Paying for Health Care in America: Rising Costs and Challenges



Paying for Health Care in America


Rising Costs and Challenges


Marylane Wade Koch, MSN, RN



Learning Outcomes


After studying this chapter, the reader will be able to:


1. Analyze major factors that have influenced health care access and financing since the middle of the twentieth century.


2. Analyze the relationship between market issues and health care resource allocation.


3. Integrate knowledge of health care resources, access, and financing into managing professional nursing care.


4. Critique the relationship between contemporary economic issues and trends and professional nursing practice.


5. Discuss the implications of the Patient Protection and Affordable Care Act (PPACA) for nursing and health care.



Key Terms



Capitation


A method of reimbursing providers (usually primary care providers, such as physicians or nurse practitioners) in which the insurance company pays the provider a set payment each month to provide a defined set of health care services for the patient enrolled in the insurance company’s health plan. The payment is typically expressed as a per-member-per-month payment. The defined health care services generally include preventive, diagnostic, and treatment services.


Centers for Medicare & Medicaid Services (CMS)


The federal government agency that administers Medicare and Medicaid.


DRGs (diagnosis-related groups)


Refers to reimbursement for health care services based on a predetermined fixed price-per-case or diagnosis.


Effectiveness


Production of a desired outcome; taking the right action to achieve the expected result.


Efficiency


The extent to which resources, such as energy, time, and money, are used to produce the intended result.


GDP (gross domestic product)


The measure of the total value of goods and services produced within a country; the most comprehensive overall measure of economic output; provides key insight to the driving forces of the economy.


Marginal


An economic term that refers to a small or insignificant change in some variable (e.g., the number of tests performed).


Medicaid


A jointly sponsored state and federal program that pays for medical services for persons who are elderly, poor, blind, or disabled and for certain families with dependent children who meet specified income guidelines.


Medicare


A federally funded health insurance program for the disabled, persons with end-stage renal disease, and persons 65 years of age and older who qualify for Social Security benefits.


Patient Protection and Affordable Care Act (PPACA)


A United States federal statute enacted in 2010 that requires U.S. citizens and legal residents to have health insurance through comprehensive healthcare reform; expands health care coverage access to millions of people who were previously uninsured (Kaiser Family Foundation, 2011).


Private health insurance


A method for individuals to maintain insurance coverage for health care costs through a contract with a health insurance company that agrees to pay all or a portion of the cost of a set of defined health care services such as routine, preventive, and emergency health care; hospitalizations; medical procedures; and/or prescription drugs. Typically the private insurance is provided through an individual’s employer with a portion of the cost paid by the employer and a portion paid by the employee. Private insurance policies can also be purchased by individuals but are generally much more expensive than when provided through an employer’s group plan.


Prospective payment system


A method of reimbursing health care providers (i.e., physicians, hospitals) in which the total amount of payment for care is predetermined based on the patient’s diagnosis; provides for a “set price per diagnosis” payment system in contrast to the retrospective or “fee-for-service” system; encourages increased efficiency in the use of health care services because providers are reimbursed at a set level regardless of how many services are rendered or procedures performed to treat a particular diagnostic category; the most common method of payment in today’s health care system.


Provider


An individual (such as a physician or nurse practitioner) or an organization (such as a hospital) that receives reimbursement for providing health care services.


Retrospective payment system


A method of reimbursing health care providers (i.e., physicians, hospitals) in which professional services are rendered and charges are billed based on each individual service provided; also known as the “fee-for-service” payment system. This system may encourage overuse of health care services because the more services rendered or procedures performed, the more revenue received by providers.


Single payer system


A method of reimbursement in which one payer, usually the government, pays all health care expenses for citizens, funded by taxes. Decisions about covered treatments, drugs, and services are made by the government. Though the terms universal health care and single payer system are sometimes used interchangeably, universal health care could be administered by many different payer groups; both offer all citizens health insurance coverage.


Third-party payer


An organization other than the patient and the provider (hospital, physician, nurse practitioner), such as an insurance company, that assumes responsibility for payment of health care charges. An individual’s health insurance plan provided by his or her employer is considered a third-party payer.



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There is a tug of war for the shrinking health care dollar.


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Additional resources are available online at:


http://evolve.elsevier.com/Cherry/


VIGNETTE


As a home care nurse for many years, Callie Thompson’s patients were primarily older adults. Knowledge of Medicare coverage guidelines for service was critical to the financial success of the home care agency. Today in the home care agency she cares for patients of all ages with varying reimbursement guidelines. These guidelines, which affect the types of services she provides for her patients, differ among managed care organizations (MCOs), government-provided coverage, and insurance companies. When she first took this job, understanding Medicare coverage guidelines was a new challenge. Now even more is required. Callie knows that today’s nurse needs extensive knowledge of health care reimbursement guidelines and the economic influences on professional practice to provide quality patient care.



Questions to Consider While Reading This Chapter


1. Often the role of the professional nurse is influenced by the employer’s ability to pay for the costs associated with staffing and providing quality health care services. Is this likely to continue in today’s evolving health care environment?


2. What do health care economics have to do with me as I provide patient care?


3. Why do I need to understand health care economics and its implications for my practice? Is that not the role of the finance department or business office at my workplace?


4. With so many variations in health care insurance, I have a hard time understanding my own policy coverage. What role do I have in assisting my patients in understanding their insurance or coverage options? Can being a more informed consumer add value to my practice?



Chapter Overview


In the past several decades, the costs of health care have continued to increase, with economic issues taking a central role in health care decision making. Hospital managers know that for most patients the hospital will receive a predetermined payment, regardless of length of stay and specific treatments. Physicians and nurse practitioners recognize that the prescribed course of treatment for their patients may be analyzed by a peer review committee; the costs their patients incur may be compared with those of other providers or against cost benchmarks. Businesses require employees to cover larger amounts of their health insurance premiums and/or pay larger deductibles and copayments. Health insurance companies “manage” care, sometimes placing limits on medical care coverage, providers in the network, or on the site of care delivery. The Patient Protection and Affordable Care Act (PPACA) of 2010 added a new dimension to health care financing with comprehensive health care reform and various insurance options for universal coverage of Americans. These practices are the result of the evolving economics and rising costs of health care.


The objective of this chapter is to provide an overview of the major economic issues and trends driving changes in health care delivery, how health care is paid for, and how these issues affect nursing practice. The chapter presents information about historical trends in health care finance, the problem of the uninsured and underinsured, allocation of health care resources, methods of paying for health care, the implications of the PPACA, and the effect of health care finance on professional nursing practice.



History of Health Care Financing


The high costs of health care did not occur overnight. To understand current health care financing, it is necessary to understand its history (Table 7-1). Historically, several underlying themes have driven health care financing in the United States. Among these are the following:



TABLE 7-1


HISTORICAL HIGHLIGHTS OF HEALTH CARE FINANCE

























































1847 Massachusetts Health Insurance of Boston offers a group policy.
1861 to 1865 Insurance plans become available during the Civil War.
1890 Individual disability and/or illness policies become available.
1929 First group health coverage is offered for a monthly charge; teachers in Dallas, Texas, contract with Baylor Hospital. This is the beginning of Blue Cross/Blue Shield insurance.
1932 Blue Cross insurance forms.
1934 Hospitals receive payment through Blue Cross, a prepaid health insurance plan to protect hospitals during the Great Depression.
1945 Blue Cross captures 50% of the insurance market.
1946 California Physician Service ensures physician payment through Blue Shield plans.
1950s Employee benefit packages are initiated to attract workers.
1954 Government disability program with Social Security coverage becomes available.
1965 Medicare and Medicaid programs are created, making comprehensive health care available to millions of Americans.
1977 Health Care Financing Administration (HCFA) is created to manage Medicare and Medicaid separately from the Social Security Administration.
1980 to 1990 Managed care plans emerge.
1983 Hospitals come under diagnosis-related groups (DRGs).
2001 to 2003 The Centers for Medicare & Medicaid Services is created, replacing the HCFA.
2003 Enactment of the Medicare Prescription Drug Improvement and Modernization Act of 2003, the most significant expansion of Medicare since its enactment, including a prescription drug benefit.
2006 Blue Cross/Blue Shield plans cover more than 94 million (1 in 3) Americans. Pay-for-performance is introduced as a model of reimbursement for health care services.
2010 Enactment of the Patient Protection and Affordable Care Act, comprehensive health care reform for universal coverage of Americans.

Sources: www.hhs.gov/about/hhshist.htmlwww.wpri.org/Reports/Volume19/Vol19no10.pdfwww.healthcare.gov/law/index.html



For many years, physician domination in decision making and the fee-for-service payment method were intertwined and contributed to the lack of cost consciousness in health care. Physicians made all decisions about what health care services were needed; costs were rarely discussed between physician and patient, so the cost of care was not considered until bill-paying time. Medical tests or procedures were provided if the physician determined that they offered even marginal aid or diagnostic information.


Beginning in the 1960s, “if it might help, do it” flourished as the rapid pace of sophisticated technologies enhanced physicians’ abilities to provide treatment. The more tests or procedures physicians performed, the greater their earnings because physicians were paid according to the number of procedures performed or services provided. Instead of attempting to allocate medical resources to the highest medical need, the financial incentive was to provide as much care as possible using the most technically advanced methods of care. Overuse of health services and rapid cost inflation resulted.


Yet consumers of health care remained insulated from cost inflation. Most patients had some form of insurance or “third-party payment” and did not pay the full cost for their care or even for their health insurance premiums. The full cost of care remained hidden from consumers because costs were subsidized by employers or by taxpayers through such programs as Medicare and Medicaid. Providers had little incentive to contain costs, so the demand for medical care generated “perverse” economic incentives in which providers received more income for using more services with no financial risk for their use of additional resources.


These perverse economic incentives had a drastic effect on the Medicare program. Medicare was established by the U.S. Congress in 1965 to provide health insurance coverage for persons 65 years of age and older who are eligible for Social Security benefits, persons with end-stage renal disease, and the eligible disabled population. By the early 1980s, increased medical usage (increased intensity of care) and high inflation combined with a growing older adult population generated substantial increases in Medicare costs. The rapid growth of Medicare expenditures became a major factor in the federal budget deficit, causing the Centers for Medicare & Medicaid Services (CMS) to rethink the entire Medicare payment system. This led to a revolution in how the government and private insurance companies paid for health care.



Health Care Financing Revolution


In 1965, annual health care expenditures in the United States were $202 per person; in 2010 health care expenditures had risen to $8402 per person. Health care spending increased from $1.3 trillion in 2000 to $2.4 trillion in 2010. National health expenditures as a percentage of gross domestic product (GDP) rose to 17.9% in 2010, which means that for every dollar a person spends buying products or services in the United States, almost 18 cents goes to pay for health care (CMS, 2012). In contrast, health care spending in 2009 was 11.3% of the GDP in Switzerland, 11.4% in Germany, 10.9% in Canada, and 11.7% in France, and each of these countries provided health coverage for all of their citizens (World Health Organization, 2012). The rising cost of health care is a dangerous trend that poses a significant threat to the U.S. economy.


To control rapidly rising health care costs, a health care financing revolution began in 1983, when Medicare moved from a retrospective (fee-for-service) reimbursement to a prospective payment system (PPS) based on diagnosis-related groups (DRGs). This shift was critical for hospitals because Medicare is the largest single payer of hospital charges. Under DRGs, each Medicare patient is assigned to a diagnostic grouping based on his or her primary diagnosis at hospital admission. Medicare limits total payment to the hospital to the amount pre-established for that DRG, unlike the previous approach in which hospital patients incurred costs and Medicare reimbursed these charges with a generous payment schedule.


Since 1983, if hospital costs exceed the DRG payment for a patient’s treatment, the hospital incurs a loss, but if costs are less than the DRG amount, the hospital makes a profit. Thus hospitals face a strong financial incentive to reduce the patient’s length of stay and minimize procedures performed. Although DRGs originally applied only to hospital payments for Medicare patients, similar reimbursement arrangements were initiated by private insurance companies.


Implementation of the DRG system expanded the role of hospital management, including nurse administrators. First, financial gains were made from careful diagnosis of patients according to their highest potential DRG classification. Hospital-based utilization management nurses reviewed medical records to determine the most appropriate DRG for patients. Second, hospital record keeping and accounting methodologies were revolutionized by specific Medicare cost accounting procedures. Experienced nurses with business knowledge brought needed technical background and skills to these new accounting and utilization management tasks, expanding opportunities for nurse managers and nurse administrators.


By the early 1990s, the financing revolution extended to physician reimbursement. The previous Medicare physician fee system was replaced with the resource-based relative value scale (RBRVS) reimbursement system. The objective was to bring payments for medical services in line with the physician skills required and the actual time spent on specific procedures. For example, when Medicare initially covered payment for cataract surgery, it was a relatively rare and lengthy procedure. However, over time cataract correction became a frequently performed Medicare surgical procedure, viewed by CMS as overpaid. The RBRVS system corrected the disparity between Medicare’s high payments for this type of procedure and relatively low payments for more hands-on primary care.



The Development of Managed Care


With the shift to prospective payment under Medicare, private insurance companies followed Medicare’s lead and developed managed care. MCOs encompass several different approaches, such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service (POS) plans (Table 7-2). The primary commonality among each of these health plans is that they use some method to review and provide oversight for the use of health care services. In this review process, the patient’s medical options are reviewed by a nurse or physician employed by the health insurance company, and a judgment is made as to the necessity of the service being considered. Coverage may be denied for unnecessary, excessive, or experimental procedures, in strong contrast to the previous “if it might help, do it” approach. The goal of managed care is to minimize payment of charges for inappropriate or excessive health care services.



TABLE 7-2


COMMON TYPES OF HEALTH INSURANCE PLANS IN AMERICA



















Fee-for-service (FFS)/indemnity plan
PPO (preferred provider organization)
POS (point of service)
HMO (health maintenance organization)
Medicare

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Nov 6, 2016 | Posted by in NURSING | Comments Off on Paying for Health Care in America: Rising Costs and Challenges

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