Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Source Description
These records pertain to the Health Care Reform.
Scholar Source Context
Document identity
localId
286185807
label
Critical Condition - America's Health Care in Jeopardy
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
286185807
contentType
document
title
Critical Condition - America's Health Care in Jeopardy
description
These records pertain to the Health Care Reform.
citationUrl
identifierLocal
07131-012
collections
Records of the White House Office of Cabinet Affairs (George H. W. Bush Administration)
Daniel A. Casse Files
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
286185807
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
f38ac2b5d1d22fcf
ocrText
CRITICAL CONDITION
America's Health Care
In Jeopardy
Robert J. Rubin, M.D.
Donald W. Moran
Katherine S. Jones
Marie A. Hackbarth
A Report by Lewin/ICF
A Division of Health and Sciences Research, Inc.
to the
National Committee for Quality Health Care
Washington, D.C.
1988
INTRODUCTION
We assume our health care system will always provide for us when we need it. We
probably follow the positive trends - the discoveries, the advancements, the new
services - if indeed we follow health trends at all.
But in the midst of promise and plenty are trends in U.S. health care that flash
danger signals. The system designed to keep America healthy is, itself, not well.
Our Nation's health care system is approaching critical condition.
America's health care is caught in a vortex of demographic challenges, demand for
life-extending, life-preserving technology, and the counterforce of shrinking human
and financial resources to provide care. No matter what we do, it seems to cost more
and more each year to provide care, yet we appear to be failing to meet our health
needs.
The early warnings come from the most vulnerable sectors of society - the poor,
the elderly, the rural, the very young. For them, the desire to cut health care costs has
reached beyond trimming excesses. It now cuts at the fabric of essential services.
The sum total of today's health challenges affect broad- if not all segments of the
population. Cancer, heart disease, immunodeficiency, critical care for under-
developed newborns, terminal care for the swelling numbers of elderly: all of us
potentially fit into one or more of the categories of illness and disability that medical
science is attacking with research, treatments and cures.
Will the system be there for each of us when we need it? How much strain will we
be willing to undergo? How much sacrifice will we be prepared to accept- if hospitals
are faraway, if nurses aren't there to fill growing demand for their services, if doctors
are driven out of high-risk professions by liability costs, if life-saving new technology
isn't available in our communities?
Now the problems may seem faraway. Disease always does to the healthy. But
immense pressures weigh on the health care system, demanding broad public
involvement in finding solutions. We need to recognize the problems now. Identifying
them is the intent of this report.
iii
TABLE OF CONTENTS
vii
Executive Summary
3
What Influences the Health Care System?
Patient Expectations
Social Forces
Public Policy
Technology
11
Who Will Provide Care?
11
Hospitals
Current System
What is the Impact of these Changes?
What Are the Implications for the Future?
Hospital Closures
Purchase of Technology
18
Medical Professionals
Physicians
Current System
What is the Impact of these Changes?
Nurses
Current System
What is the Impact of these Changes?
Other Providers
Long-Term Care Providers
Health Maintenance Organizations
Ambulatory Surgical Facilities
28 How Will We Pay for Care?
Health Insurance Coverage
Access to Care
34 Summary
AMERICA'S HEALTH CARE IN JEOPARDY
Executive Summary
It is generally accepted that the United States has the best health care system in the
world. This is regularly reinforced by reports of startling progress in the fields of
medical science. For example during the past year American physicians transplanted
virtually all the major intra-abdominal organs into a young girl who would have died
otherwise. American researchers brought a new drug, that potentially could
revolutionize the treatment of acute heart attacks, to the public. American
pharmaceutical companies introduced new drugs that reduce cholesterol, fight
infections, control high blood pressure and help AIDS patients.
Yet alongside these examples of our success, there are the beginnings of a
disturbing future for the health care system of our country. Indeed, if present trends
continue, the access to, and delivery of, the high quality health care we have come to
expect will be in serious jeopardy. This report, prepared for the National Committee
for Quality Health Care (NCQHC) examines these trends and attempts to show where
they will lead.
On the positive side, consumers have more choices about their care than ever
before. Patients have access to a growing number of alternative providers, such as
ambulatory surgical facilities and urgent care centers. They can seek care from a
wider range of health care professionals, including physicians, nurse practitioners,
and midwives. They have more choice regarding the type of insurance arrangement to
use, including standard indemnity plans, services plans, health maintenance
organizations, and preferred provider organizations. Patients also appear to be better
informed about lifestyle factors that influence their health. Finally, changes in
reimbursement have forced the system to become more efficient, for example, by
replacing expensive hospital care with less expensive care in other settings. All of these
changes have resulted in better health care for the American people.
Advances in efficiency, however, are being overtaken by limits in reimbursement.
When payment limits are imposed, they first create strong incentives for efficiency,
especially when they encourage operating surpluses to be used to finance the
development of new services or to finance care for those unable to pay for their own
health care. If, however, reimbursement limits are too dramatic, significant changes
will result. The health care available to us in the future depends on the payment
systems in place and their incentives. There are several early warning signals
indicating that current reimbursement levels have begun to adversely affect the
availability and access of certain types of health care services.
Our current payment systems may be unable to differentiate between excess
supply and needed services:
Hospital costs have grown more rapidly than Medicare payments, and in 1988 it is
estimated that more than 40 percent of the nation's community hospitals may have
negative net income for Medicare patients.
Hospitals have started to close or reduce in size, and the economic viability of both
public and rural hospitals has been questioned.
vii
Applicants to medical schools are declining in number and quality, suggesting
medicine is not as attractive a field as it once was.
The nursing shortage shows no sign of subsiding as women are drawn into other
better-paying jobs while hospitals lack the resources to increase salaries.
A growing number of Americans have difficulty gaining access to needed health
care. The problem is particularly acute for the poor and uninsured.
The demand for care is met by a diverse group of health care professionals and
health care facilities. It is paid for by a number of alternative types of insurance plans.
Generally, our first contact with the health care system is through our physician. It
would be much more difficult to obtain care from the system if we did not have a
physician to guide us through. In some areas of the country, particularly in some
specialty areas, it may become more difficult to find a physician. For example, in a
small town in Iowa, the two physicians who delivered babies in the community
stopped because they could no longer afford the malpractice premiums. It was several
months before a family practitioner could be found who was willing to provide
obstetrical care. During that time, women in this community had to travel 30 to 45
minutes to obtain necessary prenatal care and to have their babies delivered. There are
a number of other states, including Alabama, North Carolina and Kentucky, where a
high percentage of the rural counties have no obstetricians.
Physicians like to practice where they can be close to a hospital, and rural
hospitals in many areas are finding it increasingly difficult to survive. A combination
of factors have affected rural hospitals, including changing demography, lower
occupancy and increased competition from urban hospitals. As a result, hospitals like
the one in Paducah, Texas have been forced to close, leaving the town with no hospital.
This is in spite of the fact that the townspeople voted to increase their taxes to support
the hospital. In addition, because there is no hospital, it has been difficult for the town
to recruit a new physician to replace the one who wants to retire.
It is not necessary to have a hospital at every crossroads in America, and we
cannot afford to support a hospital in every community. However, it is essential that
everyone have access to basic medical care services, which are provided by rural
hospitals in these communities.
Public hospitals are also important in providing basic health care services to the
poor in the inner city, frequently serving as the major source of care for the indigent.
Because public hospitals provide a large amount of free care, these hospitals are
struggling to survive financially. Public hospitals serve a very important function in
providing care to the poor. In addition, they provide an important place to train the
future physicians of America, and frequently offer the very expensive, high
technology types of care, such as burn and neonatal units. In many cases, these units
are expensive to operate, and reimbursement frequently does not cover the costs of
providing these types of care. As a result of these and other factors, these hospitals
have very low, or negative, operating surpluses, and depend heavily on public support.
The need for support is growing due to limits in payments from Medicare, Medicaid
and private insurers.
There will always be hospitals, and it is unlikely that so many hospitals will close
that there will not be enough hospital beds for the entire population. However, after
the 40 percent or so of all hospitals that are predicted to close do so, the hospitals
remaining must be geographically dispersed so that access to care is adequate. It will
not do the women in Paducah, Texas much good if there is adequate prenatal care
available in Abilene, 125 miles away. It will not do the poor people in Abilene any good
to have enough hospitals if they cannot afford to provide the needed health care. It did
not do a two year old in New Orleans, with burns over 30 percent of his body, any good
when he was refused care because he had no health insurance and the hospital could
not afford to provide the expensive burn care he required.
Hospitals, as well as nursing homes, are also finding it more and more difficult to
attract enough nurses to care for their patients. There are many more opportunities
viii
available to women now, most of them with higher salaries and with better
opportunities for advancement than nursing. If the demand for nurses continues to
increase and the number of students entering nursing school continues to decline, the
shortage will continue into the foreseeable future. The only solution is for hospitals to
increase nursing salaries, currently difficult because of the limitations in reimburse-
ment from all payers.
Insurance companies, as well as public payers, such as Medicare and Medicaid, are
limiting payments to both physicians and hospitals in response to employer concerns
related to increases in health insurance premiums. Employers are instituting many
new programs to limit increases in premiums, including such things as second
opinion surgery programs, (where the insurance pays for a second, independent
opinion related to any elective surgical procedure), prior approval programs (where
the patient or physician must call to obtain approval for certain procedures, and if not
done, the patient will have to pay a larger portion of the bill), and case management
programs (where high-cost cases are identified early in the course of treatment and a
treatment program designed in order to reduce costs). Under many of these programs,
the insurer serves as a "check" on the physician to make sure that unnecessary care is
not provided. It can also result in increased patient and physician frustration,
particularly if the desired course of care is not approved or is delayed.
Trends in insurance coverage indicate that, in the future, patients will be paying a
greater share of their health care bills, both physician and hospital bills. In addition, in
order to limit the increase in one of their major expenses, employers may increasingly
contract with only "cost efficient" providers, limiting our freedom of choice. It is
appropriate for employees to choose to make tradeoffs between freedom of choice and
the costs of care, but only if their choices include high-quality physicians-and only if
access to care is assured.
Many people are finding it more difficult to obtain health care, and may find it
even more so in the future. In many cases, this can jeopardize their own health, and
sometimes even the health of others. For example, one of the major health care
accomplishments over the last twenty years has been the virtual elimination of certain
types of childhood diseases, such as measles, mumps, and whooping cough. This has
been accomplished through widespread vaccination of children under two years of
age. There has been a recent increase in the number of children not being vaccinated,
causing a corresponding increase in the number of cases of these diseases. One of the
reasons given for the decline was the inability of people to obtain the needed services.
The ability of the poor to obtain necessary health care services depends on the
financial ability of health care providers to finance this care. Regardless of their
financial incentives, hospitals and physicians have provided this care in the past.
However, more recently, surveys show that the poor and uninsured are having more
and more difficulty obtaining care. This indicates that providers are not able to absorb
the losses from other payers, and, therefore, cannot continue to provide the levels of
free care they have in the past.
All of these things lead us to make several conclusions about the future health care
system, including the following:
There will be an increase in the number of hospitals closing and the number of
hospitals closing unprofitable units. Hospital closures, while not necessarily bad in
the aggregate, may occur among those most important to insuring the availability of
basic health care services.
Patients will be forced to shoulder a growing percentage of their health care bills,
because third-party payments will not increase as rapidly as expenses, and, as a
result, providers will not be able to accept the insurance payment as payment in full.
As a result, there will be growing demands for charity care among both the
uninsured and insured. Hospitals, particularly public hospitals, will be less able to
meet this demand due to lower operating surpluses.
There will be continued shortages of nurses. Enrollment in nursing schools has not
ix
increased and probably will not increase until nursing salaries are more in line with
salaries for other professions open to women.
Employers will make increasing demands on their insurers and on their employees
to limit the increase in health care costs. This will force us to make decisions related
to freedom of choice of providers, and over our preference for preventive health care
and catastrophic care.
New medical technology - even life-saving technology - may go unadopted because
it fails to fit into the dollar limit that third- party payers prescribe for the course of
treatment. Only cost-cutting new technology may quickly find its way into use.
Access to care will be an important issue in the future. In order to ensure access to
the same quality health care system for everyone, adequate resources must be
provided to health care providers to sustain an appropriate level of services, both
geographically and across types of services. It is clear that there are limits in our ability
as a society to pay more and provide more services. The importance of access to
quality health care must be weighed against other social goals, including housing,
education, food and defense. Budgetary decisions related to the Medicare and
Medicaid programs, and employer decisions related to private health insurance
coverage should be made in consideration of the potential effects on the future quality
of the entire health system.
It would be easy to conclude that all that is necessary to save our health care system
is more money-more money for physicians, who already make a lot of money relative
to other people, and more money for hospitals. This conclusion, by itself, would be
wrong. We are appalled when researchers report that many of the procedures
performed by physicians are inappropriate. We are outraged that many medical
laboratories are not performing potentially life-saving tests well. We agree that there
are far too many unnecessary hospitalizations or hospitalizations that are un-
necessarily long or inappropriately short.
If we are to avert the trends described in this report, we must develop a health
policy assuring adequate access to health care for all our citizens. To do this we must,
of course, root out fraud, waste and abuse in the system, but that will not be sufficient.
We must also provide adequate funding for all our health care providers.
We believe that many paths can lead to the desired goal. We further believe that
what is required is a national commitment of government at all levels, and of
providers, payers and, most importantly, we, the people to assure that the precious
national resource that is our health care system is preserved and improved. We hope
that this report represents the first step on this journey.
AMERICA'S HEALTH CARE IN JEOPARDY
Our nation's health care system is thought to be one of the best in the world. Our
hospitals provide high quality care and the latest and best in technology. Our
physicians are highly regarded and we take it for granted that highly trained specialists
are available in all fields. Our colleges and universities train many types of health care
professionals, all of whom are integral to maintaining this nation's first rate health care
system. We are world leaders in developing new types of drugs and technology for
treating disease.
The public policy that directs our health care system is intended to ensure that
everyone has access to the same providers and facilities, regardless of their ability to
pay. This policy sparked the creation of Medicare and Medicaid in the 1960s to
provide payment for services to the elderly, disabled and poor in our society. These
our goal has
programs were carefully designed so that eligible individuals would receive care in the
been to avoid
same manner, and from the same providers, as those paying for services using their
public policies
own funds or private insurance. In other words, our goal has been to avoid public
which create a
policies which create a "two-tiered" health care system, in which those covered by
'two-tiered' health
public insurance programs have limited access to health care providers and
care system.
treatments while access for the wealthy and privately insured is unlimited.
The costs of maintaining this system are high. In the past two decades health care
costs have outpaced inflation and have increased from 6.1 percent of the gross
national product in 1965 to 10.9 percent in 1986.¹ Public awareness of this trend led to
policies which create incentives for efficiency and for slowing cost increases. The
health care industry has responded in a number of ways. For example, it has developed
new types of delivery systems, such as health maintenance organizations (HMOs),
which provide total health care in an environment of coordinated care. It has also
adopted a number of new technologies that reduce the costs of care, while frequently
improving the quality of life.
But cost-cutting policies, improperly applied, will cut beyond inefficiency and
cost-cutting
begin to threaten the availability of health care. For example, if payment levels fail to
policies
will cut
reflect the costs of providing health care, such policies reduce access for particularly
beyond
vulnerable population groups and limit access to primary care and preventive
inefficiency and
services. If present trends continue, certain health care services may not be available
begin to threaten
in the future, particularly for people with certain types of insurance or living in certain
availability.
areas of the country. For example:
Residents of small, rural communities will not have access to the types of new life-
saving technologies available to those living in metropolitan areas because the
hospitals in their communities will not be able to afford the new technologies.
Pregnant women living in states where malpractice insurance premiums have risen
dramatically will find it difficult to locate an obstetrician to deliver their babies,
particularly if they have medical problems that increase the chances for complica-
tions.
'Daniel Waldo, Katherine Levit, and Helen Lazenby, "National Health Expenditures, 1985," Health
Care Financing Review 8(6):1-21, Fall 1986 and Division of National Cost Estimates, Office of the
Actuary, Health Care Financing Administration, "National Health Expenditures, 1986-2000," Health
Care Financing Review 8(4):1-36, Summer 1987.
Parents who want to have their children immunized to protect against certain
preventable diseases will find that the costs of the vaccines have increased
dramatically and they are difficult to obtain because fewer and fewer companies are
producing vaccines as a result of rapidly increasing liability awards.
Progress in developing new technologies and cures for disease may not continue at
the past rate. Some new payment systems create strong incentives for development
and adoption of new technologies that save money, but they also provide a
disincentive for the development of new technologies that save lives, but cost money.
We assume that health care services will be available if we need them, but do not
in five years,
"test the system" unless we have to. As a patient entering the health care system in five
you may not find
years, one may find that the services always assumed to be there will no longer be easy
the services
to obtain. There are a number of factors that influence the health care system. In order
easy to obtain."
to judge the merits of certain public policies, it is important that we understand these
factors so we can determine how the policies will affect the availability and quality of
health care in the future.
2
WHAT INFLUENCES THE HEALTH CARE SYSTEM?
Our nation's health care system is probably one of the most dynamic sectors of our
"Our Nation's health
economy. It has changed dramatically over time in response to a wide range of forces,
care system is
including patient expectations, changing social patterns, public policies and new
probably one of
technology. In some cases, such as the development of new technologies, the health
the most dynamic
care community influences these changes. In other cases, however, the health care
sectors of our
system must respond to forces largely outside of its control.
economy."
WHAT INFLUENCES THE HEALTH CARE SYSTEM?
Consumer demand
- population
- news services
- convenience
- awareness
Technology
Health Care System
Public Policy
- reimbursement
- new equipment
Institutional providers
health care professionals
- health professions
- new preventative
alternative delivery settings
programs
measures
- certificate-of-need
- occupational hazards
health care services
- tort reform legislation
Social Factors
- changing diet
- increased exercise
- teenage pregancy
The financing and delivery of health care in the U.S. has changed
dramatically in the last thirty years. To a great extent, the direction
- smoking
of these changes has been influenced by forces beyond the control of
- changing labor force
the health care system, such as demographic trends, social values,
- substance abuse
public policies, consumer expectations and attitudes, and educa-
tion. Many of these forces, however, are in conflict with each other
and with the needs of the health care system, resulting in changes
that may not be beneficial in the long term.
Patient Expectations
The composition and work habits of the population have changed over time and
are expected to change even more dramatically in the future. It is expected that by
1990, almost 13 percent of the population will be over 65, an increase from 10 percent
the elderly
in 1970.² More important, almost six percent of the population will be over 75 in 1990,
require more
compared to four percent in 1970. An aging population creates new demands on the
health care services
health care system because the elderly require more health care services than any
than any other age
group."
other age group. In 1980, for example, per capita expenditures for hospital care were
$1,115 for men aged 65 and over, compared to $322 for men under 65. For women,
expenditures were $1,090 for the over-65 age group and $377 for the under-65 group.³
²U.S. Bureau of the Census, "Projections of the Population of the United States by Age, Sex and
Race: 1983 to 2080," Current Population Reports, Series P-25, No. 952.
³Thomas A. Hodgson and Andrea N. Kopstein, "Health Care Exenditures for Major Diseases in
1980," Health Care Financing Review 5(4):1-12, Summer 1984.
3
The elderly also require specialized services, such as nursing home and home health
care. More women working outside the home has resulted in fewer women at home to
care for their elderly parents. In addition, as a result of increased mobility, children
may not live close enough to their parents to provide support. These factors serve to
further increase the quantity of services required by the elderly. Many, with no family
member to help them, cannot continue to live on their own, turning instead to nursing
homes or other types of sheltered living arrangements.
Number of Elderly Nursing Home Residents
Number of Elderly
Residents (in 000s)
1500
In 1985, 88 percent of the resi-
1400
dents of nursing homes were
aged 65 and over. Based on the
number of residents per 1000
population by age group in
1985, the number of residents in
1990 was estimated. As indi-
cated, the number of residents
increases dramatically, which
will result in increased demand
1300
for nursing home facilities.
1985
1990
Year
Source: National Center for Health Statistics
Patients are demanding new types of services, as well as easier access to care and
greater convenience. We are increasingly aware of the impact of preventive services on
our health, and, as a result, the demand for services has changed. For example, in 1974,
68 percent of all Americans had their blood pressure checked by a health care
professional. This increased to 75 percent of the population by 1985.4 In addition,
increased awareness of the effects of cholesterol have changed our dietary habits,
resulting in a decline in average cholesterol levels over the past twenty years. These
and other changes have contributed to a decline in the number of deaths from heart
disease of almost 24 percent since 1970.⁶
"Changes in
Changes in demand for preventive care, while often increasing the short-term
demand for
costs, can reduce the long-term health care costs. For example, increased awareness
preventive care
regarding cholesterol screening is likely to reduce long-term health care costs. The
can reduce long-
term health care
National Cholesterol Education Program, an arm of the National Heart, Lung and
costs."
Blood Institute, recently issued new guidelines for treating patients with high blood
cholesterol levels. They included guidelines for testing for low-density lipoproteins
(LDL), a cholesterol-carrying substance considered to be a major contributor to heart
disease. It is estimated that testing for LDL levels could cost $1 billion per year. In the
long run, however, it is expected to reduce the number of individuals with heart
disease and the resulting cost of their treatment.⁷
⁴National Center for Health Statistics, Health United States, 1986 (Washington D.C.: U.S.
Government Printing Office, 1986), p.20.
⁵National Center for Health Statistics, National Heart, Lung and Blood Institute Collaborative Lipid
Group, "Trends in Serum Cholesterol Levels Among U.S. Adults Aged 20 to 74 Years," Journal of the
American Medical Association 257(7):937-942, February 1987.
⁶National Center for Health Statistics, Health United States, 1986 (Washington D.C.: U.S.
Government Printing Office, 1986), p. 98.
Sally Squires, "Effects of New Cholesterol Guidelines," Washington Post, October 6, 1987, z06.
4
Other preventive techniques increase both the short-and long-term costs of health
care, but improve the quality of life. Mammography, for example, is a procedure used
to detect breast cancer. Routine mammography can help detect breast cancer in its
early stages, when chances for successful treatment are best. It has been recommended
that post-menopausal women, who have a greater risk of breast cancer, have routine
mammography as a preventive measure. Most insurance programs, however,
including Medicare (the program providing insurance coverage to the elderly), do not
"Most insurance
cover preventive services. The costs of mammography, therefore, are largely borne by
programs,
the patient.
however, including
Medicare do
The Office of Technology Assessment estimates that if Medicare covered annual
not cover
preventive mammography screening for women aged 65 to 74, the net Medicare costs
preventive
for this service would be $1.5 billion in 1990, if all eligible women were screened.⁸ It is
services."
not likely, however, that all women would seek screening even if the service were
covered by Medicare.
It is perhaps more realistic to assume that 30 percent of eligible women would be
screened. In this case, the net costs to Medicare would be $185 million in 1990. If 30
percent of female Medicare beneficiaries were screened, an estimated 2,500 cases of
advanced breast cancer would be avoided each year from 1990 to 2000. In addition,
there would be a 3.5 percent reduction in breast cancer deaths in the year 2000
(estimated to be 828 fewer deaths).⁹
Annual mammography screening of women aged 50 to 65 would cost an
estimated $514 million by the year 2000. The net costs of providing this service,
including follow-up treatment for false positive test results and the savings from early
identification, are estimated to be about $626 million. 10
The trend toward health care prevention can increase health care costs in the
short-term. In many cases, however, long-term costs are reduced as a result of the
preventive measures. In other cases, such as mammography, total costs are increased.
In the past, patients have demanded new preventive services, no matter what the cost,
including such things as:
Percent of
Percent of Immunized Children
children
immunized
Aged Two and Younger
90
88
DPT
86
84
Despite a health objective set by
Measles
the Surgeon General to have 90
percent of the nation's children
82
vaccinated in 1990, the percent-
Rubella
age of children immunized
against polio, measles, mumps,
80
rubella, diptheria, pertussis,
and tetanus declined from 1980
Mumps
to 1985. Poor and minority chil-
78
dren had the biggest drop in
vaccination rates. Reasons for
76
this include increases in costs of
Polio
vaccines, which have outpaced
federal funding for immuniza-
74
tion programs, and increases in
the number of uninsured chil-
72
dren.
1980
1981
1982
1983
1984
1985
Year
Source: Centers for Disease Control as cited in the Washington Post, December 31, 1987.
⁸U.S. Congress, Office of Technology Assessment, Health Program, Breast Cancer Screening for
Medicare Beneficiaries, November 1987, pp. 8-10.
⁹Ibid.
¹⁰Personal communication with David Eddy, M.D., Ph.D., Center for Health Policy Research and
Education, Duke University.
5
immunization of children against measles, which has reduced the incidence of
measles from over one-half million cases in 1963 to less than 1,000 twenty years later,
saving an estimated $100 million;
routine PAP smears, which can provide an early indicator of cervical cancer, saving
thousands of lives annually; and
CAT scanning, which provides a method to diagnose illness without using risky, and
sometimes painful, procedures. 11
"When it comes to
When it comes to ourselves, we are willing to pay any price to avoid illness and to
ourselves, we are
postpone death. The decision to use and pay for these services for ourselves, however,
willing to pay any
is very different from the decision to cover these services under public programs or
price to avoid
under private insurance. When public programs expand services to cover new
illness and to
treatments and technologies, we must subsidize the costs of providing the services to
postpone death."
others. These decisions to adopt new technologies become more difficult to make as
resources available for health care become increasingly strained.
Social Forces
The health care system is also affected by changes in social patterns and habits.
Social changes can increase the costs of health care, change the way health care is
demanded, and result in changes in the health care system that reflect social values.
For example, the United States has the highest rate of teenage pregnancy in the
industrialized world. In the U.S., we experience 96 pregnancies per 1000 women aged
15-19, more than twice as many as Canada and almost seven times as many as the
Netherlands. 12 This increases our health care costs relative to other countries because
this population is less likely to seek prenatal care and, therefore, is more likely to have
babies requiring special care after birth. The American health care system has
responded by making neonatal health care services widely available, but this care is
frequently provided at great expense to either insurance companies, to Medicaid (the
program providing health care services to the poor), or to the hospital itself, all of
which directly or indirectly pass the costs on to the public.
Changes in our understanding of certain diseases and the types of treatment
available can also increase demand. For example, our understanding of the factors
leading to alcoholism and substance abuse, as well as better treatment methods, has
led to an increased demand for substance abuse treatment services. To meet this
demand, between 1978 and 1984, the number of alcoholism and drug treatment units
increased from 465 to 829. This trend is expected to continue into the future. By 1990,
the number of people in treatment is expected to increase 8 percent from the 1.1
million admissions in 1984. 13
"Changes in our
One of the major health problems of the 1980s is Acquired Immune Deficiency
understanding of
Syndrome (AIDS). This disease will require an increasing amount of resources, both
certain diseases
for treatment and for research in the prevention and cure of the disease. It is estimated
and the types of
that between now and mid-1991, the costs of providing care to 400,000 AIDS victims
treatment
will be $37 billion. 14 In addition to the money spent on direct medical care and
available can also
increase demand."
research, AIDS will have an enormous impact on how we provide health care. Health
care providers have had to adopt new safeguards in order to protect themselves and
their patients. A recent issue of the Journal of the American Medical Association noted
that physicians in almost every specialty area had made changes in their style of
practice as a result of AIDS. 15 The changes in our health care system resulting from
The National Committee for Quality Health Care, Medical Technology in a Changing Environment,
February, 1987.
¹²Elise Jones et al, Teenage Pregnancy in Industrialized Countries (New Haven: Yale University Press,
1987), pp. 24-29.
U.S. Department of Health and Human Services, Sixth Special Report to Congress on Alcohol and
Health (Washington D.C.: U.S. Government Printing Office, 1987) p. 120.
¹⁴Julie Kosterlitz, "AIDS Strains the System," National Journal 19(26): 1650-1654, June 1987.
¹⁵Journal of the American Medical Association 258(16):2230-2291, October 1987.
6
AIDS are just beginning and, although it is difficult to predict what they might be in
the long run, it is clear that the spread of this disease will result in a dramatic increase
in health care costs, both directly and indirectly.
"The changes in our
health care system
resulting from
Public Policy
AIDS are just
beginning.
In the mid-1960s the Federal government passed legislation establishing programs
which would help finance health care for the elderly, disabled and the poor. Medicare
serves the elderly and some disabled individuals. Hospital and limited nursing home
care is provided through Part A, which is financed through payroll taxes. Physician
care is provided through Part B, funded, in part, by monthly premiums paid by the
beneficiary. Medicaid serves the poor and is funded jointly by states and the Federal
government, with states determining eligibility and benefit levels under guidelines
established by the Federal government. As a result, eligibility and benefits under the
Medicaid program vary from state to state.
Since these programs were established, making the government a major payer for
health care services, government has become increasingly involved in regulating
health care. In 1986, Federal, state and local governments financed more than 40
percent of all health care expenditures, mostly through the Medicaid and Medicare
programs. 16 State and Federal policies governing these programs greatly influence the
way health care is provided. Generally, these policies aim to reduce program costs
while ensuring a quality health care system. Various policies:
Regulate the amount providers can charge - Recently, Medicare has issued rules that
"State and Federal
specify the amounts physicians can charge based upon their past charge history.
policies
greatly
influence the way
Determine what services providers can offer - Medicare restricted payment for heart
health care is
transplant services to specially designated hospitals.
provided."
Determine where providers can locate - States and the Federal government have
limited the growth of certain types of facilities. For example, in many states, a
nursing home cannot be built without approval from the state health planning
agency. State standards and criteria specify areas where facilities can locate.
Therefore, even if there is need for a service in a certain area, providers may not be
allowed to provide the service because they lack state approval.
Establish how providers can be paid - Several states have developed rate-setting
programs that create systems of reimbursement for all payers in their state. 17 Other
states have chosen to promote competition among providers in the hopes of
reducing the rate of increase in costs.
Influence the supply of health care professionals - Federal policies influence the
number and types of health care providers. The Federal government has provided
low cost loans and repayment programs that finance the cost of medical education.
These programs have helped to increase the supply of physicians.
Various systems of government payment create strong incentives for providers to
behave in certain ways. While Federal policies are generally consistent across all the
states, state policies in these areas can vary.
These policies have greatly influenced the availability of health care services. They
do this by determining the types of providers available and, perhaps most important,
by determining how and which providers will be paid. In addition, because state
Medicaid programs determine eligibility for the program, they are important in
determining the level of health care coverage for low income groups in their state.
Because public policy has such a great influence on the availability, accessibility and
¹⁶Division of National Cost Estimates, Office of the Actuary, Health Care Financing Administra-
tion, "National Health Expenditures, 1986-2000," Health Care Financing Review 8(4):1-36, Summer
1987.
¹⁷There are a number of states with some type of system regulating hospital costs, including
Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Washington, West Virginia, and
Wisconsin.
7
cost of health care, we will further discuss the effects of public policy on the health care
system in subsequent sections.
Technology
availability of
Technology is an important factor in influencing the health care system. Advances
technology is
in technology have been responsible for many of the greatest changes in the way health
largely controlled
care is delivered. Our ability to treat and diagnose certain types of disease has been
by the
greatly enhanced by technological advances. But the availability of technology is
reimbursement
largely controlled by the reimbursement system and by patient demand.
system and by
Advances in technology can influence the system in any combination of the
patient demand."
following ways:
Reducing the costs of health care - Technology can reduce the costs of health care in
several inter-related ways. New technology can reduce hospital recovery time, it can
reduce the costs of the procedure of treatment used, or it can reduce the costs of
diagnosis. For example, a relatively new procedure, coronary angioplasty, can be
used as an alternative to coronary bypass surgery in some patients. This new
procedure not only reduces the costs associated with the surgical procedure, but also
reduces the hospital recovery period.
Increasing the costs of health care- Other advances may increase the costs of care, but
help to save lives. Unprecedented advances have been made in the treatment of
neonates, or low birth-weight babies. The costs of such treatment, however, are high.
The American Academy of Pediatrics estimates that costs for such treatment were in
excess of $2.5 billion in 1985, or $14,698 for each infant treated. 18
Increasing patient comfort and safety - Many technological advances have been
responsible for increased patient comfort in the treatment of specific problems. For
example, in the past, treatment for kidney stones frequently required surgery. A new
technology, called lithotripsy, provides a relatively painless non-surgical method to
treat patients.
Allowing treatment for previously untreatable diseases - Organ transplants, as well as
other technologies, allow us to treat patients who previously had no treatment
options.
Improving treatment for disease - Many advances allow us to improve treatment for
disease. A recently approved drug called tissue plasminogen activator (TPA) will
improve our ability to treat heart attack patients. An injection of TPA helps to
improve the chances for survival and improve quality of life for heart attack victims.
Changing the way care is provided - Advances in technology can change the places
where care is received. For example, the development of safer types of anesthesia
made it possible for physicians to perform an increasing number of procedures on an
outpatient basis. Other changes, such as the development of home dialysis, have
resulted in better self-care possibilities for the patient.
Advances in technology, however, have created difficult ethical decisions for health
care providers. Providers now have the means to sustain life for patients who are near
death, and this care is frequently costly. For example, almost one-third of Medicare
payments are currently for people in their last year of life. This percentage can be
expected to increase with widespread adoption of new technologies. The recent
success of organ transplants, largely due to the introduction of cyclosporin, has also
raised ethical issues related to problems of organ supply, availability and distribution.
This, in turn, has resulted in the involvement of states, the Federal government, and
sometimes the judicial system, to influence availability of treatment.
As technological advances continue, we will increasingly be confronted with
difficult decisions related to the coverage of new technology by insurers and the
¹⁸General Accounting Office, Prenatal Care: Medicaid Recipients and Uninsured Women Obtain
Insufficient Care, September 1987 (GAO/HRD-87-137), p. 14.
8
Federal government. These decisions will become even more difficult as resources fc
"It is easy to resolve
health care become more limited, forcing tradeoffs between providing basic primar
these problems
health care services and providing new, potentially expensive but quality-enhancin;
when the person in
technology. It is easy to resolve these problems when the person in need of treatment
need of treatment
yourself or your child; it is much more difficult when you must bear the addition:
is yourself or your
child
costs of treating others.
9
Days
Average Length of Stay
12
11
Medicare
10
The average length of stay for all
9
patients and for Medicare pa-
tients has been declining for
many years. Since 1983, when
Medicare implemented a pro-
8
spective payment system, the
decline in length of stay, particu-
Total
larly for Medicare patients, has
accelerated. There are, however,
7
indications that the decline in
length of stay has leveled off and
may even be increasing as the
severity of cases admitted to
6
hospitals increases.
1979
1981
1983
1985
1987
1989
Year
Source: American Hospital Association and the Health Care Financing Administration.
Trends in Hospital Admissions
Admissions per
(per 1000 Population)
1000 Population
160
150
140
The number of hospital admis-
sions has declined rapidly in
recent years due to technologi-
130
cal advances that permit more
care to be provided on an outpa-
tient basis or in alternative set-
tings and due to changes in the
reimbursement system. There
120
are however, indications that the
decline has slowed significantly.
1977
1979
1981
1983
1985
1987
1989
Year
Source: American Hospital Association and ICF Incorporated.
10
WHO WILL PROVIDE CARE?
The health care system is composed of a wide range of health care personnel and
"An issue of great
types of facilities. An issue of great importance to the future of health care is how
importance
is
many and what types of providers will be available in the future and where they will be
how many and
located. This greatly depends on the reimbursment systems currently in place and the
what types of
incentives inherent in these systems.
providers will be
available in the
future and where
Hospitals
they will be
Current System
located."
Historically, most payers, including government payers, reimbursed hospitals
based on the costs of providing services. For example, the Medicare program
reimbursed hospitals for the costs of providing care to Medicare beneficiaries. The
costs included reimbursement for operating expenses, capital expenses, and any costs
associated with teaching programs. Medicare also covered any bad debt associated
with its beneficiaries. Other payers paid hospitals based on charges, or reduced
charges. Still others negotiated discounts that were based on the hospital's charges.
Because all of these systems ensured that patient care expenses would be fully paid,
facilities had no incentive to control the increase in costs associated with patient care.
Since the early 1980s, most payers have developed alternative systems, which
provide stronger incentives to control costs. Medicare, the largest single purchaser of
hospital care, accounting for 29 percent of all hospital revenue in 1986, currently pays
hospitals a flat amount for each admission. 19 This amount is adjusted for diagnosis
and for several other hospital-specific features, such as whether the hospital is a
teaching hospital or serves a large percentage of indigent and uninsured patients. This
prospectively based system allows hospitals to determine, in advance, their payment
for providing inpatient care to Medicare beneficiaries. Medicare pays additional
hospital costs associated with capital expenses and the direct costs of teaching
programs.
This system is updated annually by increasing the payment amount per discharge
(called the standardized amount) and by recalculating the weights applied to adjust
this amount for an individual's diagnosis (called the DRG weights). Each year
Congress and the Health Care Financing Administration (HCFA) attempt to
determine the appropriate inflation update amount (inflator) using information on
it has been
hospital cost increases. Although the inflator used for the standardized amount was
estimated that in
originally intended to reflect the increase in hospital costs each year, in recent years it
1988, over 40
has been much lower than the actual increase in hospital expenses. The growth in
percent of the
hospital expenses, therefore, has been more rapid than the increase in revenues.
Nation's
Consequently, hospital net income from Medicare has declined substantially. In fact,
community
hospitals may have
it is estimated that in 1988, over 40 percent of the Nation's community hospitals may
negative net
have a negative net income for Medicare patients. 20 Because Medicare represents a
income for
significant portion of a hospital's costs, this will have a strong negative impact on
Medicare patients."
hospitals' financial condition. It has been reported that, due, in part, to reductions in
19Division of Cost Estimates, Office of the Actuary, Health Care Financing Administration,
"National Health Expenditures, 1986-2000," Health Care Financing Review 8(4):1-36, Summer 1987.
²⁰ICF analysis of HCFA data.
11
Medicare revenue, the average hospital margin in 1986 was 3 percent, a reduction
from 3.6 percent the prior year.²¹
While Medicare is only one of many payers, this payment system was the
precursor of many others which attempted to slow the increase in costs. Whatever the
system, all major payers have either developed a pricing system, or have negotiated
substantial discounts with providers.
"At the same time,
At the same time, all payers have become less willing to subsidize care for non-
all payers have
paying patients. In the past, hospital charges to privately insured patients included an
become less willing
amount to finance some portion of the charity care provided by the hospital. It has
to subsidize care
been estimated that "cost shifting" to private payers accounted for $8.8 billion in
for non-paying
charges in 1984, an increase from $5.8 billion in 1982. 22 Cost shifting results in higher
patients. [This] has
reduced the
health care premiums for the insured, increasing the costs of employer sponsored
hospital's ability to
health insurance. This practice is particularly important to public hospitals, which
finance charity
provide a significant portion of the charity care in the United States. Increased cost
care."
consciousness of all payers, however, has reduced the hospital's ability to finance
charity care by charging insured patients more. Hospitals, therefore, are being forced
to pay for this care from other funds - - where available.
What is the Impact of these Changes?
New reimbursement systems have resulted in a dramatic change in hospital
behavior. Systems which limit payments to hospitals create strong incentives to cut
costs by improving efficiency. Increased efficiency can result in better care or increased
levels of care at lower cost or both. Alternatively, as reimbursement becomes less and
less than the actual costs of providing care, the level of care may be reduced.
Under these systems, hospitals have incentives to:
Discharge patients earlier- Hospitals have an incentive, under a price-based system,
to discharge patients "sicker and quicker." Because a hospital is paid the same
amount for a Medicare patient regardless of the length of time spent in the hospital,
the hospital can reduce its costs by discharging the patient quickly. This is true for
any other discharge-based payment system. Patients may be discharged either to
nursing homes, to home health care, or to self care. In most cases, this results in
health care in a more appropriate setting. In some cases, however, a discharge to
another setting may not be in the patient's best interest. In fact, Medicare average
length of stay per hospitalization declined from 10.7 days to 8.4 days from 1979 to
1985, although not all of this can be attributed to the new payment system. 23 Length
of stay for all patients also dropped by six percent over the same period.
Reduce levels of care to the severely ill Hospitals also have an incentive to reduce
admissions of severely ill patients who require a greater number of services and are,
therefore, more expensive to care for. They also have an incentive to reduce the
number and intensity of services to severely ill patients in an effort to reduce costs.
Specialty hospitals or hospital units that generally treat severely ill patients may be at
a disadvantage, unless exceptions are made in reimbursing these units. For example,
there are 135 hospitals across the U.S. with units that treat patients with severe burns.
These units provide highly specialized care, saving lives which might not be saved
otherwise, but the cost of providing this treatment is enormous and is not adequately
reflected in the current Medicare payment system. As a result, in 1984, burn centers
received only 44 percent of the costs of treating Medicare burn patients. 24
Provide services in outpatient settings - Most of the new payment systems have been
limited to inpatient services. Services provided on an outpatient basis are frequently
reimbursed based on incurred costs. This has led to tremendous growth in the
²¹Healthcare Financial Management Association, Hospital Industry Financial Report, 1982-1986,
September 1987.
²²Joseph A. Califano, Jr., America's Health Care Revolution (New York: Random House, 1985), p.165.
²³Stuart Guterman and Allen Dobson, "Impact of Prospective Payment System for Hospitals,"
Health Care Financing Review 7(3):97-114, Spring 1986.
²⁴ICF Analysis of 1984 MEDPAR data.
12
number of hospital outpatient surgical facilities and freestanding surgical centers.
Many payers, including Medicare, however, are developing payment restrictions on
outpatient services as well.
Number of
Hospitals
Number of Community Hospital Closures
50
Urban hospitals
40
Rural hospitals
30
20
10
The number of hospital closures
has increased in recent years,
affecting access to care for a
number of communities, partic-
0
ularly rural communities.
1980
1981
1982
1983
1984
1985
Year
Source: Ross M. Mullner and David McNeil, "Rural and Urban Hospital Closures: A Comparison," Health Affairs, Fall 1986.
What Are the Implications for the Future?
Hospital Closures
There is little doubt that hospitals have been hurt by changes in reimbursement.
the current
Hospital margins have started to decline, and there is no evidence to suggest that they
system may not be
will increase in the near future. This has resulted in hospital closures, and a decline of
able to
27 percent in the number of acute care hospital beds between 1981 and 1985. Many
discriminate
people would argue that we have an oversupply of hospital beds and that bed closures
between excess
are desirable. But, the current system may not be able to discriminate between excess
supply and needed
supply and needed facilities. As a consequence, the availability of services to
facilities."
particular populations or geographic areas may be jeopardized.
It has been estimated that 40 percent of all hospitals will be closed or converted to
other purposes by the year 2000. 25 Hospital closures of this magnitude are likely to
result in an undersupply of services. In order to understand what this means for the
future, we must identify the types of hospitals likely to close.
Two hospital groups have been particularly affected by recent changes in
reimbursement: public hospitals and rural hospitals. Public hospitals are hospitals
generally owned or operated by a city or county government. They can also be
associated with a state university or hospital district. These hospitals are generally
located in a large urban area and usually depend, to a large extent, on public funds to
support their activities. Public hospitals are unique as one of the only hospital groups
to experience an increase in average occupancy since 1980. In 1985, their average
occupancy rate was 80 percent compared to 65 percent for all hospitals.
They are also unique because almost 30 percent of their net revenues are from
state and local appropriations and because they provide much of the charity care in
many areas. For example, a study in Georgia found that, while public hospitals
accounted for only 14 percent of the beds in the state, they accounted for 44 percent of
the free care. 26
2⁵Larry S. Gage, Dennis P. Andrulis, and Virginia Beers, America's Safety Net: A Report on the
Situation in Our Nation's Metropolitan Areas (National Association of Public Hospitals, October 1987).
²⁶Ibid.
13
Number of
Total Number of Community Hospitals
Hospitals
5830
5800
5770
5740
The number of community
hospitals in operation has de-
clined in recent years. This is
5710
largely due to changes in reim-
bursement policies and techno-
logical advancements, which
have reduced occupancy in
many hospitals and created fi-
5680
nancial difficulty that results
in closure.
1980
1981
1982
1983
1984
1985
1986
Year
Source: American Hospital Association.
Number of beds
Number of Beds in Community Hospitals
(in 000s)
1020
1010
1000
After reaching a peak in 1983,
990
the number of beds in com-
munity hospitals has declined
in recent years and currently
stands at a level below the num-
ber in 1979. This is largely due to
980
the decline in occupancy rates
that has occurred because of
changes in hospital payments
and advances in technology.
1979
1980
1981
1982
1983
1984
1985
1986
Year
Source: American Hospital Association.
"The future of
The future of public hospitals is uncertain. In 1982, it was estimated that 50
public hospitals is
percent of these hospitals operated at a loss, compared to 22 percent of not-for-profit
uncertain. In 1982,
hospitals. The proportion of their gross revenues from Medicare and from
it was estimated
government sources has actually declined since 1983, and the proportion from
that 50 percent of
Medicaid and private insurers has remained constant. This suggests that these
these hospitals
operated at a
hospitals have experienced an increase in bad debt and charity care demands. In other
loss
words, they are providing an increasing amount of health care that is not paid for. The
average age of the physical plant of these hospitals has also increased because capital is
not readily available to support new construction, renovation or the addition of new
technology. Finally, public hospitals have been disproportionately affected by the
AIDS epidemic. In a recent survey, public hospitals, representing 25 percent of the
hospitals in the survey, provided 53 percent of the AIDS patient days. All of these
factors indicate that, unless there are changes, it is likely that the financial condition of
14
these hospitals will worsen, and the likelihood of closure will increase. In fact, in the
last ten years, seven of these hospitals have closed and an additional ten have been
sold, leased, or reorganized.
The closure of public hospitals would severely limit access to health care for the
"The closure of
uninsured poor. Researchers recently compared the volume of care provided to the
public hospitals
uninsured in 99 of the 100 largest U.S. cities. They found that cities with public
would severely
hospitals provided care to a larger percentage of the uninsured poor than cities with
limit access to
no public hospitals (31-34 adjusted admissions per 100 uninsured poor compared to
health care for the
24 adjusted admissions). These results indicate that public hospitals not only reduce
uninsured poor."
the burden on private hospitals, but also actually increase access for the uninsured
poor. In addition, certain specialized care services, such as burn care, neonatal care
and psychiatric care are more likely to be offered at these hospitals. Finally, these
hospitals train about 12 percent of the physicians educated in this country. Closing
public hospitals, therefore, would reduce the volume of uncompensated care provided
in the communities in which they are located, it would reduce access to certain
types of specialized care and it would reduce the number of facilities available for
physician training.
If public hospitals close, or reduce the levels of charity care provided, there will be
increased pressure on non-teaching hospitals located in the same urban areas to
provide these services. These hospitals currently do not provide the types of
specialized services frequently available in teaching institutions. They do, however,
provide high quality services of the type most frequently demanded by the
populations they serve. These institutions are experiencing declining margins and
will not be able to finance increased levels of charity care. In fact, because of declining
margins, these hospitals have not been able to invest in new plant and equipment, and,
as a result, the age of their plant has increased to an all time high of 7.3 years. 28 In
addition, these hospitals are experiencing the same difficulties attracting staff,
including nurses and physical therapists, as other hospitals. Closing public hospitals,
therefore, would add to their already worsening financial situation.
Rural hospitals are the second group of hospitals for which the future is uncertain.
Rural hospitals differ markedly from urban hospitals. For example, although they
account for 48 percent of all hospitals, they account for only 21 percent of the beds,
averaging 76 beds per facility, as compared to 252 for urban hospitals. They also
"The rural hospital
account for only 24 percent of the Medicare discharges and have an average length of
may be
the only
stay that is two days shorter than urban hospitals. 29 The rural hospital may be one of
source of health
the largest area employers, as well as the only source of health care for a community. In
care for a
fact, 363 rural hospitals have been designated sole community providers by the
community."
Health Care Financing Administration (HCFA).
Several factors have created special problems for rural hospitals. First, occupancy
has fallen substantially due to fewer admissions and shorter length of stay. This decline
has not been confined to rural hospitals, but has a much greater impact on their
operation. Occupancy in rural hospitals with less than 25 beds has declined by 28
percent since 1980, while rural hospitals with between 25 and 50 beds have
experienced a decline of 14 percent. This compares to a decline of 6 percent for all
hospitals over the same period. 30
Second, demographics have slowed the growth in the population served by rural
hospitals, while increasing the average age of the rural population. In addition, a
general economic decline in rural areas has both reduced the resources available to
²⁷Kenneth E. Thorpe and Charles Brecher, "Improved Access to Care for the Uninsured Poor in
Large Cities: Do Public Hospitals Make a Difference?" Journal of Health, Politics, Policy and Law
12(2):313-324, Summer 1987.
²⁸Healthcare Financial Management Association, Hospital Industry Financial Report, 1982-1986,
September 1987.
²⁹James E. Hatten and Rose E. Connerton, "Urban and Rural Hospitals: How do they Differ?"
Health Care Financing Review 8(2):77-85, Winter 1986.
³⁰Prospective Payment Assessment Commission, Technical Appendixes to the Report and Recom-
mendations to the Secretary, U.S. Department of Health and Human Services, April 1987, p. 96.
15
pay for health care services and limited the ability of local communities to support
their hospitals through the tax base.
Third, rural hospitals are increasingly competing with urban hospitals that are
reaching out to rural areas to expand their market share. While this may increase the
availability of some services to the local community, it may threaten the viability of
local hospitals, which may offer a different range of services.
Finally, under Medicare, rural hospitals are paid a different standardized amount,
which in FY 1987 was 20 percent lower than the urban standardized amount. This
difference exists because historically the costs associated with treatment of Medicare
patients in rural hospitals have been lower than in urban hospitals. As a result, rural
hospitals generally have a lower Medicare operating margin and may have more
difficulty getting the capital necessary to renovate or invest in new types of technology.
The acquisition of new technologies and the latest in medical developments is critical
if they are to compete effectively with urban hospitals and if they are to provide the
best health care to residents of the local community.
"Rural hospital
Rural hospital closures may mean that people have to travel substantial distances
closures may mean
to receive health care. Since 1980, 86 acute care hospitals have closed in rural areas.
that people have to
Most were hospitals with fewer than 50 beds. These hospitals were located in 85
travel substantial
distances to receive
counties, and in six cases the hospital that closed was the only one in the county.³¹
health care."
Closure of the community hospital can have a greater impact on the local community
than just the loss of health services. Since the hospital is a major employer in many
cases, it could disrupt the local economy. Furthermore, it may limit the community's
ability to attract other health professionals, especially physicians. This can limit
access to basic health care services, in addition to inpatient hospital services.
For example, when Cottle County Hospital in Paducah, Texas closed, local
residents were forced to drive more than 50 miles to the nearest hospital. Efforts to
replace the town's only physician have failed, so that with his retirement, there will be
no physician in this town of 2,200 people. This hospital closed despite a tax increase
for its support voted earlier by local residents.
The impact of rural hospital closures will be felt disproportionately by certain
states. In 1984, there were ten states where rural hospitals represented more than 85
percent of the state's hospitals. 32 As a result, people in these states may be confronted
with substantially reduced access to care.
Purchase of Technology
Reimbursement affects hospitals' ability to purchase new technology. Many
systems encourage the purchase of only cost-saving technology. Consequently, our
Nation's medical research and development efforts may be limited, thereby slowing
the introduction of new diagnostic and treatment techniques.
When hospital payment was based upon the actual costs of the care provided and
when the capital costs associated with equipment expenditures were reimbursed in
full, new technology was adopted relatively quickly. There are early indications that
this might not occur under new payment systems.
Under the Medicare Prospective Payment System, for example, if a technology
was in place in 1981 when the system was developed, the costs for use of that
"Hospitals
have
an incentive to
technology were included in the DRG payment amount. For technology becoming
adopt a new
available after that time, the costs are not included. Unless Medicare explicitly adopts
technology only if
the new technology and incorporates it into the payment system, hospitals will not be
it reduces the costs
reimbursed for its use. Hospitals, therefore, have an incentive to adopt a new
of providing
technology only if it reduces the costs of providing services, thereby allowing them to
services.
benefit from the cost savings. Any technology that adds to the costs of patient care
could mean potential financial losses for the hospital.
¹¹Ross M. Mullner and David McNeil, "Rural and Urban Hospital Closures: A Comparison,"
Health Affairs 5(3): 131-141, Fall 1986.
³²These states are Alaska, Idaho, Kansas, Mississippi, Montana, Nebraska, North Dakota, South
Dakota, Utah and Wyoming.
16
Net Margins for Community Hospitals
Percent
6
Net margins for community
hospitals increased from 1979
to 1985 largely due to imple-
mentation of the prospective
payment system for Medicare.
This system gave hospitals the
5
opportunity to benefit finan-
cially by operating more effi-
ciently. As a result, hospital
margins increased. Since 1985,
however, the payment rates for
Medicare, as well as other
4
payers, have increased slowly
and in many cases have not
reflected the increase in hospi-
tal expenses. This trend, which
is expected to continue, results
in lower margins for hospitals,
which affects their ability to
3
make capital investments and
provide uncompensated care.
1979
1981
1983
1985
1987
1989
Year
Source: American Hospital Association and ICF Incorporated.
A good example of this is a comparison of the computed axial tomography (CAT)
scanner and magnetic resonance imaging (MRI). CAT scanners were introduced in
the United States in 1973 and were quickly adopted by the medical community. CAT
scanners allowed physicians to diagnose certain conditions that they previously could
diagnose only after a surgical procedure or a risky and painful x-ray procedure. Four
years after the first CAT scanner was used, there were 921 installed in facilities across
the country. MRIs were introduced in 1980, and, by contrast, four years later there
were only 108 were in place. 33 In fact, even now, there are only about 650 MRIs
operating in the United States.³⁴
There are several reasons for this significant difference, including:
High costs- The cost of purchasing and installing an MRI are high. Depending upon
the type of MRI purchased, the cost can range from $1.3 to $2.6 million. 35 This
compares to purchase prices ranging from $700,000 to $1 million for CAT
scanners.
Clinical role- The introduction of the CAT scanner represented a giant leap forward
in our ability to diagnose, while the MRI represents a smaller step. Therefore, we
might not expect that providers will adopt this equipment as quickly as the CAT
scanner was adopted.
Technical issues - There are many more choices regarding the purchase of an MRI
than there were regarding CAT scanners. Therefore, some providers may be waiting
until there is enough evidence to identify the best type of equipment to purchase.
Perhaps the most important issue, however, relates to the uncertainty regarding
reimbursement. Under the previous payment system, when hospitals were reim-
bursed for all of the capital costs associated with the purchase of equipment and were
assured of payment for the services, it was much easier and less risky financially to
adopt new technology. While there may be additional issues related to the efficacy and
³³Earl P. Steinberg et al., "X-Ray CT and Magnetic Resonance Imagers, Diffusion Patterns and
Policy Issues," New England Journal of Medicine 313(14):859-864, October 1985.
³⁴"By consensus MRI receives high marks," Science News 132:318.
³⁵Alan L. Hillman and J. Sanford Schwartz, "The Diffusion of MRI: Patterns of Siting and
Ownership in an Era of Changing Incentives," American Journal of Radiology 146:963-969, May 1986.
³⁶These costs are in 1983 dollars. Earl Steinberg et al., "X-Ray CT and Magnetic Resonance
Imagers," New England Journal of Medicine 313(14):859-864, October 1985.
17
there is little
desirability of adopting new technology, there is little doubt that limiting reimburse-
doubt that limiting
ment will play a major role in slowing the dispersion of new medical treatment ideas.
rejmbursement will
There are also a number of other public policies that impact technology. For
play a major role in
example, research and development of new pharmaceuticals is financed by profits
slowing the
from the sales of other drugs, most frequently patented drugs which the company has
dispersion of new
medical treatment
the exclusive right to sell. By 1991, many of the top drugs will lose their patent
ideas."
protection, thereby eliminating a major source of financing for research and
development of new drugs. 37 At the same time, the cost of developing and testing new
drugs has increased rapidly, from $73 million per drug in 1980 to $125 million per drug
in 1986. 38 In addition, company liability for new products has resulted in a dramatic
increase in insurance premiums for these companies. While there has been no
reduction in the total amounts spent for research and development by these
companies, increasing expenses, coupled with increased liability, may cause them to
reduce future expenditures on the development of new technology.
The reimbursement systems used to pay hospitals are important in determining
the levels and types of services that will be available. In short, reimbursement systems
have a direct impact on the financial viability of hospitals. If an institution is no longer
financially viable, it will either have to be supported another way, or close. The
existence of hospitals is important in assuring access to care, both to inpatient care
and, because they are important in attracting physicians, to physician care. Some
hospitals, because of their location or mission, are particularly important, including
public hospitals, which frequently provide the only source of care for the poor and
those with certain types of illnesses, and rural hospitals. One can argue that because
these hospitals are important, public support will keep them alive. We will provide
funds for their support, either by providing adequate reimbursement or by assisting
them with public funds.
"Determining the
Although marginal reimbursement will keep hospitals in existence, it may mean
level of
that the hospital gets older and the quality of care fails to advance as rapidly as possible
reimbursement
because of limited adoption of new technology. Determining the level of reimburse-
to make needed
ment that will allow the hospital to make needed renovations and adopt beneficial
renovations and
adopt
new technology - as well as providing incentives for efficiency - is not easy. But it is
new
technology
is
critical in determining what type of health care will be provided to our children.
not easy. But it is
critical.
Medical Professionals
Physicians
Current System
Under most insurance plans, physicians are paid based upon the number and
types of procedures performed. The actual payment amount is based on what is called
the "usual and customary" charge, a payment amount determined by the average
charges among all physicians. As a consequence, not all physicians are paid their
actual charges. Under some health insurance plans, they may be paid substantially
less than their charges.
Some physicians may agree to accept the insurer's payment as payment in full.
These are called "participating physicians." If care is received from a participating
physician, chances are that the patient will not have to pay anything beyond the
coinsurance and deductible and that the physician will submit the bill and be paid
directly by the insurer. If care is received from a non-participating physician, the
patient is responsible for the initial payment to the physician. The patient must then
submit the bill to the insurer for reimbursement.
³⁷Calculation by Pfizer based on data reported by IMS.
³⁸The 1980 figure is based on data in Ron Hansen, "The Pharmaceutical Development Process:
Estimates of Development Costs and Times and the Effects of Proposed Regulatory Changes," in Issues
in Pharmaceutical Economics, ed. R.A. Chien (Lexington, Mass.: D.C. Heath, 1979) updated to 1980
using the Biomedical Research and Development Price Index, National Institutes of Health. The 1986
figure is from Stephen Wiggins, "The Costs of Developing a New Drug" (Pharmaceutical Manufac-
turers Association, 1986).
18
The actual payment amount for each procedure is established for any given year
based upon previous experience. Each insurance company establishes its own rates,
so there are differences in what a physician gets paid based upon the type of insurance
you have. Under the Medicare system, maximum physician payments (called
prevailing charges) are set by the Medicare carriers in each state and amounts are
calculated separately by specialty. As a result:
There is often great disparity across areas. For example, in 1984, a physician
performing coronary artery bypass surgery in Colorado would have been paid
$2,300, while in the New York City area, payment for the same procedure would
have been $6,000. 39 Some differences are expected due to differences in cost of living;
however, differences of this magnitude exceed what might be expected.
There are differences in payment by physician specialty. General practice physicians
get paid less than a specialist performing the same procedure. For example,
Medicare pays a general practitioner $35 for a comprehensive office visit in Illinois
while a specialist gets paid almost twice as much for the same visit.
These differences are clearly important because they affect the availability of
doctors, both geographically and in total. These differences create strong incentives to
practice in states where reimbursement is more generous, and to choose specialties, as
opposed to general practice.
There have been several recent changes or limits on physician payments. For
example, in 1985-86, Medicare imposed a freeze on the prevailing fees for physicians.
This meant that the amount paid for each procedure could not increase. It did not,
however, affect the number of procedures that could be performed and reimbursed. In
addition, Massachusetts recently passed a law linking physician participation in
Medicare to state licensure. This effectively means that any physician practicing in
Massachusetts must accept Medicare payment as payment in full and, therefore,
cannot bill a Medicare patient for any amount other than mandated coinsurance and
deductibles. Blue Cross of Massachusetts has similarly limited payment to participat-
ing physicians.
Procedure-based payment systems like these encourage physicians to perform
more services during each visit in order to maximize the payment amount. HCFA
recently proposed a $7 increase in the 1988 Medicare Part B premium, which
represents a 39 percent increase. In recent testimony before Congress, the HCFA
Administrator blamed over one-half of the increase on higher volume (i.e., increases
in the number of services provided by physicians), increases in the intensity of services
and technological changes.⁴⁰
There are a number of reasons for the increasing number of procedures performed
by physicians. First, more diagnostic procedures are available, which can be useful in
diagnosing problems earlier and have even reduced the need for other more expensive
or painful procedures. As these procedures become available they are performed by
physicians, thereby increasing the total number of procedures performed.
Increases in volume are also attributed to "defensive medicine" as a result of recent
increases in malpractice insurance and physicians' risk of liability. If more tests are
performed, the physician is better protected in the event of a future malpractice claim.
Malpractice claims have become a major concern and expense for physicians.
Between 1983 and 1985, malpractice premiums for all physicians rose 81 percent.
Increases have been even larger for some specialties, such as obstetrics and gynecology,
for which the increase over the same period was 114 percent.
Increases in malpractice premiums result from both the large number of suits and
"Increases in
the amounts of settlement. In 1984, insurers settled an estimated 73,472 malpractice
malpractice
claims against health care providers, including hospitals and physicians. Of the
premiums result
from both the large
³⁹U.S. Department of Health and Human Services, Health Care Financing Administration,
number of suits
Medicare Directory of Prevailing Charges 1984 (Washington D.C.: U.S. Government Printing Office,
and the amounts of
1984).
settlement."
⁴⁰Statement of William L. Roper M.D., Administrator, Health Care Financing Administration,
before the Committee on Ways and Means, United States House of Representatives.
19
Liability Insurance
Premiums
Level of Physician Liability Insurance Premiums
24
($s in thousands)
20
16
Ob/Gyn
Surgery
12
All physicians
Malpractice premiums for phy-
sicians have increased signifi-
8
cantly in recent years, largely
due to increases in the number
Family/general
of suits filed and settlements
amounts. The dramatic in-
Internal medicine
creases for some specialties,
4
such as obstetrics, have caused a
Pediatrics
number of physicians to elimi-
nate certain types of services.
1982
1983
1984
1985
Year
Source: American Medical Association.
103,255 providers involved in these claims, 71 percent were physicians. About 43
percent of the claims were settled with indemnity payments which ranged from $1
million to $2.5 million with an average claim of $80,741.41
What is the Impact of These Changes?
the increase in
The increase in malpractice premiums, limits on payments and the disparity in
malpractice
payments across specialty and geographic areas have established trends that may
premiums has
adversely affect access to health care in the future.
caused a number of
For example, the increase in malpractice premiums has caused a number of
physicians to
reduce or eliminate
physicians to reduce or eliminate certain types of services. This is particularly true for
certain types of
obstetricians and family practitioners. In response to a survey conducted of family
services."
practitioners in 1985, 12 percent reported that they no longer delivered babies, an
increase of 33 percent since 1983. In addition, 23 percent had reduced the amount of
high risk obstetric care provided, a 28 percent increase over 1983.
The elimination of these services by family practitioners will disproportionately
affect non-metropolitan areas where the family practitioner is often the only physician
available to provide prenatal and obstetric care. Several places where high malpractice
premiums have already had a dramatic effect on access to obstetric care include:
Alabama, where 25 of the state's 67 counties no longer have physicians that provide
obstetric care;
North Carolina, where 21 of 100 counties no longer have physicians who provide
obstetric care and the number of family physicians who delivered babies has dropped
from about 350 to 50 in the last several years;
Kentucky, where 17 delivery rooms (20 percent of the state's hospital delivery rooms)
have closed in the last six years, all of which were located in rural areas and were the
community's only source of obstetric care; and
Iowa, where 48 (30 percent) of the state's 160 licensed obstetricians no longer deliver
babies.
Oelwein, Iowa is typical of the types of places affected by dramatic increases in
malpractice premiums. In 1987, the two physicians who delivered babies in this
⁴¹United States General Accounting Office, Medicare Malpractice: A Framework for Action, May 20,
1987 (GAO/HRD-87-73).
20
community of 7,800 eliminated obstetrical services to avoid the high malpractice
premiums. As a result, women in the community had to travel 30 to 45 minutes, in
good weather, to receive obstetrical care. After several months, the hospital was able to
recruit a family practitioner willing to provide obstetric services. Women with high
risk pregnancies, however, still must travel up to one and a half hours to facilities that
can provide the type of intensive services that might be required.⁴²
The effect of these trends is to severely restrict prenatal care, essential to ensuring
the good health of the child and mother. In addition, the long distances that expectant
mothers must travel for obstetric care also increases the chances that medical care will
not be available in an emergency. Without adequate prenatal care, especially in an
emergency, the risks of infant mortality and morbidity will increase substantially. The
U.S. currently ranks seventeenth in infant mortality, meaning that sixteen countries
have infant mortality rates lower than ours.⁴³ One of the objectives of the Surgeon
"Hospital and
General of the United States is to reduce the incidence of infant mortality and increase
physician payment
the number of expectant mothers who receive prenatal care. Reductions in the
systems also affect
the medical
number and geographic distribution of the physicians who provide obstetric care
education that
seriously jeopardizes our ability to achieve this objective.
takes place in
The geographic disparity in physician payments has also had a marked impact on
hospitals across the
the location of practicing physicians. Although the number of physicians per 100,000
country."
population has increased steadily, there are still a number of areas where the
availability of primary care is inadequate. These "underserved areas" are mostly rural
and are estimated to include 14.1 million people, or 6.1 percent of the total U.S.
population.⁴⁴
Hospital and physician payment systems also affect the medical education that
takes place in hospitals across the country. For example, when the Medicare
Prospective Payment System was first implemented, the costs for medical education
were included by increasing the level of payment to teaching hospitals, and by
allowing hospitals to be fully paid for the direct costs of medical education. As the
need to cut costs within the Medicare program has increased, these payments have
been limited in a variety of ways. On several occasions, Congress and the
Administration have proposed to reduce the indirect teaching factor, which makes
payments to teaching hospitals for additional indirect costs associated with having a
teaching program. In addition, the amount paid for direct teaching has been targeted
on occasion. Many hospitals, particularly inner city teaching hospitals, depend on
interns and residents to staff outpatient units and emergency rooms. In some cases,
these personnel provide a substantial amount of care to the indigent. The decline in
federal payment for these physicians may affect hospitals' ability to provide such
services.
Uncertainty regarding future payment systems, combined with rapid increases in
the cost of medical education, may make the medical profession increasingly
unattractive. The cost of medical education has increased substantially. A 1986 survey
by the American Association of Medical Colleges indicated that 82 percent of medical
students for that year were in debt, and the average debt for those students was
$33,499. This represents an increase of 117 percent since 1980, when the average debt
was $15,421.45
These factors have already had an impact on the number of students applying to
"The decline in both
medical school. Between 1976-77 and 1986-87, the number of applicants for every
applicants and
medical school position declined from 2.7 to 1.8. In addition, total enrollment has
total enrollment
declined from 17,320 in 1981-82 to 16,779 in 1986-87.4 The decline in both applicants
may indicate that
medicine is no
⁴²United Press International, July 2, 1987.
longer attracting
⁴³Jim Grant, State of the World's Children (New York: United Nations, UNICEF, 1987).
the best and
⁴⁴U.S. Department of Health and Human Services, Fifth Report to the President and Congress on the
brightest students."
Status of Health Personnel (Springfield, Va.: National Technical Information Service, March 1986), p.
3-19.
⁴⁵Paul Jolly, Leon Takser and Robert Beran, "U.S. Medical School Finances," New England Journal
of Medicine 258(8): 1022-1030, August 1987.
46Anne E. Crowley, Sylvia Etzel and Edward Peterson, "Undergraduate Medical Education," Journal
of the American Medical Association 258(8): 1013-1-20, August 1987.
21
and total enrollment may indicate that medicine is no longer attracting the best and
the brightest students. Instead, they may be choosing careers that do not require the
substantial investment of time and money required by medicine. This, however, may
have an adverse affect on the quality of physicians practicing in the future.
Physicians appear to be increasingly dissatisfied about government and private
insurers' attempts to regulate their practice. Recent actions by the state linking
Medicare participation to licensure and by Blue Cross limiting payment for
participating physicians led the Massachusetts Medical Society to recently declare
Massachusetts an "undesirable" place to practice medicine.⁴⁷
These trends suggest that it may be increasingly difficult to gain access to physician
services, with the burden falling disproportionately on those with certain types of
insurance and those located in rural or inner city areas. For example, if other states
follow Massachusetts' lead by requiring physicians to participate in Medicare, many
physicians may elect not to provide services to Medicare beneficiaries. This could lead
to a system in which the wealthy have access to higher quality physicians than those
"Limitations on
dependent on Federal insurance programs providing inadequate payment.
access to physician
Limitations on access to physician care may place an increasing strain on hospital
care may place an
emergency departments and outpatient clinics where care is often provided for
increasing strain
patients who do not have a primary care physician. Care provided in these settings,
on hospital
however, is more expensive than care provided in physicians' offices and mean higher
emergency
costs for public programs and private insurance.
departments and
outpatient
R.N.s per 100
clinics.
hospitalized
Registered Nurses per 100 Hospitalized Patients
patients
96
92
88
84
The demand for nurses has
80
increased in recent years as
illustrated by the increase in the
76
number of registered nurses per
100 hospitalized patients. This
increase has occured because,
72
overall, patients admitted to the
hospital are in need of more
intensive services than in the
68
past, most of which are pro-
vided by nurses, and because
64
nurses are cost-effective sub-
stitutes for other types of per-
sonnel.
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
Year
Source: American Hospital Association.
Nurses
Current System
Another area that will have a major impact on the health care system is the supply
of nurses. In recent years, the demand for nurses has increased. For example, the
average ratio of nurses to patients in a hospital has increased from 50 per 100 patients
in 1972 to 91 per 100 patients in 1986.4⁸ Although the number of admissions has
declined rapidly in the last few years and hospitals have reduced the total number of
employees, from 1983 to 1986, hospitals hired 37,500 additional full time equivalent
nurses.
⁴⁷Letter from the Massachusetts Medical Society to its members dated October 30, 1987.
⁴⁸Linda Aiken and Connie F. Mullinix, "The Nursing Shortage: Myth or Reality?" New England
Journal of Medicine 317(10):641-646, September 1987.
22
Number of
Graduates
Projected Number of Registered Nurse Graduates
81000
79000
77000
75000
Despite the increase in demand
for registered nurses, the num-
ber of nurse graduates has de-
clined and the trend is expected
73000
to continue. This decline is
largely due to increased oppor-
tunities for women in other
71000
fields, low salaries for nurses,
and limited opportunities for
career advancement in nursing.
1983-84
1987-88
1985-86
1989-90
1991-92
1993-94
Academic Year
Source: Department of Health and Human Services
The increased demand for hospital-based nurses has occurred for several reasons.
First, as a result of changes in the payment system, hospitalized patients are generally
"sicker" than patients admitted in the past. This means that the average patient
requires more intensive services than in the past, most of which are provided by
nurses. To provide a more intensive level of services, however, requires a higher nurse
to patient ratio.
Finally, there is increased demand for nurses in other health care delivery settings,
such as HMOs, surgi-centers, emergency centers, and nursing homes, as well as in
administrative positions. In physicians' offices, nurse practitioners are increasingly
providing services previously provided by physicians, such as routine exams and
immunizations. This helps reduce the total cost of services.
What is the Impact of these Changes?
The supply of nurses, however, has not kept pace with the demand. From 1985 to
1986, the vacancy rate for nursing personnel in hospitals more than doubled from 6.5
percent to 13.6 percent and this trend is expected to continue in the near future. 49
There was a similar shortage in 1979. In response to this shortage, the average
"The disparity
wages for nurses increased by 13 percent, so that by 1981 the vacancy rate had declined
between nursing
to 3.7 percent. Increasing nurses' wages is substantially more difficult now than in
salaries and other
1979, however, due to the Medicare Prospective Payment System constraints on
professional
hospitals' abilities to finance such increases. Despite the current shortage, in 1986
salaries remains a
nursing salaries increased only 4 percent. 50 The disparity between nursing salaries
major factor in
and other professional salaries remains a major factor in detracting high quality
detracting high
quality students
students from nursing schools. In 1985, the average salary for teachers was 19 percent
from nursing
higher than for nurses and the average salary for all technical and professional women
schools."
⁴⁹Linda Aiken and Connie F. Mullinix, "The Nursing Shortage: Myth or Reality?" New England
Journal of Medicine 317(10):641-646, September 1987.
⁵⁰Ibid.
23
was 10 percent higher. 51 Low incomes, in addition to a number of other factors, has
resulted in a decline in nursing school enrollment. Since 1983, nursing school
enrollment has declined 20 percent and it is estimated that the number of nursing
school graduates will decline from 82,700 in 1985 to 68,700 in 1995.52
Moreover, changes in social patterns have created opportunities for women in
many other areas. Increasingly, women are entering professions that do not demand
the inconvenient night and weekend work that nursing frequently requires. More
importantly, other opportunities often mean higher salaries and upward mobility.
"The nursing
The nursing shortage is likely to continue, at least in the near future. As a result,
shortage is likely
hospitals and other health care providers may have to rely on other types of personnel
to continue, at
to provide nursing services. The impact on the quality and level of services provided,
least in the near
as well as the costs of services, will largely depend on who is substituted for nurses.
future."
Other Providers
There are a number of other facilities and delivery systems integral to the health
care system, including nursing homes, home health agencies, HMOs and outpatient
surgery facilities. Trends affecting these providers will also influence access to quality
care in the future.
Long-Term Care Providers
From 1970 to 1980 the number of aged people in nursing homes increased both in
absolute terms and as a percent of the population. In 1970 there were 800,000 elderly
in nursing homes. By 1980 the number had increased to 1.2 million, an annual
increase of 4.5 percent. As a percent of the total population, the number of elderly in
nursing homes increased from 4.0 percent to 4.8 percent. 53 From 1950 to 1983,
expenditures for nursing home care increased from less than 2 percent of total
personal health care costs to 9 percent and this trend is expected to continue.
Estimates project the demand for nursing home care to increase from $38 billion in
1986 to $129 billion in the year 2000.54
This demand for nursing home services is largely paid for by patients themselves or
their families and by Medicaid, the Federal/state program that finances health care for
the indigent. The Medicaid program currently pays for about half of all nursing home
expenditures.⁵⁵ Because Medicare and most private health insurance plans do not
include coverage for long-term care, many patients who enter nursing homes able to
pay for their own care become eligible for Medicaid when they have used up their
savings.
"The supply of
The supply of nursing home services has not kept up with the demand. Rapid
nursing home
growth in Medicaid expenditures for long-term care during the 1970s led many states
services has not
to limit construction of new nursing homes in an attempt to control long-term care
kept up with the
costs. As a result, from 1977 to 1985, the number of nursing home beds actually
demand."
declined from 59.7 beds to 56.8 beds per 1,000 population aged 65 and over, a decline
of almost five percent. 56 Indeed, it has been estimated that, in order to meet demand,
one 120-bed nursing home per day would have to be built over the next five to ten
⁵¹Ibid.
⁵²U.S. Department of Health and Human Services, Fifth Report to the President and Congress on the
Status of Health Personnel in the United States, (Washington D.C.: Government Printing Office, 1986), p.
10-97.
⁵³Daniel Waldo and Helen Lazenby, "Demographic Characteristics and Health Care Use and
Expenditures by the Aged in the United States: 1977-1984," Health Care Financing Review 6(1):1-29, Fall
1984.
⁵⁴Division of Cost Estimates, Office of the Actuary, Health Care Financing Administration,
"National Health Expenditures, 1986-2000," Health Care Financing Review 8(4):1-36, Summer 1987.
⁵⁵David Mechanic, "Challenges in Long-Term Care Policy," Health Affairs 6(2):22-34, Summer 1987.
⁵⁶Genevieve Strahan, "Nursing Home Characteristics: Preliminary Data from the 1985 National
Nursing Home Survey," Advance Data, March 27, 1987.
24
years. 57 In some instances, this shortage has resulted in patients remaining in
hospitals longer than necessary because alternative, less expensive types of care were
not appropriate or not available.
Medicaid programs have also attempted to control expenditures for long-term
"Medicaid programs
care by setting low reimbursement rates for nursing homes. For example, in 1985, the
setting low
average per diem rate for skilled care in a nursing home was $61. The average Medicaid
reimbursement
per diem rate, however, for the same level of care was only $50.58 This has contributed
rates for nursing
homes
to the shortage of nursing home beds in some areas by discouraging potential
investors. In addition, it jeopardizes access to care for those dependent on public
jeopardizes access
to care for those
programs, by encouraging nursing homes to selectively admit only higher paying
dependent on
private patients.
public
The demand for nursing home care has recently been influenced by the Medicare
programs.
Prospective Payment System, which creates incentives for hospitals to discharge
patients when they no longer need intensive services. This increased demand for
nursing home services has led some hospitals to enter into reserve bed agreements
with nursing homes to ensure the availability of nursing home beds when needed.
The incentives for early discharge inherent in the Medicare Prospective Payment
System have also increased demand for home health care services. There are two
major advantages of home health care- it may add to the psychological well being of
the patient and may be less expensive than hospital or nursing home care. However,
home health care can substitute for services previously provided by family members,
thereby increasing the total costs of providing long-term care services.
In 1986, an estimated $4.6 billion was spent on home health care. Of that amount,
$2 billion was paid by Medicare. Although home health care accounts for a small
percentage of total health care expenditures (slightly over 1 percent in 1986), it is a
rapidly growing area of the health care system. In recent years, it is estimated to have
grown at an average annual rate of 20-25 percent, and projections of total industry
spending estimate that the cost of home health products and services will increase
from $9 billion in 1985 to $16 billion in 1990.60 Despite the rapid growth in home
health care, including a substantial increase in the number of hospitals that offer
home health services, there are indications that increased demand has not been
satisfied.⁶¹
The aging of the population, incentives for hospitals to discharge patients more
quickly and limits in the ability of families to support the elderly all point to the
continued rapid increase in demand for long-term care services. If the supply of these
services continues to be constrained, there may be limited access to these services. As a
result, patients needing long-term care may not receive the most appropriate care,
which could result in higher than necessary expenditures for their care, or in
appropriate services not being provided.
There is a great deal of concern over the adequacy of the current financing
"There is a great
mechanisms for long-term care. Few private insurance companies currently offer
deal of concern
long-term care coverage. Because of this, Medicaid, which was intended to provide
over the adequacy
medical care to low-income women and children, has become the largest third-party
of the current
payer of long-term care, with over 36 percent of total program expenditures for long-
financing
mechanisms for
term care. 62 As a result, many states have adopted policies to limit their rapidly
long-term care."
increasing costs for this service. For example, Medicaid payments to nursing homes
are often set at levels far below the costs of the care, which seriously jeopardizes access
⁵⁷John D. Valiante, "The Capital Requirements for Long-Term Care Services," Health Care Financial
Management 14(4):84-90, April 1984.
⁵⁸Genevieve Strahan, "Nursing Home Characteristics: Preliminary Data from the 1985 National
Nursing Home Survey."
⁵⁹Katherine R. Levit et al, "National Health Expenditures, 1984," Health Care Financing Review
7(1):1-36, Fall 1985.
⁶Daniel R. Waldo, Katherine R. Levit, and Helen Lazenby, "National Health Expenditures, 1985,"
Health Care Financing Review 8(1):1-21, Fall 1986.
⁶¹Ibid.
⁶²Division of Cost Estimates, Office of the Actuary, Health Care Financing Administration,
"National Health Expenditures, 1986-2000," Health Care Financing Review 8(4):1-36, Summer 1987.
25
to needed care for the indigent. In order to qualify for Medicaid, patients must spend
almost all of their savings and assets, often leaving spouses with few financial
resources.
In addition, states have limited the growth of these facilities, and third party payers
have limited coverage, because of the pent-up demand for these services. Providing
these services to the degree that they are demanded could dramatically increase the
cost of health care. For example, if home health services were covered by private
insurance, or by Medicare, many families currently caring for their elderly relatives
might use these services. This would transfer the cost of caring for the person from the
family to the insurer. This would, in turn, be reflected in higher insurance premiums
for everyone.
Health Maintenance Organizations
Another area of the health care industry that has grown rapidly is HMOs. HMOs
are health care delivery systems established to provide medical services in exchange
for a fixed, predetermined payment per enrollee. Because HMOs are paid a fixed
amount per enrollee, regardless of the amount of health care services used by the
enrollee, the HMO has an incentive to provide needed care in the most efficient, cost-
effective manner. One way HMOs reduce expenses is by contracting with certain cost
efficient providers. Since enrollees must receive their care from designated physicians
and providers, HMOs are often able to negotiate discounted rates in exchange for
volume. In addition, HMOs often establish internal review procedures to assure that
unnecessary and costly procedures are not performed. In exchange for limiting their
choice of providers, enrollees are not subject to coinsurance or deductibles.
Enrollment in HMOs, while starting slowly, has increased rapidly in the past few
years. Total HMO enrollment currently stands at 28.6 million people and has
increased at an average annual rate of almost 18 percent since 1980. There are
currently 662 HMOs across the country, with most major metropolitan areas having
at least one HMO.⁶³
In an effort to reduce the increase in expenditures, Medicare has encouraged
beneficiaries to enroll in HMOs. Medicare pays the HMO a premium in exchange for
which the HMO assumes the financial risk of providing all of the beneficiaries'
Total HMO Enrollment
28.6
HMO Enrollment
(in millions)
25
20
15
HMO enrollment has increased
rapidly in recent years and is
expected to continue to in-
crease rapidly in the future as
employers and insurers require
more cost sharing from bene-
ficiaries in their attempts to
10
control the increase in health
care costs.
1980
1981
1982
1983
1984
1985
1986
1987
Year
Source: interstudy
⁶³Interstudy, HMO Census 1980-1987.
26
medical care. Medicare payment to HMOs is based on 95 percent of the average cost
of providing care to other beneficiaries in the areas (adjusted average per capita cost,
AAPCC). As of June 1986, there were 630,000 beneficiaries enrolled in HMOs and
competitive medical plans (CMPs), which are similar to HMOs. This is almost double
the number enrolled in such plans in March 1985.
Medicare beneficiaries are attracted to HMOs for several reasons. They do not
have to pay the coinsurance or deductibles required in regular fee-for-service
Medicare, and many HMOs offer additional benefits, such as prescription drug
coverage or unlimited hospitalization.
HMOs are attractive to others enrolled in private health insurance plans for the
although HMO
same reasons. Frequently, although HMO premiums may be more than standard
premiums may be
health insurance plans, the total costs of health care to the individual are lower
more than
because of substantially lower out-of-pocket expenditures. Furthermore, HMOs
standard
provide the additional benefit of preventive care, which is frequently excluded from
insurance
the
total costs
are
standard plans. Finally, HMOs provide a total system of health care, helping the
lower
HMOs
patient understand a frequently confusing system of numerous medical specialties,
provide a total
types of delivery settings and treatment plans.
system of health
care.
Ambulatory Surgical Facilities
Recent technological advances have contributed to the enormous growth in
ambulatory surgical facilities and medi-centers. The number of ambulatory surgical
facilities (ASFs), where certain surgical procedures can be performed on an
outpatient basis, grew from 452 in 1984 to 654 in 1986. 64 These facilities are being
developed by physicians, hospitals and health care companies largely in response to
reimbursement limitations imposed by public and private payers.
Continued development of new technology and expanded payment policies for
procedures performed in these settings will result in even more demand for these
facilities. Since 1982, HCFA has increased the number of procedures reimbursed in
these facilities from 450 to more than 1500. Many other payers have done the same
thing, encouraging outpatient surgery in order to reduce the costs of providing care
and, in most cases, improve the quality of care.
The rapid increase in the number of HMOs and ambulatory surgical facilities has
provided alternatives for the delivery of health care that are often less expensive than
traditional medical care. It also means fewer patients and less money for many
hospitals. In addition, the increased use of ambulatory surgical facilities has resulted
in increased average severity of illness for those patients admitted to the hospital.
Ambulatory surgical facilities can be used to provide care to patients who have a very
low risk of complications. As a result, only the more complicated patients are
admitted to the hospital.
Under previous reimbursement policies, this change in patient status would have
had little impact on hospital finances. Under the current systems, however, hospitals
may be adversely affected. The current payment rates are based on the average costs of
treating patients with certain types of illnesses in a base year. As hospitalized patients
require greater care the average costs incurred in treating patients admitted to the
hospital will increase. These increases, however, may not be adequately reflected in
the payment rates and will, therefore, result in financial losses for the hospital.
64SMG Marketing Group, Freestanding Outpatient Surgery Center Report and Directory, June 30,
1987.
27
HOW WILL WE PAY FOR CARE?
The health care system is unlike other consumer markets. The patient does not
directly determine the need for services in the same way that the need for clothing and
food is established. In general, the demand for health care services arises as a result of
an undesirable change in patient health. In addition, the patient does not pay for the
we frequently
services directly, and is often unaware of the price of the services received. These
do not focus our
differences in the way we make decisions regarding the purchase and use of health
attention on the
care, in turn, cause the health care system to operate differently from other markets.
health care system
In addition, we frequently do not focus attention on the health care system unless we
unless we are sick."
are sick.
The forces affecting providers of health care, which were discussed in the previous
section, will ultimately affect the health care we receive. In addition, the quality of
health care we receive can be dependent upon how we pay for the services. In general,
we have insurance that pays for care. The nature of health care insurance coverage,
however, and the availability of insurance have changed in the recent past and will
continue to change in the future. We will be forced to pay greater attention to the
characteristics of the system and to how much we have to pay for care.
Health Insurance Coverage
A vast majority of the U.S. population is covered by health insurance. Of the non-
elderly population, 81 percent are covered by health insurance (including Medicare
and Medicaid). 65 Health insurance started in 1929 as a method of paying for some
portion of hospital care. Coverage became more widespread, and, whereas in the
beginning consumers paid the insurance premium, a series of landmark Supreme
Court decisions led to employer payments. During the 1950s and 1960s, coverage
became increasingly comprehensive and larger portions of the premiums were paid
by the employer so that the patient frequently was unaware of the amount of the
premium and the amount paid for services obtained from health care providers. 66
Projected increases in employer health insurance premiums, for example, of
between 20 to 35 percent in 1988, have recently reversed these trends. 67 They have
prompted employers to limit "first dollar" coverage and forced employees to share in
the costs of care by paying coinsurance (a portion of each provider bill) and
deductibles (payment made before health insurance coverage begins). In 1980, 88
percent of all employers provided first-dollar coverage for hospital room and board
and 86 percent provided first-dollar coverage for miscellaneous hospital services. By
1986, the percent of employers providing first-dollar coverage for these services had
declined to 64 percent.⁶⁸
⁶⁵Statement of Edward M. Gramlich, Acting Director, Congressional Budget Office, before the
Committee on Labor and Human Resources, United States Senate, November 4, 1987.
⁶⁶Joseph A. Califano, Jr., America's Health Care Revolution (New York: Random House, 1985), pp.
36-57.
⁶⁷Donna DiBlase and Glenn Huntley, "Inflation Boosts Indemnity, HMO Rates," Business
Insurance, December 21, 1987.
⁶⁸Bureau of Labor Statistics, Employee Benefits in Industry, 1980 and Employee Benefits in Medium
and Large Firms, 1986.
28
These changes have been implemented by employers and insurers in hopes of
reducing overall costs. Increasing the amount paid by the employee reduces the costs
of insurance for the employer. Increased cost sharing also makes the employee more
aware of the costs of services, which may affect decisions to seek treatment for certain
conditions. In fact, studies of increased cost sharing have found that it reduces
utilization and consequently reduces costs without any significant adverse impact on
health status. 69
Many employers have instituted some type of utilization review program, ranging
from prior authorization (obtaining permission from the insurer before certain
procedures are performed or before the employee can be admitted to the hospital) to
case management programs which assist in developing a patient's course of treatment.
Case management techniques are useful in reducing the costs of high cost cases, which
often are a substantial portion of an employer's health plan costs. These programs
have all been designed to eliminate unnecessary utilization. In some cases, these
changes have been accompanied by the development of quality assurance programs to
ensure that, while no unnecessary care is received, needed care is obtained.
One method of case management has been successful at the Sheraton Corpora-
tion. In 1986, Sheraton spent $12.2 million on health care, of which 10 percent was for
three patients. Under a case management program, where expensive cases are
identified and monitored, the company estimates that it saved a substantial amount
during the first year of the programs. Case management may require that patients use
particular providers, or that patients are bound by decisions made by others related to
their course of treatment. 70
Employers have increased demands on insurers to monitor the care provided to
their employees and identify providers who are extraordinarily expensive. In some
cases, this has led to restrictions on the types of providers employees may use, or on the
amounts paid to certain providers.
In order to limit choice to certain cost-effective providers, some insurance
companies and employers have established preferred provider organizations (PPOs),
which provide financial incentives for covered individuals to use approved providers.
If a patient uses a preferred provider, coinsurance may be substantially lower. The
number of PPOs has grown rapidly in response to employer demands. In 1981 there
were a total of 27 PPOs in operation. By 1987 there were 535 operational PPOs and 35
additional PPOs in the pre-operational stage.⁷¹
Increasingly, large employers are also implementing preventive programs to
reduce employee health care costs. Such programs include anti-smoking campaigns,
exercise programs and hypertension screening programs. These programs help
employees stay healthy, and many employers have found them to be cost effective. 72
Rapidly increasing health insurance costs have resulted in innovative new
programs to save money, sponsored by both employers and insurance companies.
Some have been successful in containing costs. There is little doubt that further
changes will occur. It is likely that the next round of cuts in private health insurance
limits on
reimbursement
coverage will result in:
may mean that
Increased out-of-pocket costs - The increase in health care costs and changes in
consumers will
reimbursement policies implemented by third-party payers will force consumers to
have to use their
pay an increasing portion of their health care bill. In an attempt to control the
own funds to
increase in costs by reducing unnecessary use, employers will continue the trend
supplement the
away from first-dollar coverage, thereby increasing the consumer's out-of-pocket
insurer's
expenditures for health care. In addition, the limits on reimbursement imposed by
payment.
⁶⁹Robert H. Brook et al., The Effect of Coinsurance on the Health of Adults (Santa Monica, Calif.: The
RAND Corporation, 1984).
70 "Firms Turn to Case Management' to Bring Down Health Care Costs," The Wall Street Journal,
December 30, 1987.
¹American Medical Care and Review Association, Directory of Preferred Provider Organizations
and the Industry Report on PPO Development, June 1987.
Joseph A. Califano, Jr., America's Health Care Revolution (New York: Random House, 1985), pp.
32-35.
29
many public and private insurers may mean that consumers will have to use their
own funds to supplement the insurer's payment in order to obtain access to high
quality providers. Enrollees in HMOs will be the one exception to this trend.
Therefore, increased out-of-pocket expenditures may cause a rapid increase in the
number of individuals enrolled in HMOs.
Restriction of choice regarding providers - Employers and insurers will increasingly
have incentives to reduce health care costs by limiting beneficiaries' choice of
providers to those with whom they have negotiated discounted rates. Consumers,
therefore, will face tradeoffs between the cost of care and freedom in their choice of
provider.
Tough choices regarding type of coverage - New life-saving but expensive technologies
will also force consumers to make decisions regarding the type of health care
coverage they want. For example, limited financial resources may cause consumers
to choose between coverage for primary care services, such as prenatal care, and
coverage for expensive new technologies, such as heart transplants. Alternatively,
consumers may elect to reduce the cost of health insurance by limiting coverage to
catastrophic expenses, preferring to pay for primary care services themselves.
Access To Care
While a substantial portion of the population is covered by health insurance,
almost 18 percent of the population has no health insurance. Moreover, the number of
uninsured has grown substantially since 1980. The number of individuals covered by
Medicare and Medicaid has grown by 17 percent, while those covered by private
insurance has declined by 10 percent, resulting in a 25 percent increase in the number
of uninsured. 73 There are several important facts related to this population, including:
many of the uninsured (32 percent) are children;
about two-thirds of the uninsured have incomes above the poverty line;
"The proportion of
more than half of the uninsured are employed; and
the poverty
one-sixth of the uninsured are dependents of family heads with health insurance. 74
population
covered by
The proportion of the poverty population covered by Medicaid, although it was
Medicaid
has
established to provide health care for the poor, has declined over time. In 1976, 65
declined over
percent of the poverty population received Medicaid benefits. By 1984, only 38
time."
percent received Medicaid benefits.
Employees of small businesses also account for a substantial portion of the
uninsured. A survey conducted for the Small Business Administration found that in
1985 an estimated 56 percent of all employers provided health insurance to their
employees. The number of employers offering health insurance, however, varied
substantially depending on the employer size. For example, 98 percent of firms with
100 or more employees provided health insurance coverage compared to 46 percent of
firms with less than 10 employees. 75 There are a number of reasons for this disparity:
smaller groups face higher per capita premium costs because the risk that total
claims will exceed total premiums is greater;
smaller firms often do not benefit to the same extent as larger firms from tax
advantages associated with offering health insurance;
the fixed costs associated with choosing and administering a health plan are higher
for small firms; and
⁷³Statement of Edward M. Gramlich, Acting Director, Congressional Budget Office, before the
Committee on Labor and Human Resources, United States Senate, November 4, 1987.
⁷⁴Patricia M. Danzon and Frank A. Sloan, "Covering the Uninsured: How Much Would It Cost?,"
Vanderbilt Institute for Public Policy Studies.
75ICF Incorporated, "Health Care Coverage and Costs in Small and Large Businesses," Prepared for
the Office of Advocacy, U.S. Small Business Administration, April 15, 1987.
30
Percentage of
Uncompensated
Uncompensated Care Cost as a Percentage of
Care
Total Costs
14
12
Public hospitals,
The increase in the number of
uninsured and underinsured,
combined with increased limits
10
on reimbursement has led to
substantial increases in the per-
cent of uncompensated care
provided by hospitals. This in-
8
crease will adversely affect the
financial stability of many hos-
pitals, particularly public hos-
All hospitals
pitals which have experienced
6
the greatest increase in uncom-
pensated care. To finance this
care, many hospitals will be
forced to postpone needed ren-
Other
4
ovations, forego the purchase of
new technology, or eliminate
certain types of services.
1980
1982
1984
1986
1988
1990
Source: American Hospital Association and ICF Incorporated.
Increase in the Number of Uninsured Persons
Millions of
Persons
Under Age 65
40
30
The number of uninsured has
increased dramatically with
the number of uninsured non-
elderly reaching 35 million in
20
1984. It is estimated that, in-
cluding the elderly, the total
number of uninsured exceeds
37 million.
1977
1978
1980
1982
1983
1984
Year
Source: Patricia M. Danzon and Frank A. Sloan, "Covering the Uninsured: How
Much Would It Cost?"
Vanderbilt Institute for Policy Studies. Data adapted from Margaret Sulvetta
and Katherine Swartz, "The Uninsured and Uncompensated Care," National
Health Policy Forum, George Washington University, Washington, D.C., June
1986.
higher employee turnover and greater use of part-time and seasonal employees
increases administrative fees for small firms.
"Access to health
Access to health care for the uninsured is limited, with the uninsured receiving
care for the
only two-thirds as much health care as the rest of the population. 76 This can lead to
uninsured is
deteriorating health over the long term, especially for the 12 million uninsured
limited.
children.
Unlike the insured who can get care from a number of sources, including
physician's offices, the uninsured most frequently receive care in hospitals, where it is
often more expensive than it would be if provided in other, more appropriate, settings.
⁷⁶Testimony of Edward Gramlich.
31
The cost of this care has risen sharply in recent years. In 1980, the cost of
uncompensated care provided by hospitals was $3.5 billion (4.6 percent of total costs)
and rose to $8.4 billion (6 percent of total costs) in 1986. This has placed a heavy
financial burden on many hospitals, particularly public hospitals, which provide
much of the free care to the uninsured.
"There are
In the past, hospitals have financed care provided to the uninsured by charging
indications which
privately insured and wealthy patients a little more (called "cross subsidization" or
suggest that
"cost-shifting"). With the limitations in payments by all insurers, the ability to do this
obtaining
has been diminished. As a result, hospitals are left facing a growing bill for care
necessary health
provided to the medically indigent.
care is becoming
Many states have considered or passed legislation to address this issue. A wide
more difficult for
range of policies have been proposed, including:
the poor and
uninsured."
State funds to pay hospitals for free care provided. These funds have been financed
by a tax on hospital revenue.
Expansion of state Medicaid programs to cover indigent populations not previously
covered.
Setting up state insurance pools which provide insurance coverage to those not
covered by employer plans.
There has also been activity at the Federal level related to care for the uninsured.
For example, recent legislation prohibited the transfer of indigent patients, because
they are uninsured, from one hospital to another, known as "dumping." In addition, a
bill introduced by Senator Edward M. Kennedy (D-MA) would require all employers
to provide health insurance coverage to their employees, which would extend coverage
to an estimated two-thirds of the uninsured. 78 It has been estimated, however, that
such a policy would cost somewhere between $23 billion and $100 billion and would
result in a loss of jobs for between 120,000 and 1 million people. 79
There are indications which suggest that obtaining necessary health care is
becoming more difficult for the poor and uninsured. Several surveys have been funded
by the Robert Wood Johnson Foundation in recent years to determine American
satisfaction with and access to the health care system. Results of the 1986 survey
indicate that 16 percent of the survey respondents (the equivalent of 38.8 million
Americans) had difficulty obtaining needed health care. Over half of these reported
that the reason for the difficulty was financial. 80 The results also indicated that access
to care (measured as the number of ambulatory visits during the prior 12 months) for
the uninsured and the poor has declined since 1982. Despite their generally poorer
health and greater likelihood of chronic disease or serious illness, between 1982 and
"[A] recent decline
1986 the number of ambulatory visits for poor adults (ages 17 to 64) declined 30
in the percent of
percent. In addition, the number of ambulatory visits for the poor in fair or poor
vaccinated
health declined almost eight percent between 1982 and 1986 (from 9.1 visits to 8.4
children can be
visits). In comparison, the number of visits for the nonpoor in fair or poor health
partially attributed
increased 42 percent during the same period (from 9.1 visits to 11.5 visits). Differences
to difficulties in
between the uninsured and the insured in fair or poor health are also striking. In 1986,
gaining access to
the uninsured in fair or poor health had only six visits annually, compared to 10 visits
care."
for the insured. 81
A second study, funded by the Children's Defense Fund, suggests that a recent
decline in the percent of vaccinated children can be partially attributed to difficulties
in gaining access to care. Rapidly increasing vaccination costs (for example, an
⁷⁷Oral communication with the Office of Public Policy Analysis, American Hospital Association.
⁷⁸Testimony of Edward Gramlich.
⁷⁹Karen Davis, "The Economic Impact of Employer Minimum Health Insurance Coverage," and
Gary Robbins, "Economic Consequences of the Minimum Health Benefits for all Workers Act of 1987,"
Testimony before the Committee on Labor and Human Resources, United States Senate, November 4,
1987.
⁸⁰Access to Health Care in the United States: Results of a 1986 Survey, (Princeton, N.J.: The Robert
Wood Johnson Foundation, 1987).
⁸¹Ibid.
32
increase of 250 percent since 1975 in the costs of the measles, mumps and rubella
vaccine), coupled with the fact that insurers typically do not cover preventive care,
results in difficulties getting vaccinations for the poor insured and uninsured alike.
This has led to declines in the percent of children vaccinated in five major disease
categories and a resulting increase in the number of cases of these preventable
childhood diseases in children. 82
The number of uninsured is likely to continue to increase in the future. It is
unlikely that small businesses will increase the number of individuals covered due to
rapidly increasing health insurance costs. While Medicaid programs are likely to
expand to cover children and pregnant women, this will not cover all of the uninsured.
Furthermore, problems in gaining access to care will result in a growing number of
poor without access to a physician. As a result, there will be increased demands placed
on hospital emergency rooms. Particularly hard hit will be public hospitals, which
will be forced to finance this care, first by postponing needed investments and then by
requiring additional public assistance or closing. Difficulties obtaining care will result
in poorer health for the uninsured and growing disparity between services available to
the insured and the uninsured.
82 Cases of Preventable Disease Rising As Percentages of Vaccination Drop," The Washington Post,
December 31, 1987, p. A17.
33
SUMMARY
Our health care system is currently capable of providing us with more and better
health care than it has in the past due to advances in technology, wider geographic
availability of services, and growth in the number and types of health care providers.
But, disturbing trends suggest that the ability of the system to continue to do this in the
future may be jeopardized.
On the positive side, consumers have more choices about their health care than
ever before. Patients have access to a growing number of alternative providers, such as
ambulatory surgical facilities and urgent care centers. They can seek care from a
wider range of health care professionals, including physicians, nurse practitioners and
midwives. They have more choice regarding the type of insurance arrangement to use,
including the standard indemnity plans, service plans, health maintenance organiza-
"Advances in
tions and preferred provider organizations. Patients also appear to be better informed
efficiency, however,
about lifestyle factors that influence their health. Finally, changes in reimbursement
are being
have forced the system to become more efficient, for example, by replacing expensive
overtaken by limits
hospital care with less expensive care in other settings. All of these changes have
on reimbursement."
resulted in better health care for the American people.
Advances in efficiency, however, are being overtaken by limits in reimbursement.
When reimbursement limits are imposed, they first create strong incentives for
efficiency, especially when they provide incentives for operating surpluses to be used to
finance the development of new services or to finance care for those unable to pay for
their own health care. If, however, the reimbursement limits are too dramatic,
significant changes will result. There are several early warning signals indicating that
current reimbursement levels have begun to adversely affect the availability and access
of certain types of health care services. During 1986, hospital margins declined, and
many forecasts predict that margins, at least for Medicare beneficiaries, will decline
even more in the future. Hospitals have started to close or reduce in size, and the
economic viability of both public and rural hospitals has been questioned. The
decline in the number and quality of applicants to medical school suggests that the
field of medicine is not as attractive as it once was. There are no solutions in sight to the
nursing shortage.
a growing
By almost all accounts, more dramatic changes are in store for the health care
number of
system. If the current disparity between hospital expenditures and payment
hospitals will close.
continues, a growing number of hospitals will close. Unfortunately, they are likely to
Unfortunately,
be those that serve the most vulnerable populations, such as the poor and those living
they are likely to
be those that serve
in rural areas. For many people, there may be no other source of primary health care
the most
without traveling long distances. If inner city hospitals close, pressure will increase on
vulnerable
other hospitals to provide care, but it is also likely that some people will go without
populations.
care. For other hospitals, increased budgetary pressures may not mean closure, but
could mean that unprofitable hospital units, such as burn centers and neonatal units,
will close. Finally, pressures from the reimbursement system will limit hospitals'
ability to provide free care to those unable to pay. As a result, there will be growing
demands on the public hospital systems to provide this care, which will increase the
financial problems these hospitals already face, forcing communities to make
decisions regarding public support of these facilities.
The same limits will affect physicians. It is likely that, as a result of reimbursement
limitations, fewer and fewer physicians will accept payment from insurance
34
companies as payment in full. They will increasingly reserve the right to bill the
patient for amounts not paid by the insurance company. If this occurs, access to
physician care for some populations may be diminished, particularly for those who
cannot afford the additional payment. Finally, continued increases in malpractice
premiums will result in changes in the types of services offered by physicians. This is
already happening in the obstetrical area, and is likely to occur in other high risk
practice areas as well.
New opportunities for women have reduced the number of women entering
nursing school at the same time that the demand for nurses is growing. Therefore,
there is no reason to believe that the nursing shortage will be resolved in the future
without major changes in nursing salaries or opportunities for advancement.
There will be a further increase in the types of providers available and the types of
insurance plans consumers can choose from. This will result in the need for increased
understanding of the health care field on the part of the consumer, and as a result,
physicians will increasingly be challenged about the types of care they provide. The
first signs of this challenge are recent Congressional proposals which would limit the
services provided by physicians, perhaps by establishing treatment protocols, which
would specify the procedures allowed for treatment.⁸³
All this means that patients will pay more of their health care bills, as insurance
plans and employers offer less first dollar coverage, and fewer providers accept the
insurance payment as payment in full.
The demand for new technology and treatment methods is not likely to be
changed. It may be, however, that patients are willing to pay for new technologies for
their own treatment, but that there will be increased reluctance to assume the public
costs of these new methods. This might lead to the availability of certain types of
services to those who can pay, but not to others.
Access to care will be an important issue in the future. In order to ensure access to
"Adequate resources
the same quality health care system for everyone, adequate resources must be
must be provided
provided to health care providers to sustain an appropriate level of services, both
to health care
geographically and across types of services. It is clear that there are limits in our ability
providers to
sustain an
as a society to continue to pay more and provide more services. The importance of
access to care must be weighed against other social goals, including housing,
appropriate level
of services.
education, food and defense. Budgetary decisions related to the Medicare and
Medicaid programs, and employer decisions related to private health insurance
coverage, should be made in consideration of the potential effects on the future
quality of the entire health care system.
83 Doctors Contend Systems of Payment have Eroded Status," New York Times, December 26, 1987.
35