Health Care USA 1 Chapter 7 Financing

Health Care USA 1

Chapter 7 Financing Health Care USA 2

CHAPTER OBJECTIVES • Understand the scope and magnitude of U. S. health care spending in relationship with other developed countries • Understand how the U. S. health care payment system evolved & current trends • Understand the related roles of government & the private sector in financing health care • Understand efforts to link costs with quality Health Care USA 3

PART 1 • National Health Care Expenditures – Influences on health care finances – Primary components of health care expenditures • Private Health Insurance – Blue Cross/Blue Shield – Commercial Insurers – Managed Care Health Care USA 4

Overview • Multiple payment sources – Working Americans’ employer health insurance (Blue Cross/Blue Shield, managed care plans) – Public funds support Medicare (66 +), Medicaid for low-income individuals Health Care USA 5

Influences on Health Care Financing • Providers, employers (purchasers), consumers, politics • Tensions- Responsibilities of – Government – Employers – Consumers – Providers – The Market Health Care USA 6

Health Care Expenditures in Perspective • 2008 expenditures= $ 2. 33 trillion, 16% of GDP, $ 7, 681/person; 1/6 of total economy • Hospital care, physician services, prescription drugs: 3 top expenses • Government sources finance 48% of total expenditures Health Care USA 7

FIGURE 7 -1 National Health Expenditures per Capita and Their Share of the Gross Domestic Product, 1960– 2008. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. Health Care USA 8

FIGURE 7 -2 The Nation’s Health Care Dollar 2008: Where It Went. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. Health Care USA 9

FIGURE 7 -3 The Nation’s Health Care Dollar 2008: Where It Came From 1 Other Public includes programs such as workers’ compensation, public health activity, Department of Defense, Department of Veterans Affairs, Indian Health Service, State and local hospital subsidies and school health. 2 Other Private includes industrial in-plant, privately funded construction, and nonpatient revenues, including philanthropy. 3 Out of pocket includes co-pays, deductibles, and treatments no covered by Private Health Insurance. Note: Numbers shown may not add to 100. 0 because of rounding. Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. Health Care USA 10

Factors that Decreased Expenditure Growth • Managed care utilization controls • Hospital prospective payment • Managed care physician fee restrictions Health Care USA 11

U. S. Health Spending Compared with Other Developed Countries (2) • 1970 -2005: U. S. had largest increase in percent of GDP devoted to health care among 29 other countries – Lower life expectancy based on per capita income – Lower ranking on health status indicators – Spent > twice median spending of others per capita on health care Health Care USA 12

U. S. Health Spending Compared with Other Developed Countries (2) – With 3 rd highest level of public spending on health care, U. S. public insurance covered only 26. 5% of population – Lower U. S. utilization rates per capita (hospital stays and physician visits) – Lower supply of expensive technology – Higher income & medical care prices…not superior health care or better outcomes Health Care USA 13

U. S. Health Care Waste • 30 -40% of spending yields no value, inefficiently producing valuable services • CBO Director (2008): “future health care spending…the single most important factor determining the nation’s long-term fiscal condition – Evidence-based physician practice needed to reduce variability Health Care USA 14

Health Care Fraud & Abuse • FBI 2009 estimates: $ 75 -250 B • U. S. Justice Department & HHS Inspector General investigate, convict and exclude providers – 2009 : Health Care Fraud Prevention and Enforcement Action Team using new technology to identify and analyze suspected fraud Health Care USA 15

Major Contributors to Increases in Health Expenditures • • • New diagnostic & treatment technology Growth in older population Medical specialization Uninsured, underinsured populations Labor intensity Reimbursement system incentives Health Care USA 16

New Diagnostic & Treatment Technology • Equipment, devices & pharmaceutical agents, requiring advanced personnel training & new personnel roles – Computed tomography scanning, Magnetic resonance imaging, PET scanning – Pacemakers, implantable cardio-converters – Drugs and drug marketing to consumers Health Care USA 17

Aging Population • Since 1900, 65+ year olds tripled in number • 85+ year old projected at 8. 9 M by 2030 – Major consumers of hospital inpatient care – Advanced age accompanied by chronic conditions requiring surgeries, drug therapies Health Care USA 18

Medical Specialization • ~60% of physicians are specialists • Americans demand specialty care and use of diagnostic testing • Managed care relaxing hurdles to specialty care referrals Health Care USA 19

Uninsured and Under-insured • 47 million, 16% of Americans • Almost 75% of uninsured in households with at least one full-time worker • No insurance: late care, medical complications, emergency care, avoidable hospitalizations • Costs passed to insurance premiums, taxes Health Care USA 20

Labor Intensity • People- centered services require high staff to consumer ratio • New technologies require new, technically trained personnel • Aging population contributes to home care, other personnel needs • 3. 2 M new jobs by 2014 will be in health services Health Care USA 21

Economic Incentives • Traditional payment for piece-work drove high utilization • Managed care, prospective payment dulled incentives • System still largely physician and hospital driven with continuing incentives for over-use Health Care USA 22

Private Health Insurance • 1800 s: movement to insure workers against lost wages due to work injuries; later coverage added for serious illness • Insurance payments to medical care providers not until 1930 s Health Care USA 23

Health Insurance Concepts • Antithetical to “insurance” premise of guarding against unlikely events, health insurance evolved to pay for both routine and unexpected events – Indemnity coverage protected from all costs of care; prevailed 1930 s-1970 introduction of managed care Health Care USA 24

Blue Cross/Blue Shield • 1930 Baylor University teachers’ contract with Baylor, TX hospital to cover inpatient services on an annual basis – Model for Blue Cross development • Blue Shield for physician payment followed in 1940 s with AMA financing of Association of Medical Care plans Health Care USA 25

Insurance Transformed Health Care (1) • Established hospitals as centers of medical care proliferation & technology • Put hospital care within easy reach of working population – Annual hospital admissions 50% higher for covered individuals than nation as a whole by late 1930 s Health Care USA 26

Insurance Transformed Health Care (2) • Private insurance countered forces that lobbied for national health insurance, strongly opposed by private medicine – Focused government insurance on low-income individuals – Stimulated American Hospital Assn. & local hospitals to subsidize semi-private and ward care for low-income populations Health Care USA 27

Features of Blue Cross & Blue Shield • Initially, not-for-profit corporations & community rated (without regard to demographics, occupation, etc. ), later, experience- rated to compete with for-profit companies • Since 1990 s, many plans converted to forprofit status Health Care USA 28

Commercial Health Insurance • Entered market in decade following Blues • Used experience-rating to charge higher premiums to less healthy; competed with Blues for healthy persons with lower premiums • By early 1950 s surpassed Blues’ enrollment Health Care USA 29

Managed Care • Throughout the 1960 s, rapidly increasing Medicare expense, quality concerns by government and industry health insurance purchasers resulted in development of the HMO Act of 1973 • Many employer groups had used specific, contracted arrangements; Act opened participation to all employers Health Care USA 30

HMO Act of 1973 • Loans & grants for planning, implementing combined insurance, health care delivery organizations • Required comprehensive services for acute and preventive care • Employers of >25 mandated to offer HMO option, if available & fund premiums=to prior plans Health Care USA 31

HMO Fundamentals • Links health care provision to prepayment • Population, not individual-based reimbursement • Financial risk-sharing among providers, insurers, consumers • Intended to reverse incentives for utilization Health Care USA 32

HMO Models • Staff: MD employees provide primary care in HMO-owned facilities • Independent Practice Association: Communitybased MDs serve HMO members on pre-paid, fee-for-service, contracted basis • Hybrids: group practice, network, direct contract Health Care USA 33

Payment Methods • Encourage cost-conscious, effective, efficient care • Capitation: per-member per-month fee paid in advance whether or not services used • Withholds: retains percentage of customary fee, refunded if targets met Health Care USA 34

Financial Risk-sharing • For Providers: capitation, withholds, expenditure targets • For Subscribers: co-payments, deductibles Health Care USA 35

Evolution of Managed Care (1) • Point of Service (POS) plans spawned by demands for out-of-network choices • Preferred Provider Organizations (PPOs): MDs & hospitals offer private payers & self-insured firms negotiated fee discounts in return for business volume guarantee (60 % of all employer-covered workers) • Today, virtually all health insurance is some form of managed care Health Care USA 36

Evolution of Managed Care (2) • Disease Management • Use of evidence-based guidelines for subscribers with high-risk medical and potentially high-cost conditions • Identified from claims data • Insurer or contracted services to monitor condition and ensure compliance Health Care USA 37

Evolution of Managed Care (3) • Primary physician “gatekeeper” role declining in importance – Subscriber demands for more choice in referrals • Staff model decline Health Care USA 38

Managed Care Backlash (1) • Organized medicine, consumers protested restrictions on choice of providers, referrals, other practices • Presidential commission est. to review patient protections – President Clinton imposed patient protections on companies supplying federal workers Health Care USA 39

Managed Care Backlash (2) • Bipartisan Patient Protection Act proposed in 1998 never passed • State legislatures led with 900+ laws & regulations addressing provider and consumer protections Health Care USA 40

Managed Care Backlash (3) • Consumer-Driven Health Plans: employers’ response to rising costs & demands for consumer choice – Employees take responsibility for health care decisions and cost-consciousness – Health care reimbursement or Health Savings Accounts using high-deductible policies – 2009: ~8% employee participation Health Care USA 41

Trends in Managed Care Costs (1) • 1990 s: slowest rate of cost growth in years • 1998: premiums rose again – Insurance underwriting cycle – Prescription drug costs – Investor pressures – Consumer demands for choice Health Care USA 42

Trends in Managed Care Costs (2) • 1999 -2009, avg. family policy premiums increased 131% to $13, 375 – Workers’ contribution: 17% single, 27% family • 40 hour/week minimum wage worker ($7. 25/hour) gross earnings (before taxes) = $ 15, 080 Health Care USA 43

Impact of Rising Premiums • Higher worker contribution results in dropped coverage • Employers use “benefit buy-downs, ” reducing benefit scope, increasing co-pays, and/or deductibles – 1% increase in premiums= 164, 000 additional uninsureds Health Care USA 44

Managed Care “Report Card” • 5 -year literature review notes failings in dual promise to lower costs and increase quality – Needed: • Systematic information systems’ revamping • More appropriate provider incentives • Revised, evidence-based clinical processes Health Care USA 45

Managed Care Industry Changes • Consolidations & mergers: 5 publicly traded companies now enroll 103+ million members, 82% of all subscribers • Responses to provider/consumer issues: – States’ patient protection legislation – Loosening of choice on patient referrals – Patient access to policies, esp. payment denials Health Care USA 46

PART 2 • Managed Care & Quality • Self-funded Insurance Programs • Government as Payer – Cost and Quality Initiatives • State Experiments • Future Challenges Health Care USA 47

Managed Care Organizations and Quality • American Association of Health Plans est. 1979; renamed National Committee on Quality Assurance (NCQA) in 1990 – Independent, not-for-profit, funded by accreditation fees and revenues from sale of a quality indicator compendium on 250 health plans serving 50 million Americans Health Care USA 48

NCQA (1) • Evaluations & accreditation on a voluntary basis for – Managed care organizations – Preferred provider organizations – Managed behavioral health organizations – New health plans – Disease management programs Health Care USA 49

NCQA (2) • Accreditation entails rigorous reviews of all organization aspects including on-line surveys and onsite visits: – Management, physician credentials, member rights & responsibilities, preventive health services, utilization, medical records, disease management programs, outcomes of care, measures of clinical processes Health Care USA 50

NCQA (3) • Certifications for organizations that provide – Provider credentials’ verifications – Utilization management services – Disease management services Health Care USA 51

HEDIS (1) • Health Plan Employer Data and Information Set (HEDIS) evolved from partnership among health plans, employers and the NCQA in 1989. • Standardized method for MCOs to collect, calculate, report performance information to facilitate plan comparisons by employers, other purchasers & consumers Health Care USA 52

HEDIS (2) • Data set contains 71 measures of MCO performance in 8 domains (“Report Cards”): 1. 2. 3. 4. 5. Effectiveness of care Accessibility & availability of care Satisfaction with care Health plan stability Use of service Health Care USA 53

HEDIS (3) • Domains, continued 6. Cost of care 7. Informed health choices 8. Health plan descriptive information Health Care USA 54

HEDIS Promotes Transparency • Centers for Medicare and Medicaid Services requires all funded MCOs to report HEDIS data • All NCQA accredited plans must publicly report their clinical quality data • Many states require Medicaid managed care plans to report HEDIS data Health Care USA 55

Internal MCO Quality Monitoring • Physician performance & outcomes monitoring • Hospital outcomes quality • Disease management programs, e. g. – Patient self-management education – Risk stratification – Outreach with clinical specialists Health Care USA 56

Self-Funded Insurance Programs (1) • Large employer, union or trade association collects premiums, pays medical benefits claims instead of using a commercial carrier – Actuarial firm may set premiums – Third party administrator (TPA) administers benefits, pays claims, collects utilization data, manages expensive cases Health Care USA 57

Self-Funded Insurance Programs (2) • Employer Advantages – Avoid administrative charges of commercial carriers – Avoid state premium taxes – Accrue interest on reserves – Exemption from ERISA minimum benefits & liability for plan coverage denial decisions Health Care USA 58

Government as Payer: A System in Name Only (1) • Early focus: military, government employees, special populations, e. g. Native Americans • Now: Medicare, Medicaid, U. S. Public Health Service hospitals, state, local, long-term psychiatric facilities, Veterans Affairs, military & dependents, workers’ compensation, public health protection, service grants Health Care USA 59

Government as Payer: A System in Name Only (2) • “System: ” Mosaic of reimbursement, vendors/purchaser relationships, matching funds, direct services, e. g. – Contracts with providers, not direct service provision (Medicare, Medicaid, grants) – Federal with State matching funds (Medicaid) – Direct services (Veterans Affairs) Health Care USA 60

Medicare: Historical Significance • 1965: Title XVIII of Social Security Act • All Americans ≥ 65 yrs. entitled to health insurance benefits; 20 million entered system in 1965. • Financed by payroll taxes • Conceded accreditation, administration to private sector-JCAHO…Now “JC” • Hospital payments by local Blue Cross intermediaries Health Care USA 61

Initial Medicare Components • Part A: Mandatory hospital coverage, outpatient diagnostics, extended care facilities, home care posthospitalization; funded by Social Security payroll taxes. • Part B: voluntary MD coverage, tests, medical equipment, home health; funded by beneficiary premiums matched with federal revenues • Cost sharing: deductibles, co-insurance; medi-gap policies Health Care USA 62

Additional Medicare Components • Part C: Managed Care Options for Private Health Plan Enrollment (1997) • Part D: Prescription Drug Coverage (2003) Health Care USA 63

Growth in Medicare Expenditures • Costs rose much more rapidly than expected • 1976: Most cost growth due to hospital personnel, non-personnel and profits • Early amendments added covered services, increased costs; quality concerns escalated through 70 s and 80 s. • Later amendments addressed cost growth reductions and quality improvement Health Care USA 64

Medicare Cost Containment & Quality Improvement Measures (1) • Comprehensive Health Planning Act (1966): organize local health planning • Professional Standards Review Organizations (1972): review Medicare hospital care. • Health Systems Agencies (1974): plan for health resources based on population needs (replaced CHP); plans based on local population needs Health Care USA 65

Medicare Cost Containment & Quality Improvement Measures (2) • OBRA 1980, 1981 amendments to reduce hospital lengths of stay, advocating home care • Tax Equity & Fiscal Responsibility Act (TEFRA) 1982: Peer Review Organizations (PROs) replaced PSROs, providing clearer cost/quality criteria; • 2001: renamed PROs to QIOs (Quality Improvement Organizations) Health Care USA 66

Medicare Cost Containment & Quality Improvement Measures (3) • DRGs (1983): Shifted Medicare from – Pre-set hospital case reimbursement based on diagnosis using the International Classification of Disease (ICDA) codes • Rewarded efficient care, financially penalized inefficiency • Other insurers followed lead Health Care USA 67

DRG Implementation (1) • Predictions of “quicker/sicker” discharges proved unfounded • Federal prospective Payment Assessment Commission (Pro. Pac) established to review quality – Post-implementation research demonstrated no deleterious effects on patient outcomes Health Care USA 68

DRG Implementation (2) • Slowed cost growth through length of stay reductions, personnel reductions • Hospitals realized increased profits • Impact of major shifts to outpatient services, shifting costs to private pay patients dampened cost-containment results Health Care USA 69

DRG Cost Containment & Quality Improvement Measures (3) • COBRA 1985: penalties for financiallymotivated patient transfers • Emergency Medical Treatment and Labor Act (1986) refined 1985 COBRA Health Care USA 70

Cost Containment & Quality Improvement Measures (4) • Physician Fees: Rapidly rising Medicare payments and specialty services prompted action: • 1987 -1989: price freeze ineffective; results suggested offset by increased volume • 1992: RBRVS: Pay same amount for office procedures whether provided by specialist or primary physician; incentives for primary care practice; updated by AMA & specialty societies Health Care USA 71

HIPAA • 1996 Kennedy-Kassenbaum Bill – Reaction to failed Clinton National Health Security Act • Prohibited coverage denial due to pre-existing health condition • Ensured continued coverage between employers • Established “portable” Medical Savings Accounts Health Care USA 72

Cost Containment & Quality Improvement Measures (5) • Balanced Budget Act of 1997: – Predictions of Hospital Trust Fund insolvency – Medicare unsustainable w/o cuts in other programs, increased taxes & budget deficits – Medicare f-f-s outmoded in MCO environment – Medicare gaps for low income populations Health Care USA 73

Balanced Budget Act of 1997 – Reduce Medicare spending growth rate over 5 years through direct and indirect cost reductions – Fund State Child Health Insurance Program (SCHIP) to enroll 10+ million Medicaid-eligible children – Introduce Medicare managed care – Enact demonstration projects on quality & cost containment Health Care USA 74

Balanced Budget Act Provisions • • New Medicare Part C-managed care Demonstration projects Prevention initiatives Provider payment reductions Anti-fraud & abuse provisions Rural hospital initiatives Outpatient & Nursing Home Prospective Payment Health Care USA 75

Balance Budget Act Outcomes • Significant decrease in Medicare spending growth through 2002; $ 68 B in savings • Private insurers’ entry through Medicare Part C • Successful SCHIP implementation • Fraud & abuse financial recoveries Health Care USA 76

Responses to BBA • Strong resistance from affected groups – Balanced Budget Refinement Act (1999) to curtail MCO withdrawals from Medicare +Choice (Part C) – Consolidated Appropriations Act of 2000: restored $17 B in cuts, postponed/adjusted new payment schemes Health Care USA 77

Ongoing Medicare Cost Reduction & Quality Improvement Initiatives (1) • 2001: CMS “Quality Initiative” to monitor conformance with standards of care: – Hospitals, nursing homes, home health care agencies, physicians, other facilities • Medicare Quality Monitoring System: – Monitors quality of care delivered to Medicare f-fs beneficiaries Health Care USA 78

Ongoing Medicare Cost Reduction & Quality Improvement Initiatives (2) • Hospital “Pay-for-Performance” plans to reward positive patient results & efficient care • “Hospital Compare” website: 20 criteria assessing hospital conformity with evidence-based practice • Beginning in 2008 : No reimbursement for treatment of hospital acquired infections; investigating other options for “never happen” events and resulting treatment costs Health Care USA 79

Ongoing Medicare Cost Reduction & Quality Improvement Initiatives (3) • Hospital Consumer Assessment of Health Care Providers and Systems” surveys added to “Hospital Compare” to provide patient perspectives on hospital experience. Health Care USA 80

Medicaid and the SCHIP • 1965: Title XIX of Social Security Act • Mandatory joint federal-state program – Shared state support based on state’s per capita income • Basic insurance coverage for 47 M low income individuals • 16% of personal health service spending; 41% of nursing home care Health Care USA 81

Medicaid Scope • Federal government establishes broad guidelines; requirements are state-established – Low income families and children – Long-term care for older and disabled individuals – Supplemental coverage for low-income Medicare beneficiaries for non-Medicare covered services Health Care USA 82

Federally Mandated Medicaid Services • • Inpatient, outpatient hospital services Physician services Diagnostic services Nursing home care for adults Home health care Preventive health screening Pregnancy related & child health services Family planning services Health Care USA 83

Medicaid Expenditure Growth • • • Growth in eligible populations, longevity Provider payment increases Disproportionate share hospital program Growth in intensive & long term care Increased survival of low birth weight infants Health Care USA 84

Medicaid Funding • Personal income tax, corporate and excise taxes • Unlike Medicare, no entitlement; a transfer payment from more affluent to needy individuals • Direct reimbursement to providers; no intermediary Health Care USA 85

Medicaid Managed Care • 1990 s: States experimented with Medicaid managed care to stem 300% growth since 1980. • 1993: Federal waivers allowing mandatory managed care accelerated enrollment. • 1997: BBA lifted all waiver requirements • 50 states participate; majority of recipients in managed care Health Care USA 86

Children’s Health Insurance Program • BBA targeted enrollment of 5 M children with federal matching funds, 1998 -2007 • By 2008, 7 M enrolled; but 8. 1 M remained uninsured • Reauthorized in 2009 through 2013 with enhancements Health Care USA 87

FIGURE 7 -7 Number of Children Ever Enrolled in the Children’s Health Insurance Program. Source: Children’s Health Insurance Statistical Enrollment Data System (SEDS) 1/29/09 Health Care USA 88

Medicaid Quality Initiatives • The Center for Medicaid & State Operations (CMSO) develops & implements Medicaid & SCHIP quality initiatives with state programs • Division of Quality, Evaluation & Health Outcomes provides technical assistance to states for quality improvement initiatives Health Care USA 89

Medicaid Quality Strategies 1. 2. 3. 4. Evidence-based care Payment aligned with quality Health information technology Partnerships with internal & external expert organizations 5. Information dissemination, technical assistance, sharing best practices Health Care USA 90

Future Prospects • Little federal action 2000 -2008 left major gaps in plans for cost control and access improvement • States experimented with universal coverage since 2003 • 2008 presidential election focused on swift, major health care reforms Health Care USA 91

State Experiments • Maine: make affordable coverage available to all; decrease cost growth, expand Medicaid, improve quality • Massachusetts: personal responsibility mandate with government subsidy • Vermont: government, employer premium assistance; state-wide plan for preventing and managing chronic conditions Health Care USA 92

Future Challenges • Moral dilemma: defining values about allocations of resources • Breaking lose from old philosophies, value systems and politics in implementing the Patient Protection and Affordable Care Act of 2010 Health Care USA 93