HSCI 678 Intro to US Healthcare System Financing the U.S. Health Services System Chapter 7 Dr....
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Transcript of HSCI 678 Intro to US Healthcare System Financing the U.S. Health Services System Chapter 7 Dr....
HSCI 678 Intro to US Healthcare System
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
• US unique among industrialized nations
• Highest per capita expenditures
• Up to 20% of population no access
• Complex system– Payment Mechanisms– Expenditures– Trends
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
• 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.
Revenue
• 55% Private funds
• 45% Public funds
Revenue Sources
34%
15%17%
12%
16%
6%
Private Insurance
Out of Pocket
Medicare
Other Public
Medicaid/SCHIP
Other Private
Expenditures
• 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
• 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
• Program administration: 6%
• Research and Construction: 3%
• Public Health: 3%
• Percentages are part of total expenditures
Per Capita Expenditures
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
1960 1970 1980 1990 2000
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
• 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
• 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
• Population growth
• Elderly population growth– Reduced health status– Increased health services utilization
• Aging population accounts for 10% of the increase in health expenditures
Technology
• US—one of the most advanced systems in the world
• Advances account for 20% increase in expenditures
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
• 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 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 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
• 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
• Indicators point to continuing increase
• By 2065 Health Expenditures will consume MORE THAN 25% of GDP
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 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
• 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
RBRVS
• 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
Capitation
• 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
• 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
• Canadian healthcare system
• Provinces provide a lump sum to hospitals.
• Why are we even talking about this?
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
• 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
• 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.
Summary
• 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