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CHAPTER 1

An Overview of U.S. Health Care Delivery

LEARNING OBJECTIVES

• Understand the basic nature of the U.S. health care system. • Outline the key functional components of a health care delivery system. • Get a basic overview of the Affordable Care Act. • Discuss the primary characteristics of the U.S. health care system. • Emphasize why it is important for health care practitioners and managers to

understand the intricacies of the health care delivery system. • Get an overview of health care systems in selected countries. • Point out global health challenges and reform efforts. • Introduce the systems model as a framework for studying the health care system in the

United States.

The U.S. health care delivery system is a behemoth that is almost

impossible for any single entity to manage and control.

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2 Chapter 1 An Overview of U.S. Health Care Delivery

� Introduction The United States has a unique system of health care delivery that is unlike any other health care system in the world. Almost all other developed countries have national health insurance programs run by the government and financed through general taxes. Nearly all citizens in such countries are entitled to receive health care services. Such is not yet the case in the United States, where Americans are not automati­ cally covered by health insurance.

Though U.S. health care is often called a "system;' this term may be misleading because a true, cohesive health care sys­ tem does not exist in the United States (Wolinsky, 1988) . Indeed, a major feature of the U.S. health care system is its frag­ mented nature, as different people obtain health care through different means. The system has continued to undergo periodic changes, mainly in response to concerns regarding costs, access, and quality.

Describing health care delivery in the United States can be a daunting task. To facilitate an understanding of the struc­ tural and conceptual basis for the delivery of health care services, this text is orga - nized according to the systems framework presented at the end of this chapter. Also, for the sake of simplicity, the mechanisms of health care delivery in the United States are collectively ref erred to as a system throughout this text.

The main objective of this chapter is to provide a broad understanding of how health care is delivered in the United States. Examples of how health care is d�livered in other countries are also pre­ sented for the sake of comparison. The overview presented here introduces the

reader to several concepts discussed more extensively in later chapters.

� An Overview of the Scope and Size of the System

TABLE 1 ·1 demonstrates the complexity of health care delivery in the United States. Many organizations and individuals are involved in health care. To name just a few: educational and research institutions, medical suppliers, insurers, payers, and claims processors to health care providers. A multitude of providers are involved in the delivery of preventive, primary, subacute, acute, auxiliary, rehabilitative, and con­ tinuing care. A large number of managed care organizations (MCOs) and integrated networks now provide a continuum of care, covering many of the service components.

The U.S. health care delivery system is massive, with total employment that exceeded 16.8 million people in 20 1 8 in various health delivery settings (Kaiser Family Foundation, 20 1 8) . This num­ ber includes more than 8 million health practitioners and individuals in techni­ cal occupations, along with more than 6 million individuals in health care sup­ port occupations (U.S. Bureau of Labor Statistics, 2020b, 2020c) . Approximately 4 million workers are employed in general medical and surgical hospital settings, while another 3 million are employed in physician offices (U.S. Bureau of Labor Statistics, 2020b, 2020c) . The vast array of health care institutions in the United States includes approximately 13,944 hos­ pitals, 1 5 ,600 nursing homes, and 14,500

An Overview of the Scope and Size of the System 3

TABLE 1-1 The Complexity of Health Care Delivery

Education/

Research

Medical schools

Dental schools

Nursing programs

Physician assistant

programs

Nurse practitioner

programs

Physical therapy,

occupational

therapy,

speech therapy

programs

Research

organizations

Private

foundations

U.S. Public Health

Service (Agency

for Healthcare

Research

and Quality,

Agency for Toxic

Substances and

Disease Registry,

Centers for

Disease Control

and Prevention,

Food and Drug

Administration,

Health Resources

and Services

Administration,

Indian Health

Service, National

Institutes

of Health,

Substance Abuse

and Mental

Health Services

Administration)

Professional

associations

Trade associations

Suppliers Insurers

Pharmaceutical Managed

companies care plans

Multipurpose Blue Cross/

suppliers Blue

Biotechnology Shield

companies plans

Commercial

insurers

Self-insured

employers

Medicare

Medicaid

Veterans

Affairs

Tri care

Providers

Preventive Care Health

departments

Primary Care Physician offices

Community

health centers

Dentists

Non physician

providers

Subacute Care Subacute care

facilities

Ambulatory

surgery centers

Acute Care Hospitals

Auxiliary Services

Pharmacists

Diagnostic

clinics

X-ray units

Suppliers of

medical

equipment

Rehabilitative Services

Home health

agencies

Rehabilitation

centers

Skilled nursing

facilities

Continuing Care Nursing homes

End-of-Life Care Hospices

Integrated Managed care

organizations

Integrated

networks

Payers

Blue Cross/Blue

Shield plans

Commercial

insurers

Employers

Third-party

administrators

State agencies

Government

Public

insurance

financing

Health

regulations

Health policy

Research

funding

Public health

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4 Chapter 1 An Overview of U.S. Health Care Delivery

substance abuse treatment facilities ( Cen­ ters for Disease Control and Prevention [CDC], 20 16; U.S. Bureau of Labor Sta­ tistics, 2020a; National Institute on Drug Abuse [NIDA], 20 18) . In 20 1 8, 1 ,375 federally qualified health center grantees provided preventive and primary care ser­ vices to approximately 28.4 million people living in medically underserved rural and urban areas (Health Resources and Services Administration [HRSA], 201 8) . Various types of health care profession­ als are trained in 180 medical and osteo­ pathic schools (Association of American Medical Colleges, 201 7) , 66 dental schools (American Dental Association, 20 1 7) , 136 schools of pharmacy (American Associa­ tion of Colleges of Pharmacy, 20 1 7) , and more than 1 ,500 nursing programs located throughout the country. Multitudes of government agencies are involved with the financing of health care, medical research, and regulatory oversight of the various aspects of the health care delivery system.

A Broad Description of the System U.S. health care delivery does not func­ tion as a rational and integrated network of components designed to work together coherently. To the contrary, it is a kalei­ doscope of financing, insurance, delivery, and payment mechanisms that remain loosely coordinated. Each of these basic functional components represents an amalgam of public (government) and pri­ vate sources. Government-run programs finance and insure health care for select groups of people who meet each program's prescribed criteria for eligibility. To a lesser degree, government programs also deliver certain health care services directly

to certain recipients, such as veterans, mil­ itary personnel, American Indians/ Alaska Natives, and some uninsured people. Nev­ ertheless, financing, insurance, payment, and delivery functions largely remain in private hands.

The market-oriented economy in the United States attracts a variety of pri­ vate entrepreneurs that pursue profits by facilitating the key functions of health care delivery. Employers purchase health insurance for their employees through private sources, and employees receive health care services delivered by the pri­ vate sector. The government finances public insurance through Medicare, Med­ icaid, and the Children's Health Insurance Program (CHIP) for a significant portion of the country's low-income, elderly, dis­ abled, and pediatric populations. How­ ever, insurance arrangements for many publicly insured people are made through private entities, such as health mainte­ nance organizations (HM Os), and health care services are rendered by private phy­ sicians and hospitals. This blend of public and private involvement in the delivery of health care has resulted in the following characteristics of the U.S. system:

• A multiplicity of financial arrange­ ments for health care services

• Numerous insurance agencies or MCOs that employ various mecha­ nisms for insuring against risk

• Multiple payers that make their own determinations regarding how much to pay for each type of service

• A diverse array of settings where med­ ical services are delivered

• Numerous consulting firms offering expertise in planning, cost contain­ ment, electronic systems, quality, and restructuring of resources

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An Overview of the Scope and Size of the System S

There is little standardization in a sys­ tem that is functionally fragmented, and in which the various system components fit together only loosely. Because a central agency such as the government does not oversee the overall coordination of such a system, problems of duplication, over­ lap, inadequacy, inconsistency, and waste occur. Lack of system-wide planning, direction, and coordination leads to a complex and inefficient system. Moreover, the system as a whole does not lend itself to standard budgetary methods of cost control. Individual and corporate entities within a predominantly private entrepre­ neurial system seek to manipulate finan­ cial incentives to their own advantage, without regard to their impact on the sys­ tem as a whole. Hence, cost containment remains an elusive goal.

In short, the U.S. health care delivery system is like a behemoth that is almost impossible for any single entity to manage or control. The United States consumes more health care services as a proportion of its total economic output than any other country in the world. The U.S. economy is the largest in the world, and compared to other nations, consumption of health care services in the United States represents a greater proportion of the country's total economic output. Although the U.S. sys­ tem can be credited for delivering some of the best clinical care in the world, it falls short of delivering equitable services to every American. It certainly fails in terms of providing cost-efficient services.

An acceptable health care delivery system should have two primary objec­ tives: (1 ) enable all citizens to obtain needed health care services and ( 2) ensure that services are cost-effective and meet certain established standards of quality.

While the U.S. health care delivery system falls short of both these basic ideals, the United States leads the world in providing the latest and the best in medical technol­ ogy, training, and research. It also offers some of the most sophisticated institu­ tions, products, and processes of health care delivery.

Basic Components of a Health Care Delivery System FIGURE 1-1 illustrates that a health care delivery system incorporates four func­ tional components: financing, insurance, delivery, and payment. Hence, it is termed a quad-function model. Health care delivery systems differ depending on the arrangement of these components. The four functions generally overlap, but the degree of overlap varies between private and government-run systems, and between traditional health insurance and managed care-based systems. In a government-run system, the functions are more closely inte­ grated and may be indistinguishable. Man­ aged care arrangements also integrate the four functions to varying degrees.

Financing Financing is necessary to obtain health insurance or to pay for health care ser­ vices. For most privately insured Ameri­ cans, health insurance is employment based; that is, employers finance health care as a fringe benefit for their employ­ ees. A dependent spouse or children may also be covered by the working spouse's or working parent's employer. Most employ­ ers purchase health insurance for their employees through an MCO or an insur­ ance company selected by the employer.

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6 Chapter 1 An Overview of U.S. Health Care Delivery

FINANCING

Employers

- - - - - - - - - - - - - - - - - - - - Government-Medicare, Medicaid

Individual self-funding

INSURANCE

Insurance companies

... - - - - Blue Cross/Blue Shield

Self-insurance

Access

DELIVERY (Providers)

Physicians

Hospitals

Nursing homes

Diagnostic centers

Medical equipment vendors

Community health centers •

PAYMENT

Insurance companies Utilization controls Blue Cross/Blue Shield

Third-party cla!ms processors

' I I I I I I I

- - - - - - - - - - - - - - - - -·

- - - - - Integration of functions through managed care (HMOs, PPOs)

FIGURE 1·1 Basic health care delivery functions.

Small employers may or may not be in a position to afford health insurance cov­ erage for their employees. In public pro­ grams, the government functions as the financier; the insurance function may be carved out to an HMO.

Insurance Insurance protects the insured against fin - ancial ca�astrophe by providing expensive

health care services when needed. The insurance function determines the pack­ age of health services that the insured individual is entitled to receive. In addi­ tion, it specifies how and where health care services may be received. The MCO or insurance company also functions as a claims processor and manages the dis­ bursement of funds to the health care providers.

An Overview of the Scope and Size of the System 7

Ii ery The term "delivery" refers to the provision of health care services by various provid­ ers. The term provider refers to any entity that delivers health care services and either independently bills for those services or is supported through tax revenues. Common examples of providers include physicians, dentists, optometrists, and therapists in private practices, hospitals, and diagnostic and imaging clinics, and suppliers of med­ ical equipment (e.g., wheelchairs, walk­ ers, ostomy supplies, oxygen) . With few exceptions, most providers render services to people who have health insurance, and even those covered under public insur­ ance programs receive health care services from private providers.

Payment The payment function deals with reim­

bursement to providers for services delivered. The insurer determines how much is paid for a certain service. Funds for actual disbursement come from the premiums paid to the MCO or insur­ .ance company. At the time of service, the patient is usually required to pay an out­ of-pocket amount, such as $25 or $30, to see a physician. The remainder is cov­ ered by the MCO or insurance company. In government insurance plans, such as Medicare and Medicaid, tax revenues are used to pay providers.

Insurance and Health Care Reform The U.S. government finances health benefits for certain special populations, including government employees, the elderly (people ages 65 years and older) ,

people with disabilities, some people with very low incomes, and children from low-income families. The program for the elderly and certain disabled individu­ als, which is administered by the federal government, is called Medicare. The program for the indigent, which is jointly administered by the federal government and state governments, is named Medic­

aid. The program for children from low­ income families, another federal-state partnership, is called the Children's Health Insurance Program.

However, the predominant employ­ ment-based financing system in the United States has left some employed indi­ viduals uninsured for two main reasons. First, some small businesses simply can­ not get group insurance at affordable rates and, therefore, are not able to off er health insurance as a benefit to their employees. Second, in some work settings, participa­ tion in health insurance programs is vol­ untary, so employees are not required to join. Some employees choose not to sign up, mainly because they cannot afford the cost of health insurance premiums. Employers rarely pay 100% of the insur­ ance premium; instead, most require their employees to pay a portion of the cost. This is called premium cost sharing.

Self-employed people and other individu­ als who are not covered by employer-based plans have to obtain health insurance on their own. Individual rates are typi­ cally higher than group rates available to employers. In the United States, working people earning low wages have been the most likely to be uninsured because most cannot afford premium cost sharing and are not eligible for public benefits.

A further vulnerability under employ­ ment-based insurance becomes evident

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8 Chapter 1 An Overview of U.S. Health Care Delivery

when a crisis slows down or even stops business, such as what occurred during the COVID-19 pandemic. As a result of economic pressures, companies may have to lay off large numbers of employees to remain solvent. Those unemployed will soon lose insurance coverage since it is tied to the employer. The disruption in insurance coverage is especially damaging because the newly uninsured face chal­ lenges in accessing needed care, including care related to the crisis itself, such as test­ ing and treatment for the coronavirus.

In the U.S. context, health care

reform refers to the expansion of health insurance to cover the uninsured-those without private or public health insur­ ance coverage. The Patient Protection and Affordable Care Act of 20 10, more com­ monly known as the Affordable Care Act (ACA), was the most sweeping health care reform in recent U.S. history. One of the main objectives of the ACA was to reduce the number of uninsured. The ACA was rolled out gradually starting in 20 10, when insurance companies were mandated to start covering children and adults younger than age 26 under their parents' health insurance plans. Most other insurance provisions went into effect on January 1 , 20 1 4, except for a mandate for employers to provide health insurance, which was postponed until 20 15 . The ACA required that all U.S. citizens and legal residents must be covered by either public or private insurance. The law also relaxed standards to qualify additional numbers of people for Medicaid, although many states chose not to implement the Medicaid expan­ sion based on a 20 12 ruling by the U.S. Supreme Court.

Under the ACA, individuals with­ out private or public insurance had to

obtain health insurance from participat­ ing insurance companies through Web­ based, government-run exchanges; if they failed to do so, they had to pay a tax. The exchanges-also referred to as health insurance marketplaces-would determine whether an applicant qualified for Med­ icaid or CHIP programs. If an applicant did not qualify for a public program, the exchange would enable the individual to purchase a government-approved health plan offered by private insurers through the exchange. Federal subsidies enabled low­ income people to partially offset the cost of health insurance.

A predictive model developed by Par­ ente and Feldman (20 1 3) estimated that, at best, full implementation of the ACA would reduce the number of uninsured by more than 20 million. Nevertheless, by its own design, the ACA failed to achieve universal coverage that would enable all citizens and legal residents to have health insurance. Possible future scenarios for health care reform are discussed elsewhere in this text.

By March 20 15 , approximately 16.5 million uninsured Americans had gained health insurance coverage due to the Affordable Care Act ("Impact of Oba­ macare on Coverage;' 20 16). By 20 1 6, an estimated 20 million had gained cover­ age (Uberoi et al., 20 1 6) , and by 2020, 36 states and the District of Columbia had expanded Medicaid through the ACX..s provisions (Kaiser Family Foundation, 2020a) . The uninsured rate declined among all race/ ethnicity categories, with the greatest decreases seen among African Americans and Hispanics, compared to Whites (Uberoi et al. , 2016). The unin­ sured rate declined from 22.4% to 1 0.6% among African Americans, from 41 .8% to

An Overview of the Scope and Size of the System 9

30.5% among Hispanics, and from 1 4.3% to 7.0% among Whites (Uberoi et al. , 20 16) . Additionally, females experienced a greater decline in their uninsured rate (49.7% decline) compared to males (37.6% decline). Specifically, the uninsured rate among females decreased from 1 8.9% to 9.5%, whereas the uninsured rate among males decreased from 21 .8% to 13.6% (Uberoi et al. , 20 1 6) . Despite these gains, however, the ACA left more than 27.3 mil­ lion Americans uninsured in 20 16 (Cohen et al. , 2016) . A full critique of the ACA is provided in the Health Policy chapter.

During his first week in office in Janu­ ary 20 17, President Donald Trump signed an Executive Order to repeal and replace the ACA (commonly referred to as Oba­ macare) in an effort to minimize the ACJ\s economic and regulatory burdens and to waive any requirement imposing a fiscal burden on states or families, individuals, health care providers, insurers, or other parties. By 20 19, the Trump administra­ tion was able to alter significant portions of the ACA through administrative means (Simmons-Duffin, 2019) . As a result, the number of uninsured soared. From 2017 to 2018, the number of uninsured grew by almost 500,000 people for the second year in a row (Tolbert et al., 2019).

Role of Managed Care Under traditional insurance, the four basic health delivery functions have been frag­ mented in the United States; with few excep­ tions, the financiers, insurers, providers, and payers have been different entities. However, during the 1990s, health care delivery in the country underwent a fundamental change involving a tighter integration of the basic functions through managed care.

Previously, fragmentation of the four functions meant a lack of control over utilization and payments. The quantity of health care consumed refers to utilization

of health services. Traditionally, determi­ nation of the utilization of health services and the price charged for each service had been left up to the insured individuals and the providers of health care. However, due to rising health care costs, current delivery mechanisms have instituted some controls over both utilization and price.

Managed care is a system of health care delivery that ( 1 ) seeks to achieve effi­ ciency by integrating the four functions of health care delivery discussed earlier, (2) employs mechanisms to control (man­ age) utilization of medical services, and ( 3) determines the price of services and, consequently, how much the providers are paid. The primary financier is still the employer or the government. Instead of purchasing health insurance through a traditional insurance company, the employer contracts with an MCO, such as an HMO or a preferred provider organiza­ tion (PPO ) , to offer a selected health plan to its employees. In this case, the M CO functions like an insurance company and promises to provide health care services contracted under the health plan to the enrollees of the plan. The term enrollee

(member) refers to the individual cov­ ered under the plan. The contractual arrangement between the MCO and the enrollee-including the collective array of covered health services that the enrollee is entitled to-is referred to as the health

plan (or ((plan;' for short) . The health plan uses selected providers from whom the enrollees can choose to receive services.

Compared with health services deliv­ ery under fee-for-service plans, managed

10 Chapter 1 An Overview of U.S. Health Care Delivery

care was successful in accomplishing cost control and greater integration of health care delivery. By ensuring access to needed health services, emphasizing preventive care, and maintaining a broad provider network, managed care can implement effective cost-saving measures without compromising access and quality, thereby achieving a health care budget predictabil­ ity unattainable by other kinds of health care delivery.

� Major Characteristics of the U.S. Health Care System

In any country, certain external influences shape the basic character of the health ser­ vices delivery system. These forces consist of the national political climate, economic development, technological progress, social and cultural values, physical environment, population characteristics (i.e. , demo­ graphic and health trends), and global influences (FIGURE 1·2). The combined interactions of these environmental forces influence the course of health care delivery.

Ten basic characteristics differentiate the U.S. health care delivery system from most other countries:

1 . No central agency governs the system.

2. Access to health care services is selectively based on insurance coverage.

3. Health care is delivered under imperfect market conditions.

4. Insurers from a third party act as intermediaries between the financing and delivery functions.

5 . The existence of multiple payers makes the system cumbersome.

6. The balance of power among various players prevents any single entity from dominating the system.

7. Legal risks influence the prac­ tice behavior of physicians.

8. Development of new technology creates an automatic demand for its use.

9. New service settings have evolved along a continuum.

10. Quality and value are fast becom­ ing the hallmarks of care delivery.

No Central Agency Unlike health care systems in most devel­ oped nations, the U.S. health care system is not administratively controlled by a department or agency. Most other devel­ oped nations have a national health care program in which citizens are entitled to receive a defined set of health care services. To control costs, these systems use global budgets that determine total health care expenditures on a national scale and allo­ cate resources within budgetary limits. As a consequence, both availability of services and payments to providers are subject to budgetary constraints. The

. governments

of these nations also control the prolif era­ tion of health care services, especially costly medical technology. System-wide controls over the allocation of resources determine the extent to which government-sponsored health care services are made available to citizens. For instance, the availability of specialized services is restricted.

By contrast, the United States has a highly private system of financing and delivery. Private health insurance, pre­ dominantly through employers, accounts

Major Characteristics of the U.S. Health Care System 1 1

Social values and culture

• Ethnic diversity

• Cultural diversity

• Social cohesion Global influences

• Immigration Political climate

l • President and Congress � /: • Interest groups

• Laws and regulations

• Trade and travel

•Terrorism

• Epidemics

Economic conditions

• General economy

• Competition

Technology development

• Biotechnology

• Information systems

Population characteristics

• Demographic trends and issues

• Health needs

• Social morbidity (AIDS, drugs, homicides, injuries, auto accidents, behavior-related diseases)

Physical environment

• Toxic waste, air pollutants, chemicals

• Sanitation

• Ecological balance, global warming

FIGURE 1·2 External forces affecting health care delivery.

for approximately 34% of total health care expenditures; the government finances another 3 7% (Centers for Medicare and ·Medicaid, 2020) . Private delivery of health care means that the majority of hospitals and physician clinics are private busi­ nesses, which operate independently of the government. No central agency monitors total expenditures through global budgets or controls the availability and utilization of services. Nevertheless, federal and state governments play important roles in health care delivery. They determine public­ sector expenditures and reimbursement rates for services provided to Medicare, Medicaid, and CHIP beneficiaries. The federal government also formulates stan­ dards of participation through health policy and regulation, meaning providers

must comply with the standards estab­ lished by the government to be certified to provide services to Medicare, Medic­ aid, and CHIP beneficiaries. Certifica­ tion standards are regarded as minimum standards of quality in most sectors of the health care industry.

Partial Access Access means the ability of an individ­ ual to obtain health care services when needed, which is not the same as having health insurance. Americans can access health care services if they ( 1 ) have health insurance through their employers, (2) are covered under a government health care program, (3) can afford to buy insur­ ance with their own private funds, ( 4) are

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able to pay for services privately, or ( 5) can obtain charity or subsidized care. Health insurance is the primary means for ensur­ ing access. Although the uninsured can access certain types of services, they often encounter barriers to obtaining needed health care. For example, while federally supported health centers provide physi­ cian services to anyone regardless of abil­ ity to pay, such centers and free clinics are located only in certain geographic areas and provide limited specialized services. However, under U.S. law, hospital emer­ gency departments (EDs) are required to evaluate a patient's condition and render medically needed services for which the hospital does not receive any direct pay­ ments unless the patient is able to pay. Therefore, even uninsured individuals are able to obtain medical care for acute ill­ ness. While one can say that the United States does have a form of universal cata­ strophic health insurance, it does not guarantee the uninsured access to con­ tinual basic and routine care, commonly referred to as primary care (Altman and Reinhardt, 1 996) .

Countries with national health care programs provide universal coverage. However, even in these countries, access to services may be restricted because no health care system has the capacity to deliver every type of service on demand. Hence, universal access-the ability of all citizens to obtain health care when needed-remains mostly an aspirational concept.

As previously mentioned, having coverage does not necessarily equate to having access. The cost of insurance and care and availability of services have continued to present barriers to

receiving health care services in a timely manner.

Imperfect Market Though the U.S. health care delivery sys­ tem is largely in private hands, this system is only partially governed by free-market forces. The delivery and consumption of health care in the United States do not quite pass the basic test of a free market,

so the system is best described as a quasi­ market or an imperfect market.

In a free market, patients (buyers) and providers (sellers) act independently, with patients able to choose services from any provider. Providers do not collude to fix prices, and prices are not fixed by an exter­ nal agency. Rather, prices are governed by the free and unencumbered interac­ tion of the forces of supply and demand (FIGURE 1·3). Demand-the quantity of health care purchased-is driven by the prices prevailing in the free market. Under free-market conditions, the quan­ tity demanded will increase as the price for a given product or service declines. Conversely, the quantity demanded will decrease as the price increases.

At first glance, it might appear that multiple patients and providers do exist. Most patients in the United States, how­ ever, are now enrolled in either a private health plan or one or more government­ sponsored programs. These plans act as intermediaries for the patients, and the enrollment of patients into health plans has the effect of shifting power from the patients to the administrators of the plans. The result is that the h.ealth plans-not the patients-are the real buyers in the health care services market. Private health plans,

Major Characteristics of the U.S. Health Care System 1 3

Q) (.) it

p

Demand

Q Quantity

FICiURE 1-3 Relationship between price, supply, and

demand under free-market conditions.

Note: Under free-market conditions, there is an inverse relationship

between the quantity of medical services demanded and the

price of medical services. That is, quantity demanded goes up

when the prices go down, and vice versa. In contrast, there is a

direct relationship between price and the quantity supplied by the

providers of care. In other words, providers are willing to supply

higher quantities at higher prices, and vice versa. In a free market,

the quantity of medical care that patients are willing to purchase,

the quantity of medical care that providers are willing to supply, and

the price reach a state of equilibrium. This equilibrium is achieved

without the interference of any non market forces. However, these

conditions exist only under free-market conditions, which are not

characteristic of the U.S. health care market.

in many instances, off er their enrollees a limited choice of providers rather than an open choice.

Theoretically, prices are negotiated between the payers and providers. In practice, prices are determined by payers, such as MCOs, Medicare, and Medicaid. Because prices are set by agencies exter­ nal to the market, they are not governed by the unencumbered forces of supply and demand.

For the health care market to be free, unrestrained competition must occur among providers based on price and quality. However, the consolidation

of buying power in the hands of private health plans has forced many providers to form alliances and integrated delivery systems on the supply side. In certain geographic sectors of the country, a sin­ gle giant medical system has taken over as the sole provider of major health care services, restricting competition. As the overall U.S. health care system contin­ ues to move in this direction, it appears that only in large metropolitan areas will there be more than one large integrated system competing to get the business of the health plans.

A free mark�t requires that patients have information about the appropriate­ ness of various services to their needs. Such information is difficult to obtain because technology-driven medical care has become highly sophisticated. Knowl­ edge about new diagnostic methods, inter­ vention techniques, and more effective drugs is part of the domain of the profes­ sional physician, not the patient More­ over, because medical interventions are commonly required in a state of urgency, patients have neither the skills nor the time and resources to obtain accurate information when needed. Channeling all health care needs through a primary care provider can reduce this informa­ tion gap when the primary care provider acts as the patient's advocate or agent. In recent years, consumers have been seizing some measure of control over the flow of information: the Internet is becoming a prominent source of medical information for patients, and medical advertising is influencing consumer expectations.

In a free market, patients must directly bear the cost of services received. The pur­ pose of insurance is to protect against the

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risk of unforeseen catastrophic events. Since the fundamental purpose of insur­ ance is to reimburse major expenses when unlikely events occur, having insurance for basic and routine health care under­ mines the principle of insurance. When you buy home insurance to protect your property against the unlikely event of a fire, you do not anticipate the occur­ rence of a loss. The probability that you will suffer a loss by fire is very small. If a fire does occur and causes major damage, insurance will cover the loss-but insur­ ance does not cover routine wear and tear on the house, such as chipped paint or a leaky faucet. However, unlike other types of insurance, health insurance generally covers basic and routine services that are predictable. Coverage for minor services, such as colds and coughs, earaches, and so forth, amounts to prepayment for such services. In this sense, health insurance has the effect of insulating patients from the full cost of health care. This situation may also create a moral hazard in that, once enrollees have purchased health insurance, they may use more health care services than if they were to pay for these services on an out-of-pocket basis.

At least two additional factors limit patients' ability to make decisions in the health care system. First, decisions about the utilization of health care are often determined by need rather than by price­ based demand. Need has been defined as the amount of medical care that medi­ cal experts believe a person should have to remain or become healthy (Feldstein, 199 3) . Second, the delivery of health care can itself create demand. This follows from self-assessed need, which, coupled with moral hazard, leads to greater utilization,

producing an artificial demand because prices are not taken into consideration. Practitioners who have a financial interest in additional treatments may also create artificial demand (Hemenway and Fallon, 1985), a scenario referred to as provider­ induced demand, or supplier-induced demand. Functioning as patients' agents, physicians exert enormous influence on the demand for health care services (Alt­ man and Wallack, 1 996) . Demand cre­ ation occurs when physicians prescribe medical care beyond what is clinically necessary-for example, by making more frequent follow-up appointments than necessary, prescribing excessive medical tests, or performing unnecessary surgery (Santerre and Neun, 1 996) .

In a free market, patients have infor­ mation on the price and quality of each provider. The current system, however, has drawbacks that obstruct information­ seeking efforts. Item -based pricing is one such hurdle. Surgery is a good example that illustrates item-based (also known as fee­ for-service) pricing. Patients can generally find information on the fees the surgeon would charge for a particular operation. But the final bill, after the surgery has been performed, is likely to include charges for supplies, use of the hospital's facilities, and services performed by other providers, such as anesthesiologists, nurse anesthe­ tists, and pathologists. These providers, sometimes referred to as phantom pro­

viders, function in an adjunct capacity and bill for their services separately. Item billing for such additional services, which sometimes cannot be anticipated, makes it extremely difficult to ascertain the total price before services have actually been received.

Major Characteristics of the U.S. Health Care System 1 S

Package pnc1ng can help overcome these drawbacks, but it has made relatively little headway as a means of pricing medi­ cal procedures. Package pricing refers to a bundled fee charged for a package of related services. In the surgery example, this would mean one all-inclusive price for the surgeon's fees, hospital facilities, sup­ plies, diagnostics, pathology, anesthesia, and postsurgical follow-up.

Third-Party Insurers and Payers Insurance often functions as the intermedi­ ary among those who finance, deliver, and receive health care. The insurance interme­ diary does not have an incentive to be the patient's advocate on either price or quality. At best, employees can air their dissatisfac­ tions with the plan to their employer, which has the power to discontinue the current plan and choose another company. In real­ ity, however, employers may be reluctant to change plans if the current plan offers lower premiums than a different plan.

Multiple Payers A national health care system is sometimes referred to as a single-payer system because it features one primary payer, the government. When delivering services, providers send the bill to a government agency, which subsequently sends pay­ ments to each provider. By contrast, the United States has a multiplicity of health plans. Multiple payers often represent a billing and collection nightmare for the providers of services, and they make the system more cumbersome in several ways:

• It is extremely difficult for providers to keep tabs on numerous health plans. It

is challenging for providers to keep up with which services are covered under each plan and how much each plan will pay for those services.

• Providers must hire claims processors to bill for services and monitor receipt of payments. Billing practices are not standardized, and each payer estab­ lishes its own format.

• Payments can be denied for not pre­ cisely following the requirements set by each payer.

• Denied claims necessitate rebilling. • When only partial payment is received,

some health plans may allow the pro­ vider to balance bill the patient for the amount the health plan did not pay-that is, the difference between provider charges and insurance pay­ ment. Other plans prohibit balance billing. Even when the balance bill­ ing option is available to the provider, it triggers a new cycle of billings and collection efforts.

• Providers must sometimes engage in lengthy collection efforts, includ­ ing writing collection letters, turning delinquent accounts over to collection agencies, and finally writing off as bad debt amounts that cannot be collected.

• Government programs have complex regulations for determining whether payment is made for services actu­ ally delivered. Medicare, for example, requires that each provider maintain lengthy documentation on services provided. Medicaid is known for lengthy delays in paying providers.

It is generally believed that the United States spends far more on administra­ tive costs-costs associated with billing,

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collections, bad debts, and maintaining medical records-than do the national health care systems in other countries (Him­ melstein, 2014; Himmelstein et al., 2020).

Power Balancing The U.S. health care system involves mul­ tiple players, not just multiple payers. The key players in the system have traditionally been physicians, administrators of health service institutions, insurance companies, large employers, and the government. Big business, labor, insurance companies, phy­ sicians, and hospitals make up the power­ ful and politically active special-interest groups represented before lawmakers by high-priced lobbyists. Each set of players has its own economic interests to protect. Physicians, for instance, want to maintain their incomes and have minimum inter­ ference with the way they practice medi­ cine; institutional administrators seek to maximize reimbursement from private and public insurers; insurance companies and MCOs are interested in maintaining their share of the health insurance market; .large employers want to contain the costs they incur providing health insurance to their employees; the government tries to maintain or enhance existing benefits for those covered under public insurance pro­ grams and simultaneously contain the cost of providing these benefits. The problem is that the self-interests of different players are often at odds. For example, providers seek to increase government reimburse­ ment for services delivered to Medicare, Medicaid, and CHIP beneficiaries, but the government wants to contain cost increases. Employers dislike rising health insurance premiums. Health plans, under pressure from the employers, may limit

fees for the providers, who then resent these cuts.

The fragmented self-interests of the various players produce competing forces within the system. In an environment that is rife with motivations to protect conflict­ ing self-interests, achieving comprehen­ sive system-wide reform has proved next to impossible, and cost containment has remained a major challenge. Consequently, the approach to health care reform in the United States has been characterized as incremental or piecemeal, and the focus of reform initiatives has been confined to health insurance coverage and payment cuts to providers, rather than focusing on better provision of health care.

Litigation Risks The United States is a litigious society. Motivated by the prospects of enormous jury awards, many Americans are quick to drag an alleged offender into a courtroom at the slightest perception of incurred harm. Private health care providers, too, have become increasingly susceptible to litigation, and the risk of malpractice law­ suits is a real consideration in the practice of medicine. To protect themselves against the possibility of litigation, practitioners may engage in defensive medicine, the practice of prescribing additional diagnos­ tic tests, scheduling return checkup visits, and maintaining copious documentation. Many of these additional efforts may be unnecessary, costly, and inefficient.

High Technology The United States has long been a hotbed of research and innovation in new medical technology. The resulting growth in science and technology often creates demand for

Major Characteristics of the U.S. Health Care System 1 7

new services despite shrinking resources to finance sophisticated care. People gener­ ally equate high-tech care with high-quality care. They want "the latest and the best;' especially when health insurance will pay for new treatments. Physicians and techni­ cians want to try the latest gadgets. Hospi­ tals compete on the basis of having the most modern equipment and facilities. Once capital investments in these new services are made, those costs must be recouped through utilization. Legal risks for provid­ ers and health plans may also play a role in discouraging denial of new technology. Thus, several factors promote the use of costly new technology once it is developed.

Continuum of Services Medical care services are classified into three broad categories: curative (i.e., drugs, treatments, and surgeries) , restor­ ative (i.e., physical, occupational, and speech therapies) , and preventive (i.e., prenatal care, mammograms, and immu­ nizations) . Health care settings are no longer confined to the hospital and the physician's office. Additional settings, such ·as home health, subacute care units, and outpatient surgery centers, have emerged in response to the changing configura­ tion of economic incentives. TABLE 1·2

describes the continuum of health care services. The health care continuum in the United States remains lopsided, with a heavier emphasis on specialized services than on preventive services, primary care, and management of chronic conditions.

Quest for Quality and Value Even though the definition and measure­ ment of quality in health care are not as clear-cut as they are in other industries,

the delivery sector of health care has come under increased pressure to develop quality standards and demonstrate com­ pliance with those standards. There are higher expectations for improved health outcomes at the individual and com­ munity levels. The concept of continual quality improvement has also received much emphasis in managing health care institutions.

As an example, the accountable care organization (ACO) model advocated by the Center for Medicare and Medicaid Services (CMS) and the Center for Medi­ care and Medicaid Innovation (CMMI) aims at improving the quality of patient care while maintaining or reducing expenditures for Medicare services. This model rewards ACOs that can lower their health care spending growth while fulfill­ ing quality of care performance standards with additional Medicare payments; con­ versely, it penalizes those that overspend their expected limit.

Another example of the quest for quality and value is value-based health care (VBHC), which provides financial incentives for achieving specified health outcomes. Bundled-payment models and pay-for-performance (P4P) models are two applications of VBHC. Bundled-payment models, such as the Bundled Payment for Care Improvement Initiative under Medi­ care, target specific treatments or condi­ tions. P4P models provide incentives for measurable value, as is the case with the Hospital Value-Based Purchasing Program. To achieve high-value care, VBHC not only needs to incentivize high-quality care in conditions or treatments that can be mea­ sured, but also stimulate cost-conscious behavior, well-coordinated care, and preven­ tive aspects (Cartel and Eijkenaar, 2019) .

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1 8 Chapter 1 A n Overview of U.S. Health Care Delivery

TABLE 1-2 The Continuum of Health Care Services

Types of Health Services

Preventive care

Primary care

Subacute care

Acute care

Rehabilitative care

End-of-life care

Trends and Directions

Delivery Settings

Public health programs

Community programs

Personal lifestyles

Primary care settings

Physician's office or clinic

Community health centers

Self-care

Alternative medicine

Specialist provider clinics

Primary care settings

Specialist provider clinics

Home health

Long-term care facilities

Self-care

Alternative medicine

Long-term care facilities

Home health

Special subacute units (hospitals, long-term care facilities)

Home health

Outpatient surgical centers

Hospitals

Rehabilitation departments (hospitals, long-term care facilities)

Home health

Outpatient rehabilitation centers

Hospice services provided in a variety of settings

transformations in greater detail and focus on the factors driving them.

Since the 1980s, the U.S. health care deliv­ ery system has continued to undergo fun­ damental shifts in emphasis, summarized in FIGURE 1 ·4. Other chapters discuss these

One major shift in emphasis has been toward the implementation of integrated delivery systems (IDS) . In a health care sys­ tem plagued by fragmentation and lack of coordination, patients and providers alike

0 Illness� Wellness

� Acute care _.. Primary care

0 lnpatient-.. Outpatient

0 Individual health -)o- Community well-being

0 Fragmented care -+ Managed care

0 Independent institutions � Integrated systems

0 Service duplication-+ Continuum of services

FIGURE 1·4 Trends and directions in health care

delivery.

seek to coordinate care more efficiently, create smoother transitions, reduce over­ lap, and control costs. Integrated delivery has emerged as an important compo­ nent of health care delivery, particularly for patients with comorbidities. It has proven to have positive effects on cost and quality and is gradually being incor­ porated into various health care systems across the country.

Examples of integration include single­ specialty group practices, where physi­ cians with a common specialty (e.g., cardi­ ology) come together to form an alliance; multispecialty group practices, where pri­ mary and specialty care physicians share common administrative oversight and resources as they make referrals to patients to receive other services within the organi­ zation; virtual physician networks, where the Internet is used to facilitate access to physicians remotely particularly for rural and underserved communities; physi­ cian-hospital organizations, where hospi­ tals and their affiliated physicians form a partnership to contract health plans; man­ agement services organizations, where administrative and infrastructure support services are provided to contracted physi­ cians; and clinically integrated networks,

Trends and Directions 1 9

where physicians, hospitals, and provid­ ers form a joint venture and provide inte­ grated services (Heeringa et al. , 2020) . The core functions of IDS are to provide comprehensive health care services, be accountable for the cost of the services and outcomes for patients, and improve health care coordination and integration. Well-known integrated delivery systems include Kaiser Permanente, Mayo Clinic, and Cleveland Clinic.

Another shift in trends has been toward the concept of pay-for-value. Pay-for-value, as the name implies, is a method of payment in which providers are reimbursed based on the quality of health care they deliver. A few studies indicate that pay-for-value systems have, on average, reduced hospital readmis­ sions and improved emergency depart­ ment use. However, other strategies that have been used to implement such a sys­ tem have generated mixed results (Cross et al. , 20 1 7; Cross et al. , 2019; Rosenthal et al. , 20 1 6) . Many of these mixed results can be attributed to the fact that pay-for­ value systems are as various and diverse in their approaches as the settings in which they have been implemented, and this heterogeneity in turn leads to hetero­ geneous results.

Value-driven programs developed by CMS have demonstrated these mixed impacts in recent years (Figueroa et al. , 20 16; Gupta et al. , 20 1 8; Ody and Cutler, 20 19; Ody et al. , 20 1 9; Papanicolas et al. , 20 1 7) . Nevertheless, in 20 1 9, CMS rolled out a plan for a new value-based program targeting primary care, called CMS Pri­ mary Cares. The hope is that by targeting a provider group that often acts as a first point of contact and strongly influences the trajectory of how patients' illnesses

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progress thereafter, CMS can significantly reduce costs by incentivizing primary care physicians to provide higher-quality care from the outset (CMS, 2019). Time and research are necessary to determine the long-term implications of this strategy.

ACOs incorporate aspects of both integrated delivery and pay-for-value (Gold, 2015). They exist in both the pub­ lic and private sectors of the health care industry, although the most well known and heavily scrutinized are those in the Medicare ACO program created under the ACA. The value of ACOs has been contested through the years, with some studies claiming decent impact and cost reductions, and others showing inconsis­ tent results (Lam et al., 2018; Markowitz et al., 2019; Trombley et al., 2019; Zhang et al., 2019). Organizations of higher quality prior to entry tend to have more success when instituting such a program (Diana et al., 2019; Parasrampuria et al., 2018).

In 2018, CMS announced an overhaul of its primary ACO program, the Medi­ care Shared Savings Program (MSSP), in response to initial results from the previ­ ous six years. Titled "Pathways to Suc­ cess;' the overhaul advances five goals: accountability, competition, engagement, integrity, and quality. Previous research done by CMS indicates that ACOs that took on higher risk showed better out­ comes. Therefore, the new rule reduces the amount of time that ACOs can remain in the program without assuming higher levels of risk, but also increase.s flexibility by expanding access to telehealth services. As of July 2019, the first cycle of ACOs had begun participating in the updated program (CMS, 2018; Verma, 2018, 2019).

The shift toward IDS, pay-for-value, and ACOs has been primarily driven

by the desire to promote health while reducing costs. Another driving factor is a fundamental shift in the concept of health itself. Health is now increasingly seen as the presence of wellness, rather than solely as the absence of illness. Such a change requires new methods for well­ ness promotion, although the treatment of illness remains the primary goal of the health care delivery system. The ACA has partially shifted the focus from disease treatment to disease prevention, better health outcomes for individuals and com­ munities, and lower health care costs.

At present, the greatest challenge to the U.S. health care system is the quest to control costs while still meeting the increasing health care demands of an aging population-a population with more chronic diseases and comorbidities. Patients with multiple chronic conditions use the most health services ( Sporinova ·

et al., 2019). Managing chronic diseases has been a major focus of efforts to con­ trol health care costs. In particular, the patient-centered care approach founded on the chronic care model and continuous care is being implemented as a means to improve health care delivery performance, quality, and patient health outcomes. It represents a paradigm shift from the tra­ ditional hospital- and professional-centric approach to health care to an increas­ ingly community- and consumer-centric approach (Donaldson, 2018; Miller and Baumgartner, 2016).

Traditionally, the complexity and various access points from which patients come into contact with the system have made it difficult to transition between providers, specialties, and locations of care. Chronically ill individuals with comorbidities who require treatment from

various providers may, therefore, experi­ ence fragmentation and uncoordinated care. As a result, treatments may overlap, duplications may occur, and health out­ comes may worsen (Frandsen et al., 2015; Juo et al., 2019; World Health Organiza­

tion [WHO], 2018a). The patient-centered care approach,

however, strives to overhaul this pattern. As an example, patient-centered medical homes (PCMHs) and ambulatory inten­ sive care units (A-ICUs) are being incor­ porated into ACOs. The main objective in establishing these programs is to better manage chronic conditions exclusively within a ((clinically integrated, finan - cially accountable primary care practice" (DeVore, 2014). Ultimately, providers hope these measures can address behav­ ioral health needs, lower hospital utiliza­ tion rates, decrease inpatient bed-days, shorten lengths of stay, limit admissions and readmissions, and minimize ED visits.

Mid-level health care profession­ als and health coaches are important for managing chronic conditions and reduc­ ing costs. Health coaches, for example, complement medical professionals by getting to know patients through one­ on-on� contact and can keep the clinical staff apprised of financial struggles, issues with housing, family concerns, or other obstacles that may stand in the way of the patient following a prescribed care plan (DeVore, 2014). Health coaches do not need a medical degree, can be recruited from various professional backgrounds, and help improve the effectiveness and efficiency of care.

The advancement of health informa­ tion technology (HIT) has also helped improve access (Deloitte, 2017). The market for telemedicine and remote

Trends and Directions 21

monitoring applications was estimated to double from $11.6 billion in 2011 to $27.3 billion in 2016 (DeVore, 2014). During the COVID-19 pandemic, telemedicine received an even greater boost in growth. After Medicare expanded coverage of tele­ health during the pandemic, utilization rates surged over 2000% from January to June (Patel et al., 2020). This growth, while partially borne out of necessity dur­ ing the pandemic, is also in part driven by the increased demands for care owing to expansion of insurance coverage through the ACA; the health system may not have the capacity to treat each individual in person. For example, the Johns Hopkins Hospital at Home program delivers acute care services at the homes of patients with chronic illnesses who might oth­ erwise need inpatient care. In this way, HIT increases access to care, particularly for patients living in rural areas where distance to the closest hospital is a major barrier.

Electronic health records (EHRs) have helped provide clinical measures and deci­ sion support tools, enabled providers to automate processes to reduce redundancy, and captured more clinical data (De Vore, 2014). Trends toward greater interopera­ bility of health information systems, along with open-source interfaces, will allow for greater transparency, increased availabil­ ity of data, and more creative use of data.

With the advancement in HIT and widespread Internet access, patients are becoming increasingly independent in making health care decisions and are more capable of communicating and interacting with health providers (Deloitte, 2020). HIT also helps streamline clinical pro­ cesses and manage patients' health and paymen� information (Kelly, 2015). This

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22 Chapter 1 An Overview of U.S. Health Care Delivery

technology can be used to monitor clinical quality and utilization measures to iden­ tify where improvements can be made (Kraschnewski and Gabbay, 2013). It has also demonstrated success in improving health outcomes and patient safety (Furu­ kawa et al., 2017). On a community level, HIT provides a way for health profession­ als to keep track of population -level data and observe broader community trends. In all of these ways, it is further promoting the shift toward consumer- and commu­ nity-centered care.

� Significance for Health Care Practitioners

An understanding of the intricacies within the health services system would be ben­ eficial to all those who come in contact with the system. In their respective train­ ing programs, health professionals, such as physicians, nurses, technicians, therapists, dietitians, and pharmacists, may under-

. stand their own individual clinical roles but remain ignorant of the forces outside their profession that could significantly impact both current and future clinical practices. An understanding of the health care delivery system can attune health professionals to their relationship with the rest of the health care environment. It can help them understand changes and the impact of those changes on their own practice. Adaptation and relearning are strategies that can prepare health profes­ sionals to cope with an environment that will see ongoing change long into the future, particularly as the U.S. health care system is expected to further evolve under subsequent efforts to reform the system.

� Significance for Health Care Managers

An understanding of the health care sys­ tem has specific implications for both private and public health services man­ agers, who must understand the macro environment in which they make criti­ cal planning and management decisions. Such decisions will ultimately affect the efficiency and quality of services delivered. The interactions between the system's key components and the implications of these interactions must be well understood because the operations of health care institutions are strongly influenced, either directly or indirectly, by the financing of health services, reimbursement rates, insurance mechanisms, delivery modes, new statutes and legal opinions, and gov­ ernment regulations.

For the foreseeable future, the envi­ ronment of health care delivery will remain fluid and dynamic. The viability of delivery and the success of health care managers often depend on how the man­ agers react to the system dynamics. Time­ liness of action is often a critical factor that can make the difference between failure and success. Following are some more specific reasons why understanding the health care delivery system is indispens­ able for health care managers.

Positioning the Organization Managers need to understand their own organizational position within the macro environment of the health care system. Senior managers, such as chief execu­ tive officers, must constantly gauge the nature and impact of the fundamental shifts illustrated in Figure 1-4. Managers

need to consider which changes in the current configuration of financing, insur­ ance, payment, and delivery might affect their organization's long-term stability. Middle and first-line managers also need to understand their roles in the current configuration and how these roles might change in the future.

How should resources be realigned to effectively respond to those changes? As an example, managers need to evaluate whether certain functions in their depart­ ments must be eliminated, modified, or added. Would the changes involve fur­ ther training? Which processes are likely to change, and how? Which steps do the managers need to take to maintain the integrity of their institution's mission, the goodwill of the patients they serve, and the quality of care? Well-thought-out and appropriately planned changes are likely to cause less turbulence for both the pro­ viders and the recipients of care.

Handling Threats and Opportunities ·Changes in any of the functions of financ­ ing, insurance, payment, and delivery can present new threats or opportunities in the health care market. Health care managers will be more effective if they proactively deal with any threats to their institution's profitability and viability. Managers need to find ways to transform certain threats into new opportunities.

Evaluating Implications Managers are better able to evaluate the implications of health policy and new reform proposals when they understand the relevant issues and appreciate how such issues link to the delivery of health

Significance for Health Care Managers 23

services in the establishments they man­ age. Health care reform has brought more individuals into the U.S. health care sys­ tem, creating greater demand for health services. Planning and staffing to ensure that the right mix of health care workers are available to meet this anticipated surge in demand are critical.

Planning Senior managers are often responsible for strategic planning regarding which ser­ vices should be added or discontinued, which resources should be committed to facility expansion, and what should be done with excess capacity. Any long-range planning must take into consideration the current makeup of health services deliv­ ery, the evolving trends, and the potential impact of these trends.

Capturing New Markets Health care managers will be in a better position to capture new health services markets if they understand emerging trends in the financing, insurance, pay­ ment, and delivery functions. New oppor­ tunities must be explored before any newly evolving segments of the market become crowded with competition. An under­ standing of the dynamics within the sys­ tem is essential to forging new marketing strategies that will let the institution stay ahead of the competition and, in some cases, find a new service niche.

Complying with Regulations Delivery of health care services is heav­ ily regulated. Health care managers must comply with numerous government regu­ lations, such as standards of participation in government programs, licensing rules,

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24 Chapter 1 An Overview of U.S. Health Care Delivery

and security and privacy laws regarding patient information, and they must operate within the constraints of reimbursement rates. On a periodic basis, the Medicare and Medicaid programs have made dras­ tic changes to their reimbursement meth­ odologies that have triggered the need for operational changes in the way services are organized and delivered. Private agen­ cies, such as the Joint Commission, also play an indirect regulatory role, mainly in monitoring the quality of services. Health care managers have no choice but to play by the rules set by the various public and private agencies that regulate the health care marketplace. Hence, it is paramount that health care managers acquaint them­ selves with the rules and regulations gov­ erning their areas of operation.

Fol lowing the Organizational Mission Knowledge of the health care system and its development is essential for effective management of health care organizations. By keeping up-to-date on community needs, technological progress, consumer demand, and economic prospects, manag­ ers will be in a better position to fulfill their organizational missions to enhance access, improve service quality, and achieve effi­ ciency in the delivery of services.

� Health Care Systems of Other Countries

Except for the United States, the 25 wealthiest nations in the world all have some form of universal health care cover­ age (Rodin and de Ferranti, 2012). Canada and Western European nations have used

three basic models for structuring their national health care systems:

• In a system based on national health insurance {NHI), such as that found in Canada, the government finances health care through general taxes, but the actual care is delivered by pri­ vate providers. In the context of the quad-function model, NHI requires a tighter consolidation of the financ­ ing, insurance, and payment func­ tions coordinated by the government. Delivery is characterized by detached private arrangements.

• In a national health system (NHS), such as that found in the United Kingdom, in addition to financing a tax-supported NHI program, the government manages the infrastruc­ ture for the delivery of medical care. Thus, the government operates most of the country's medical institutions. Most health care providers, such as physicians, either are government employees or are tightly organized in a publicly managed infrastructure. In the context of the quad-function model, NHS requires a tighter con­ solidation of all four functions.

• In a socialized health insurance {SHI) system, such as that found in Germany, government-mandated con­ tributions from employers and employees finance health care. Private providers deliver health care servkes. Private, not­ for-profit insurance companies, called sickness funds, are responsible for col­ lecting the contributions and paying physicians and hospitals (Santerre and Neun, 1996). The insurance and pay­ ment functions are closely integrated in a SHI system, and the financing function is better coordinated with

the insurance and payment functions than in the United States. Delivery is characterized by independent private arrangements, but the government exercises overall control of the system.

In this text, the terms ((national health care program'' and ((national health insurance" are used generically and interchangeably to refer to any type of government-supported universal health insurance program. Following is a brief dis­ cussion of health care delivery in selected countries from various parts of the world to illustrate the application of the three models discussed and to provide examples of the variety of health care systems in the world.

Australia In the past, Australia had switched from a universal national health care program to a privately financed system. In 1984, it returned to a national program-called Medicare-financed by income taxes and an income-based Medicare levy. This sys­ tem is built on the philosophy that every-

. one should contribute to the cost of health care according to his or her capacity to pay. In addition to being insured by Medicare, approximately 55% of Australians carry private health insurance (Australian Gov­ ernment, Department of Health, 2019) to cover gaps in public coverage, such as dental services and care received in pri­ vate hospitals (Willcox, 2001). Although private health insurance is voluntary, it is strongly encouraged by the Australian government through tax subsidies for purchasers and tax penalties for nonpur­ chasers (Healy, 2002). Public hospital spending is funded by the government, but private hospitals offer better choices.

Health Care Systems of Oth er Countries 25

Costs incurred by patients receiving pri­ vate medical services, whether in or out of the hospital, are reimbursed in whole or in part by Medicare. Private patients are free to choose and change their doctors. The medical profession in Australia is corn - posed mainly of private practitioners, who provide care predominantly on a fee-for­ service basis (Hall, 1999; Podger, 1999).

In 2011, the Council of Australian Governments (COAG) signed the National Health Reform Agreement, which estab­ lished the architecture for national health insurance reform. In particular, the Agree­ ment provides for more sustainable fund­ ing arrangements for Australia's health system. In the same year, the National Health Reform Act 2011 established a new Independent Hospital Pricing Author­ ity and a National Health Performance Authority. The Pricing Authority deter­ mines and publishes the national price for services provided by public hospitals. The Commonwealth Government deter­ mines its contribution to funding public hospitals on the basis of these prices. The Performance Authority is charged with monitoring and reporting on the perfor­ mance of local hospital networks, public and private hospitals, primary health care organizations, and other bodies or organi­ zations that provide health care services. The 2011 act also provides a new statutory framework for the Australian Commis­ sion on Safety and Quality in Health Care (Australian Government, 2011).

Australia focuses on developing various health service delivery models to contain costs and provide quality and accessible care (Brownie et al., 2014). Notably, this country has encouraged interprofessional practice as a means to enhance socioeconomic development

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and improve health outcomes (Brownie etal., 2014). COAGdefinednew Australian Health Care Agreements (AHCAs), under which each state and territory funds a portion of the public hospital operation costs, commits to providing equitable access to free public hospi­ tal services based on clinical need, and agrees to match the rate of growth in the Australian government's hospital funding (Australian Institute of Health and Wel­ fare, 2017). Australia has also developed a National Primary Health Care Strategy to better incentivize prevention, promote evidence-based management of chronic disease, support the role of general prac­ titioners in health care teams, encourage a focus on interprofessional team-based care, and address the increased need for access to various health professionals such as practice nurses and allied health professionals. Other health reforms seek to achieve continuity of care, provide high-quality education and training for existing and incoming health care work­ ers, and embed a culture of interprofes­ sional practice (Brownie et al. , 2014).

Canada Canada implemented its national health insurance system-referred to as Medicare­ under the Medical Care Act of 1966. Medicare consists of 13 provincial and territorial health insurance plans, sharing basic standards of coverage, as defined by the Canada Health Act (Health Canada, 2013). The bulk of financing for Medicare comes from general provincial tax rev­ enues; the federal government provides a fixed amount that is independent of actual expenditures. Public-sector health expenditures account for 70% of the total

Canadian health care expenditures. The remaining 30% consists of private-sector expenditures, which include household out-of-pocket expenditures, commercial and not-for-profit insurance expendi­ tures, and nonconsumption expenditures (Canadian Institute for Health Informa­ tion, 2012). Many employers also offer pri­ vate insurance that gives their employees supplemental coverage.

Provincial and territorial departments of health have the responsibility to admin­ ister medical insurance plans, determine reimbursement for providers, and deliver certain public health services. Provinces are required by law to provide reasonable access to all medically necessary services and to provide portability of benefits from province to province. Patients are free to select their providers (Akaho et al., 1998). According to Canada's Fraser Institute, specialist physicians surveyed across 12 specialties and 10 Canadian provinces reported a total waiting time of 20.0 weeks between referral from a general practitioner and delivery of treatment in 2016-an increase from 18.3 weeks in 2015. Patients had to wait the longest to undergo neurosurgery, which had a wait time of 46.9 weeks (Barua et al., 2016).

Nearly all Canadian provinces­ Ontario is one of the exceptions-have resorted to regionalization of health care services, through the creation of admin - istrative districts within each province. The objective of regionalization is to decentralize authority and responsibil­ ity so as to more efficiently address local needs and promote citizen participation in health care decision making (Church and Barker, 1998). The majority of Cana­ dian hospitals operate as private non­ profit entities run by community boards

of trustees, voluntary organizations, or municipalities, and most physicians are in private practice. Most provinces use global budgets and allocate set reim­ bursement amounts for each hospital. Physicians are paid at fee-for-service rates, which are negotiated between each provincial government and medical asso­ ciation (MacPhee, 1996; Naylor, 1999).

In 2004, Canada created the 10-Year Plan to Strengthen Health Care, which focuses on problems with wait times, health human resources, pharmaceuti­ cal management, EHRs, health innova­ tion, accountability and reporting, public health, and Aboriginal health. Overall, progress has been made in these areas, but the goals have not yet been fully achieved (Health Council of Canada, 2013).

Although most Canadians are quite satisfied with their health care system, sustaining the current health care deliv­ ery and financing remains a challenge. Spending on health care has increased dramatically in recent decades, from approximately 7% of program spend­ ing at the provincial level in the 1970s to . almost 41 % in 2015 (Barua et al., 2016). It is expected to continue growing at a rate of about 5.3% annually through 2031 (Barua et al., 2017).

In line with global pressure for health reforms, Canada is also transitioning to patient-centered care (Dickson, 2016), but has not implemented major country-wide health reform since 2005 (Health Systems and Policy Monitor [HSPM], 2012). In addition to leadership challenges, two reasons that Canada has been reluctant to reform its health system are ( 1) resistance from long-standing professional associa­ tions and (2) a lack of follow-through from provincial governments (Dickson, 2016).

Health Care Systems of Other Countries 27

The 2014 version of the Canada Health Act expanded services such as nursing home intermediate care, adult residential care, home care services, and ambulatory care services (Canada Min­ ister and Attorney General, 2016). Other initiatives include a collaboration between provincial and territorial governments to purchase drugs in bulk and cut costs in an effort to make drugs more affordable to patients, as well as a program to improve access to high-quality mental health ser­ vices, particularly for veterans and first responders ( Granovsky, 2016).

China Since the economic reforms initiated in the late 1970s, health care in the People's Republic of China has undergone sig­ nificant changes. In urban China, health insurance has evolved from a predomi­ nantly public insurance (either govern­ ment or public enterprise) system to a multipayer system. Government employ­ ees are covered under government insur­ ance as a part of their benefits. Employees of public enterprises are largely covered through public enterprise insurance, but their actual benefits and payments vary according to the financial well-being of those enterprises. Employees of foreign businesses or joint ventures are typically well insured through private insurance arrangements. Almost all of these plans attempt to contain costs through a variety of means, such as experience-based premi­ ums, deductibles, copayments, and health benefit dollars (i.e., pre-allocated benefit dollars for health care that can be con­ verted into income if not fully used). The unemployed, self-employed, and employ­ ees working for small enterprises (public

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28 Chapter 1 An Overview of U.S. Health Care Delivery

or private) are largely uninsured. They can purchase individual or family plans in the private market or pay for services out of pocket. In rural China, the New Coopera­ tive Medical Scheme (NCMS), discussed later, has become widespread; it relies on funds pooled from national and local governments, as well as private citizens. Although the insurance coverage rate is high (more than 90%) in China, the actual benefits provided to insureds are still very limited.

Similar to the United States, China has been facing growing problems owing to its large uninsured population and health care cost inflation. Although health care funding was increased by 8 7% in 2006 and 2007, the country has yet to reform its health care system into an efficient and effective scheme. Employment-based insurance in China does not cover depen­ dents, nor does it cover migrant workers, leading to high out-of-pocket cost-sharing as part of total health spending. Rural areas in China are most vulnerable to poor access to health care because of a lack of true insurance plans and accompanying

· comprehensive coverage. Medical costs are also increasing at an average annual rate of 10%, which is more than four times the rate of local consumer price inflation (Anderson, 2018).

In recent years, health care deliv­ ery in China has undergone significant changes. The former three-tier referral system (primary, second, tertiary) has been largely abolished. Patients can now go to any hospital of their choice as long as they are insured or can pay out of pocket. As a result, large (tertiary) hospitals are typically overutilized, whereas smaller (primary and . secondary) hospitals are underutilized. Use of large hospitals

contributes to both escalation of medical costs and greater medical specialization.

Major changes in health insurance and delivery have made access to medical care more difficult for the poor, uninsured, and underinsured. Consequently, wide and growing disparities in access, quality, and outcomes are becoming apparent between rural and urban areas, and between the rich and the poor. After the severe acute respiratory syndrome ( SARS) epidemic in 2003, the Chinese government created an electronic disease-reporting system at the district level. Each district in China now has a hospital dedicated to infectious diseases. However, there are still flaws in this system, particularly in monitoring infectious diseases in remote localities (Blumenthal and Hsiao, 2005), and public reporting is also subject to political and administrative supervision.

To fix some of its problems, the Chi­ nese government has pushed through health reform initiatives in five major areas: health insurance, pharmaceuticals, primary care, public health, and public/ community hospitals. In terms of health insurance expansion, it created the New Cooperative Medical Scheme to provide rural areas with a government-run vol­ untary insurance program. This program is intended to prevent individuals living in these areas from becoming impover­ ished due to illness or catastrophic health expenses (Yip and Hsiao, 2008). In 2008, a similar program was established in urban areas, called the Urban Resident Basic Medical Insurance scheme. It targets unin­ sured children, elderly persons, and other nonworking urban residents, enrolling them into the program at the household level rather than at the individual level (Wagstaff et al., 2009).

The Chinese government has also increased its health care funding. In the past decade, government subsidies to pub­ lic hospitals have more than tripled (Lyu et al., 2019). From 2008 to 2017, the gov­ ernment quadrupled its health expendi­ tures from 359 billion RMB to 1.52 trillion RMB. Thanks to the increased health care funding, the rate of health insurance cov­ erage hit a record high of 95% in 2013 and has remained stable ever since. However, due to the country's enormous population and significant disparities in regional eco­ nomic development, insurance benefits still vary widely across China, with the majority of rural residents being unable to afford medical care should they become catastrophically ill.

To improve access to primary care, China has reestablished community health centers (CH Cs) that provide preventive and primary care services so patients no longer need to seek expensive outpatient services at hospitals. The goal is to reduce hospital utilization and increase the num­ ber of CHCs that can provide prevention, home care, and rehabilitative services (Yip

· and Hsiao, 2008; Yip and Mahal, 2008). To date, the CHCs have not proved very popular among the public because of their perceived lack of quality and, conse­ quently, their poor reputation (Wu et al., 2017). Although different models have been set up to showcase "success" stories from the tiered referral system, so far no sustainable approach has been identified due to systematic limitations in payment arrangement, personnel makeup, and administrative structure (Tam et al., 2018; Xu and Zhang, 2018; Yip et al., 2019).

Another major component of Chinese health reform has been the establishment of an essential drug system that aims to

Health Care Systems of Other Countries 29

enhance access to, and reduce out-of­ pocket spending for, essential medicines since most of hospital revenue comes from drug markups. The reform policies specified a comprehensive system includ­ ing selection, procurement, pricing, pre­ scription, and quality and safety standards (Barber et al., 2013). To reduce overpre­ scribing, the government mandated the Zero-Markup Drug policy starting from county-level hospitals in 2012, and then expanding to city-level hospitals in 2015. A fee-schedule adjustment was imple­ mented to compensate for revenue losses from the Zero-Markup policy. Under the fee-schedule change, fees for labor­ intensive health services were increased, though they remain lower than the market price. However, though the Zero-Markup policy reduced drug expenditures, the country's total health expenditures did not change. Notably, hospitals have sought to recoup revenue losses from drug mark­ ups by increasing utilization of their basic health services and .diagnostic tests.

In terms of public hospital reform, China's National Health and Family Plan­ ning Commission (previously the Ministry of Health) and State Council have detailed several health reform objectives, including cost containment (e.g., constraining drug prices), quality (e.g., improving staff per­ formance), efficiency, and development of a hospital governance structure (Hsu, 2015). In an effort to control increas­ ing health care expenditures, the central government has encouraged local gov­ ernments to experiment with alternative payment methods, including global bud­ geting, diagnostic-related groups (DRGs), case-based payments, and capitation, to replace the fee-for-service payment sys­ tem. Numerous pilot reforms have been

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30 Chapter 1 An Overview of U.S. Health Care Delivery

launched in various cities in China, but no national implementation plan has been formulated (Yip et al., 2012). The public hospital reform is widely considered to be the least successful effort, since the role hospitals will play in the post-industrial era is not yet fully conceptualized.

In 2012, China lifted restrictions on foreign investments in private hospitals in an effort to increase the number of hos­ pitals and improve access to care (Hsu, 2015). By 2015, the State Council aimed to increase use of private health services by 20%. Health insurance reform is also being developed. The Chinese government plans to give tax breaks to private health insurance policyholders in an attempt to increase insurance coverage. Some of these tax breaks include allowing privately insured individuals to deduct 2,400 RMB per year from their assessable income for health insurance premiums (Hsu, 2015).

In 2015, China announced a 5-year plan for the health system, which outlined key areas for development by 2020 (Zhu, 2015). Despite broad reforms, the Chinese health care system continues to be plagued by resource shortages and underdevelop­ ment in rural areas. Thus, the latest reform targets three main areas: infrastructure development, reduction of costs and expansion of insurance coverage, and investment in novel technologies. Impor­ tantly, these reforms will open up new opportunities for foreign investments.

Germany Health insurance has been mandatory for all citizens and permanent residents in Germany since 2009 (Blumel and Busse, 2016). As mentioned earlier, the German health care system is based on the SHI

model, and voluntary substitutive private health insurance is available. ('A.bout 86 percent of the population receive their pri­ mary coverage through SHI and 11 per­ cent through substitutive PHI" (Blurnel and Busse, 2016), while special programs cover the rest of the population. Sickness funds act as purchasing entities by nego­ tiating contracts with hospitals. However, paying for the increasing costs of medical care has proved challenging in Germany because of the country's aging population, fewer people in the workforce, and stag­ nant wage growth during recessions.

During the 1990s, Germany adopted legislation to promote competition among sickness funds (Brown and Amelung, 1999). To further control costs, its national system employs global budgets for the hospital sector and places annual limits on spending for physician services. Inpa­ tient care is paid per admission based on DRGs-a system that was made obligatory in 2004 (Blumel and Busse, 2016).

Health reforms in Germany have focused on improving the efficiency and appropriateness of care. In 2011, the Pharmaceutical Market Reform Act intro­ duced an assessment scheme for all new pharmaceuticals, under which only those drugs that offer additional benefits relative to existing alternatives can be reimbursed at a higher rate (WHO, 2014). The Hospi­ tal Financing Reform Act of 2009 requires performance-based flat-rate grants for investments in hospitals, rather than non­ performance-based flat-rate grants on a case-by-case basis, as of 2012 (WHO, 2014).

One of Germany's biggest challenges is the division between SHI and private health insurance. The differences in risk pools, financing structures, access, and

............

provisions in these alternative insurance plans contribute to inequalities in care (WHO, 2014). Additionally, more work is needed to improve the quality of medical services, patient satisfaction, and accessi­ bility of health services in rural communi­ ties (WHO, 2014).

More recent reforms in Germany have focused on improving services for SHI - covered patients and enhancing hospital quality. In June 2015, the Act to Strengthen SHI Health Care Provision gave munici­ palities the right to establish medical treatment centers, gave patients the right to see a specialist within 4 weeks, and pro­ moted innovative forms of care in an effort to strengthen services for SHI -covered patients (HSPM, 2016). This act improves prevention services and health promotion through investments in schools, the work­ place, and long-term care facilities. In addition, the 2016 Hospital Care Structure Reform Act introduced quality aspects in the regulation of hospital volume and pay­ ments (Blumel and Busse, 2016). Substan­ tial funds will be invested to improve the hospital care structure in Germany.

United Kingdom The United Kingdom follows the national health system model. Its health delivery system, called the National Health Ser­ vice (NHS), is founded on the principles of primary care and has a strong focus on community health services. The system owns its hospitals and employs its hos­ pital-based specialists and other staff on a salaried basis. The primary care physi­ cians, referred to as general practitioners (GPs), are mostly private practitioners. All NHS-insured patients are required to register with a local GP. In 2014, there

Health Care Systems of Other Countries 3 1

were, on average, 7, 171 patients per prac­ tice and 1,530 patients per GP (Thorlby and Arora, 2016).

The NHS emphasizes free points of access and equal access to all (HSPM, 2015). In England, the Health and Social Care Act abolished the Primary Care Trust and Strategic Health Authority in 2012, replacing them with the Clinical Commis­ sioning Group. In 2013, the Better Care Fund was enacted to improve integration of health and social care. In 2014, the Care Act was introduced to cap out-of-pocket expenditures (HSPM, 2015).

Delivery of primary care occurs through primary care trusts (PCTs) in England, local health groups in Wales, health boards in Scotland, and primary care partnerships in Northern Ireland. PCTs have geographically assigned respon - sibility for community health services; each person living in a given geographic area is assigned to a particular PCT. A typ­ ical PCT is responsible for approximately 50,000 to 250,000 patients (Dixon and Robinson, 2002). PCTs function indepen­ dently of the local health authorities and are governed by a consumer-dominated board. A fully developed PCT has its own budget allocations, used for both primary care and hospital-based services. In this respect, PCTs function like MCOs in the United States.

Approximately 83% of U.K. health expenditures in 2013 went to the public sector (Office of National Statistics, 2015). Private expenditures involve mainly drugs and other medical products as well as private hospital care. Despite having a national health care system, 10. 9% of the British population maintains private health insurance (Arora et al., 2013). Approxi­ mately 79% of total health care spending

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32 Chapter 1 An Overview of U.S. Health Care Delivery

was government-financed in 2017 (Office of National Statistics, 2019).

England, Scotland, Wales, and North­ ern Ireland are taking their own approaches to health care. England is moving toward decentralization, reinforcement of an internal market, and more localized deci­ sion making (HSPM, 2015). Scotland and Wales are dissolving the internal. market and centralizing authority. While Scotland has embraced a publicly funded uni­ versal health system, England empha­ sizes private partnerships and internal competition. Costs are increasing in the United Kingdom owing to infrastructure improvements, technology innovations, an aging and growing population, more patients with chronic diseases, heightened focus on the quality of care, informed and empowered consumers, and innovative treatments (Deloitte, 2017).

In 2014, NHS England introduced the Five Year Forward View plan, which lays out strategies for addressing the most pressing challenges in the health care sys­ tem (National Health Services England, 2015). This plan places a greater emphasis ·on prevention, integration of services, and patient-centered care. It sets out strategies and new care models whose goals include integrating primary and acute care sys­ tems, creating multispecialty community providers, and fostering collaborations in acute care. These models will redesign ser­ vices and change the way health services are administered, financed, and regulated in coming years.

Israel Until 1995, Israel had a system of universal coverage based on the German SHI model, financed through an employer tax and

income-based contributions from indi­ viduals. When the National Health Insur­ ance (NHI) Law went into effect in 199 5, it made insurance coverage mandatory for all Israeli citizens. Under the Israeli system, adults are required to pay a health tax. General tax revenues supplement the health tax revenues, which the govern­ ment distributes to the various health plans based on a capitation formula. Each year, the government determines how much from the general tax revenue should be contributed toward the NHL In 2013, public funds accounted for 60% of NHI revenues. The remaining share came from individuals' copayments, supplemental health insurance, and sales of health prod­ ucts (Rosen, 2016).

Health plans (or sickness funds) offer a predefined basic package of health care services and are prohibited from dis­ criminating against individuals who have preexisting medical conditions. Recent reforms have added mental health and dental care for children to the benefits package (WHO, 2015). The capitation for­ mula has built-in incentives for the funds to accept a larger number of elderly and chronically ill members. Rather than rely­ ing on a single-payer system, the health care reform supported the development of multiple health plans (today there are four competing, nonprofit sickness funds) to foster competition among funds, under the assumption that competition would lead to better quality of care and an increased responsiveness to patient needs. The plans also sell private health insurance to supplement the basic package. The sys­ tem is believed to provide a high standard of care (Rosen et al., 2016).

Israel has a highly efficient health care system due to the regulated competition

between health plans, the country's strict regulatory controls on the supply of hos­ pital beds, its accessible and high-quality primary care, and its reliance on EHRs (WHO, 2015). In 2014, the Ministry of Health created a national health informa­ tion exchange for sharing clinical patient data across all general hospitals, health plans, and other providers in the country. Emerging challenges include an increas­ ing reliance on private financing, which affects equity and efficiency, the need to expand public financing and improve the efficiency of the public system, reduction of health inequalities, and goals related to measuring and improving quality of hos­ pital care, reducing surgical waiting times, and enhancing dissemination of compara­ tive data on performance (WHO, 2015).

Japan Since 1961, Japan has been providing universal coverage to its citizens through two main health insurance schemes: ( 1) an employer-based system, modeled after Germany's SHI program, and (2) a

· national health insurance program. Gen­ erally, large employers (with more than 300 employees) have their own health programs. Nearly 2,000 private, nonprofit health insurance societies manage insur­ ance for large firms. Smaller companies either band together to provide private health insurance or belong to a govern­ ment-run plan. Day laborers, seamen, agricultural workers, the self-employed, and retirees are all covered under the national health care program. Individual employees pay roughly 8 % of their sala­ ries as premiums and receive coverage for approximately 90% of the cost of medical services, with some limitations.

Health Care Systems of Oth er Countries 33

Dependents receive slightly less than 90% coverage. Employers and the national government subsidize the cost of private premiums. Coverage is comprehensive, including most dental care and approved prescription drugs, and patients are free to select their providers (Matsuda, 2016). Providers are paid on a national fee-for­ service basis set by the government, and have little control over reimbursement (Ikegami and Anderson, 2012).

Several health policy issues have emerged in Japan in the past few years. First, since 2002, some business leaders and economists have urged the Japanese government to lift its ban on mixed pub­ lic/private payments for medical services, arguing that private payments should be allowed for services not covered by medi­ cal insurance (i.e., services involving new technologies or drugs). The Japan Medical Association and the Ministry of Health, Labor, and Welfare have argued against these recommendations, stating such a policy would favor the wealthy and cre­ ate disparities in access to care. Although the ban on mixed payments has not been lifted, Prime Minister Koizumi expanded the existing "exceptional approvals system'' for new medical technologies in 2004 to allow private payments for selected tech­ nologies not covered by medical insurance (Nomura and Nakayama, 2005).

Another policy development in Japan is hospitals' increased use of a system of reimbursement for inpatient care services, called diagnosis-procedure combinations (DPCs). With the DPCs, hospitals receive daily fees for each condition and treat­ ment, proportionate to patients' length of stays, but regardless of actual provi­ sion of tests and interventions. In theory, the DPC system will incentivize hospitals

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34 Chapter 1 An Overview of U.S. Health Care Delivery

to become more efficient (Nomura and Nakayama, 2005).

Japan's stagnant economy in the past several years has led to increased pressure to contain the country's health care costs (Ikegami and Campbell, 2004). From 2000 to 2016, annual health care expenditure grew 40 times faster than the economy (Du and Reynolds, 2018). In 2005, Japan implemented reform initiatives in long­ term care (LTC) delivery in an effort to contain the rapidly rising costs in this growing health care sector. The new policy required residents in LTC facilities to pay for room and board and established new preventive benefits for seniors with low needs. Charging nursing home residents a fee for room and board was a departure from past policies, which had promoted institutionalization of elderly individuals (Tsutsui and Muramatsu, 2007).

Despite their overall success, Japan's health and LTC systems face sustainability issues similar to those found in the United States, including rising costs and increas­ ing demands for services. The Japanese government is considering and pursu-

. ing several options: preventive services, promotion of community-based services, and increases in taxes, premiums, and fees. In 2011, reform centered on the com­ prehensive community care model was implemented. This model ensures access to LTC, medical or hospital care, preven­ tive services, residential care facilities, and "life support" (or legal services) within a community where an elderly person lives. The focus on prevention and service con­ solidation is expected to result in healthier populations and, therefore, decreased use of more expensive services.

More recently, health reforms in Japan have introduced the general practitioner

(GP) and family physician (FP) system. Starting in 2017, the Japan Primary Care Society initiated a training program to qualify doctors as GP/FP specialists (Takamura, 2015). By permitting the Japan Primary Care Society to run this program, the Japanese government aims not only to increase the number of sys­ tematically trained GPs/FPs, but also to maintain good community care, improve health outcomes through prevention and primary care, and lower medical expenses. Challenges arising from the GP/FP reform include questions about where to place G Ps and FPs (clinics or hospitals), how organ-specialists currently providing pri­ mary care will be affected, and whether the GP /FP culture will be accepted by Japanese patients and citizens at large.

Singapore Prior to 1984, Singapore had a British-style NHS program, in which medical services were provided mainly by the public sector and financed through general taxes. Since then, the nation has designed a system based on market competition and self­ reliance. Singapore has achieved universal coverage through a policy that requires mandatory private contributions but little government financing. The program, known as Medisave, mandates every work­ ing person� including the self-employed, to deposit a portion of earnings into an individual Medisave account. Employers are required to match employee contri­ butions. These savings can be withdrawn only for two purposes: ( 1 ) to pay for hos­ pital services and some selected, expensive physician services or (2) to purchase a gov­ ernment-sponsored insurance plan, called MediShield, for catastrophic (expensive

and major) illness. In 2015, MediShield became universal, compulsory, and for life. Medisave has also been gradually expanded over the years to include more chronic conditions and health screenings (Liu and Haseltine, n.d.).

For basic and routine services, Singa­ poreans are expected to pay out of pocket. Out-of-pocket expenditures can be quite high, as only 38% of health spending is publicly funded (Salkeld, 2014). Those who cannot afford to pay for health care services receive government assistance (Hsiao, 199 5). In 2002, the government introduced ElderShield, which defrays out-of-pocket medical expenses for elderly persons and severely disabled individuals who require long-term care (Singapore Ministry of Health, 2007). The fee-for­ service system of payment is widely used throughout Singapore (McClellan and

· Kessler, 1999). In 2006, the Ministry of Health

launched the Chronic Disease Manage­ ment Program. By November 2011, this program covered 10 chronic diseases, including mental health illnesses. More

. than 700 GP clinics and GP groups are supported by the Ministry to provide comprehensive chronic disease manage­ ment to patients. Patients can use their own Medisave accounts or their family members' accounts to pay for outpatient services under the program (Singapore Ministry of Health, 2012).

Future challenges in Singapore include adjusting copayments to avoid discour­ aging patients from seeking necessary primary care and preventive services that might lower their risk of developing chronic diseases. Overall, Singapore faces the challenge of ensuring positive health outcomes and containing costs given

Health Care Systems of Other Countries 3 5

an aging population that is facing an increased prevalence of chronic disease (Tan et al., 2014).

Developing Countries Developing countries, which are home to almost 85% of the world's population, are responsible for only 11 % of the world's total health spending-even though they account for 93% of the worldwide burden of disease. The six developing regions of the world are East Asia and the Pacific, Europe (mainly Eastern Europe) and Central Asia, Latin America and the Caribbean, the Arab States, South Asia, and sub-Saharan Africa (United Nations Development Pro­ gramme, 2019). Of these regions, the latter two have the least resources and the great­ est health burden. On a per capita basis, industrialized countries have six times as many hospital beds and three times as many physicians as do developing countries. Peo­ ple with private financial means can find reasonably good health care in many parts of the developing world. Unfortunately, the majority of these countries' populations have to depend on limited government ser­ vices that are often of questionable quality, when evaluated by Western standards. As a general observation, government financing for health services increases in countries with higher per capita incomes (Schieber and Maeda, 1999).

Developing countries are moving toward adopting universal health cover­ age in an effort to decrease the financial impoverishment of their populations due to health spending, improve health, and increase access to care (Lagomarsino et al., 2012). Trends in health reforms in devel­ oping countries include increasing enroll­ ment in government-sponsored health

36 Chapter 1 An Overview of U.S. Health Care Delivery

insurance, expanded benefits packages, decreasing out -of-pocket expenditures, and increasing the government's share of health spending. Countries that have suc­ cessfully met the Millennium Develop­ ment Goals-the world's time-bound and quantified targets for addressing extreme poverty in its many dimensions (income poverty, hunger, disease, lack of adequate shelter, and exclusion) while promoting gender equality, education, and envi­ ronmental sustainability-have used a comprehensive set of strategies to reduce maternal and child mortality, improve health financing, address workforce challenges, and improve quality of care (Ahmed et al., 2016).

Global Health Chal lenges and Reform This brief review underscores the reality that NO countries in the world so far have found the perfect solution to addressing their multiple health challenges while containing escalating health care costs. As a result, health care reform is a common theme around the world and is achiev­ ing increasing prominence. Strengthen - ing primary care programs is seen as a core strategy in delivering better health outcomes and achieving universal cover­ age while containing costs (Bitton et al., 2019), but it remains to be seen how this can be achieved within current health care systems, given their multiple stakeholders and varied interests.

A huge gap in health care and health status persists between developing and developed countries. For example, in 2016, the global life expectancy at birth was 72 years of age, but life expectancy in the African region was only 61.2 years

(WHO, 2018b). In 2014, infant mortality rates varied between 2 deaths per 1,000 live births and 110 deaths per 1,000 live births (WHO, 2016). There were also wide varia­ tions in health care for pregnant women, availability of skilled health personnel for childbirth, and access to medicine.

The poor quality and low efficiency of health care services in many countries­ especially services provided by the public sector, which is often the main source of care for poor people-have become a serious issue for decision makers in these countries (Sachs, 2012). This issue, com­ bined with the rising out-of-pocket costs and high numbers of uninsured, has forced many governments to launch health care reform efforts. Many low- and middle­ income countries are moving toward uni­ versal health coverage (Lagomarsino et al., 2012). International health assistance con - tinues to play a significant role in health care in many developing countries. U.S. global aid for health care increased from $5.4 billion in fiscal year 2006 to $11 bil­ lion in fiscal year 2019, though the Trump administration proposed significant cuts in fiscal year 2020 (Kaiser Family Foun­ dation, 2019). These cuts were not imple­ mented, as 2020 global health aid totaled over $11 billion (Kaiser Family Founda­ tion, 2020b ).

Since 1999, the Bill and Melinda Gates Foundation (2017) has invested $7 billion in international health delivery programs. This foundation's focus is on coordina­ tion of delivery efforts, strengthening of country health systems, and building of integrated delivery systems. Funded ini­ tiatives include community health worker programs, information and communica­ tions technology, and investment into data systems. From 2010 to 2015, USAID

dedicated $50 billion to strengthening international health systems. This U.S. agency set forth a plan for continuing its progress, from 2015 to 2019, by strength­ ening six interrelated health system func­ tions: (1) human resources for health; (2) health finance; ( 3) health governance; ( 4) health information; ( 5) medical products, vaccines, and technologies; and ( 6) service delivery (USAID, 2015). The ultimate goal is to strengthen these systems so they will contribute to positive health outcomes and create an environment for universal health coverage.

� The Systems Framework

A system consists of a set of interrelated and interdependent, logically coordinated components designed to achieve common goals. Even though the various functional components of the health services deliv­ ery structure in the United States are, at best, only loosely coordinated, the main components can be identified using a

· systems model. The systems framework used here helps us understand that the structure of health care services in the United States is based on some founda­ tions, provides a logical arrangement of the various components, and demonstrates a progression from inputs to outputs. The main elements of this arrangement are system inputs (resources), system structure, system processes, and system outputs (outcomes). In addition, system outlook (future directions) is a necessary feature of a dynamic system. This systems framework is used as the conceptual base for organizing later chapters in this text (FIGURE 1 ·5) .

The Systems Framework 37

System Foundations The current health care system is not an accident: historical, cultural, social, and economic factors all contribute to and explain its current structure. These factors also affect forces that shape new trends and developments, as well as those that impede change. The chapters titled Beliefs, Values, and Health and The Evolution of Health Services in the United States provide a discussion of the system foundations.

System Resources No mechanism for health services deliv­ ery can fulfill its primary objective with­ out deploying the necessary human and nonhuman resources. Human resources consist of the various types and categories of workers directly engaged in the deliv­ ery of health services to patients. Such personnel-physicians, nurses, dentists, pharmacists, other doctoral-trained pro­ fessionals, and numerous categories of allied health professionals-usually have direct contact with patients. Numerous ancillary workers-billing and collection agents, marketing and public relations personnel, and building maintenance employees-often play important, but indirect, supportive roles in · the deliv­ ery of health care. Health care managers are needed to manage various types of health care services. This text primarily discusses the personnel engaged in the direct delivery of health care services (in the Health Services Professionals chapter). The nonhuman resources include medical technology and health services financ­ ing (discussed in the chapters with those titles, respectively).

Resources are closely intertwined with access to health care. For instance,

1 1

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38 Chapter 1 A n Overview of U.S. Health Ca re Del i very

I I . System resources

H u man resou rces

E n v

0 n m e n t

"Health services professionals"

(Chapter 4)

Nonhuman resources

"Medical technology"

(Chapter 5)

"Health services financing"

(Chapter 6)

F T u r t e u n r d e s

I . System foundations

Cultu ral bel iefs and values and historical developments

"Bel iefs, values, and health"

(Chapter 2)

"The evol ution of health services in the United States"

(Chapter 3)

1 System featu res

1 1 1 . System processes

The continuum of care

"Outpatient and primary care services"

(Chapter 7)

" I npatient faci l ities and services"

(Chapter 8)

"Managed care and integrated organizations"

(Chapter 9)

Special populations

"Long-term care"

(Chapter 1 0)

"Health services for special populations"

(Chapter 1 1 )

V. System outlook

"The future of health services del ivery"

(Chapter 1 4)

IV. System outcomes

Issues and concerns

"Cost, access, and q ual ity"

(Chapter 1 2)

Change and reform

"Health policy"

(Chapter 1 3)

FIGURE 1 ·5 The systems model and re lated cha pters.

in certain rural areas of the United States, access is restricted due to a short­ age of health professionals within certain

categories. Development and diffusion of technology also determine the caliber of health care to which people may have

access. Financing for health insurance and reimbursement to providers both affect access indirectly.

System Processes System resources influence the develop­ ment and change in the physical infra­ structure- such as hospitals, clinics, and nursing homes- essential for the differ­ ent processes of health care delivery. Most health care services are delivered in non­ institutional settings, mainly associated with processes referred to as outpatient care (discussed in the Outpatient and Pri­ mary Care Services chapter). Institutional health services provided in hospitals, nursing homes, and rehabilitation insti­ tutions, for example, are predominantly inpatient services (discussed in the Inpa­ tient Facilities and Services chapter). Man­ aged care and integrated organizations (discussed in the chapter with that title) represent a fundamental change in the financing (including payment and insur­ ance) and delivery of health care. Special institutional and community-based set­ tings have been developed for long-term care (discussed in the chapter with that title). Delivery of services should be tai­ lored to meet the special needs of cer­ tain vulnerable population groups (as described in the Health Services for Special Populations chapter).

System Outcomes System outcomes refer to the critical issues and concerns surrounding what the health services system has been able to accom­ plish, or not accomplish, in relation to its primary objective-that is, to provide, to an entire nation, cost-effective health services that meet certain established

Summary 39

standards of quality. The previous three elements of the systems model play a criti­ cal role in fulfilling this objective. Access, cost, and quality are the main outcome criteria to evaluate the success of a health care delivery system (as discussed in the Cost, Access, and Quality chapter). Issues and concerns regarding these criteria trig­ ger broad initiatives for reforming the sys­ tem through health policy (the topic of the Health Policy chapter).

System Outlook A dynamic health care system must be forward looking. In essence, it must pro­ ject into the future the accomplishment of desired system outcomes in view of anticipated social, economic, political, technological, informational, ecologi­ cal, anthro-cultural, and global forces of change (described in The Future of Health Services Delivery chapter).

� Summary The United States has a unique system of health care delivery. Its basic features characterize it as a patchwork of subsys­ tems. Health care is delivered through an amalgam of private and public financ­ ing, through private health insurance and public insurance programs; the latter programs are reserved for special groups. Contrary to popular opinion, health care delivery in the United States is not gov­ erned by free-market principles; at best, it is an imperfect market. Yet, the system is not dominated or controlled by a single entity, as would be the case in national health care systems.

No country in the world has a per­ fect health care insurance system, and most nations with a national health

40 Chapter 1 An Overview of U.S. Health Care Delivery

care program also have a private sec­ tor, though these sectors vary in size. Because of resource limitations, universal access remains a theoretical concept even in countries that off er universal health insurance coverage. The developing coun­ tries of the world also face serious chal­ lenges due to the scarcity of resources and strong underlying needs for services in those nations.

� Test Your Understanding

Terminology moral hazard

Health care managers must under­ stand how the health care delivery system works and how it is evolving. Such an understanding can help them maintain a strategic position within the macro envi­ ronment of the health care system. The systems framework provides an organized approach to an understanding of the vari­ ous components of the U.S. health care delivery system.

access administrative costs balance bill defensive medicine demand

national health insurance (NHI)

reimbursement single-payer system socialized health insurance

national health system (SHI)

enrollee free market

(NHS) need package pricing

standards of participation system third party

global budgets health care reform health plan managed care Medicaid

phantom providers premium cost sharing primary care

uninsured universal access universal coverage utilization

Medicare

provider provider-induced demand quad-function model

Review Questions

1. Why does cost containment remain an elusive goal in U.S. health ser­ vices delivery?

2. What are the two main objectives of a health care delivery system?

3. Name the four basic functional com­ ponents of the U.S. health care deliv­ ery system. What role does each play in the delivery of health care?

4. What is the primary reason for employers to purchase insurance

plans to provide health benefits to their employees?

5. Why is it that, despite public and private health insurance programs, some U.S. citizens lack health care coverage?

6. What is managed care? 7. Why is the U.S. health care market

referred to as ((imperfect"? 8. Discuss the intermediary role of insur­

ance in the delivery of health care.

9. Who are the major players in the U.S. health services system? What are the positive and negative effects of the often conflicting self-interests of these players?

10. Which main roles· does the govern­ ment play in the U.S. health services system?

11. Why is it important for health care managers and policymakers to understand the intricacies of the health care delivery system?

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12. What is the difference between national health insurance (NHI) and a national health system (NHS)?

13. What is socialized health insurance (SHI)?

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