Chapter 3 How Did We Get Here?
How Did We Get Here?
A history of health care policy making in the United States could well start in 1791 with the passage of the Bill of Rights. The Tenth Amendment to the U.S. Constitution declares that those powers not expressly given to the federal government belong to state and local governments. Health and education were not expressly given to the federal government. In 1910, the Supreme Court ruled that a federal workers’ compensation system was unconstitutional. Each state then established its own system. Hadler (2013) cites this as the regulatory template for the U.S. health insurance program as it developed much later. This issue played out again in June 2012 when the Supreme Court narrowly upheld part, but not all, of the Patient Protection and Affordable Care Act (ACA).
With minor exceptions, the federal government has limited its role to financing national programs of health and education, rather than delivering services directly. Federal involvement has been justified under the welfare clause of the Constitution and also through Thomas Jefferson’s argument of implied powers. Yet the federal share of health expenditures is fast approaching half the direct cost of care, even without counting individual tax deductions for health care spending and insurance premiums and corporate deductions for employee health insurance premiums. Tax subsidies, health insurance provided to government employees, and public dollars spent on health at all levels of government account for close to 60% of all health spending.
This chapter looks at the coevolution of two separate, but linked, U.S. health systems—one for delivering medical care and one for financing it. Financing, especially the health insurance system, has impacted delivery systems; for instance, it has created incentives for overutilization or underutilization. Separate health insurance systems exist to cover expenses for dental, vision, and long-term care. Public health is financed primarily through state, local, and federal dollars obtained through taxes and fees.
3.1 Contending Visions of a System for D…
3.1 CONTENDING VISIONS OF A SYSTEM FOR DELIVERING HEALTH CARE
Conflicts between different visions of how the health system should operate have dominated U.S. health care policy making. Different ideas have been more or less dominant at different times. Yet there has not been a dominant viewpoint since the 1960s, and all of the contending approaches have remained on the table. Each ideology or philosophy falls along the continuum of alternatives represented in Figure 3-1. Five potential characterizations of the health care market are presented. One, a provider monopoly, has been ruled out by our legal system, even though it may best describe the U.S. health system as it existed between World Wars I and II (Starr, 1982). A monopoly occurs when the market for a product or service is controlled by a single provider, and in most cases is illegal. A monopsony exists when a single buyer controls a market. The extreme monopsony position can be represented by the original version of the United Kingdom’s National Health Service. This model is not currently a realistic contender for adoption in the United States either.
Oligopolistic competition involves a relatively open market dominated by a few large sellers and is a characteristic of many U.S. industrial sectors. Usually, three or four major sources for goods or services exist, and those sources control at least 40% of the market. In health care, two, three, or four providers often control state or local markets in the absence of a national market. National oligopolies appear to exist in many markets, such as pharmacy benefits management, Medicare managed care, replacement joints, imaging equipment, and pharmaceuticals distribution. Two or three hospital groups often control most of the relevant local market. Concentration in hospital markets has been increasing sharply enough to become a concern of the Federal Trade Commission (FTC). Although available studies of hospital concentration can yield conflicting findings (Gaynor, 2006), there can be little doubt that concentration increases pricing power. In many state markets the same is true of health insurance providers. Yet it is widely believed that market power has shifted in recent years from insurers to providers, especially larger hospitals and their associated group practices.
Figure 3-1 Stages of health care market power.
Starr (2011) describes the process leading up to the passage of the ACA as one of reaching a compromise between administered competition and consumer-driven health care, but the legislation was crafted to be minimally invasive to encourage support from interests such as hospitals, pharmaceutical companies, and the insurance industry.
Administered competition implies that there are multiple suppliers but that the market is strongly influenced by a primary (but not exclusive) buyer, usually a government creation. It may involve universal coverage, a single payer, and/or a single underwriter.
Consumer-driven health care is more of a free-market approach that assumes that consumers’ choices will help shape the market if consumers have accurate and adequate information and are not subject to perverse incentives.
Perfect (free-market) competition assumes the following conditions:
• There are large numbers of buyers and sellers so that no one controls prices.
• All buyers and sellers have complete and accurate information about the quality, availability, and prices of goods.
• All products have available perfect substitutes.
• All buyers and sellers are free to enter or leave the market at will.
Free-market ideology has been playing out in health care even in the absence of a real free market. It goes by a number of names—consumer-driven health care is one example, as is market-driven health care. Supporters of this approach call for much greater transparency and more consumer choice and responsibility. It has been implemented, in part, through innovations such as health savings accounts (HSAs) and private options for Medicare. Insurance exchanges are another manifestation of this approach and were initially suggested by conservative think tanks that support a free-market approach.
3.2 A Chronology
3.2 A CHRONOLOGY
Centuries ago, medical care was a religious calling, not a scientific field. The term hospice was more representative of health care institutions than hospital. Gradually, health care has become a calling and an industry. Well into the 20th century, U.S. physicians took whatever people could pay. Teaching institutions provided free care in return for allowing learners to work on those who could not pay. This system of combined fee-for-service and charity care existed before the Great Depression and World War II. From there, one can trace the development and gradual introduction of employment-based health insurance and prepaid group practices, leading to the establishment of health maintenance organizations (HMOs) and the industrialization of parts of the delivery system with the emergence of pharmaceutical giants, hospital chains, pharmacy chains, and large, integrated health care systems.
The Health “Insurance” Approach: Moving from Provider Monopoly Toward Provider/Insurer Oligopoly
Health insurance systems in the United States were implemented during the Great Depression to stabilize cash flows of providers. The concept existed in Europe much earlier (Starr, 1982). Many of the early systems in the United States evolved into the nonprofit Blue Cross/Blue Shield organizations.
Dr. Justin Ford Kimball, the administrator of Baylor Hospital in Dallas, is often credited with starting the U.S. medical insurance movement in 1929. He conceived of the idea of collecting “insurance premiums” in advance and guaranteeing the hospital’s service to members’ subscribing groups. Furthermore, he found a way to involve employers in the administration of the plan, thereby reducing expenses associated with marketing and enrollment. The first employer to work with Baylor Hospital was the Dallas school district, which enrolled schoolteachers and collected the biweekly premium of 50 cents (Richmond & Fein, 2005).
About the same time, prepaid group practices began in Oklahoma, but they were bitterly opposed by local medical societies. Prepaid group practices, forerunners of today’s HMOs and the organizations identified in the ACA as accountable care organizations (ACOs), were also established to provide stable cash flows, but remained a relatively minor factor for decades because of medical society opposition.
State hospital associations controlled the Blue Cross organizations, and medical societies controlled the Blue Shield organizations. Well into the 1940s, laws in 26 states prohibited anyone other than medical societies from offering prepayment plans for physician services. In 1934, the American Medical Association (AMA) set forth conditions that it argued should govern private insurance for physician services (Starr, 1982, pp. 299–300):
• “All features of medical service in any method of medical practice should be under the control of the medical profession.” This included all medical care institutions, and thus, only the medical profession could determine their “adequacy and character.”
• Patients were to have absolute freedom to choose a physician.
• “A permanent, confidential relation between the patient and a ‘family physician’ must be the fundamental, dominating feature of any system.”
• No form of insurance was acceptable that did not have the patient paying the physician and the patient being the one reimbursed.
• Any plan in a locality must be open to all providers in a community.
• Medical assistance aspects of a plan must only be available to those below the “comfort level” of income.
The Group Health Association of Washington, DC, a prepaid group practice, was established in 1937, but it faced strong opposition. In 1943, the Supreme Court (AMA v. U.S., 1943), hearing a case brought by the FTC, upheld a lower court finding that the AMA and the DC Medical Society were guilty of “a conspiracy in restraint of trade under the Sherman Anti-Trust Act” and had hindered and obstructed Group Health “in procuring and retaining on its staff qualified doctors” and “from privilege of consulting with others and using the facilities of hospitals” (Richmond & Fein, 2005, p. 34).
World War II led to the industrialization of all available nonmilitary hands, breaking the Great Depression, inducing migration from rural areas to industrial cities, increasing the power of industrial unions, and inaugurating the era of big science. It also led to an era of optimism that Americans could accomplish anything they wanted if they worked together collectively (Strauss & Howe, 1991).
Many employers had established their own health services to support their employees and the war effort. Some of these services evolved into prepaid group practices. Most notably, Kaiser Industries’ medical department became the Kaiser Permanente system, which was opened up to outside enrollees after the war. Similar systems, such as the Health Insurance Plan in New York, which started in 1947, sprang up independently.
The government imposed wage and price controls during World War II. As labor became scarce and the war turned in the Allies’ favor, workers pressed for better compensation. The Office of Price Administration held the line on wage increases, but allowed improved benefits through collective bargaining. This led to the rapid expansion of health insurance among unionized industrial and government workers. This trend was also consistent with the provision of medical benefits to the vast military establishment. Unemployment fell from 17.2% in 1939 to 1.3% in 1944, and the real gross national product grew by 75% (Richmond & Fein, 2005). Health insurance costs were not yet a serious concern for corporate managers or the government. In 1948, the National Labor Relations Board ruled that refusal to bargain over health care benefits was an unfair labor practice.
Collective bargaining became the basic vehicle for determining health benefits. Because union officers were elected by their membership, they did not choose catastrophic coverage. Rather, they sought to maximize the visibility of benefits to their rank-and-file (voting) members. This led them to bargain for first-dollar coverage for everyone and to support lifetime limitations on benefits for those who were born with or developed catastrophic or high-cost chronic conditions. It also led them to emphasize employment-related coverage for dependents. They wanted most union members to experience regular payouts from their benefit packages. If the workers were young and healthy, they would still see payment for services such as obstetric and pediatric care for their family members. Employers did not much care how their workers divided the contract settlements among wages, health benefits, and other fringes. Employers saw health insurance as an inconsequential component of the overall labor costs established through collective bargaining. If workers and their families already had individual health coverage, they still gained a tax advantage if the employer paid the premium directly. Blue Cross enrollments tripled between 1942 and 1946, while enrollment in commercial health insurance plans more than doubled (Becker, 1955).
Following World War II, most presidential administrations suggested health care reforms of some sort. The Hill-Burton Act of 1946 expanded hospital facilities. President Truman suggested developing a system of universal health insurance based on the report of the President’s Commission on Health Needs of the Nation; however, his proposal was opposed by entrenched interests and was ignored when President Eisenhower was elected. In 1950, Congress approved a grant program to the states to pay providers for medical care for people receiving public assistance. Proposals for a Medicare-type system under Social Security appeared in Congress as early as 1957, but it took 8 years of debate for Congress and the White House to reach a consensus.
The 1960 Kerr-Mills Act created a program administered by the Welfare Administration and the states for “Medical Assistance to the Aged,” which also covered “medically needy” older persons who did not necessarily need to qualify for public assistance. Richmond and Fein (2005) described Kerr-Mills as an attempt to stave off Medicare-type programs.
The Joint Commission on Mental Illness and Health, formed under Eisenhower, did not issue its final report until 1961, under the Kennedy administration. It led to the passage of the Mental Retardation Facilities Construction Act of 1963 and the Community Mental Health Centers Act of 1963.
Early in his term, President Johnson announced the formation of a Commission on Heart Disease, Cancer, and Stroke. Its recommendations led to the Regional Medical Programs legislation to advance training and research. Congress, however, added a provision that this work was not to interfere in any way with “patterns and methods of financing medical care, professional practice, or the administration of any existing institutions” (Richmond & Fein, 2005, p. 44).
While the Medicare debate continued, Congress passed many health measures as part of Johnson’s War on Poverty. Given the highly visible opposition of organized medicine, the health components of these new programs were housed outside of the U.S. Public Health Service. For example, the Office of Economic Opportunity started neighborhood health centers, and its Head Start program provided health assessment and health care components for children.
When the Johnson administration finally secured passage of the Social Security Amendments of 1965, it accommodated AMA concerns by offering three separate programs: (1) Medicare Part A, which provided hospital coverage for most older persons; (2) Medicare Part B, a voluntary supplementary medical insurance program; and (3) Medicaid, which expanded the Kerr-Mills program to help with out-of-pocket expenses such as nursing home care and drugs and extended potential eligibility to families with children, the blind, and the disabled under the Welfare Administration. Starr (2011) cites this set of programs as the beginning of the “policy trap” that haunts us today:
The key elements of the trap are a system of employer-provided insurance that conceals true costs from those who benefit from it; targeted government programs that protect groups such as the elderly and veterans, who are well organized and enjoy wide public sympathy and believe, unlike other claimants, that they have earned their benefits; and a financing system that has expanded and enriched the healthcare industry, creating powerful interests averse to change. (p. 123)
There were other compromises in the Social Security Amendments. For example, at the time, hospital-based physicians were being placed on salary so that hospitals could use some of their fee revenue to cover the capital costs of their practices. The 1965 Medicare bill specifically required that anesthesiologists, radiologists, and pathologists be paid directly, not through the hospital. That law also stated, “Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine.” Some have questioned whether the government’s current 1.5% pay-for-performance bonus program violates this provision (Pear, 2006).
Bodenheimer and Grumbach (2005) labeled the years 1945 to 1970 as those of the “provider-insurer pact” (p. 167). Starr (1982) argued that the period before 1970 was characterized by an accommodation between the insurance industry and the medical profession. He noted that it was a period in which most employed Americans were covered because union shops were dominant. “The government supported this private tax system by making employers’ contributions into it tax exempt from the government’s own taxes. Private voluntary insurance was neither strictly voluntary, nor strictly private, but its compulsory and public features were hardly noticeable” (p. 334). That system, however, left out the poor, the unemployed, agricultural and domestic workers, most farmers, the disabled, and older persons. The 1965 Great Society legislation addressed the needs of some of these uninsured populations.
The Great Society
When implemented in 1965, Medicare mirrored the structure of health insurance in the industrial sector, but without lifetime limitations. It did not provide adequate coverage for drugs or for long-term care (i.e., nursing homes, hospice care, home health), nor did it allocate much for prevention. Many employment-based health plans paid for prescription drugs, but not for long-term care. Medicare did not cover prescription drugs until 2006.
It may be hard to believe today, but before 1965 academic medical centers delivered large amounts of charity care. Local volunteer physicians supervised the clinics, and patients received care at no charge or for a nominal fee in return for letting learners practice on them. Many people covered by Medicare and Medicaid had been receiving charity care, but Medicaid and Medicare paid in full for services once provided free or with income-based discounts. The new coverage also gave the urban poor a choice of institutions, a choice they quickly exercised. Through its association with Social Security, Medicare became viewed as an entitlement earned by years of paying into a system, and something that should be as sacred as Social Security. However, all enrollees received the same benefit regardless of their payment history. Medicaid, although intended to be a comprehensive care plan for low-income families, ended up being primarily a long-term care program, and it did not even cover low-income families without children.
Rapid Expansion of Capacity
The fee-for-service payments for visits once provided for free, or nearly so, increased physicians’ incomes without increasing their numbers. At the same time, availability of insurance coverage for underserved populations increased the demand for services. Academic medical centers added new, full-time staff and billed all insurers for their services to subsidize education and research. Heavy investments in medical research increased the variety, cost, and effectiveness of what providers could offer. Hospitals also had to cover the capital and support costs for hospital-based physicians now that they could not bill for these costs directly. That, plus a limited supply of resources, increased demand, and rapid technological advances led to rapid price inflation.
The primary policy response to this increase in demand for health services in the 1970s and 1980s was to increase the supply of resources. For example, Congress launched the Community Health Center and Migrant Health Center programs, which offered subsidized services in underserved communities. In 1970, it established the National Health Service Corps to increase provider supply in underserved areas via scholarships and loan forgiveness. Many new programs provided training for health professionals, and existing ones were expanded with financial assistance from state and federal governments
The Private Sector Responds
At the end of World War II, the health care sector accounted for 4.5% of GDP. By the mid-1980s, its share was up to 11%. With the cash flows from private insurance and Medicare and Medicaid, community hospitals expanded rapidly but no longer relied on philanthropy for capital. Wall Street was happy to finance their expansion by selling bonds. Interest was considered a reimbursable cost by rate setters. Health care attracted entrepreneurs, and for-profit hospital chains grew rapidly. Similarly, the nursing home industry and kidney dialysis centers attracted new capital. The medical establishment, which had fought against corporate control of hospitals and other institutions, was relatively helpless. The AMA’s stance against Medicare and Medicaid had cost it credibility, and its constituency was now spread out between the AMA, specialty and subspecialty societies, and the academic medical centers, each of which had its own interests.
Costs and Concerns Mount
As health care costs mounted and the health care sector accounted for a much more significant share of the economy, more and more observers expressed concern about the lack of competition in portions of the industry and began suggesting ways to control costs. One suggestion was to promote prepaid group practices, or HMOs, which share some of the cost risk with the employer, thereby inducing reduced costs. The successes Kaiser Permanente and similar organizations had in delivering care at a lower premium cost without evident diminution of quality drew much attention. This led the Nixon Administration to support the Health Maintenance Organization and Resources Development Act of 1973. Although that legislation had little immediate impact, later amendments opened the way for the explosion of HMOs and other vertically integrated health care systems in the 1980s. That expansion continues today under the rubric of administered competition. In 1974, the Nixon administration proposed the Comprehensive Health Insurance Program, which sought to provide health insurance to all employees. Congress debated this and a similar measure, the Kennedy-Mills bill, but did not enact either. Richmond and Fein (2005), writing before enactment of the ACA, argued that 1974 was the closest the nation ever came to universal health insurance, and that those proposals, although eclipsed by the Watergate cover-up and Nixon’s resignation, were the basis for successive calls for congressional action by presidents Carter, Clinton, and Obama.
Charges and Cost Shifting
Over time a provider institution must achieve income sufficient to cover its operating and capital costs. Because of the imperfect market for health care, prices are set by marking up estimated costs or by observing what is charged by others in the same market area. When individuals or insurers pay less than the breakeven price, the institution marks up the prices charged to those it figures can pay more or that lack sufficient bargaining power.
Originally, Blue Cross organizations, which were owned by state hospital associations, were interested in a management cost-finding system that fairly allocated the full costs of services among the users of those services. Because they understood that most costs in a hospital system are (1) fixed and (2) joint,1 they did not attempt to find out the marginal cost of a service (marginal cost is the additional cost of producing one additional unit of a product). They established an estimated average direct cost for each unit of service (e.g., bed day, laboratory test, operating room hour, X-ray) and then allocated the overhead costs on the basis of the number of units consumed by the payer’s enrollees. The largest expense in the institution, nursing time, was treated as overhead and not allocated to the individual patient. The resulting charges included all the overhead costs, allowing each institution to break even on its Blue Cross patients. If the patients in a health plan used a quarter of the X-rays produced by the radiology department, the plan paid a quarter of the full costs of that department (including allocated overheads). If hospitals and other health care institutions offered discounts, they tended to favor the Blues, not the other insurers, and certainly not the directly paying patients. This resulted in what is called cost shifting.
As more patient care costs went uncovered under insurance contracts, hospitals added the cost of this uncompensated care to the overhead rate and increased charges accordingly. It was easy to manipulate charges to mark up costs and either make a profit or provide deeper discounts to preferred customers. First the Blues and then the federal government exerted pressure on providers, obtaining substantial discounts in return for their business. This shifted the costs of uncompensated care to private insurers and the uninsured. Reinhardt (2006, p. 64) observed, “What prevailing distributive ethic in U.S. society, for example, would dictate that uninsured patients be billed the highest prices for hospital care and then be hounded, often mercilessly, by bill collectors?”
Cost Shifting Hits Private Plans
Bills sent to patients and others were typically based on the official price lists of doctors and hospitals. People with no insurance were asked to pay full charges. Commercial insurance companies had contracts that discounted the charges. The Blues and large HMOs enjoyed even bigger discounts, and the federal government got the biggest discount because it demanded the lowest rate allowed to any customer. Because of the inflated charge figures posted to most bills, the public assumed that unit care costs were a great deal higher than they really were, and that insurers were picking up a higher proportion of the costs of care. Real transfer prices for medical services were kept under wraps. This made deductibles and copayments appear to be a much smaller proportion of actual costs than they really were. Under pressure from the public for greater transparency, this has gradually changed. The public now sees more of what is actually paid and by whom, but real transparency is still lacking. Table 3-1 shows Medicare charges billed by hospitals and payments made by Medicare and the patients to Miami-area hospitals for a specific procedure type. Making such data available is part of the federal government’s efforts to promote price transparency. The payments are the full payments and include added payments such as disproportionate share for the safety net hospitals.
The financial reports of health care institutions offer a picture of the size of these discounts. Many institutions book their full charges as revenue and then deduct trade discounts under discounts and “allowances” and reflect charity care costs under bad debt written off and under “uncompensated care.” Tomkins, Altman, and Eilat (2006) reported that the ratio of gross revenue (charges) to net revenue (payments received) had grown from
1.1 to 2.6 over a 25-year period. They also reported that cross-subsidization of services and differential pricing might be difficult to change in the current marketplace. In 2009, markups in Atlanta hospitals ranged from 157% to 702%, and the average had moved from 124% to 319% over the preceding 10 years (Pell, 2011). Because insurance companies and governments negotiate substantial discounts, it is the uninsured or those going out of network who are pressed to pay the full amount. Even then, according to the same article (Pell, 2011), an Atlanta hospital offered an uninsured individual a 40% cash discount. In fact, one for-profit hospital with a markup of 702% reported that no patients paid the full markup.
Currently, every hospital has a price list called a chargemaster, which may have as many as 20,000 items. These are the charges that the patient usually sees. Terms are not standardized, and some items are really bundles of services, so patients still have trouble comparing prices between institutions (Brill, 2013). In California hospitals, reported charges for the same procedure at one hospital might be four times that of another, but, on average, hospitals received reimbursements for only about 38% of charges from patients and insurers in 2004. Reinhardt (2006) argued that pricing practices would have to change radically if patients were to be able to make rational buying decisions. He seemed to support the recommendation of Porter and Teisberg (2006) that hospitals post one set of bundled prices per disease entity and charge the same to everyone. However, Altman, Shactman, and Eilat (2006) wondered whether transparent pricing and customer sensitivity to pricing might destabilize the hospital sector, bringing average prices down and forcing some into bankruptcy. The ACA provides for a number of demonstrations of bundled pricing, and the Centers for Medicare & Medicaid Services (CMS) appears to be well on the way to implementing this concept for a number of frequently encountered conditions.
Table 3-1 2011 Medicare Charges and Payments at Selected Miami-Area Hospitals for DRG 470 (Major Joint Replacement or Reattachment of Lower Extremity w/o MCC)
Source: Reproduced from: Inpatient Prospective Payment System (IPPS) Provider Summary for the Top 100 Diagnosis-Related Groups (DRG). https://data.cms.gov/Medicare/Inpatient-Prospective-Payment-System-IPPS-Provider/97k6-zzx3. Accessed 3/7/2014.
Responding to Cost Shifting
As employers and private insurers became increasingly aware of the effects of cost shifting, they adopted a number of measures to counter it and combat the overall inflation in the costs of care. As early as the 1970s, employers demanded that insurance companies begin to control premiums (Starr, 1982; Mayer & Mayer, 1985). These measures fit under the general heading of managed care. Most of these measures spread slowly until the 1980s. Employers moved away from contracts that accepted provider-established fees from any provider, and instead signed up with HMOs. Figure 3-2 illustrates the roughly 60% decline in market share for traditional indemnity
Figure 3-2 Health plan enrollment for covered workers by plan type, 1988–2013. Source: Reproduced from: Employer Health Benefits 2013 Annual Survey — Chartpack, (8465), The Henry J. Kaiser Family Foundation and Health Research & Educational Trust plans from 1988 to 1998. The HMO/POS (health maintenance organization plus point-of-service) and PPO (preferred provider organization) plans appeared much better able to control health care costs by exacting their own discounts and by constraining what patients and providers would be able to do.
The Blues began to shed their nonprofit identities and their focus on being community-based cooperative organizations as they competed with the newer for-profit insurers. They often developed their own HMO organizations. The concept of the HMO was no longer a prepaid group practice. It had become an organization that managed the insurance risk and the delivery of care either directly or through a designated provider network. HMOs (for profit and nonprofit) continued to negotiate with individual providers, group practices, hospitals, pharmaceutical companies, and all other types of providers for deeper and deeper discounts.
3.3 The Current “Era” Emerges
3.3 THE CURRENT “ERA” EMERGES
Fox (2001) described three eras of managed care:
• Pre-1970, the early years
• 1970 to 1985, the adolescent years
• 1985 to 2001, the years when managed care came of age
We would add the following:
• 2001 to present, mixed administered and oligopolistic competition comes of age
Richmond and Fein (2005) described the period 1965 to 1985 as a time of emerging tensions between regulation and market forces and called the period after 1985 the “Entrepreneurial Revolution.” Bodenheimer and Grumbach described the 1970s as a period of developing tension, the 1980s as the “Revolt of the Purchasers,” and the 1990s as the breakup of the provider–insurer pact. The changeover to managed care slowed the growth of premiums from the mid-1990s into the first years of the new century, but then premiums took off again. In the meantime, both providers and patients expressed displeasure with HMO constraints on treatment choice and provider choice. New state laws sprang up limiting the ability of insurers and HMOs to control professionals and patients. Some thought managed-care control mechanisms had already picked the low-hanging fruit and had stopped the most egregious cases of inappropriate utilization. One control mechanism, capitation (a fixed payment per enrollee per time period), had been promoted because it shifted the cost risk from employers and insurers to providers, but it became less fashionable when providers were unable to manage it or lacked sufficiently large risk pools and capital reserves to handle it. Insurers moved toward preferred provider plans that allowed patients and providers more freedom of choice; however, providers gave deeper discounts, and enrollees were subject to higher premiums and greater deductibles and copayments.
Incremental changes in health insurance regulation occurred during the Clinton administration. The Health Insurance Portability and Privacy Act (HIPPA) sought to relieve job lock. More children were covered by Medicaid and the State Children’s Health Insurance Program (SCHIP), and more reimbursement became prospective.
A new Republican majority under President George W. Bush passed the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), which had three major components:
• Prescription drug coverage under Medicare Part D, which created major additions to the federal deficit
• HSAs linked to high-deductible insurance
• Privatized and subsidized Medicare plans (now known as Medicare Advantage)
Although the latter two programs were slow to take off, they have become increasingly significant over time. They have allowed the consumer to become more of a decision maker about health insurance. They have also made the ideological landscape more confusing.
The Massachusetts Model
As stalemates in Washington became more intractable, costs mounted and the problems of the working poor got worse. It was clear that many people were being forced to forego necessary care. States were faced with increased welfare burdens, including Medicaid, and providers were supplying more uncompensated care.
Massachusetts had been trying to set up its own universal coverage system since 1988. Finally, in 2006, Massachusetts enacted near-universal health insurance. This was based on a proposal that had come in large part from the Heritage Foundation via Governor Romney’s office. The final bill reflected the concerns and proposals of both the Republican governor and the Democratic legislature. It included an insurance exchange,
individual mandates, premium subsidies for low-income individuals, and an employer mandate. It did little to try to control costs. Almost half of the uninsured in the state were soon covered, but costs rose and the legislature had to pass cost-control legislation in subsequent years. Public reaction to the program in the state has been generally favorable, but in the 2012 presidential election Governor Romney opposed using it as a national template.
The Obama Administration Makes Reform a High Priority
Once President Obama was inaugurated, he made energy reform and health care reform his highest priorities. As it became clear that energy reform would split the Democrat’s narrow congressional majorities, he focused on health care reform. He encouraged Congress to take a much stronger role in formulating the new law than President Clinton had. Many compromises were made on cost control to accommodate interest groups, especially hospitals, insurers, and drug manufacturers. Congress scrapped the “public option,” a government-sponsored insurance program that would have been offered through the exchanges. It included increases in Medicaid coverage and voluntary long-term care insurance. The Supreme Court weakened the former, and the administration put the latter off as unworkable.
Although much of the coalition the Obama administration had built ultimately to support the measure fell apart, differing versions of the ACA narrowly passed both houses of Congress in March 2010. The legislation became law after the two houses resolved the differences through the budget reconciliation process. In the wake of the 2012 Supreme Court ruling discussed earlier, a number of states have refused to expand Medicaid with federal money, which means coverage of the uninsured may be less complete than expected.
The ACA does not establish the right to health care. It even allows discrimination in premiums based on age; the oldest workers may have premiums three times higher than those paid by the youngest ones. The effect of this provision is blunted, in part, by income-based subsidies. The law is voluminous and complex, and nearly half has little to do with financing medical care. It would take much of this book just to enumerate the act.
The ACA will not stop experimentation by the states. Oregon and Vermont have sought waivers under the ACA to reallocate state and federal funds to provide a comprehensive coverage system for their resident. Other states, including New York, are working to provide medical homes for chronically ill individuals who are disabled and qualify for both Medicare and Medicaid. These dual eligibles account for a surprisingly large proportion of those programs’ costs.
DRGs: The Big Step Toward Industrialization
The lack of common product definitions and labels made it nearly impossible to compare either quality or cost among providers. The introduction of diagnostic-related groups led to prospective payment (payment per admission by diagnosis) systems that eliminated some cost outliers, first for Medicaid and Medicare and then for the HMOs. Having a uniformly defined cluster of cases to follow allowed for the development of classification and information systems and for internal and external oversight of care. Utilization review became a major activity of insurers, and decisions about whom to retain in the service network could be based on profiles of the cases treated by providers and institutions. The intent of the developers of DRGs was to enable quality comparisons, but the system was soon adopted for pricing as well.
3.4 Employers Want Out: Backing Consumer…
3.4 EMPLOYERS WANT OUT: BACKING CONSUMER-DRIVEN HEALTH CARE
Throughout the 1990s, observers argued that the United States should move rapidly in the direction of a less regulated national market in health care, as the Reagan Revolution led economists and politicians to seek deregulation and consumer sovereignty in all areas. Commentators, such as Herzlinger (1997), pointed to the disappointing results coming out of managed care contracts and argued that the only way to control health care costs would be to motivate consumers to take more responsibility for their own buying decisions. Management experts noted that neither patients nor providers were fully aware of what things cost, and patient pocketbooks were not affected significantly by the choices made. Providers were likely to benefit from waste and overutilization, which were of no concern to consumers who were not payers. The only way to get costs under control, they argued, was to have as much of a market system in health care as had been developed for other professional services areas. At the same time, the Internet was opening up relatively painless access to medical information for consumers. Payers and insurers established standard sets of provider report cards that purported to rank local providers in terms of their quality of care and costs. They increased deductibles and copayments and launched experiments to test various pay-for-performance schemes that rewarded desired quality and cost-related behaviors. The federal government and some states set up websites to display comparative data on a number of institutions.
Corporations began to assess the impact that high employee and retiree health care costs had on their ability to price goods competitively. Increasingly, their competition came from countries where the overall tax system supported much of the costs of health care. They began to support strongly the notion of a defined benefit package (a constrained dollar amount) and moves toward a health care market in which employees would take more responsibility for expenditures and for selecting effective care.
Consumer-driven health care insurance contracts fall into two groups: tiered programs and health reimbursement accounts. Tiered programs are of two types: (1) tiered premiums and (2) tiered point-of-care cost sharing. The first type gives employees premium benefits in return for accepting higher copayments and deductibles, a less-restrictive network, or less freedom from utilization review. The second type allows cost sharing for those who choose providers deemed to be preferred providers based on cost and/or quality measures. Media coverage and marketing efforts have focused on the health reimbursement account arrangements, especially tax-sheltered HSAs. Typically, the employer establishes an account for the employee to spend on health care, and then a large deductible comes into play. Insurance kicks in when the total of these two is exceeded. Unexpended money in the initial account often can roll over from year to year. So far, employer payments under these programs seem to be considerably less than under traditional health insurance.
Table 3-2 compares the alternatives available for consumer-managed care, including the tax status and the rollover features of each approach. It is unclear how much of the difference comes from reduced utilization, from higher out-of-pocket payments, or from more knowledgeable purchasing decisions (Rosenthal & Milstein, 2004). Davis (2004) suggested that the success of these innovations will ultimately hinge on whether the public sees them as efforts to shift costs from employers to employees, or whether they motivate provider institutions to “identify, demand and reward high performance, with positive incentives for consumers in a complementary role” (p. 1230). Employers and employees were slow to adopt such policies. However, the enrollment of covered workers in such plans rose from 8% in 2009 to 19% in 2012, and the majority of employers are offering such plans to their employees.
The Law of the Land: The ACA
The ACA means we will likely be living in a transitional period for some time to come. Health insurance will never be the same. However, it is not at all clear what will happen with costs. It is clear that the individual mandate will have to be accepted by the public or it will be undercut somehow. Many states are choosing against signing on for the expansion of Medicaid. They are also refusing to establish state exchanges and are instead relying on the federal exchange. But the attractiveness of the policies the exchanges will offer is uncertain. Employers are moving toward self-insured plans to avoid the generous benefit structures required for exchange offerings. Certainly, trends in premium costs will say a lot about whether employers will cover their employees directly, send them through exchanges, and/or pay the penalties prescribed in the law. Those penalties will likely have to increase sharply to achieve hoped-for coverage rates. Other aspects of the ACA legislation will be covered individually in later chapters.
Table 3-2 What Do HRA, HSA, FSA, and PRA Stand For?
*HSAs are fully compatible only with certain HRA and FSA administration platforms that enable HSA compatibility.
Source: Reproduced from: Lundquist, R. (2013). HRA vs. HSA vs. FSA vs. PRA Comparison Chart. Employee Health Benefits and Insurance blog. Available at: www.zanebenefits.com/blog/bid/143489/HRA-vs-HSA-vs-FSA-vs-PRA-Comparison-Chart. Accessed 12/20/2013. ZaneBenefits, 136 Heber Ave., #308, Park City, UT 84060, tel: 1-800-391-9209
The Resulting Picture
Currently, the U.S. government and the private sector are operating with a hodgepodge of approaches. Medicare and Medicaid are monopsonistic, government-administered systems. President George W. Bush left a legacy in the form of policies that emphasize consumer-driven health care, particularly a focus on HSAs. Federal health care policy since the Nixon administration has tended to support development of large HMOs, which are examples of oligopolistic competition, and the ACOs envisioned in the ACA could easily go the same way. Consolidation into larger multisite firms continues to take place both locally in hospital markets and nationally in subsectors such as kidney dialysis centers, nursing homes, pharmaceutical distribution, medical oxygen distribution, and rehabilitation centers. Three firms out of 80 in the industry dominated enrollment for Medicare Part D in 2006. At the same time, successive congressional budgets have reduced funding for Medicare and Medicaid, creating new concerns about cost shifting to insurance programs already burdened with the costs of the uninsured and underinsured. The ACA should partially reverse that trend, but future budget battles involving entitlements could reestablish that downward trend in provider payments.
Each of these contending frameworks and philosophies—administered competition, oligopolistic competition, and free-market (consumer-directed) health care—is rooted in our health care system’s past and present. It is not clear what role they will play in that system’s future.
Like any other democracy, the United States has a system of health care that evolved through a political process influenced by trends in culture, technology, demographics, political ideology, and economic development. It also evolved through experimentation. When something did not work or stopped working, the country tried other things. We might take solace in a statement attributed to Winston Churchill, “You can always count on the Americans to do the right thing—after they’ve tried everything else.” But what else is left to try?
Countries that have tried socialized medicine have been moving toward decentralization and allowing more of a private sector. Those that started out with a private insurance system have had to add more and more government funding to deal with aging populations and burgeoning technology. There is little reason to believe that what has worked in one time and place will necessarily work in another, or that what has not worked in one time and place could not be made to work in another. A review of the efforts in many countries shows that there is no magic bullet, that the health care system is the product of a social context, and that many measures and many accommodations are needed to achieve good care at reasonable cost. Where the United States has paid a high price is in its lack of ongoing health policy development with adequate testing of potential interventions and adequate study of new alternatives completed before the political system becomes disappointed and acts, as it often does, without sound, nonideological policy advice.
Case 3: International Comparisons: Where…
Case 3 International Comparisons: Where Else Might We Have Gone?
It can be useful to consider the roads not taken—the measures that have evolved in other developed countries. This case study briefly reviews the health systems of five developed countries for which data are readily available: Canada, the United Kingdom, Australia, Germany, and Japan. The approaches are amazingly varied, yet all seem to be producing similar results (except costs). Satisfaction surveys for the four English-speaking countries show similar ratings of consumer satisfaction and quality of medical and hospital care; however, self-reported access and expenditures differ widely.
DIFFERENT CULTURES, DIFFERENT SYSTEMS
Canada’s health system initially paralleled the U.S. system, but the country switched to a single-payer system incrementally, beginning with initiatives in two provinces. Federal legislation passed in 1957 offered to pay 50% of costs if provinces provided universal hospital coverage; by 1961, all 10 provinces were participating. The 1966 Medical Care Act extended this cost-share inducement to universal coverage programs, and universal coverage was fully implemented nationwide in 1971.
The following are the key aspects of the Canadian system:
• Universal coverage under provincial health plans is financed through payroll and income taxes. Many Canadians have private insurance to cover costs the government does not pay and to provide rapid access to scarce services.
• Physicians are typically in private practices and are paid per visit according to a government fee schedule. Most hospitals are independent public entities that operate within budgets established by the provincial government. Government regulations also affect the prices of prescription drugs.
• Hospitals finance new technology or facilities through the provincial budgeting system, not capital markets. Adoption of new technology, such as imaging equipment and surgical capacity, is slower than in the United States.
• Rationing occurs through delays in elective services, rather than ability to pay. Lengths of hospital stays have not dropped as rapidly as in U.S. hospitals. Physician visits per person are similar to the United States, but the percentage of GDP devoted to health care has grown much more slowly. Canada has fewer physicians per 1,000 population than the United States (1.98 vs. 2.42) but more nurses (10.43 vs. 9.82).
• Concerns exist about access to specialists and primary care after hours. Canadians’ levels of satisfaction with their health care are similar to those of U.S. respondents, but they complain a little more about the shortness of physician visits.
• Although it slowed sharply after 1971, growth in per capita spending has picked up since, despite long waits for scanning procedures and “elective” surgeries such as hip replacements, cataract removal, and cardiovascular surgery.
• Per capita health care spending is somewhat lower than in the United States and health outcomes slightly better. No one is sure how much leakage of services and expenditures takes place across the border between the two countries, with U.S. citizens purchasing pharmaceuticals in Canada and Canadians purchasing scarce physician and hospital services in the United States.
The British National Health Service (NHS) became a socialized system in 1948 after a gradual movement through voluntary and then mandatory health insurance. Until quite recently, the NHS was a government program housed in the Department of Health. Ten strategic health authorities (SHAs) implemented national policies at the regional level. Each general practitioner (GP) operated through a local primary care trust (PCTs). PCTs served about 100,000 people each and were responsible for disbursing tax revenues dedicated to health within their service areas. In addition to paying GPs through a system of capitation, allowances, and incentives, PCTs contracted with local consultants (specialists) and the government-owned hospitals. A very small private insurance market was allowed. It has grown in recent years, and some physicians practice outside of the NHS. In London, so-called Harley Street physicians cater to the wealthy.
The Health and Social Care Act of 2012 significantly reorganized NHS. Ostensibly, the reforms were designed to make the system more patient-centric, empower medical providers, increase the focus on clinical outcomes, and provide more local autonomy. The long-term impacts, particularly on the level of privatization, are not immediately obvious.
The following are the key aspects of the British system:
• At the center of the reformed NHS is NHS England, which was established as the Commissioning Board in October 2012. This independent quasi-governmental agency pushes public funds out to local clinical commissioning groups (CCGs), which replaced PCTs on April 1, 2013. It also promotes quality of care and improvements in health outcomes. The role of the national government has been limited to general oversight of the system and combined strategic leadership for the health and social services systems. SHAs were abolished along with the PCTs.
• CCGs are primarily composed of GPs, but nurses and other providers are represented. The CCGs can commission any health services that meet government standards, including NHS hospitals, consultants (who are typically hospital based), mental health services, urgent and emergency care, rehabilitation, and community health services.
• The Health and Social Care Act made several other changes to improve coordination, increase democratic input, improve quality, and address community public health. For example, leaders of public health, adult social services, children’s social services, a consumer representative, and an elected community representative comprise health and well-being boards that promote coordination across sectors and advise CCGs. An organization called Monitor has authority to license providers beginning April 2014 and is responsible for overseeing the transition of NHS hospitals from government entities to foundations. Public health has become a local responsibility, but a new government agency, Public Health England, performs a national role similar to the role the Centers for Disease Control and Prevention (CDC) plays in U.S. public health.
• The number of physicians per 1,000 patients is slightly higher in the United Kingdom than in the United States (2.74 vs. 2.42). British nurses do many things physicians would handle in the United States, including delivering babies, and more are available (10.13 per 1,000 in the United Kingdom vs. 9.82 in the United States).
• Rationing has been based on waiting times for treatments for nonacute conditions. These have included cataract removal, hip replacement, and coronary artery bypass surgery, for which patients may wait as much as a year.
• In 2004, the NHS adopted a pay-for-performance system for family physicians that involved 146 quality performance measures. According to Doran et al. (2006), primary care practices met targets for 83% of patients and achieved 97% of the possible points, much more than the 75% anticipated in the budget, resulting in an average of more than $40,000 in additional payments per physician. The result was a substantial budget overrun. Because a major baseline study was not performed, how much of the improvement was due to changed medical care and how much was due to improved documentation is not knowable.
• Long queues were a major political issue in the 1997 elections that brought back the Labour government. That government increased NHS funding, and waiting times dropped. Some management decision making was also decentralized from the regional SHAs to the local hospitals, whose accountability for quality and cost was increased. At the same time, the government established the National Institute for Health and Care Excellence (NICE) to evaluate procedures, treatments, and technologies and to speed their adoption if the evidence is adequate and favorable. This was in response to reliable evidence of differences in treatments and outcome differences among various geographic areas, regional health authorities, and fund-holder groups.
Australia has a hybrid public–private health care system. A national health care system called Medicare is financed out of taxation. When established in 1984, Medicare supported government hospitals, medical care, and prescription drugs for the indigent. It also provided grants to state and territorial governments to operate hospitals. The 1999 addition of a Medicare levy—1.5% to 2.5% depending on income level—extended these benefits to the general population. Government incentives encourage private insurance, which pays cost-sharing fees and provides access to private hospitals, specialists, and physicians. About 50% of Australians have private insurance, which pays 11% of health care costs.
The following are the key aspects of the Australian system:
• Australians seem to have fewer access problems overall than Canadian and U.S. patients, but they report problems accessing care on nights and weekends and difficulties paying for prescription drugs.
• Australians with insurance entering local public hospitals decide whether to do so as public or private patients. Public patients receive free hospital and physician care. Private patients can choose their doctors; they pay minor charges, but most charges are covered by a combination of Medicare and private insurance.
• Under a program called Lifetime Health Cover, those who join a private health plan before the age of 31 pay a lower premium over their lifetime. Two percent is added to the premium for each year of delay. This is to prevent “hit-and-run” enrollment when people anticipate major expenses and to maintain a larger, healthier risk pool.
• Community rating is mandatory for private health insurance. A “reinsurance” system redistributes the costs of claims among insurers to avoid winners and losers.
• To reduce reliance on public funding, the government provides a 30% rebate on private health insurance costs.
• A government subsidy for the long-term care of older persons includes institutional, community-based, and in-home support. In return, the government controls the supply of long-term beds.
• In 2003, Australia had 2.99 physicians and 9.53 nurses per 1,000 population, compared with 2.42 and 9.82, respectively, in the United States.
Chancellor Otto von Bismarck is credited with starting the first national health insurance program in the 1880s. Today, it is built around 252 nonprofit sickness funds that negotiate with labor unions, employers, and providers. The various parties interact quite formally.
The following are the key aspects of the German system:
• All individuals must have health insurance. A federal unemployment insurance fund pays premiums for the unemployed (currently a high percentage of the German population). A worker’s pension fund pays premiums for retired workers. Workers have choices among funds, but funds tend to be linked to an industry or a locale.
• Funds assess premiums on a graduated scale based on income. Copayments have increased in recent years to cover revenue shortfalls.
• Physician associations receive a fixed amount per person per year, as do hospitals. Hospitals pay hospital-based physicians’ salaries from their capitation income. Hospitals are reimbursed under a DRG system similar to the one in the United States except that it includes physician services and aftercare for 30 days post discharge. Ambulatory-care physicians are paid either a fee for service or the physician associations pay them a salary from capitated revenues. They generally cannot follow patients into the hospital.
• Doctor visits are shorter and more frequent than in the United States, and hospital stays are longer; however, the hospital staffing ratios are much lower. The average cost of a hospital stay in the United States is $15,000 versus $5,000 for Germany, despite a 50% longer average length of stay.
• Germany has 3.6 physicians and 11 nurses per 1,000 population compared with 2.42 and 9.82, respectively, in the United States.
• Among developed countries, Germany has the fourth-highest percentage of GDP devoted to health care after the United States, France, and Denmark. Because of cost increases, high unemployment, and an aging population, a 2006 political compromise increased premiums to an average of 14.7% of salaries in 2007. Premiums are pooled, and each insurer receives the same premium per enrollee in an attempt motivate efficiency improvements.
Employment-based health insurance is the core of Japan’s health system, and it continues to produce the best health outcomes of any of the systems mentioned here. However, some ascribe much of the differential outcomes to demographic and lifestyle issues, especially diet.2 Japan also has a national health insurance program financed with national and local taxes. Premiums are scaled to family income. Households not covered by employment-based insurance must belong to community insurance programs under the national plan. Retirees are covered by their former employers or their community plans.
The following are the key aspects of the Japanese system:
• The government sets fee schedules for physicians at a level much below U.S. rates. Fees are identical for all plans; however, patients often add 3% or 4% “gifts” to their payments. Fee levels are modified based on utilization. If too many of a procedure are done, the fee will be lowered.
• There are both nonprofit and for-profit hospitals, and hospitals may be owned by doctors.
• Most physicians work out of large clinics, some of which are associated with hospitals, and are reluctant to send patients into the hospital because they cannot follow them once they are admitted.
• Specialists are hospital employees and earn less than primary care physicians.
• Clinics usually dispense their own drugs.
• Japanese patients have many more, briefer physician visits and many more prescriptions than their U.S. counterparts. They also have many fewer hospital admissions, although lengths of stay tend to be much longer.
• There are fewer doctors per capita in Japan than in the United States, and waiting lines tend to be managed on a first-come, first-served basis.
• Japanese hospitals are considered by many to have somewhat outdated equipment and shabby facilities. Physicians do not seem to be customer oriented or highly motivated to meet patients’ affective needs.
Other OECD Countries
Most other Organization for Economic Cooperation and Development (OECD) countries have more physicians and nurses per 1,000 population than the United States. The Netherlands has one of the highest ratios of nurses (13.6 per 1,000) and recently increased the roles of nurses in primary care. France, Sweden, and Spain have high ratios of physicians per 1,000 population (3.4, 3.3, and 3.2, respectively) (Grol, 2006).
SOME REPEATING THEMES
A number of themes recur in the systems of these various countries. Some represent ideas that have been tried in the United States or are being tried as part of the ACA, but all might warrant further consideration as the U.S. system changes over the next 10–20 years.
Health care is provided to all. Often it is through a patchwork of public and private funds, but every effort is made to have everyone in the system. General tax revenues (income, payroll, and value-added taxes) are used extensively to fund health care, but in most cases there is a mixture of additional revenue sources, including patient copayments,
employment-based insurance, retirement funds, local government revenues, and private insurers. This patchwork of payment mechanisms does not leave large gaps of uninsured or underinsured citizens. Private insurance and private care are available to those who choose to pay more. Where copayments are required, a careful effort is made to make sure that ability to pay does not control access to basic care. In the United States, there have been numerous attempts to expand coverage over the last several decades, with the ACA being the most ambitious attempt to approach universal coverage.
Hospitals Are Budget Constrained
Since the introduction of prospective payment based on DRGs, hospitals in the United States have operated more as cost centers than revenue centers. A number of countries have established global hospital budgets or capitation budgets for hospitals, often administered through local authorities or trusts. Capital investment is constrained to avoid a hospital arms race.
Specialists Are Salaried and PCPs Incentivized
Income of the universal coverage system is used to pay the salaries of specialists, whereas fee-for-service payments reimburse the primary care providers. They serve as gatekeepers for referrals to specialists and hospitals and do not follow patients into the hospital. They are motivated, therefore, to avoid unnecessary hospitalizations. The British experiment with pay-for-performance was sufficiently successful that Epstein (2006) argued that its time has come for the United States. One might also see it as a way to boost the incomes of primary care physicians in the United States sufficiently to attract new practitioners and bolster the currently dwindling supply (Basch, 2006).
Large Premium and Risk Pools Are Maintained
Individuals are compelled to belong to one health plan or another. Young and healthy individuals cannot opt out, or, where they can, incentives are provided to try to keep them in. Trusts serve very large employers, but the needs of small businesses and individuals are met through required community rating, local community health plans, and tax subsidies. Large premium and risk pools are built in to level the playing field and hold down administrative and marketing costs.
The integration of the system is provided at the governmental rather than the institutional level. Circuit breakers in the system, especially between hospitals, specialists, and primary care practices, keep individuals and institutions from maximizing utilization. Incentives focus on motivating primary care physicians to control costs and improve quality.
Rationalization and Standardization
A trend toward decentralization of health care services is offset, in part, by setting up staff units that analyze and report on current medical technology, evidence about best practices, and evaluation of the cost-effectiveness of common interventions. These recommendations will probably be worked increasingly into pay-for-performance systems.
Many countries with lower costs seem to have not only lower professional incomes, but also substitute nurses and pharmacists for physicians and physician generalists for specialists in their delivery systems.
Most countries except New Zealand and the United States constrain or ban direct-to-consumer advertising for prescription drugs (a cost that reached $4.5 billion annually in the United States in 2009) and rely on recommendations to physicians for decision making. The profit margins of pharmaceutical companies are constrained through a number of mechanisms, depending on what alternatives exist for payment in the national system. In a few cases, physicians are allowed to supplement their revenue by dispensing in their practices.
We have intentionally omitted some recurring themes from our discussion. We invite you to discuss recurring themes that relate to the following questions:
1. In most of the countries discussed, does universal coverage provide the gold standard of care?
2. Does rationing occur in these countries? If so, how is it different from rationing in the United States?
3. Do revenues used to pay for health care tend to come from a single source or are they derived from many different sources?
4. What steps do these countries take to ensure that payments required of individuals do not become a barrier to access?
5. What other patterns of similarities and differences do you notice?
6. To what extent do you think the crafting of the ACA relied on experiences in other countries? Can you think of examples of policies or countries that may have been influential?
1The cost of a nurse’s time is incurred when she or he reports to work; thus, it is fixed, regardless of whether there are six patients rounded or three or whether a team approach is used. That time is also jointly shared among all the patients the nurse serves. Few systems recorded nursing time by specific tasks.
2Henderson (2002), while agreeing with this, also cited cultural aversion to invasive procedures and underreporting by at least 1.5% of GDP by excluding medical care preventive services, under-the-table payments for access, maternity care, and private room charges.