When it did, it issued regulations requiring
    employers to include the value of medical care as
    part of reported employees wages. By this time,
    workers had become accustomed to the tax
    exemption of that particular fringe benefit and
    made a big fuss. Congress responded by
    legislating that medical care provided by
    employers should be tax-exempt. (Dr. Milton
    Friedman, 2001)
  • Why did managed care develop? 1) Emergence of
    belief in new financial formula for health care
    reduced utilization reduced costs (shift
    profits from fee for service physician model to a
    managed care model so physicians lose but MCOs
    make ) 2) Pre-approval for services could
    decrease utilization 3) MCOs felt they had more
    leverage due to oversupply of physicians
    competing for business (they could impose more
    conditions on providers who were happy to get a
    steady stream of business in a competitive
    environment) - historically, hospitals had
    doctors doctors had patients now, the MCO
    has the patients and the hospitals/physicians are
    the providers
  • Managed care seeks to Get control of payment,
    price, and utilization integrate all 4
    functions of health care through managed care
    (financing, insurance, payment, delivery) to
    control costs
  • What is managed care? A system of health care
    delivery that (1) seeks to achieve efficiencies
    by integrating the basic functions of healthcare
    delivery, (2) employs mechanisms to control
    utilization of medical services and
  • 3) determines the price at which the services
    are purchased and how much the providers get paid

43
Critical Concepts Chapter 1
  • PRIMARY CHARACTERISTICS OF THE US HEALTHCARE
    SYSTEM 10 defining characteristics which
    differentiate the U.S. health care system from
    other countries
  • 1. No central agency governs the system - global
    budgeting becomes impossible
  • 2. Partial access access is based on insurance
    coverage a segment of the population (15) is
    uninsured
  • 3. Health care is delivered under imperfect
    market conditions as a consumer, you dont know
    price performance like you do with the purchase
    of other goods services - moral hazard and
    supplier-induced demand
  • 4. Third-party insurers and payers - insurance
    entities (commercial insurance companies or
    managed care organizations) become an
    intermediary between the financing and delivery
    functions - this intermediary role results in
    higher administrative costs.
  • 5. Multiple payers make the system more complex
    and cumbersome.
  • 6. Balancing of power among various players
    prevents any single entity from dominating the
    system
  • 7. Legal risks influence practice behavior -
    legal actions lead to the practice of defensive
    medicine
  • 8. Development of new technology creates an
    automatic demand for its use
  • 9. New service settings have evolved along a
    continuum
  • 10. Quality is no longer accepted as an
    unachievable goal in the delivery of health care

44
Critical Concepts Chapter 1
  • A global budget is a tool of public policy where
    the national government sets a nationwide cap for
    annual spending on all health care there are
    consequences to global budgets 1) utilization
    has to be controlled 2) access to specialists and
    more expensive treatments/technology will be
    restricted in cross-national comparisons over
    national levels of health care spending, nations
    which employ global budgets will always spend
    less than the U.S. where no single central entity
    such as the federal government annually caps all
    health care spending
  • How is access to health care in the U.S.
    obtained? 1) those who have employer-based
    health insurance 2) those covered under a
    government health program 3) those who can
    purchase insurance out of their own private funds
    4) those who can pay for services out of pocket
    5) those who go to the ER
  • Health care in the U.S. does not operate as a
    free market - consumers lack information about
    price and quality/performance of providers
    there is limited choice and competition (often
    the result of government regulation and not
    market forces) prices are often not set by the
    market (i.e. prices set by MCOs or by the
    government payer) the consumer is often not the
    payer it is not a traditional customer-producer
    market transaction it is a 3rd party payer
    system - the consumer orders the service, the
    provider delivers it, and someone else gets the
    bill
  • It is financed via insurance but insurance is
    designed for major expenses associated with an
    unlikely and unexpected event health care is a
    routine need, it is likely and predictable yet we
    utilize the insurance model to finance its
    delivery - There is a moral hazard that once
    enrollees have purchased health insurance, they
    will utilize healthcare services. With insurance,
    patients are insulated from the effects of the
    full cost of their decisions to utilize and
    consume health care services When its an open
    bar, everyone orders top shelf brands. (Dr.
    Bebber) health insurance and a third party
    payer system contribute to the problem of moral
    hazard (people behave differently when they are
    not paying out of pocket every time they use a
    service encourages utilization costs go up)
  • Insurance is premium paid based upon risk (risk
    sets rate - higher risk higher premium lower
    risk lower premium) when the govt. legislates
    that insurers cannot know or calculate
    pre-existing conditions into setting premium, how
    can the insurance model operate in the financing
    of health care? (disconnects risk from rate
    higher risk customers will pay less than they
    should lower risk customers will pay more than
    they should)
  • Another symptom of an imperfect market is
    supplier-induced demand where those who have a
    financial interest in additional treatments also
    create artificial demand (p. 15) rather than
    the market generating demand, the producer
    inflates demand
  • The end result of third party payers and multiple
    payers is that the U.S. spends more on
    administrative costs than other health care
    systems combined cost of billing, collection,
    bad debts, maintaining medical records

45
Critical Concepts Chapter 1
  • Several factors converge which almost guarantee
    that the latest and best technology will be
    demanded and utilized
  • 1) Patients are much more aware of medical
    technology compared to previous generations -
    patients now basically order specific tests
    treatments rather than the physician first
    telling them it should be done this is a new
    phenomenon compared to earlier generations
    direct marketing of medical products via TV
    other advertising to consumers who have insurance
    so they make the diagnosis and recommend the
    specific treatment to their physician they want
    the newest best technology
  • 2) Hospitals and physicians compete on the basis
    of having the latest technology
  • 3) Concern over litigation may discourage
    providers health plans from denying use of
    technology
  • 4) Sunk costs we made the capital expenditure
    now, we have to recoup our investment through
    utilization
  • Three models of national systems
  • 1. National Health Insurance (NHI) a
    tax-supported national healthcare program in
    which services are financed by the government but
    are rendered by private providers. 3 of the 4
    functions directly done by government most
    provinces utilize global budgets. (Canada)
  • 2. National Health System (NHS) - tax-supported
    national healthcare program in which the
    government finances and also controls the service
    infrastructure government operates most medical
    institutions - providers are either government
    employees or organized in a publicly managed
    institution - government oversees all 4 functions
    global budget (Great Britain).
  • 3. Socialized Health Insurance (SHI) - health
    car
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