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Introduction to the U.S. Health Care System

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 , 6 th Edition, (2007) Visuals by Google Images. Introduction.

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Introduction to the U.S. Health Care System

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  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/regulatory 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 - Emerson’s “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 physician’s 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 don’t 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 Florida’s 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? • It’s 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 ProviderOrganization (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 insurer’s 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 don’t 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 individual’s 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 (that’s 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 occur—major 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 (that’s 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 it’s 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 (that’s 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 party—an insurance company or employer or governmental body. The second is that nobody spends somebody else’s 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 employee’s after-tax income. If the employer pays for the employee’s medical care, the expenditure is treated as a tax-deductible expense for the employer and is not included as part of the employee’s 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 patient’s 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 physician’s office – inpatient care meant the hospital and outpatient care meant your physician’s 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 Let’s change the question to a patient entering a hospital to “What’s wrong?” instead of “What’s 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 Children’s 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/regulatory 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 - Emerson’s “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 don’t 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 it’s 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 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).

  46. Critical Concepts – Chapter 1 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 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 Florida’s budget in FY 09/10) • SCHIP - children from low-income families who are not eligible for Medicaid – this is a federal/state partnership

  47. Chapter 2 Beliefs, Values, and Health Dr. Joe Saviak Shi and Singh, Delivering Health Care in America: A Systems Approach (2012, 2008) Jonas, Goldsteen, & Goldsteen, An Introduction to the U.S. Health Care System, 6th Edition, (2007) Visuals by Google Images

  48. Chapter 2 The values and beliefs of a society will influence its definitions of sickness and health and the design and delivery of health care to its citizens What are historically held major beliefs concerning health care in America? 1. Belief in science and technology - application of the scientific method to medicine. The medical model of healthcare delivery is founded on advances in science and technology. In turn, the medical model has led to the tremendous growth in medical science and technological innovation. 2. Belief in private initiatives instead of government involvement to deliver health care to most Americans - privately financed health insurance that is mainly employment-based - publicly financed health insurance for the less fortunate (Medicaid and Medicare) 3. Belief in individualism - responsibility for one’s own health and economic well-being - achievement of health through personal means 4. Greater focus on individual health than population health (probably a function of #2 & #3) 5. Health care has been viewed as an economic good to be delivered by market means rather than a right or entitlement to be provided by government

  49. Chapter 2 • Other societies may have different beliefs and values which have shaped their health care system • The cultural context can be as important as the economic environment of health care leading different societies to different priorities and alternative policy choices • Americans have a set of beliefs, attitudes and expectations concerning our health care

  50. Chapter 2 The Medical Model strongly influences concepts of health and health care in the U.S. – what defines the medical model? • Defines health as the absence of illness or disease (rather than a broader definition of overall wellness) • The focus is curative (i.e. drugs, treatments, surgeries to relieve symptoms and discomfort – treating an active disease) rather than preventive (restrain the development of disease or an adverse health condition before it occurs – prenatal care, mammograms, immunization – not treating an active disease) • Presupposes the existence of illness or disease – once a person experiences discomfort or symptoms, they seek care to find relief - focuses on diagnosis and relief of symptoms - clinical intervention once disease is diagnosed - once relief is obtained, the person is considered well, even if the disease is cured or not • Health care = medical care • Measurement of health status: use of morbidity and mortality measures – these are negative measures of health but consistent with the medical model which emphasizes an absence of disease, disability, or death • Financing for services: traditionally, better coverage for curative services than preventive services • Training of health professionals is intervention-oriented, specialist-oriented – healthcare personnel have been trained to concentrate on physical symptoms - produce more specialists to diagnose and treat active disease and disability. • Status of health professionals: higher status and incomes for specialists like the cardiologist who relieves major discomfort and specific symptoms associated with active disease rather than the primary care physician who has the opportunity to be more prevention-oriented

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