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Financing the U.S. Health Services System. Chapter 7 Dr. Tracey Lynn Koehlmoos. Alibis. Nurse Revitalization Act of 2002 ACHE: American College of Health Care Executives HIPAA, HIPAA, HIPPA! Health Insurance Portability and Accountability Act of 1996. Follow the money trail.

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financing the u s health services system

Financing the U.S. Health Services System

Chapter 7

Dr. Tracey Lynn Koehlmoos

HSCI 678 Intro to US Healthcare System

  • Nurse Revitalization Act of 2002
  • ACHE: American College of Health Care Executives
    • Health Insurance Portability and Accountability Act of 1996
follow the money trail
Follow the money trail
  • US unique among industrialized nations
  • Highest per capita expenditures
  • Up to 20% of population no access
  • Complex system
    • Payment Mechanisms
    • Expenditures
    • Trends
history lesson
History Lesson
  • WWII: First taste of systematic care
    • For soldiers and families
    • Compensation for workers’ frozen wages
  • Post WWII:
    • Expectation of health services benefits
    • 1945: 32 million with hospital insurance
    • 1960: 122 million
    • Physician services: 5 million to 83 million
take home lesson
Take home lesson
  • Early events in the financial evolution emanated from the private sector.
  • Private sector continues to have strong influence in the financing of the US healthcare system.
  • 55% Private funds
  • 45% Public funds
  • In 2000, $ 1.3 trillion on health services
  • In 2000, US spent $4,094 per person
  • Two types
    • Personal health services—89%
    • Non personal health services—11%
personal health services
Personal Health Services
  • Hospital Care: 33.3%
  • Physician Services: 22%
  • Drugs: 10%
  • Nursing Home: 7%
  • Home Health: 2%
  • Other personal care: 9%
  • Other medical products: 4%
non personal health services
Non-Personal Health Services
  • Program administration: 6%
  • Research and Construction: 3%
  • Public Health: 3%
  • Percentages are part of total expenditures
reasons for expenditure increase
Reasons for Expenditure Increase
  • General Inflation
  • Medical Price Inflation
  • Availability of Health Insurance
  • Population Growth
  • Increased number of elderly
  • Creation of more expensive technology
  • Fraud and abuse
  • Market Failure
  • And many more….
inflation s effects
Inflation’s Effects
  • Greatest influence on expenditure growth
  • Some researchers:
    • 70% of health care increase due to inflation
    • Medical prices increase 44% faster than consumer prices (1970’s and 1980’s)
role of health insurance
Role of Health Insurance
  • Expenditure growth due to “insolating effect” of health insurance
  • Health Economics 101
    • People behave rationally
    • Not in health care
    • Not with health insurance
  • Loss of individual accountability
demographic effects
Demographic Effects
  • Population growth
  • Elderly population growth
    • Reduced health status
    • Increased health services utilization
  • Aging population accounts for 10% of the increase in health expenditures
  • US—one of the most advanced systems in the world
  • Advances account for 20% increase in expenditures
other affecting factors
Other Affecting Factors
  • Proportion of GDP
    • Increased salaries
    • Increased willingness to pay for healthcare
  • Expanding Services to New Groups
    • Elderly
    • Low-Income Children and their caretakers
    • Disabled
more affecting factors
More Affecting Factors
  • Administrative Costs
    • Complex system, Multi-layers
    • Greater admin costs
    • Per capita: US $497 v. Canada $156
  • Fraud and Abuse
    • Believed to contribute 10% to total expenditures
    • Practice of defensive medicine (excessive care to avoid malpractice)
    • Price of Malpractice premiums
more affecting factors19
More Affecting Factors
  • Growth of Government Programs
    • Increased access = increased expenditures
    • 30% of Medicare for 6% of beneficiaries in the last year of life
    • 29% of Medicare and Medicaid payments for elderly are for patients in the last year of life
more affecting factors20
More Affecting Factors
  • Acute v. Preventative Care
    • Most US health services are curative
    • Preventative, Promotion < 3% of $$$
    • Preventable diseases constitute 70% of illnesses and associated costs
    • 8 of 9 leading causes of death in US are from preventable causes—mostly related to lifestyle choices
the last big affecting factor
The Last BIG Affecting Factor
  • Market Failure

Economic commodity v. Social Good

  • WHY?
    • Consumers lack information
    • Physicians have decision making authority
    • Third party payers dominate
    • Ineffective price competition
    • Providers payment mechanisms (later…)
    • Government subsidizes the market
expenditure projections
Expenditure Projections
  • Indicators point to continuing increase
  • By 2065 Health Expenditures will consume MORE THAN 25% of GDP
efforts at cost containment
Efforts at Cost Containment
  • Major initiatives have failed
  • One brief & shinning moment of success:
    • Late 80’s, early 1990’s
    • Medicare’s Prospective Payment System
    • Spread of Managed Care
    • Reduced Inpatient Hospital Costs by 30%
    • The bad news: Outpatient $ quickly exceeded!
provider payment mechanisms
Provider Payment Mechanisms
  • Provider Payment affects expenditures
  • Four types of payment
    • Fee for Service
    • Flat Fee Per Medical Case
    • Flat Fee Per Patient per Month/Year
    • Global Budgeting
fee for service
  • Hospitals: paid per day
  • Physicians: paid per each service/visit
  • Medicare started UCR (Usual, Customer & Reasonable) to account for geographic price variation
  • Medicare “assignment”, physician “accepted” rates
  • Perverse incentive (promotes over-service)
flat fee per case
Flat Fee Per Case
  • A.K.A.: Prospective Payment System (PPS)
  • Medicare instituted PPS in 1983 (TEFRA)
  • Diagnostic Related Groups (DRG’s)
  • Set payment for each DRG
  • Geographic variation, outlier exclusions
  • Children’s, Psych, Rehab and Short Stay hospitals are not paid by PPS
  • Resource Based Relative Value Scale
  • 1992, Medicare physician reimbursement
  • To better reimburse, more fairly reimburse
    • Cognitive and time consuming v. technical and procedural
    • History taking, physical exams, counseling
  • Flat Fee per Patient per Month/Year
  • HMO and Managed Care mainstay
  • Providers share in the risk!
  • Provider incentive: keep patients well, but avoid costly care
  • Potential for underservice
capitations and expenditures
Capitations and Expenditures
  • If we went with HMO’s, we’d reduce 10%
  • More research is needed as managed care extends its grasp
  • However, HMO-backlash means pure capitation payment methods are vanishing
global budgeting
Global Budgeting
  • Canadian healthcare system
  • Provinces provide a lump sum to hospitals.
  • Why are we even talking about this?
tax expenditures
Tax Expenditures
  • Employer health premiums are not taxed
  • Federal and State governments lose billions in tax revenue
  • Employee-taxable income of employer-paid premiums causes a $141 billion tax expenditure (or loss to the govt.)
industry expenditures
Industry Expenditures
  • Business and industry spends an excessive amount on employee health benefits
  • 1990, 61.1% of pre-tax profit went to health expenditures!
employee cost sharing
Employee Cost Sharing
  • Companies are increasing cost-sharing
  • Larger deductibles, larger premiums
  • More refusals of care, self-insuring
  • Fewer businesses offering benefit
  • Real cash wages have remained steady for two decades because of the increasing cost of health insurance.
  • Private and Public financing of US system
  • Highest per capita expenses in the world
  • 20% of population, no access to system
  • Increasing proportion of GDP (16%)
  • Initiatives have failed—because they only target a part of the system