Professional Documents
Culture Documents
Chapter 8
Financing Health Care
CHAPTER OBJECTIVES
Understand the scope and magnitude of U.S.
health care spending in relationship with other
developed countries
Review how the U.S. health care payment system
evolved, current trends and initiatives of the
Patient Protection and Affordable Care Act of 2010
Understand the related roles of government & the
private sectors in financing health care and roles
of respective sector stakeholders
Discuss historical efforts to link costs with quality
Overview (1)
The ACA has immediate effects, especially
on health insurance regulation; full effects of
policy changes to unfold over many years
ACA does not change fundamental public/private
financing mechanisms of U.S. health care
Overview (2)
Overview (3)
Major tensions among influencers
Government (public) versus private roles
& responsibilities
Employers roles & responsibilities as
major insurance purchasers
Relationships of costs to quality
Payment systems effects on quality
Healthcare Expenditures in
Perspective (1)
National health care expenditures tracked &
reported yearly (2 years in arrears) by
National Center for Health Statistics (CDC);
Office of the Actuary, National Health
Statistics Group; U.S. Department of Health
and Human Services
2011: $ 2.7 trillion; $ 8,680/capita; 17.9% GDP
(Table 8-1, Fig. 8-1); Top personal: Hospital
($851 B); physicians ($541.B); prescription
drugs ($263 B) (Insert Figure 8-2 as next slide)
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Healthcare Expenditures in
Perspective (2)
Top 2011 payment sources: Private
health insurance ($891 B); Medicare
($567 B); Medicaid ($405 B); all
public sources = 40% of total
payments (Insert Figure 8-3 as next
slide)
Healthcare Expenditures in
Perspective (3)
Rate of U.S. expenditure growth outstrips
general inflation by large margins
Among 29 developed nations, U.S. has
largest % of national economy devoted to
health, but lower life expectancy & poorer
health outcomes; higher U.S. prices, not
superior quality; other nations have universal
coverage while U.S. covers 26% populations
with public funds; other nations use more
health services with more technology.
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Healthcare Expenditures in
Perspective (4)
20-40% U.S. spending is waste: services
of no value or valuable services inefficiently
delivered; reduction in cost variability,
revised economic incentives needed.
Fraud & abuse: 3-10% total spending, $ 75250 B/year; many federal/state agencies
combat technologically sophisticated
fraudulent schemes: Health Care Fraud
Prevention and Enforcement Action Team
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Drivers of Healthcare
Expenditures (1)
Major cost drivers:
Expensive medical technology: diagnostic &
treatment equipment & pharmaceuticals:
computerization; highly trained personnel;
incentives for high volume use
Aging population: longevity increasing: major
consumers of hospital care, pharmaceuticals
Specialty medical care: 60% + physician
specialists; patient self-referrals; use of highest
cost interventions without payment
restrictions often unnecessary/inappropriate
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Drivers of Healthcare
Expenditures (2)
Un- or underinsured: delays in obtaining services
result in higher cost interventions for late-stage
complications
Labor intensity: large numbers of expensive,
highly trained personnel; requirements increase
with technology advances
Reimbursement system incentives: private &
government insurance: until managed care &
prospective payment, fee-for-service piecework
favored high utilization by providers & hospitals;
fee-for-service fuels high costs till present time
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Self-funded Insurance
Programs (1)
Large employers collect premiums and pool
funds into accounts to pay medical claims
instead of using a commercial carrier
Use actuarial firms to set premium rates &
third-party firms to administer benefits, pay
claims, collect utilization data; third parties
may provide case management services
Employer advantages: avoid commercial
carrier administrative charges, premium
taxes; accrue interest on cash reserves,
exemption from ERISA
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Self-funded Insurance
Programs (2)
ERISA controversies, e.g.: states
responsibilities for consumers
protections through regulation of
employer-sponsored plans; states
losses of premium revenue taxes;
prohibition of employees suits against
employer-sponsored health plans about
insurance coverage decisions
Currently, organizations administering
employer-based health insurance plans
have legal immunity for withholding
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insurance coverage or for failing to
Government as a Source of
Payment: A System in Name Only (1)
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)
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; today, 50
million covered.
Financed by payroll taxes
Conceded accreditation,
administration to private sectorJCAHONow JC
Hospital payments by local Blue
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Initial Medicare
Components
Part A: Mandatory hospital
coverage, outpatient diagnostics,
extended care facilities, home care
post-hospitalization; 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, coinsurance; medi-gap policies
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Additional
Medicare Components
Part C: Managed Care Options for
Private Health Plan Enrollment
(1997)
Part D: Prescription Drug Coverage
(2003)
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BBA
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 Part C-managed care
Combat fraud and abuse
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Responses to BBA
Strong resistance:
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
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Medicaid Quality
Initiatives (1)
CMS and State Operations develops
& implements Medicaid & CHIP
quality initiatives with state
programs
Division of Quality, Evaluation &
Health Outcomes provides technical
assistance to states for quality
improvement initiatives
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Medicaid Quality
Initiatives (2)
Quality Assessment Criteria
Prevention and health promotion
Management of acute conditions
Family experience of care
Availability of services
Prelude to Passage of
the ACA
2008 presidential election: voter concerns
on health care second only to Iraq war
Obama promised swift action on health
reform
2009-2010 bitter debates, public
outcries
Death of Sen. Edward Kennedy lost
Senate majority by replacement with
Republican
March 2010 ACA passed in Obamas
14th month in office; unparalled reforms59
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Reimbursement
Experimentation (1)
ACA pilot programs conducted over
several years experiment with
payment reforms with dual goals of
slowing spending growth & improving
quality
Pilot results will provide information
valuable for planning and refine future
initiatives with the same goals
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Reimbursement
Experimentation (2)
Accountable care organizations (ACOs)
Groups of providers, suppliers of health care,
health-related services, others voluntarily join
to coordinate services for Medicare patients
Avoid fragmentation across multiple providers;
timely, appropriate care to reduce service
duplication, unnecessary hospitalizations &
costs based on Medicare per-capita
benchmarks
Combine fee-for-service with shared savings &
bonus payments
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Reimbursement
Experimentation (3)
Hospital value-based purchasing program
(VBP)
CMS began pilot projects in 2003; replicated by
private insurers
ACA requires VBP for 3,000+ Medicareparticipating hospitals; incentive payments
based on clinical outcomes & patient
satisfaction; discourages inappropriate,
unnecessary, costly care.
Funded by annual % reduction in hospital
Medicare payments
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Reimbursement
Experimentation (4)
Bundled Payments for Care
Improvement Initiatives (BPCI)
Created by the ACAs Center for
Medicare & Medicaid Innovation, will
test whether reimbursing providers on
the basis of the full spectrum of
Medicare patient- required services for
an episode of illness, rather than
piecemeal for individual services, can
achieve lower costs & improved patient
outcomes.
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Reimbursement
Experimentation (5)
Independent Payment Advisory Board (IPAB)
Purpose: decrease Medicare spending growth
through recommendations on care coordination,
waste elimination, best practices, primary care
15 Presidentially- appointed expert members
confirmed by Senate; recognizes need to offset
political interest group influences on
Congressional members
Recommendations in form of legislation with
Congressional deadlines for action
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Reimbursement
Experimentation (6)
Independent Payment Advisory Board (IPAB), contd
Absence of Congressional action allows DHHS
Secretary to implement legislation, not subject
to reversal by the Executive Branch or courts
Periodic public reports: standardized, systemwide information on health care costs, access to
care, service utilization, quality of care with
comparisons by region, types of services, types
of providers for Medicare and private payers
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Reimbursement
Experimentation (7)
Independent Payment Advisory Board
(IPAB), contd
IPAB cannot recommend policies to:
ration care, raise taxes, increase
Medicare premiums or cost-sharing,
restrict benefits, modify eligibility
Beginning in 2015: Biennial
recommendations to President &
Congress on slowing national healthcare
expenditure growth.
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Continuing Challenges
Payment reforms entail an array of
challenges issues for policymakers
Most difficult issues may be changing
prior philosophies, value systems &
politics that resulted in the paradox of
profit, rather than value- driven reward
systems; Why are the bills so high?
rather than Who should pay them?
U.S. costs unjustifiable compared with
other developed nations health status &
expenditures
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