Transcript Cultural Competency and Social Issues in Nursing and Health Care

Chapter 6
Financing Health Care
and Economic Issues
History of Health Care Financing
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Underlying themes driving health care financing in the United
States for the past two decades
 Physicians had the dominant role in health care decisionmaking
 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
History of Health Care Financing
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Fee-for-service payment method and economic incentives
contributed to increased costs
 The more tests or procedures performed the greater
the physician’s 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
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
History of Health Care Financing

Medicare expenditures increased rapidly
 The program was implemented in 1965 with a feefor-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
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 patient’s specific DRG
 Shift was critical for hospitals since Medicare was the
largest single payer of hospital charges (30%)
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 23:59 hold vs admission
for 24 hours
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History of Medical Care Financing
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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
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 patient’s
medical options and brings cost consciousness to
bear on medical decision making
 Has slowed the rate of growth of health care costs
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
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
History of Health Care Financing
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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
History of Health Care Financing
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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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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
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Health Care Financing
Health care financing refers to the sources of
expenditure for the health system as a whole.
Websites
ACP Managed Care Resources
The American College of Physicians maintains a page of online resources dedicated to issues, education and
information about managed care. These resources include educational programs, an advisory service, and
publications on managed care topics.
America's Health Insurance Plans
The HIAA works to support and protect consumers by influencing public policy decisions regarding health insurance
coverage. Useful information is provided under the Newsroom and Consumer Information links among others.
Centers for Medicare and Medicaid Services (CMS)
The Centers for Medicare and Medicaid Services (formerly HCFA) is the government organization dedicated to serve
Medicare and Medicaid beneficiaries. The site's home page displays related headlines and the site is organized into
categories for consumers, professionals, and public affairs.
Glossary of Health Care and Health Care Management Terms
This glossary from the University of Washington's School of Public Health and Community Medicine provides a list of
defined terms relating to health care and health care management.
Health Expenditures (NCHS)
This NCHS site provides recent U.S. statistics on health expenditures with links to the sources of information.
Healthcare Financial Management Association (HFMA)
HFMA members are financial management professionals from health care delivery organizations, accounting and
consulting firms, insurance companies and government agencies. Linked information inlcude its publications,
educational programs and legislative updates on health care reform and a section on interacting with legislators.
Managed Care (AHRQ)
The Managed Care section of the Agencey for Health Care Research and Quality website provides access to Agency
Press Releases, Conference and Meeting Summaries, User Liaison Program Workshop Summaries, and Research
Findings.
Medical Expenditure Panel Survey
This site provides data, tables, and survey instruments relating to the AHRQ's Medical Expenditure Panel Survey.
Medicare Glossary (CMS)
This glossary provided by the Centers for Medicare and Medicaid Services (formerly HCFA) provides a list of defined
terms relating to the Medicare
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.
History of Health Care Financing
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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”
GLADWELL.COM
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U.S. VERSUS U.K.
 Private Healthcare
VERSUS Universal
Healthcare
 Maslow’s hierarchy
of motivation.
May 10, 2006
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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 it’s worth a second look. It was
conducted by a group of epidemiologists at University
College London (my parent’s alma mater!). The point
was to compare the health of the United States and
the United Kingdom. It’s 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 is—
what do we get, in terms of health, that for extra $3100
a year?
May 10, 2006
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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?
May 10, 2006
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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 study’s 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.
May 10, 2006
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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.
History of Health Care Financing
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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
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
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
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
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
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

Sources of Health
Care Financing
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Private insurance
 Pays two-thirds of privately financed health care
 Increasingly following Medicare’s 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
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
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
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
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
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
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
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
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
Implications for Nursing:
Managing Cost Effective,
High Quality Care

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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
Informed Consumer-Caveat Emptor

The premise is that medical spending will slow only if the demand for
health services becomes more price elastic—that is, if consumers
become price sensitive.

Two Options are now popular

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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 2003—and then decide for
themselves when to use the HSA funds. This asks consumers
to take more responsibility for choices related to their medical
care.
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.
The “Be-Careful-What-You-WishFor” 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 anomaly—and
this is adding to health spending.
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 clear—and the situation is far worse for
the half of the population with reading levels below seventh
grade.
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 problems—akin to what
has been done over the past 40 years to reduce
smoking, and has been supported by insurers,
employers, and governments—might do more, at less
cost, to reduce avoidable medical spending
Participating Consumer
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IT’S OUR HEALTHCARE!” CONSUMER CAMPAIGN
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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.