Chapter 6 Financing Health Care and Economic Issues

1
Chapter 6Financing Health Care and Economic
Issues
2
History of Health Care Financing

• Underlying themes driving health care financing
  in the United States for the past two decades
• Physicians had the dominant role in health care
  decision-making
• Physicians controlled all access to health care
  services
• Tests or procedures were provided if the
  physician determined that any marginal benefit
  might be obtained
• Objective was to provide the best possible care
  to everyone
• The sophistication of medical technology rapidly
  increased

3
History of Health Care Financing

• Fee-for-service payment method and economic
  incentives contributed to increased costs
• The more tests or procedures performed the
  greater the physicians earnings because earnings
  were tied to procedures
• Economic incentives to provide as much care as
  possible
• Patients were insulated from costs because
  insurance was paying the bill

4
History of Health Care Financing

• Lack of cost-consciousness contributed to
  increased costs
• Patients were not aware of costs
• Providers had little incentive to be concerned
  about costs
• Providers received more income for using more
  services
• Providers had no financial risk for using
  additional resources

5
History of Health Care Financing

• Medicare expenditures increased rapidly
• The program was implemented in 1965 with a
  fee-for-service payment mechanism
• Rapid growth of expenditures became a major
  factor in the federal budget deficit
• Aging population retired no longer contributes to
  Social Security Fund

6
History of Health Care Financing

• Health care financing revolution
• Initiated in 1983 when Medicare moved to a
  prospective payment system based on
  diagnosis-related groups (DRG)
• Medicare limited its total payment to the
  hospital to an amount preestablished for the
  patients specific DRG
• Shift was critical for hospitals since Medicare
  was the largest single payer of hospital charges
  (30)

7
Coping measures Employed to Beat the New System

• Materials and drugs mark up
• Difference in payment for out patient procedures
  vs in patient procedures
• EX PCI on a 2359 hold vs admission for 24 hours

8
History of Medical Care Financing

• Once the reimbursement revolution began, private
  insurance companies initiated similar
  reimbursement arrangements
• Medicare extended the financing revolution to
  physician reimbursement in the early 1990s and
  initiated the resource based relative value scale
  (RBRVS)
• RBRVS brought physician reimbursement more in
  line with skills required and actual time spent
  on procedures

9
History of Medical Care Financing

• Managed care
• Encompasses several different approaches
• Health maintenance organizations (HMOs)
• Preferred provider organizations (PPOs)
• The insurance company, a peer review
  organization, or another review mechanism
  evaluates the patients medical options and
  brings cost consciousness to bear on medical
  decision making
• Has slowed the rate of growth of health care
  costs

10
History of Medical Care Financing

• Rapid expansion of managed care is a response to
  numerous factors
• Cost inflation
• Overuse of medical care and resources
• Increased number of uninsured people
• Effects of employers health costs on business
  profits
• International competitiveness

11
History of Medical Care Financing

• Inflation and cost containment
• Health care costs increased more rapidly than
  prices of most other goods and services from the
  mid-1970s through the 1980s
• Measures taken in recent years by insurers,
  payers, providers, and consumers have helped to
  slow health care inflation

12
History of Health Care Financing

• The largest share of health expenditure is for
  hospital-based care, which has achieved reduced
  inflation
• DRGs led to decreases in hospital admission rates
  and patients average length of stay patients
  are being discharged from hospitals quicker and
  sicker use of home health and primary care
  clinics have increased
• Hospitals are using cost-cutting techniques such
  as decreasing inventories, joining purchasing
  groups, and using physician review

13
History of Health Care Financing

• Drug companies have been forced to limit price
  hikes generic products are often prescribed
• New cost containment and utilization control
  strategies under managed care as well as cost
  sharing by patients have helped slow inflation

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17
HCFA

• The Health Care Financing Administration (HCFA)
  was created as a principal operating component of
  the Department by the Secretary on March 8, 1977,
  to combine under one administration the oversight
  of the Medicare program, the Federal portion of
  the Medicaid program, and related quality
  assurance activities. Today, HCFA serves 67
  million people, or one in four elderly, disabled,
  and poor Americans through Medicare and Medicaid.
  In fiscal year 1993, HCFA will spend an estimated
  230 billion to provide health care services.

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20
CPT - Current Procedure Technology

• CPT Codes describe medical or psychiatric
  procedures performed by physicians and other
  health providers. The codes were developed by the
  Health Care Financing Administration (HCFA) to
  assist in the assignment of reimbursement amounts
  to providers by Medicare carriers. A growing
  number of managed care and other insurance
  companies, however, base their reimbursements on
  the values established by HCFA. Since the early
  1970s, HCFA has asked the American Medical
  Association (AMA) to work with physicians of
  every specialty to determine appropriate
  definitions for the codes and to try to determine
  accurate reimbursement amounts for each code. Two
  committees within AMA work on these issues the
  CPT Committee, which updates the definitions of
  the codes, and the RUC (Relative Value Update
  Committee), which recommends reimbursement values
  to HCFA based on data collected by medical
  societies on the going rate of services described
  in the codes.

21
History of Health Care Financing

• Access Issues
• Predominant health care issue for the 1990s
• Lack of access to health care is primarily lack
  of health insurance
• In 2002 fifteen percent of people in United
  States were uninsured - 43 million people
• Underinsured and uninsured generate uncompensated
  care and bad debt for health care providers,
  who must then increase charges to paying
  customers (households and public and private
  insurers) in a process known as cost shifting

22
GLADWELL.COM

• U.S. VERSUS U.K.
• Private Healthcare VERSUS Universal Healthcare
• Maslows hierarchy of motivation.

23
May 10, 2006

• Last week, in his New York Times column , Paul
  Krugman wrote about a study from the Journal of
  the American Medical Association , and the study
  is fascinating enough that its worth a second
  look. It was conducted by a group of
  epidemiologists at University College London (my
  parents alma mater!). The point was to compare
  the health of the United States and the United
  Kingdom. Its an interesting question for a
  number of reasons, but principally because the
  United States spends 5274 per person, per year,
  on health care and the United Kingdom spends
  2164, or substantially less than half as much.
  The question iswhat do we get, in terms of
  health, that for extra 3100 a year?

24
May 10, 2006

• Comparisons between countries are pretty tricky.
  So the study takes a number of precautions.
  Obviously the United States has a much larger
  percentage of immigrants, particularly Latino,
  and black population. So the comparison is
  limited to non-Hispanic whites in both countries.
  Health also differs, dramatically, by
  socio-economic status, so that everyone in the
  study was broken up into one of three groups by
  income and education. It was also limited to men
  and women between the ages of 55-64, and the age
  distribution of the two countries was identical.
• So what do they find?

25
May 10, 2006

• The first conclusion is that Americans are
  really, really sick compared to the British. In
  every socio-economic group, for instance, the
  prevalence of diabetes is roughly double in the
  United States than it is in the United Kingdom.
  Rates of hypertension, heart disease, heart
  attacks, stroke, lung disease and cancer are also
  all higher in the United States. And not just a
  little big higher. Much higher. So, for example,
  2.3 percent of the English have had a stroke,
  versus 3.8 percent of the Americans.
• Is that because Americans have unhealthier
  lifestyles? Not really. Levels of smoking, in the
  two countries, are pretty similar. Americans are
  much more likely to be obese (31.3 versus 23
  percent). But then 30 percent of the British were
  heavy drinkers, versus 14.4 percent of Americans.
  (One of the curious facts in the study  in both
  the United States and the United Kingdom, the
  more money you make and the more education you
  have, the more you drink. There are roughly twice
  as many heavy drinkers in the best educated
  English cohort as there are in the least educated
  English cohort. So much for class assumptions
  about alcohol.) The studys author did a
  statistical exercise, where they assumed that the
  British group had exactly the same lifestyle risk
  factors as their American counterparts. The
  result? Nothing much changes. Americans were
  still far sicker than the British. 

26
May 10, 2006

• Krugman argues that this is evidence of how much
  more stressful living in America is than living
  in England. I think that's absolutely right. I
  would simply add that it is one more nail in the
  coffin of the notion that good health is
  something that can be purchased through fancy,
  high-tech drugs and doctors and hospitals,.I know
  the idea that health care is just another
  consumer good is pretty popular at the moment.
  But its very hard to read the JAMA study, see
  what our 5274 actually buys us--and still
  believe in that notion. Our health is in reality
  a function of the broader society in which we
  live--the pressures and conditions and
  environments in which we find ourselves. The next
  time we have a debate about, say, how much to tax
  the rich, or how to structure old age pensions,
  it would be nice if someone in Washington had the
  courage to make this point.

27
History of Health Care Financing

• The poor are more likely to lack a usual source
  of care, less likely to use preventive services,
  and more likely to be hospitalized for avoidable
  conditions than those who are not poor
• Uncompensated care and cost-shifting are primary
  reasons some groups advocate for national health
  insurance
• Other health barriers to health care access
• Location or geographic problems of access
• Long waiting times to obtain health care
  resulting in lost wages if patients have to miss
  work
• Scarce resources in obtaining organs for
  transplantation

28
Allocation of Health Care Resources

• Health Resources
• Labor or inputs devoted to producing health
  care
• Nurses, physicians, pharmacists, technicians, and
  administrators
• Education and training for labor
• Capital including all medical facilities and
  equipment available
• Land including the actual land area for
  hospitals and other facilities
• Entrepreneurship encompasses skills and
  risk-taking that business-persons bring to health
  care organizations

29
Allocation of Health Care Resources

• Resource allocation questions
• What combination of medical goods and other goods
  and services in the United States do we want to
  produce?
• What type of health and medical care do we want
  to produce?
• High-tech institutional-based mix of health
  services emphasizing crisis oriented medical
  care?
• Prevention-oriented system emphasizing primary
  care and wellness?
• Who should receive health care goods and
  services?
• Should all citizens have financial access to
  health care?
• National health expenditures predicted to double
  by 2010

30
Economic Approaches to Allocating Health Care

• Regulated market system
• Market system implies private ownership of
  resources and private decision making by
  consumers about their purchases and by businesses
  about producing and selling
• U.S. health care system is a regulated market
  system because almost every area is regulated
• Examples of regulation
• Requirements of minimum nurse staffing of
  hospitals, particularly in ICU, CCU, or maternity
• Laws regarding disposal of medical waste products
• Regulations affecting the conduct of medical labs

31
Economic Approaches to Allocating Health Care

• Competitive Market System
• Decisions in a competitive market system are
  generally based on the prices of goods and
  services
• U.S. health care system is not really competitive
  for several reasons
• Consumers cannot be informed about what health
  care to purchase without a diagnosis from a
  physician
• Difficult to get information about prices of
  services
• Physicians may be in charge of decision making
  about what services the patient needs
• Physician's reimbursement incentives may
  encourage over-or underutilization of services

32
Economic Approaches to Allocating Health Care

• Consumers often pay less than full price because
  the health insurance may pay part or all of the
  costs
• With health insurance the consumer may perceive
  health care as cheaper than it is and is
  motivated to over consume
• The noncompetitive U.S. health care system is an
  important determinant in the increase in managed
  care
• Job Growth and the Health Care Industry

33
Sources of Health Care Financing

• Private insurance
• Pays two-thirds of privately financed health care
• Increasingly following Medicares lead in
  changing payment mechanisms to include HMOs and
  PPOs
• HMOs
• May have capitation payments or fee-for-service
  payments to providers reduce costs by
  restraining use
• PPOs
• Based on contractual arrangements between the
  insurer and provider insurer gives lower prices
  and the insurer motivates insurees to use that
  facility or physician group

34
Sources of Health Care Financing

• Tax subsidies of private payments
• Government subsidizes private sources of health
  expenditures if they represent tax deductions and
  nontaxible income
• Cities subsidize health care real estate through
  property tax exemptions for nonprofit and public
  hospitals

35
Sources of Health Care Financing

• Public insurance
• Government is the biggest influence in the health
  insurance market generating 50 of hospital
  revenues and 25 of physician incomes
• Medicare covers approximately 13 of the U.S.
  population
• Medicaid covers approximately 10 of the
  population
• Impacts of payment modes
• Increased the efficiency of the delivery of care
• Influenced provider behavior, emphasizing the
  importance of economic incentives to shift toward
  cost-effective methods of care

36
Implications for Nursing Managing Cost
Effective, High Quality Care

• Efficiency and effectiveness of care
• Nurses can impact care delivery through the
  nursing process, case management, utilization
  management, and education
• Nurses will be most successful when they can
  demonstrate care with measurable, effective
  outcomes
• Coordinated care
• Case management
• Disease management
• Outcome management

37
Implications for Nursing Managing Cost
Effective, High Quality Care

• Nurses role in managing care
• Support and provide cost-effective care for
  wellness, acute care, and chronic illness
• Provide health education to improve health,
  practice prevention, and manage chronic
  conditions
• Manage health care services for optimal resource
  management with high-quality outcomes at
  reasonable costs

38
Implications for Nursing Managing Cost
Effective, High Quality Care

• Trends affecting the future of health care
  practitioners
• Efficiency and effectiveness through coordinated
  care
• Population diversity and aging
• Expansion of technology
• Consumer empowerment

39
Implications for Nursing Managing Cost
Effective, High Quality Care

• Population diversity and aging
• Growing elderly population translates to an
  increase of health care expenditures consumed by
  older adults as chronic illnesses increase
• Nurses can implement disease management programs
  and participate in care management in long-term
  care settings
• Cultural diversity will bring new cultural
  practices and disease patterns with economic and
  care implications new labor force to health care

40
Implications for Nursing Managing Cost
Effective, High Quality Care

• Expansion of technology
• Technology is under examination for cost
  efficiency versus outcome delivery
• Nurses will play a key role in educating patients
  and families about the cost-to-benefit ratio and
  will assist in selecting alternatives
• Technology of the Internet offers promise for
  innovative programs
• Nurses can combine clinical skills with
  information technology skills to meet a critical
  need for health information and data management

41
Implications for Nursing Managing Cost
Effective, High Quality Care

• Consumer empowerment
• Customers or patients as health care consumers
  are demanding quality services at affordable
  rates
• Nurses must understand and provide
  customer-focused care
• New relationships with consumers are developing
  that emphasize cost sharing based on individual
  health practices

42
Implications for Nursing Managing Cost
Effective, High Quality Care

• Legislation is in place to protect individuals
  enrolled in managed care plans access, quality,
  cost
• Nurses can take the lead in demonstrating the
  value of wellness and teaching health
  consciousness

43
Informed Consumer-Caveat Emptor

• The premise is that medical spending will slow
  only if the demand for health services becomes
  more price elasticthat is, if consumers become
  price sensitive.
• Two Options are now popular
• Employers will contribute a defined amount of
  money for health insurance benefits and permit
  their employees to select the health plan (and
  benefits and cost-sharing) they want from a set
  of choices. This assumes that meaningful
  information about the quality of the alternative
  health plans can be developed and provided to
  employees.
• People will choose a high-deductible insurance
  plan and a health savings account (HSA)as now
  permitted by the Medicare Modernization Act of
  2003and then decide for themselves when to use
  the HSA funds. This asks consumers to take more
  responsibility for choices related to their
  medical care.

44
Expecting Reduced Use of Some Medical Care

• Requiring consumers to pay for all medical costs
  below a deductible surely will cause demand for
  some medical care services to decline. The most
  likely categories are visits to physicians,
  prescription drugs, diagnostic preventative
  visits, and some discretionary outpatient
  surgeries. So far, so good. However, when
  evidence indicates that certain diagnostic
  screening tests or preventative well-person
  visits are cost-effective, it is penny-wise and
  pound-foolish to maintain incentives for people
  to reduce their use of these services.
• The big spenders are the 10 of the population
  responsible for 70 of total U.S. health care
  spending each year. Putting people at risk for
  expenses below high deductibles ranging from
  2,000 to 5,000 is not likely to have any impact
  on the spending of people who are in the top 10
  (or even 20)unless it affects their decisions
  to seek preventative care in the first place.
  Even then, however, a medical condition serious
  enough to push someone into the top 10 of health
  care spenders likely will drive a person to seek
  medical care eventually, regardless of the
  deductible.

45
The Be-Careful-What-You-Wish-For Scenario

• Proponents of consumer-driven, high-deductible
  health plans believe that when people have to pay
  the costs of services up to a deductible, they
  will demand less care. But this assumption
  ignores some significant changes occurring in
  medicine today, as well as the ease with which
  people obtain information from web sites. One
  such change in medicine relates to diagnostic
  imaging. Spending on radiological testing is now
  growing as fast as spending for prescription
  drugs in many large health plans. Diagnostic
  imaging is a fabulous tool not only does it
  increase physicians' ability to ferret out the
  cause of a problem, but it also enables many
  people to avoid invasive surgery. However, it is
  a double-edged sword. Often, the imaging turns up
  anomalies that are unrelated to the initial
  problem. This leads to repeated tests or
  sometimes surgery to determine the nature of the
  anomalyand this is adding to health spending.

46
Disparities in Health Care Access and Outcomes
Will Increase

• Dot-com web sites and other web-based sources of
  information are generally seen as the primary
  sources of information for people to learn about
  options for treating conditions or diseases. This
  may make sense for the quarter of the population
  that is computer-savvy and already more likely to
  question physicians. The assumption that people
  will be able to use and understand web-based
  information is disingenuous, however, when it
  comes to the rest of the population. There are
  literally thousands of web sites related to
  medical issues. Many are highly technical and
  difficult to comprehend. How a highly educated
  consumer is to make a judgment about the benefits
  of even one recommended treatment option is not
  clearand the situation is far worse for the half
  of the population with reading levels below
  seventh grade.

47
Slowdown in Health Care Spending Needed

• Since the vast majority of health care spending
  goes for a tenth of us, a much greater gain may
  be found in refocusing on the health problems
  that cause such high expenditures. Being
  overweight or obese, for example, greatly
  increases a person's chances of developing
  diabetes, which in turn raises the odds for
  stroke, kidney problems, vision loss, and
  circulatory problems in general. All of these
  contribute to high spending. Community or
  statewide efforts to publicize the dangers and
  costs of such problemsakin to what has been done
  over the past 40 years to reduce smoking, and has
  been supported by insurers, employers, and
  governmentsmight do more, at less cost, to
  reduce avoidable medical spending

48
Participating Consumer

• ITS OUR HEALTHCARE! CONSUMER CAMPAIGN LAUNCHED
• The campaign will include online and
  person-to-person outreach to gather Californians
  healthcare stories and concerns, satellite-linked
  town halls across the state to learn about the
  issues and proposed solutions, house parties to
  bring neighbors, friends and
• families together to discuss the problems with
  our healthcare system, and many opportunities for
  individual Californians to communicate to our
  elected leaders.The groups have come together
  around specific goals, and support and oppose
  ideas
• and proposals that are currently a part of the
  health reform debate. Those goals are listed on
  the website.