10. Health Care System

Health Care System

Anita W. Finkelman


Upon completion of this chapter, the reader will be able to do the following:

Key terms


alternative therapies

client rights

community health center

health care reform

managed care

managed care organizations (MCOs)



outcomes measures

public health

quality care


Additional Material for Study, Review, and Further Exploration

The health care system of the United States is dynamic, multifaceted, and not comparable with any other health care system in the world. It is regularly praised for its technological breakthroughs, frequently criticized for its high costs, and often difficult to access by those most in need. This chapter describes landmark health care legislation, the components of the health care system, critical health care organization and provider issues, and the role of government in public health and health care reform and presents a futuristic perspective.

Major legislative actions and the health care system

An examination of the major legislative actions that federal and state governments have taken and recognition of their influence on health and health care delivery are critical to understand the evolution of the health care system in the United States. Throughout the twentieth century, the U.S. Congress enacted bills that had a major influence on the private and public health care subsystems. Legislation pertaining to health increased in scope in each decade of the twentieth century, with the goal of improving the health of populations and coping with changing health care needs. During the last two decades, concerns about an increase in health care costs and the growth of managed care stimulated even more legislation. Indeed, health care reform/health insurance reform were major issues during the 2008 presidential election. Further, throughout much of 2009, Congress debated numerous bills and amendments proposed to help reduce costs, increase access, and improve quality.

Federal Legislation

The following discussion describes some of the landmark federal laws that have influenced health services and health care professionals. These are summarized in Table 10-1.

• Pure Food and Drugs Act of 1906: This act established a program to supervise and control the manufacture, labeling, and sale of food. Subsequent legislation included meat and dairy products, pharmaceuticals, cosmetics, toys, and household products. Since 1927, the Food and Drug Administration (FDA) has administered elements of this act.

• Children’s Bureau Act of 1912: The Children’s Bureau was founded to protect children from the unhealthy child labor practices of the time and to enact programs that had a positive effect on children’s health. In 1921, the Sheppard-Towner Act extended children’s health care programs by providing funds for the health and welfare of infants.

• Social Security Act of 1935 and its amendments (1965, 1972): The Social Security Act and its subsequent amendments have had a far-reaching effect on health care for many groups. The Social Security Administration (SSA) provides welfare for high-risk mothers and children. Benefits were later expanded to include health care provisions for older adults and the handicapped. This major governmental action was the enactment of legislation for Medicare and Medicaid.

• Medicare, Title XVIII Social Security Amendment (1965): This federal program, administered by the Centers for Medicare and Medicaid Services (formerly Health Care Financing Administration [HCFA]), pays specified health care services for all people 65 years of age and older who are eligible to receive Social Security benefits. People with permanent disabilities and those with end-stage renal disease are also covered. The objective of Medicare is to protect older adults and the disabled against large medical outlays. The program is funded through a payroll tax of most working citizens. Individuals or providers may submit payment requests for health care services and are paid according to Medicare regulations. See Chapter 11 for more information on Medicare.

• Medicaid, Title XIX Social Security Amendment (1965): This combined federal and state program provides access to care for the poor and medically needy of all ages. Each state is allocated federal dollars on a matching basis (i.e., 50% of costs are paid with federal dollars). Each state has the responsibility and right to determine services to be provided and the dollar amount allocated to the program. Basic services (i.e., ambulatory and inpatient hospital care, physical therapy, laboratory, radiography, skilled nursing, and home health care) are required to be eligible for matching federal dollars. States may choose from a wide range of optional services including drugs, eyeglasses, intermediate care, inpatient psychiatric care, and dental care. Limits are placed on the amount and duration of service. Unlike Medicare, Medicaid provides long-term care services (e.g., nursing home and home health) and personal care services (e.g., chores and homemaking). In addition, Medicaid has eligibility criteria based on level of income. Table 10-2 provides the U.S. Department of Health and Human Services (USDHHS) poverty guidelines for 2009. The Medicaid population has complex needs, and managed care organizations may not be able to provide optimum services to these beneficiaries. See Chapter 11 for more information on Medicaid.

• Public Health Act of 1944: The Public Health Act consolidated all existing public health legislation into one law. Since then, many new pieces of legislation have become amendments. Examples of some of its provisions, either in the original law or in amendments, provided for or established the following:

• Health services for migratory workers

• Family planning services

• Health research facilities

• National Institutes of Health (NIH)

• Nurse training acts

• Traineeships for graduate students in public health

• Home health services for people with Alzheimer’s disease

• Prevention and primary care services

• Rural health clinics

• Communicable disease control

• McCarren-Ferguson Act of 1945: The McCarren-Ferguson Act has had a major influence on the insurance industry by giving states the exclusive right to regulate health insurance plans (Knight, 1998). No federal government agency is solely responsible for monitoring insurance. Some federal agencies are involved in insurance reimbursement; however, the structure of the benefit program for federal employees and military personnel, Medicare, and Medicaid allows Congress to pass laws that can override state laws if the laws meet certain criteria.

• Hill-Burton Act of 1946: The Hill-Burton Act authorized federal assistance in the construction of hospitals and health centers with stipulations about services for the uninsured. As a result, hospitals with obligations to care for the uninsured were built in towns and cities across the United States. Through these measures, hospital care became more accessible, but, by the late 1990s, the high cost of health care, combined with decreasing lengths of stay and increasing use of primary care, forced the closure of many of the hospitals built with Hill-Burton funds.

• Health Amendments Act of 1956: The Health Amendments Act, Title II, authorizes funds to aid registered nurses (RNs) in full-time study of administration, supervision, or teaching. In 1963, the Surgeon General’s Consultant Group on Nursing noted that there were still too few nursing schools, nursing personnel were not put to good use, and there was limited nursing research. As a result, in 1964, the Nurse Training Act provided funds for loans and scholarships for full-time study for nurses and funds for construction of nursing schools.

• Occupational Safety and Health Act of 1970: The Occupational Safety and Health Act focuses on the health needs and risks in the workplace and environment. It continues to provide critical programs important to the workplace and the community. See Chapter 30 for more information on both the Occupational Safety and Health Act and the Occupational Safety and Health Administration.

• Health Maintenance Organization Act of 1973: The HMO Act provides grants for HMO development. The act requires that employers offer federally qualified HMOs as a health care coverage option to employees and established that states were responsible for the oversight of HMOs. Although initially it was not successful in stimulating HMO growth, this legislation has had a long-term effect on the growth of managed care.

• National Health Planning and Resources Act of 1974: The National Health Planning and Resources Act assigned health planning responsibility to the states and local health systems agencies. In addition, it requires health care facilities to obtain prior approval from the state for expansion in the form of a certificate of need (CON).

• Omnibus Budget Reconciliation Acts (1981, 1987, 1989, and 1990): The Omnibus Budget Reconciliation Acts were each enacted in response to the huge federal deficit. They have influenced funding for nursing homes, home health agencies, and hospitals and set up guidelines and regulations about several issues, including a move from process to outcome evaluation, use of restraints, and prescription drugs for Medicaid recipients.

• Tax Equity and Fiscal Responsibility Act of 1982: The Tax Equity and Fiscal Responsibility Act was a major amendment to the Social Security Act of 1935, establishing the prospective payment system (PPS) for Medicare, the diagnosis-related group (DRG) system. This law changed health care radically by introducing a new reimbursement method. See Chapter 11 for more information on DRGs.

• Consolidated Omnibus Budget Reconciliation Act of 1985: COBRA is a federal law that affects health care delivery and reimbursement. It requires all hospitals with emergency services that participate in Medicare to treat any client in their emergency services, whether or not that client is covered by Medicare or has the ability to pay. This legislation includes requirements for Medicaid services for prenatal and postnatal care to low-income women in two-parent families in which the primary spouse is unemployed. Another important requirement of COBRA focuses on the problem of the loss of insurance when a person loses his or her job. With the growing number of unemployed, COBRA is even more important. Employers who terminate an employee must continue benefits for the employee and dependents for a specified period of time if the employee had health benefits before the termination. COBRA is an example of how a federal law can affect state health care practices. The federal government must determine who receives federal Medicare funds; therefore COBRA provides the opportunity for the federal government to legislate health care delivery at the state level.

• Family Support Act of 1988: The Family Support Act expanded coverage for poor women and children and required states to extend Medicaid coverage for 12 months to families who have increased earnings but are no longer receiving cash assistance. This act also required states to expand Aid to Families With Dependent Children (AFDC) coverage to two-parent families when the principal wage earner is unemployed.

• Health Objectives Planning Act of 1990: The Health Objectives Planning Act was initiated in response to the 1979 report Healthy People: The Surgeon General’s Report on Health Promotion and Disease Prevention. After that report, the federal government began to take a directive approach in identifying and monitoring national health care goals. Healthy People 2000, Healthy People 2010, and Healthy People 2020 are also results of the Health Objectives Planning Act.

• Health Insurance Portability and Accountability Act of 1996: The Health Insurance Portability and Accountability Act (HIPAA) addressed several insurance issues. Critical issues were the portability of coverage and preexisting conditions. This law established that insurers cannot set limits on coverage of longer than 12 months. This is a complex law, but it is important for consumers with preexisting conditions.

• Welfare Reform Act of 1996: The Welfare Reform Act placed restrictions on eligibility for AFDC, Medicaid, and other federally funded welfare programs. This law decreased the number of people on welfare and forced many individuals to take low-paying jobs, many of which do not offer health insurance. Between 1994 and March 1999, welfare rolls dropped 47% (DeParle, 1999). Many individuals, particularly underserved women and children, subsequently lost Medicaid coverage.

• The State Child Health Improvement Act (SCHIP) of 1997: This has been a critical law providing insurance for children and families who cannot afford health insurance. This law has been very important to children’s health. The law was extended several times and then it was not renewed by the Bush administration. In January 2009 the law was renewed again by the Obama administration.

• Medicare Modernization Act of 2003: The Medicare Modernization Act was the most significant law in 40 years for senior health care. After being implemented in January 2006, the law provided seniors and people living with disabilities with some prescription drug benefit coverage, more choices, and better benefits.

• Nurse Reinvestment Act of 2003: The Nurse Reinvestment Act is significant because it is a response to the critical nursing shortage that is present across the country. Funding is provided to increase enrollments and number of practicing nurses.

• Mental Health Parity and Addictions Equity Act of 2008: A similar act was passed in the 1990s, but it was not an effective law. Improving over the earlier law, this act mandates that if a group health plan includes medical/surgical benefits and mental health benefits and/or substance use disorder benefits, the financial requirements (e.g., deductibles and copayments) and treatment limitations (e.g., number of visits or days of coverage) that apply to mental health benefits must be no more restrictive than the predominant financial requirements or treatment limitations that apply to substantially all medical/surgical benefits.

• Patient Protection and Affordable Care Act of 2010: The Health Care Reform Act is an extremely complex and comprehensive piece of legislation. One of the primary intents of the act is to reduce the number of uninsured Americans, and a number of provisions directly address this intent. For example, it requires all U.S. citizens and legal residents to have qualifying health coverage, either provided through employers, individually purchased, or provided by federal plans (i.e., Medicare, Medicaid, CHIPS). It also dramatically changes eligibility requirements for Medicaid, allowing coverage of childless adults with incomes up to 133% of the federal poverty line and expands CHIPS. Further, it subsidizes premiums for lower and middle income families, and requires coverage of dependent adult children up to age 26 for those with group policies (Kaiser Family Foundation, 2010).

The Health Care Reform Act includes significant insurance reforms. For example, it will: (1) establish high-risk pools to provide health coverage to individuals with pre-existing conditions; (2) prohibit insurers from placing lifetime limits on the dollar value of coverage; (3) prohibit insurers from disallowing coverage for some individuals because of pre-existing health conditions and dropping policyholders when they get sick; and (4) require health plans to provide some types of preventive care and screenings without consumer cost-sharing (i.e., copayments or coinsurance). The act will also create programs to foster non-profit, member-run health insurance companies that can offer health insurance, create state-based health insurance exchanges through which individuals and small businesses can buy coverage, and permit states to form compacts that will allow insurers to sell policies in any participating state.

There is considerable confusion and debate on how the act will be implemented and funded. Indeed, most of the provisions will not be in place for at least four years (2014) and some will not be implemented for several years beyond that. Funds for government-financed elements (i.e., Medicare, Medicaid, CHIPS) will be through a combination of new fees and taxes and variety of cost-saving measures. For example, there will be taxes on indoor tanning and new Medicare taxes for those in high-income brackets. The act requires fees for pharmaceutical companies and medical devices, as well as penalties for those who do not obtain health insurance. To cut costs there will be significant cuts to the Medicare Advantage program and modifications and reductions in Medicare spending. It also enhances efforts to reduce administrative costs, streamline care, and reduce fraud and abuse.

TABLE 10-2

2009 Usdhhs Poverty Guidelines

Persons in Family or Household 48 Contiguous States and D.C. Alaska Hawaii
1 $10,830 $13,540 $12,460
2 $14,570 $18,220 $16,760
3 $18,310 $22,890 $21,060
4 $22,050 $27,570 $25,360
5 $25,790 $32,240 $29,660
6 $29,530 $36,920 $33,960
7 $33,270 $41,590 $38,260
8 $37,010 $46,270 $42,570
For each additional person, add  $3,740  $4,680  $4,300


From U.S. Department of Health and Human Services: Computations for the 2009 annual update of the HHS Poverty Guidelines for the 48 contiguous states and the District of Columbia, 2009: aspe.hhs.gov/poverty/09poverty.shtml.

Until passage of the Health Care Reform Act in 2010, the thrust of federal legislation has been on either prevention of illness through influencing the environment (e.g., Occupational Safety and Health Act of 1970) or provision of funding to support programs that influence health care (e.g., Social Security Act of 1935). Beginning with the Sheppard-Towner Act of 1921 and continuing to the present, federal grants have increased the involvement of state and local governments in health care. The involvement of the federal government through fiscal allocations to state and local governments provided money for programs not previously available to state and local areas. Similar services became available in all states. Funds supporting these services were accompanied by regulations that applied to all recipients. Many state and local government programs were developed on the basis of availability of federal funds. The involvement of the federal government through funding has served to standardize the public health policy in the United States (Pickett and Hanlon, 1990).

The rising number of uninsured and underinsured strongly influenced passage of the Health Reform Act of 2010, and although it is anticipated that about 32 million additional citizens will have insurance, universal coverage continues to be a concern. As mentioned, it will take a number of years to fully implement the act and the long-term effects will not be known for at least a decade. Further, legal and legislative challenges to some provisions are anticipated.

State Legislative Role

State governments are also directly involved in health care policy, legislation, and regulation. State governments focus particularly on financing and delivery of services and oversight of insurance. The latter has become important as managed care has grown. The Institute of Medicine (IOM) (1988) report Future of Public Health noted that it is the state’s responsibility to see that functions and services necessary to address the mission of public health are in place throughout the state. The IOM framed the public health enterprise in terms of three functions: assessment, policy development, and assurance. The Association of State and Territorial Health Officials (ASTHO) (2007) described the “public health duties of states” and expanded on the three core functions of public health as the basis. The state health care functions are as follows (p. 7):

• Assessment of health needs based on statewide data collection

• Assurance of an adequate statutory base for health activities in the state

• Establishment of statewide health objectives, delegating power to localities as appropriate and holding them accountable

• Assurance of appropriate organized statewide effort to develop and maintain essential personal, educational, and environmental health services; provision of access to necessary services; and solution of problems inimical to health

• Guarantee of a minimum set of essential health services

• Support of local service capacity, especially when disparities in local ability to raise revenue and/or administer programs require subsidies, technical assistance, or direct action by the state to achieve adequate service levels

Legislation Influencing Managed Care

Prior to passage of the Health Care Reform Act in 2010, much of the recent legislation (i.e., usually state level) influencing managed care organizations (MCOs) is in response to consumers’ concerns about MCOs’ efforts to control costs. Considerable variability exists across states in MCO legislation, and usually these acts are in response to consumer calls for reform (Levy, 2002). The following examples describe a growing number of legislative acts that provide more control over managed care:

• Provider protection initiatives (PPIs): The need for the removal of “gag rules” has been one area of concern for providers and clients. MCOs use gag rules to control what their providers discuss with clients about all treatment options. Additionally, many MCOs provide financial incentives to providers to control costs. These incentives are paid to providers based on their performance data (e.g., number of hospital admissions, length of stay, types of treatment, and types and number of prescriptions ordered).

• Any willing provider initiatives: Provider panels are the lists of providers that are approved by an MCO for reimbursement. These initiatives require that MCOs accept any provider on their provider panels who meets plan requirements and is willing to agree to the contract.

• Direct access legislation: Client freedom-of-choice legislation is rapidly growing as clients become more concerned about their lack of provider choice and want direct access to providers without obtaining prior approval.

• Mandated benefits requirement: This legislation mandates specific minimum health care benefits. Examples of these are the designation of specific basic services, emergency care without prior approval, coverage for experimental treatments, mental health parity, diabetes management, prostate screening, chiropractic treatment, and hospice services.

• Consumer rights: Consumers are demanding more rights than just provider choice. Examples include coverage for specific benefits, such as emergency services without prior approval; longer lengths of stay (e.g., obstetric and mastectomy); detailed disclosure of benefits and plan procedures; provider choice; and impartial mechanism for grievances. Efforts have been made to pass a national patients’ rights bill, but this has not occurred even though many states passed this type of legislation.

Components of the health care system

The current health care system consists of private and public health care subsystems (Figure 10-1). The private health care subsystem includes personal care services from various sources, both nonprofit and profit, and numerous voluntary agencies. The major focus of the public health subsystem is prevention of disease and illness. These subsystems are not always mutually exclusive, and their functions sometimes overlap.

With the rapid growth of technology and increased demands on the private and public health care subsystems, health care costs have become prohibitive. Cost-effectiveness and cost containment have become a critical driving force as health care delivery system changes are made, and cost-effectiveness often conflicts with the provision of quality care.

Community health nursing requires an understanding of the mission, organization, and role of the private and the public health care subsystems and the contexts within which they function to effectively collaborate with health care organizations to reach community health goals. An organizational framework in which private and voluntary organizations and the government work collaboratively to prevent disease and promote health is essential. Public health and community health nurses are in a unique position to provide leadership and facilitate change in the health care system.

Private Health Care Subsystem

Most personal health care services are provided in the private sector. Services in the private subsystem include health promotion, prevention and early detection of disease, diagnosis and treatment of disease with a focus on cure, rehabilitative-restorative care, and custodial care. These services are provided in clinics, physicians’ offices, hospitals, hospital ambulatory centers, skilled care facilities, and homes. Increasingly, these private sector services are available through MCOs.

Private health care services in the United States began with a simple model. Physicians provided care in their offices and made home visits. Clients were admitted to hospitals for general care if they experienced serious complications during the course of their illness. Currently, a variety of highly skilled health care professionals provide comprehensive, preventive, restorative, rehabilitative, and palliative care. A broad array of services is available, which range from general to highly specialized with multidelivery configurations.

Personal care provided by physicians is delivered under the following five basic models:

Managed care has become the dominant paradigm in health care, affecting many aspects of health care delivery. Managed care involves capitated payments for care rather than fee- for-service. Health care providers, including physicians, hospitals, community clinics, and home care providers, are integrated in a system such as an HMO. See Chapter 11 for a more detailed discussion of managed care and reimbursement.

Voluntary Agencies

Voluntary or nonofficial agencies are a part of the private health care system of the United States and developed at the same time that the government was assuming responsibility for public health. In the United States during the 1700s and early 1800s, voluntary efforts to improve health were virtually nonexistent because early settlers from Western Europe were not accustomed to participating in organized charity. Immigration expanded to include slaves from Africa and people from Eastern Europe, and their well-being received little attention.

Toward the end of the nineteenth century, new immigrants brought a heritage of social protest and reform. Wealthy businesspeople, such as the Rockefellers, Carnegies, and Mellons, responded to the needs and set up foundations that provided health and welfare money for charitable endeavors. District nurses, such as Lillian Wald, established nursing practices in the large cities for the poor and destitute. Services did not focus just on illness but also on work conditions, health, communicable diseases, living conditions, and language skills.

Voluntary agencies can be classified into the following categories (Hanlon and Pickett, 1990):

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Aug 1, 2016 | Posted by in NURSING | Comments Off on 10. Health Care System

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