pp

Snapple_girl1

07CH_HealthCare_Bustillos.pdf

Home >Education homework help >pp

7Expenditures, Cost Containment, and Quality of Care

iStockphoto/Thinkstock

Learning Objectives

After reading this chapter, you should be able to

1. Discuss the relationship between expenditures and quality of care.

2. Explore the causes of inefficiency, waste, and cost overruns in American health care.

3. Outline the legal methods used to control, monitor, and remedy cost and quality problems in American health care today.

4. Examine process improvement methods used by health care facilities that are designed to eliminate redundancy and waste.

Section 7.1The Current State of Affairs

Introduction During the past century or so, medical care in the United States has shifted from individual doctor–patient interactions, typically within an office setting, to interactions in health care facilities that continue to grow larger and more complex. Modern American health care has become more highly specialized, technology centered, and fragmented—a phenomenon that has been anticipated since the mid-19th century. The English sociologist Herbert Spencer (2004) observed that as society increases in complexity, so do its social institutions. The bureaucratic explosion within health care, therefore, seems less a symptom of inefficiency and institutionalized excess and more a part of the necessary, long-term development of spe- cialized sectors within advanced industrialized society (Toulmin, 1990).

Today, early 20th-century forecasts seem to aptly describe the current state of affairs. Physi- cians increasingly work in large, complex medical centers and practice settings and tend to see their scope of professional discretion minimized and finitely defined. The fear of going beyond those clear limits frequently causes physicians to practice medicine defensively, sometimes forgoing the ends of patient care to do so. Practicing under such constraints has its advantages but can also distract physicians from their professional duties. For many patients, medical care has become akin to conveyer-belt production. Continuity of care once meant having the same health care professionals in a lifelong relationship with the patient. In the new era of medicine, care is more likely to involve patients being scuttled between sometimes dozens of different caregivers, very few of whom will even remember the patient’s name or, in some cases, even meet with the patient one on one. As a result, patients may become suspi- cious of their caretakers, sometimes even assuming an adversarial stance where once there would have been warm acceptance (Phillips & Benner, 1994).

Most health care administrators and managers enter the profession with clear priorities on patient care but soon feel incessant economic and regulatory pressures to protect their insti- tution’s finances and public image. This is certainly part of any good health care administra- tor’s job description, but too often the loyalty to this side of the job wins out over the ultimate aim of health care—caring for patients. “No margin, no mission” has become a popular refrain among modern health care leaders, and the statement is certainly true. However, what often gets misunderstood in this pithy slogan is that margin should exist only to further the mis- sion. No mission, no health care organization.

In this chapter we will look at how modern American health care has succumbed to bureau- cracy and how the resulting, unsustainable costs have not translated into proportionately improved quality of care. The chapter will also show how the constraints of institutionalization upon the moral practice of medicine should be a major concern for health care professionals. Finally, we will examine what American society has done to address this major ethical issue.

7.1 The Current State of Affairs American health care continues to be at the leading edge of discovery and innovation. How- ever, in order to get a realistic picture of the current state of affairs, its performance must be examined in comparison to that of other health care systems. That is where the paradoxical success–failure story of American health care comes to light. In this section we will investi- gate how American health care compares to that of other countries and consider the impact of expenditures on quality of care.

Section 7.1The Current State of Affairs

Do Expenditures Equate to Quality of Care? In 2016, the United States spent 17.2% of its annual gross domestic product on health care (see Fig- ure 7.1), almost one-and-a-half times as much as Switzerland, which at 12.4% was the next biggest spender that same year (Organisation for Eco- nomic Co-operation and Development [OECD], 2018). However, despite this large expenditure, the United States is the only high-income country that does not guarantee health care coverage for all its citizens (Schneider, Sarnak, Squires, Shah, & Doty, 2017). Combined with other indicators, it becomes apparent that American health care dollars are not well spent, nor do these dollars afford individuals a greater benefit for this massive investment. When compared to ten other high-income nations (Aus- tralia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom), the United States comes in first in health care dollars spent per capita, but last on nearly every other criterion, including access, administrative efficiency, equity, and health care outcomes (Schneider et al., 2017).

Figure 7.1: Health care expenditures as percentage of GDP, selected countries, 1970–2016

Over the past 50 years, the amount of money countries spend on health care for their citizens has consistently risen. However, the increase is exceptionally high in the United States. What do you think has caused the country to spend so much of its GDP on health care?

Source: Organisation for Economic Co-operation and Development (OECD). (2018). Health expenditure and financing. Retrieved from http://stats.oecd.org/Index.aspx?DataSetCode=SHA#

Cusp/SuperStock The United States spends four times what the average high-income country spends on health care. However, studies have shown that this extra spending is not leading to superior care.

Section 7.1The Current State of Affairs

Although more than 20 million Americans gained insurance coverage under the Affordable Care Act, many still lack access even to basic health care, and those with coverage “often face far higher deductibles and out-of-pocket costs than citizens of other countries” (Schneider et al., 2017, p. 8). (See Figure 7.2 for a breakdown of the number of Americans without health insurance.) Rampant expenditures continually threaten to wreak economic havoc, and exor- bitant administrative costs further emphasize the unsustainability of the current system. Consumer satisfaction continues to dwindle as trust erodes amidst constant news reports of health care professionals and organizations committing malfeasance. Meanwhile, health care professionals have resorted to practicing medicine behind a defensive barricade, guarding against malpractice lawsuits from one side and economic pressures from the other.

Figure 7.2: Americans under age 65 without health insurance coverage, 2016

A significant number of Americans are currently without health insurance, with the largest group being men between the ages of 25 and 34. This chart shows the percentage of persons in the United States under age 65 without health insurance coverage at the time of interview, broken down by age group and gender.

Source: Clarke, T. C., Norris, T., Schiller, J. S. (2017). Early release of selected estimates based on data form the 2016 national health interview survey. Retrieved from https://www.cdc.gov/nchs/data/nhis/earlyrelease/earlyrelease201705.pdf

Do Standards Ensure Quality? One of the ways that health care has attempted to identify and resolve areas of low per- formance and compromised quality is to develop and promote practice guidelines. Profes- sional organizations review the medical literature, undertake empirical surveys of current

Section 7.1The Current State of Affairs

standards of care, and debate among their members and the public what minimal standards of acceptable care and professional performance should be expected from their field. These standards of acceptable care can be influential as public assurances of minimal competencies and thresholds of quality. They also can be used to help determine when negligence has taken place. Because standards of care are important for everyday clinical practice, practitioners must keep up-to-date about them. Why then do some ethicists and health care practitioners question the morality of using professional standards?

When managed care organizations (MCOs), including health maintenance organizations (HMOs) and preferred provider organizations (PPOs), first gained prominence in the Ameri- can health care system, many felt that the guidelines proposed by various medical entities for clinical care amounted to little more than an institutionalized means to limit treatment and maximize profit for providers and insurers (La Puma, 1995). In some instances, compliance with specific practice guidelines influenced physician compensation, thereby creating finan- cial incentives and disincentives for physicians’ clinical decisions. For example, physicians participating in a specific MCO might receive a bonus at the end of the year if reduced patient use of expensive medical services contributed to a positive financial bottom line for the MCO (Miles, 2005). (See Figure 7.3 for a breakdown of medical care participants by plan type.)

Figure 7.3: Percentage of medical care participants by plan type, private industry, 2017

Sixty-eight percent of medical care participants receive insurance through preferred provider organizations (PPOs). Health maintenance organizations were the second most popular plan. What do you think creates the interest in PPOs?

Source: U.S. Bureau of Labor Statistics (BLS). (2017). NCS: Health and retirement plan provisions in private industry in the United States, 2017. Retrieved from https://www.bls.gov/ncs/ebs/detailedprovisions/2017/ownership/private/table01a.pdf

Section 7.1The Current State of Affairs

Another potential problem with practice guidelines is that they may be applied inflexibly. There is no guarantee that strict adherence will always result in better care. For example, a physician following earlier guidelines that recommended annual mammography screening for older women might subject patients to radiation and the risk of false positive results, lead- ing to unnecessary and even harmful anxiety, follow-up testing, or even aggressive surgical intervention—all without a meaningful corresponding benefit for the patient in terms of lon- ger and enhanced quality of life.

Stop and Clarify: Managed Care Organizations

Managed care organizations take many different forms. The common characteristic of all MCOs, however, is that they combine the insurer and provider functions into the same cor- porate (for-profit or nonprofit) structure. This combination of functions creates a financial incentive for the MCO and its participating physicians to deliver care as efficiently and cost- effectively as possible. MCOs have been developed in reaction to the traditional third-party payment system, in which the health insurer, the patient, and the provider all had their own, often inconsistent, incentives—an inconsistency that inevitably resulted in escalating health care costs.

One type of MCO is the HMO. In return for the prepayment of a prospectively set monthly or annual premium, a closed-panel HMO provides comprehensive health services to an enrolled patient through physicians who are either employees of the HMO (staff model) or employees of a private physician group that contracts with the HMO (group model). In a closed-panel HMO, the patient must receive care from the HMO’s employed or contracted physicians; otherwise they must pay a non-HMO physician directly out of pocket. In an open-panel HMO (independent practice association), medical care is provided by privately practicing physicians who, in addition to treating their other patients and billing insurance companies for that treatment, also participate in the HMO’s network. When a network phy- sician treats a patient who is enrolled in the independent practice association, the associa- tion pays that physician for the treatment according to a predetermined methodology that varies considerably among independent practice associations.

The other main type of MCO is the PPO. Like the HMO, a PPO promises comprehensive coverage to enrolled patients in return for a monthly or annual prepaid premium. The PPO contracts with a network of physicians and other providers (such as hospitals) to serve its patients; to participate in the PPO, the provider must agree in advance to accept an amount of payment for specific services that the PPO is willing to pay. In return for receiving the provider’s best price, the PPO makes the provider “preferred” by informing patients that the full cost of their care will only be covered if the patient uses one of the preferred provid- ers. Otherwise, the patient will have to pay all or part of the provider’s fee directly out of pocket.

In a point of service plan, the patient gets to choose at the time of service whether to use a provider inside or outside the patient’s MCO. The patient then accepts the financial conse- quences of that choice.

Section 7.1The Current State of Affairs

Medical practice requires careful discernment and discrimination; it takes many years for a practitioner to develop genuine expertise. Professionals in any field know the value of guide- lines but also realize that true experts know when to judiciously disregard them. On the other hand, when standards of practice were vague and totally individualistic, physicians often tended to provide costly and unnecessary care either under the guise of “thoughtful, careful medical practice” (La Puma, 1995, p. 51) or in accordance with the ethical principle of respect for autonomy (since patients requested it). This total discretion in treatment resulted in soar- ing health care costs, waste, and often less than optimal health care outcomes. It was not long before the public began asking for a different kind of accountability to be sought through MCOs and for a way to distinguish good health care from bad.

What Defines Quality? Though many would agree that quality is not mere compliance with practice guidelines, it is much more difficult to come up with a positive definition of the term. Furthermore, quality is inherently difficult to measure.

To help answer the question of what constitutes quality, the Rand Corporation conducted its “Medical Outcomes Study” in the 1990s (La Puma, 1995). Health outcomes are defined as “a change in the health status of an individual, group, or population that is attributable to a planned intervention or series of interventions, regardless of whether such an intervention was intended to change health status” (World Health Organization, 1998). In this study, Rand researchers came up with seven different components: financial accessibility, organizational accessibility, continuity, comprehensiveness, coordination, intrapersonal accountability, and technical accountability (Rand Corporation, 1990). This enumeration of factors constituting health outcomes is useful because it conforms to the common belief that health care assess- ments should focus on both the technical as well as the interpersonal dimensions of care. The Rand project built upon the seminal work of Avedis Donabedian, a leader in the theory of health care assessment. Donabedian proposed that technical care is “the application of the science and technology of medicine, and of the other health sciences, to the management of a personal health problem” (1982, p. 4). He added that managing the social and psychologi- cal relationships between patients and practitioners is also a part of technical care, although it makes up the art of medicine facet of the term. According to Donabedian (1980), quality in technical care pertains to applying medical science and technology in such a way so as to increase health benefits without increasing health risks.

For Donabedian, quality in health care’s interpersonal dimensions were more difficult to define. Yet together with excellence in the medical-technical aspects, quality of care is the maximization of a patient’s overall well-being given the attendant risks and benefits typically present in the process of care (Donabedian, 1980). In other words, measuring quality of care must ultimately focus on the impact of care on patients’ quality of life.

Donabedian’s definition of quality remains one of the earliest and most influential holistic attempts to clarify what is now more commonly referred to as health outcomes—that is, the actual impact of care on patients’ quality of life. Later definitions—such as the IOM’s “degree to which health services for individuals and populations increase the likelihood of desired

Section 7.2Causes of Overspending

health outcomes and are consistent with current professional knowledge” (Lohr, 1990, para. 11)—offer a clearer focus on desired results but also incorporate the idea that professional standards should still play a role in deciding what constitutes quality care. This is because achieving a desired result may not be indicative of the quality of the care received. It may be a coincidence that things turned out the way the patient or health care provider wanted; the result may have been good despite a poor quality of care, or the result, while desired or even good, may still pale in comparison to the result that might have occurred had better- quality care been rendered. The IOM definition also judges care that does not conform to cur- rent professional knowledge to be of poor quality, despite the health outcomes obtained. For instance, while unnecessary care that causes harm is obviously of low quality, it is not clear that unnecessary or even futile care will be considered low quality if the patient or clinician are pleased with the results. However, under the IOM definition, these types of wasteful and potentially harmful therapies are excluded from the definition of quality care, regardless of their outcome.

As the foregoing discussion indicates, the concepts of quality of care and quality of life are related but not synonymous. The former is concerned primarily with professionally deter- mined measures of the process of providing health care services. Quality of life, by contrast, is concerned, from the patient’s perspective, with the impact of the process of care on the patient’s functioning and enjoyment. So, for instance, a surgery performed according to state- of-the-art standards and techniques might be judged by professionals to constitute excellent quality of care, but the quality of life evaluation would be poor if, despite the excellent process, the surgery resulted in pain, other side effects, and poor function on the part of the patient. The quality of care/quality of life distinction is illustrated by the old saying, “The operation was a success, but the patient died.”

7.2 Causes of Overspending The value of health care is a function of comparing the quality of life outcomes for patients with the costs of achieving those outcomes. Value can be enhanced by improving outcomes— that is, the impact of care on patients’ quality of life. Value may also be enhanced by control- ling the costs incurred in pursuing desired outcomes. Hence, we must consider the question of health care costs.

Overspending on health care threatens Americans’ and health care organizations’ financial well-being as well as the sustainability of any health care delivery and payment model. Apart from these very important economic concerns, overspending is a moral issue, due to the cen- tral importance of health care to human well-being. The fact that the United States currently does not possess the resources to meet the demand for beneficial health care means that some people do not receive the care they need and want. This constitutes an ethical tragedy that wasteful spending, greed, inefficiencies, and fraud exacerbate by making it less likely that the United States can maximize the health benefits and minimize the harms for its people. In this section, we will analyze the most prevalent and important causes of overspending in our health care system and investigate the different legal avenues developed to keep costs at acceptable levels. (See Figure 7.4 for a breakdown of U.S. health care expenditures.)

Section 7.2Causes of Overspending

Figure 7.4: Percentage of United States health care expenditures by source, 2016

In 2016, the majority of the health care expenditures in the United States came from a combination of Medicare and Medicaid (37%). Private insurance alone comprised 34% of the nation’s health care expenditures. The remaining came from out-of-pocket payments.

Source: CMS. (2017). National health expenditures 2016 highlights. Retrieved from https://www.cms.gov/Research-Statistics- Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/highlights.pdf

Differing Regional Practices and Medical Cultures In his 2009 New Yorker essay, “The Cost Conundrum: What a Texas Town Can Teach Us About Health Care,” Dr. Atul Gawande told a story of two similar coun- ties in Texas. Both counties rest on the border with Mexico and have very simi- lar patient demographics and socioeco- nomic characteristics. In Hidalgo County, where the city of McAllen sits nestled between the rugged deserts of Mexico and Texas vacation destinations on the Gulf of Mexico, Medicare spending per capita is greater than nearly anywhere else in the country—about $15,000 per enrollee in 2006 (Gawande, 2009b; Dartmouth Insti- tute for Health Policy & Clinical Practice & Commonwealth Fund, 2010).

Fuse/Thinkstock Studying two border cities in Texas, researchers found that overspending on health care was due to a culture of overtreatment and lack of effective caregiver assessments.

Section 7.2Causes of Overspending

There is nothing particular about El Paso County, which lies farther up the Rio Grande, that would lead observers to expect Medicare spending there to be much different than in McAl- len. However, while Medicare enrollee patient outcomes were virtually the same in El Paso as they were in McAllen, Medicare spending in El Paso was only half of what was being spent in McAllen (Gawande, 2009b).

Wondering what might account for such a poor return on investment in McAllen versus other parts of the country, Gawande went to Texas to investigate. He did not find health care execu- tives, professionals, and organizations willfully defrauding Medicare. He did not find large- scale unscrupulous behavior or collusion to run up costs or other nefarious conduct. What he found was a culture in health care organizations and among professionals to test, treat, and spend at a demonstrably higher rate than elsewhere. Without comparative effectiveness assessments to keep them in check, relatively insular systems like McAllen tend to overtreat patients and hence waste scarce health care resources and tax dollars.

It is unclear whether communities such as McAllen outspend other communities in an effort to provide the best possible patient care or if its clinicians have succumbed to the financial incentives that overtreatment and waste provide in fee-for-service health care. What is clear is that the unnecessary care rendered in places such as McAllen means there is less to spend on necessary care everywhere. Besides overtreating some people at the expense of providing the basic minimum of care to others, unnecessary treatment can also present unnecessary risks to patients.

Web Field Trip: Statistical Comparisons

The purpose of this exercise is to demonstrate and emphasize the wide variations among different parts of the United States in health care practices and therefore in health expendi- tures. As you work through this activity, you will be asked to think about potential explana- tions for these wide variations.

1. Locate a reputable online source for comparative statistical data related to health care costs or health outcomes (see Table 7.1 for sample sources to help get you started).

2. Choose one index of health care cost or quality represented in the data sets you choose. This can be anything for which data is available (try to find data collected no more than six years ago) and need not be from the United States. Some possible indices include: • Median Medicare costs per enrollee for specific regions in the United States • What percentage of the total population accounts for 50% of federal health care

reimbursements? • Infant death rate by populations • Rate of emergency department use as primary and preventive care outlets • Patient perceptions of quality care

3. Compare the measurement rates of total, average, and median incidence outcomes with the same figures from a different geographic location, patient population, or

(continued on next page)

Section 7.2Causes of Overspending

Web Field Trip: Statistical Comparisons (continued)

time period. If you cannot find a valid comparison group, then look at different sta- tistics for comparison.

4. Are the statistics noticeably different between the two groups? Do they, for instance, dif- fer by more than you would have expected?

5. If the statistics do not differ appreciably, look for a starker contrast in health care costs or quality measures elsewhere.

6. If the statistics differ by an amount that surprises you, attempt to find plausible expla- nations that would account for these differences by investigating the statistical reports and articles that accompany the results. If these do not account for the difference, do an Internet search (on PubMed, for example) for journal articles that attempt to explain the statistical variation you found (or an explanation of a variation that is close enough to the phenomenon you have witnessed that its findings might be generalizable to your findings).

7. Write a short (less than one page) paper that explains the variation you found. Write your essay with an eye toward identifying possible ethical issues. For exam- ple, does the variation amount to a justice issue? If it is found that the statistical variation cannot be explained by observed differences between the two groups, can it be explained by differential access, disparate treatment, or illegitimate discrimi- nation? Use the ethics framework from Chapter 1 to help you organize your essay and spot the potential ethical issues.

Table 7.1: Sample online sources for comparative statistical data related to health care cost and quality

Publication title Source

“Data, Statistics & Tools” Agency for Health Care Research and Quality http://www.ahrq.gov

“Health-Care Costs: A State-by-State Comparison”

Wall Street Journal http://www.wsj.com

“Snapshots: Health Care Spending in the United States & Selected OECD Countries”

Kaiser Family Foundation http://www.kff .org

“Interactive Map: Health Care Costs Vary Widely Across U.S.”

NBC News http://www.nbcnews.com

“Why American Health-Care Costs So Much” Washington Post http://www.washingtonpost.com

“The Dartmouth Atlas of Health Care” Dartmouth, the Commonwealth Fund http://www.dartmouthatlas.org

Section 7.2Causes of Overspending

Fraud and Abuse In addition to regional differences in how health care professionals manage particu- lar patient cases, another reason for the exorbitant cost of health care in the United States is inappropriate billing conduct by health care organizations and practitio- ners. In any health care financing system, competing financial incentives and disin- centives will always create a potential for fraud and abuse. In some of the more pub- lic and egregious cases, major health care organizations have engaged in broad, sys- tematic fraud. For example, some hospital corporations have billed Medicare and Medicaid for patient services that were never provided, and a few notorious nurs- ing homes have billed those government programs for the care of patients long after those patients had died.

Such conduct removes finite financial resources (more than $80 billion per year, according to Federal Bureau of Investigation estimates [FBI, n.d.]) from a system that could put those resources to much better use purchasing care for individuals otherwise lacking access to health services. To counter this sort of fraudulent and abusive provider conduct, the United States has compiled an array of statutes, regulations, and case decisions. The three main legal avenues for combating health care fraud and abuse, Stark law, false claims statutes, and anti- kickback provisions, are discussed in the sections that follow.

Stark Law on Physician Self-Referral The Ethics in Patient Referrals Act, or Stark law, governs physician referrals for Medicare- and Medicaid-reimbursed services in which the physician (or close family member) has a financial conflict of interest. Faced with increasing evidence that health care practitioners were referring patients to other businesses owned or co-owned by the referring physician or a close family member, Representative Fortney Stark introduced a bill that would make these “self-referrals” illegal. Self-dealing by physicians had become common and was a major source of unnecessary testing and treatment, as well as an added risk for patients. The law covers the following 11 designated health services: laboratory tests, physical or occupational therapy, imaging services, radiation treatment, home health care, pharmaceuticals, medical devices and supplies, and hospital services. The Stark law provides a nearly complete ban on any Medicare or Medicaid payments for services falling under the statute in which the refer- ring physician has a close, personal financial stake.

While some of the other fraud and abuse laws require that the offending conduct be knowing and willful, the Stark law does not require knowledge, unlawfulness, or intent to defraud. To

LM Otero/AP Images W. Rick Copeland, director of the Medicaid Fraud Control Unit of the Office of the Texas Attorney General, outlines a medical fraud scheme. The FBI estimates that medical fraud costs upward of $80 billion per year.

Section 7.2Causes of Overspending

help providers distinguish prospectively between illegal and permissible conduct, the Cen- ters for Medicare and Medicaid Services has published a nonexhaustive list of “safe harbors” illustrating permissible conduct.

Additionally, there are several exceptions to Stark Law based on by whom and under what circumstances certain services are rendered. An exhaustive list of these exceptions can be found at http://www.starklaw.org/PDF/Stark411.355.pdf.

Case Study: A Violation of Stark Law

While conducting routine audits of hospital-owned physician practices, a compliance offi- cer noticed that the staff, including the physician, at one of the busier practices was having vendor-funded lunches brought into the office every day. The compliance officer noted that vendors were not in the office providing services that would allow for these lunches, such as presenting new products or providing educational training to the staff. It appeared that vendors were simply funding the delivery of free daily lunches.

The compliance officer asked the practice’s office manager about receiving the lunches and she stated that it happens every weekday of the year and that the staff loves it, espe- cially since they do not need to bring or go out for lunch anymore. The compliance officer informed the office manager that this practice could no longer take place as it violated the Stark law. The compliance officer explained that, without the vendors providing any train- ing or education each time lunch was brought in, it looked as though they were buying the lunches as a way to entice the physicians to purchase supplies from them. The compliance officer further explained that, although there is a $300-per-physician annual limit on what physicians can receive from vendors, free lunches Monday through Friday for an entire year far exceeds that limit, even with three physicians in the office.

One of the head physicians was furious when he was informed that there would no longer be free lunches on a daily basis. However, after the compliance officer explained the Stark law, as well as the consequences of violating it, to all of the physicians and staff in the office, they acquiesced.

However, three months later, while the compliance officer was visiting the same physician’s office as a patient, a vendor walked in with free lunches. He dropped off the lunches and left while the compliance officer was still in the waiting room.

Before reading on, consider the following questions as if you were the compliance officer in this case:

1. Since you were in the office as a patient, and not on official business, would you do anything about what you observed? a. If so, what would you do? b. If not, why?

Continue reading to find out how the compliance officer handled this situation.

Even though the compliance officer was not in the office on official business, she had a responsibility to report this issue. After the compliance officer saw her physician that day, she again met with the office manager and asked why vendors were still delivering free

(continued on next page)

Section 7.2Causes of Overspending

False Claims Statutes Estimates from fiscal year 2017 by the Centers for Medicare and Medicaid Services put the bill for improper payments of false claims at $36.21 billion. False claims are claims submit- ted to the government for payment that is not really deserved by the provider submitting the claim, usually because the service for which the claim was made was not actually provided to an eligible beneficiary.

Several federal and state false claim statutes make the knowing and willful submission of a false claim or statement to Medicare or a state Medicaid program a felony (Medicare and Medicaid Antifraud and Abuse Act, 1977). Submission of multiple false claims by a business (a health care organization or an independent contractor) engaged in interstate commerce may additionally be prosecuted under the Racketeer Influenced and Corrupt Organizations statute commonly used against organized crime families (RICO, 1970). Violation of the Civil False Claims Act carries a penalty from between $5,500 to $11,000 per claim plus damages

Case Study: A Violation of Stark Law (continued)

lunches. The office manager told her that the head physician said they did not have to listen to the administrative people and to allow vendors to continue providing daily lunches. The compliance officer asked why this had not been reported to her, and the office manager stated that she was afraid she would get in trouble with the physician. The compliance officer determined the incident needed to be dealt with at a higher level, so she lodged a formal report to the medical staff board and the hospital’s board of directors. The physician was written up by the hospital’s medical ethics committee for not complying with Stark law and the office manager was fired for not reporting the issue once she was informed of the consequences of violating Stark law.

Stop and Clarify: Reporting Fraud and Abuse

There are several ways to report fraud and abuse.

Medicare Fraud

Call Medicare at 1-800-633-4227 or search for “reporting fraud” at https://www .medicare.gov.

Stark Law Violations

Report a Stark violation to the Office of the Inspector General (OIG). Go to the OIG website (https://oig.hhs.gov) and select “report fraud” to report a Stark violation online. Or call the OIG hotline at 1-800-447-8477. The OIG accepts any tips on Stark violations.

Section 7.3Cost Containment

equaling three times the amount of the false claim or claims (Civil False Claims Act, 1863). Further, the Medicare and Medicaid Anti-fraud and Abuse statute, in addition to prohibiting false claims and representations, forbids knowing and willful solicitation or receipt of any illegal remunerations, including kickbacks, bribes, unlawful rebates, or self-referrals (Medi- care and Medicaid Antifraud and Abuse Act, 1977).

States have adopted their own versions of the federal Civil False Claims Act. The Civil False Claims Act allows states to recover damages plus a bonus in a federal fraud case involving Medicaid claims if the state’s law facilitates the bringing of qui tam actions by the public. Qui tam actions allow private citizen whistleblowers, suing either individually or through the state, to bring legal actions against entities and individuals who break a federal law. The qui tam initiators (“relators”) are allowed to keep a portion of the damages, with the rest going to the state. Qui tam legal actions are meant to facilitate the policing of false claims by provid- ing financial incentives for those citizens who witness the illegal conduct to blow the whistle.

While overpayments by Medicare and Medicaid for false claims result from federal and state crimes that can be seen as outright theft, a few well-meaning health care professionals char- acterize their intentional overbilling or falsified claims as motivated by their devotion to the moral practice of medicine (Jost, Davies, & Gosfield, 2007). Given that standardized rates of reimbursement by Medicare and Medicaid often fail to cover the treatment expenses of enrollees and claims for rendered care are sometimes denied by Medicare fiscal intermediar- ies and state Medicaid agencies, some health care professionals knowingly falsify reimburse- ment claims in order to receive the reimbursements to which these physicians feel they are otherwise entitled. It is difficult to say what percentage of false claims are motivated by greed, and amount to theft, and what percentage amounts to a health care practitioner trying to maximize reimbursement to make ends meet and provide continuing service to Medicare and Medicaid patients who could not otherwise afford their services.

Anti-Kickback Provisions A third approach to trying to prevent fraud and abuse is found in the Medicare anti-kick- back statute (AKS), 42 United States Code section 1320a–1327b(b). According to the Medical Learning Network (2017), “[t]he AKS makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration directly or indirectly to induce or reward referrals of items or services reimbursable by a Federal health care program” (p. 6). Certain “safe har- bors” of permissible activity are defined in 42 Code of Federal Regulations section 1001.952. Violation of this law subjects the payer or recipient of the illicit kickback to criminal penalties consisting of fines or imprisonment.

7.3 Cost Containment Escalating health care expenditures pose a variety of ethical and legal challenges when they are the result of legitimate services, but especially when they are the product of fraudulent or abusive conduct by providers. Thus, it is a social imperative to contain those escalating costs so that finite resources can be used more efficiently and equitably.

Section 7.3Cost Containment

Modern American biomedicine, like every other major segment of the economy, is very much concerned with keeping costs at manageable levels, providing reasonable returns on invest- ment, and maintaining a financially sustainable business model. However, the successes of some of the other major sectors of the economy in keeping costs within acceptable param- eters have thus far proved unattainable in health care. Excessive spending on services, drugs, and technologies that provide little or no additional benefit over less-expensive treatments; unnecessary care; and lavish compensation in some health care professional sectors all con- tribute to the runaway costs in medicine.

Each of these factors provides tremendous financial rewards for various parties who then have enormous incentives to continue the status quo. For example, physicians are often rewarded financially for the quantity of medical services they render. The typically high incomes earned by physicians also make possible one of the most powerful and well-organized special-inter- est lobbies in American history (Starr, 1982). While American physicians and health care executives are generally highly motivated to have a well-functioning and sustainable health care system that provides the best quality care, these groups can also find it difficult to rally behind cost-control reforms when doing so would likely mean cutting their incomes.

Medical practices are also often immune to the factors found in most markets that keep prices for services and salaries in check. Although private commercial sectors are usually good at self- controlling their costs, the American health care system is by no means a typical mar- ket system. American medicine is set up so that the costs of medical services and products are often hidden from consumers and the health care staff that render them. Consumers are typically removed from purchasing decisions, although it is reasonable to expect the cost of a proposed treatment to be discussed with the patient as part of the informed consent process. That rarely happens, however—due at least in part to the pervasive myth that when the direct payment comes from an insurer or other third-party payer the service is somehow “free of charge” to patients.

American employers, who often end up paying for increasing insurance costs or services directly, have belatedly become a major force for cost containment, as exemplified by the Washington Business Group on Health. Until recently, though, employers generally opted to pass rising costs on to the American workforce in the form of lower wages, smaller cost-of- living raises, and flat hiring trends.

All of these factors contribute to a cost-containment problem that has proved relatively immune to large-scale reform. Yet, some changes have given some health policy experts hope. The biggest change involves the Affordable Care Act.

The Affordable Care Act The Patient Protection and Affordable Care Act (ACA) of 2010 contains several provisions aimed at health care cost containment. First, the ACA is aimed at curbing the incentives that encourage workers and employers to use health insurance policies as a means to grow tax- free investments. The so-called “Cadillac tax” is a means to address the fact that, while the federal government taxes employees’ earnings, it does not tax the money used by employers or unions to pay for their insurance. This policy has the unintended result of allowing employ- ees to use health insurance as a shelter to avoid paying income taxes on a large piece of their compensation package. Not only does the federal government lose tax revenue that it would

Section 7.3Cost Containment

otherwise receive were it not for this pro- vision, but the advantage gets dispropor- tionately bigger the wealthier the wage earner is. This means that bigger health insurance tax breaks go to help the rich- est people buy health insurance, which in turn encourages more unnecessary health care spending. Over time, the Cadillac tax would attempt to counteract the nega- tive effects of this subsidy. In theory, tak- ing away the use of health insurance as a means of tax-free compensation should both control health insurance costs and increase wages for American workers. In January 2018, Congress passed, and President Trump signed, a two-year delay of this tax, pushing its start date to 2022 (Cigna, 2018).

Another provision in the ACA allowed for the formation of insurance exchanges at the state level. For Americans who lack employer-provided insurance and do not qualify for govern- ment insurance programs, the opportunity to shop around for health insurance in a new sys- tem with more controls against abuse comes close to approximating a competitive market environment. For possibly the first time, Americans have been given the tools to become the kind of rational consumers that market theory envisions.

The ACA also created the Independent Payment Advisory Board (IPAB), which was intended to bring oversight to Medicare spending. Partly in response to Gawande’s 2009 story on the disproportionately high Medicare and Medicaid spending in McAllen, Texas, the ACA proposed the creation of a nonpartisan group of experts tasked with improving health care quality and efficiency while controlling costs for Medicare beneficiaries. This group would only be offi- cially convened if Medicare costs grew a percentage point faster than the rest of the economy (Kliff, 2017). However, as part of the Bipartisan Budget Act of 2018, IPAB was repealed before it was ever actually utilized.

An additional cost-containment strategy contained in the ACA is the creation of Accountable Care Organizations (ACOs). The ACA authorizes the Centers for Medicare and Medicaid Ser- vices to contract with ACOs in the Medicare Shared Savings Program. ACOs are coordinated groups of health care providers who join together to provide comprehensive health care to Medicare beneficiaries in return for bundled payments that financially incentivize the various provider participants to deliver cost-effective health care as efficiently as possible.

Possibly the most important cost-control measure that the ACA introduced was the forma- tion of a new agency to fund research on the comparative effectiveness of different clinical approaches to particular medical problems. The Patient-Centered Outcomes Research Institute (PCORI) is funded by a fee imposed on health insurers and plan sponsors. The PCORI is an essential part of the market approach because it sponsors the production of data needed to discriminate between effective and ineffective treatments, along with their rela- tive costs. It has been difficult to use the small amount of existing data to effectively reduce

AP Photo/Jacquelyn Martin In 2010, President Barack Obama signed the Affordable Care Act into law, which contains several provisions aimed at health care cost containment.

Section 7.4Current Quality-Improvement Methods

waste and unnecessary care, even when damning information about the relative costs, risks, and benefits of popular modes of treatment, drugs, and technologies surfaces. Powerful interest groups and skillful public relations have often proved more effective at perpetuat- ing the underperforming treatments than the research has been at changing practice hab- its. However, the research sponsored by the PCORI and the fact that the ACA forbids health insurers from using PCORI research to restrict health insurance benefits are expected to aid health care consumers and physicians in making more informed decisions about what treat- ments work. For treatments that fall within the gray area of discretion, the cost-comparison data is intended to help consumers and physicians make finer distinctions and better health care choices.

Utilization Review Another important mechanism in cost containment is utilization review. Utilization review strategies include various methods used by health care organizations to verify the necessity and appropriateness of services provided to patients and the expenditures related to patient care. Utilization review has been an everyday part of health care administration since it was mandated by the Medicare law as a prerequisite for reimbursement.

Many health care organizations and larger physician practices have internal utilization review processes, sometimes known as case management. While unable to unilaterally change a patient’s treatment plan or order a patient’s discharge or transfer, these internal processes play a vital role in the ethical management and financial stewardship of the orga- nization. This strategy for ensuring medically necessary and appropriate care and limiting the risk of waste is included in the work of quality-improvement organizations. These orga- nizations set benchmarks for the reduction of inappropriate care, investigate potential devi- ations, and have the authority to deny Medicare payment for unnecessary or inappropriate claims (Showalter, 2012).

7.4 Current Quality-Improvement Methods While the strategies we have investigated in this chapter have dealt with the issue of cost containment, some strategies are more specifically aimed at maintaining and improving the quality of care. In this section, we will take a closer look at some of these strategies.

Error Reporting and Surveillance Since the publication of the 1999 IOM report “To Err Is Human” (see Chapter 6), numerous initiatives for error tracking have been instituted through regulatory and professional over- sight. The Joint Commission enforces a sentinel event policy that encourages the reporting of errors to the Joint Commission, as well as to patients. A sentinel event is “a patient safety event (not primarily related to the natural course of the patient’s illness or underlying condi- tion) that reaches a patient and results in any of the following: death, permanent harm, severe temporary harm” (Joint Commission, 2017, p. 1). The Joint Commission’s sentinel event policy

Section 7.4Current Quality-Improvement Methods

requires that patients—and when appropriate, their families—be informed about sentinel events, as well as “unanticipated outcomes of the care, treatment, or services that relate to sentinel events” (Joint Commission, 2017, p. 5).

Lean Methodologies Apart from complying with requirements imposed by influential accreditation agencies, lean methodologies taught in popular management texts have also proved influential in promot- ing health care management cultures and policies that foster quality improvement. Although there is a general lack of empirical comparative effectiveness research on many of these busi- ness management–improvement methods, they have spawned some welcomed attention to continuing quality improvement and waste and cost reduction. The lean methodologies com- mon in today’s health care systems are based on reducing waste originating from practices of overproduction (that is, overproducing inventory that goes to waste); motion and trans- portation inefficiencies (when health care workers spend too much time and energy moving themselves from place to place as part of their job); static inventory (having too much inven- tory on hand); and any processes or costs that do not produce patient benefit or some other recognized value to the organization (Rubino, Esparza, & Chassiakos, 2014). Lean method- ologies, though primarily concerned with trimming the fat from health care organizations to help them more swiftly and nimbly navigate the realities of modern health care, are supposed to define value from the perspective of health care consumers (Longest & Darr, 2008). This allows the creation of lean processes that are less likely to promote some secondary or instru- mental end (or the arguably illegitimate end of profit maximization) over the primary goal of patient care and benefit.

Coupled with the lean philosophy, Six Sigma, a popular efficiency maximization method, focuses on producing the best possible products and services as measured through outcomes and improved consumer satisfaction (Rubino et al., 2014). The Six Sigma methodology focuses on the reduction of errors, or defects per million opportunities. These programs have become comprehensive and complex systems whose suggestions and guidelines, when implemented judiciously and not overzealously, can prove a useful adjunct to the other quality-improve- ment and cost-reduction strategies we have looked at so far.

Like other well-meaning methodologies intended to ease the hard work of managing health care, lean philosophies lend themselves to being misused. Taiichi Ohno, who developed a pro- duction system at Toyota that is now the basis for most lean approaches used in health care, saw the first task of any cost-containment and quality-improvement strategy to be a thor- ough, ongoing study of the underlying system (Seddon, 2005). The resulting practical wis- dom is more likely to ensure that the tough decisions regarding cost containment and quality assurance are effective and sustainable.

A successful cost-containment and quality-improvement strategy requires careful crafting and implementation. The good health care leader needs an awareness of the limits of tools such as Six Sigma, a practical wisdom that comes from a deep familiarity with the culture of the specific health care organization, and an unwavering orientation toward the organiza- tion’s mission and vision.

Chapter Highlights

Chapter Highlights • Waste, inefficiencies, inflated costs, fraud, and abuse not only have an effect on the

economic stability and sustainability of the American medical system, but they also compromise the quality of care received by patients.

• The inertia of the current system makes change difficult because the current system benefits politically powerful and influential interest groups. This, however, does not mean that strides toward improvement cannot be made.

• There are a variety of complicated and fragmented ways in which health care policy makers attempt to mitigate and remedy issues of quality and cost. Among the vari- ous legislative, administrative, regulatory, professional oversight, and managerial methods used to try to control costs and pursue the best quality possible, the Afford- able Care Act of 2010 has been most prominent in introducing several outcomes- based initiatives that target and control cost and quality.

Web Field Trip: The Group Health Cooperative of Puget Sound and the University of Pittsburgh Medical Center

For this web field trip, you will investigate two large health care organizations that have somewhat different approaches to utilization review and assess their relative merits.

The University of Pittsburgh Medical Center (UPMC) Health Plan can be characterized by a laissez-faire quality-improvement philosophy. The UPMC Health Plan’s quality-improve- ment statement says, in part, “We believe that if we give doctors the right information, they will make the right choices. We continually supply clinical education tools and guidelines to help doctors streamline costs while delivering top-quality care” (UPMC Health Plan, 2018, para. 2). While the UPMC Health Plan uses clinical guidelines, they are used only as educa- tional tools rather than strict rules for determining medical necessity or appropriateness. Clinical decisions are left to the wide discretion of practitioners. There are lists of specific products and services that are covered by the health plan, but discretion is given to physi- cians and other health care professionals such that coverage decisions can be made by the plan on an ad hoc basis, as long as the practitioner makes a reasonable argument for why a service that is not ordinarily covered is indicated for the particular patient. The UPMC Health Plan emphasizes trust in the medical expertise of physicians and instills fiduciary duties that are seen as the only needed safeguard of appropriate and efficient health care utilization.

In contrast, the Group Health Cooperative of Puget Sound (GHCPS) is characterized by much tighter controls over utilization, using empirically based, prescriptive guidelines for medical treatment. This approach emphasizes trust in health outcomes evidence. The GHCPS Group Health Roadmaps are prescriptive guidelines reflecting the latest in out- comes research. However, the GHCPS is aware that overly strict constraints on the practice of medicine can fail to be responsive to a patient’s individual needs and disrespectful of pro- fessional expertise. This is why the GHCPS, although driven by statistical data and outcomes research, allows some flexibility in individual cases.

(continued on next page)

Chapter Highlights

Critical Thinking and Discussion Questions

1. Why is health care so expensive in the United States? 2. Can health care costs be controlled without sacrificing quality of care or access

to care? 3. How effective do you think the Affordable Care Act has been in achieving its health

care access and affordability objectives? 4. Whose responsibility is it to control health care expenditures? 5. Do you think other countries do a better (more ethical) job of balancing health care

access, quality, and affordability?

Key Terms case management A health care organiza- tion’s internal utilization review process that assesses treatments for medical neces- sity and appropriateness.

false claims Demands for government pay- ments for the provision of goods or services when those payments are not deserved.

Patient-Centered Outcomes Research Institute (PCORI) An institute established by the Affordable Care Act to fund research on the comparative effectiveness of differ- ent medical treatments.

qui tam Legislative authorization for pri- vate citizen whistleblowers to bring suits, either individually or through the govern- ment, against entities and individuals who have collected monies from the government based on the filing of false claims.

sentinel event policy The Joint Commis- sion policy that encourages health care organizations to report any incidents that involve death or severe physical or psycho- logical injury or the risk thereof (“sentinel events”) to the Joint Commission and to patients.

Web Field Trip: The Group Health Cooperative of Puget Sound and the University of Pittsburgh Medical Center (continued)

1. Explore the online presence of both the GHCPS Health Plan (http://www.ghc.org) and the UPMC Health Plan (http://www.upmchealthplan.com), as well as other online resources that might help you better understand their respective utilization review philosophies.

2. Write a short analysis paper (less than one page) in which you compare and con- trast the utilization review philosophies of both organizations. Identify any ethi- cal problems that you anticipate under both systems and answer the following questions.

Under which health plan would you prefer to be:

a. A patient? Why? b. A health care provider? Why? c. A health plan administrator? Why? d. An investor? Why? e. An employer? Under which model would the employer feel premium dollars were best

spent?

Chapter Highlights

Six Sigma An efficiency maximization philosophy and method that focuses on producing the best possible products and services as measured through outcomes and improved consumer satisfaction.

Stark law The Ethics in Patient Referrals Act, more commonly known as the Stark law, outlaws physician referrals of patients for Medicare- and Medicaid-reimbursed services to facilities in which the physician (or a close family member) has a financial conflict of interest. The law prohibits self- referrals for 11 designated health services, including laboratory tests, physical or occu- pational therapy, imaging services, radiation treatment, home health care, pharmaceu- ticals, medical devices and supplies, and hospital services.

utilization review The various methods used by health care organizations to verify the necessity and appropriateness of ser- vices provided to patients.