HMGT 420 WEEK 5

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C H A P T E R 7

GOVERNMENT INVOLVEMENT IN US HEALTHCARE

What role should government play in our healthcare system? This question has been debated, without resolution, for decades. Americans are divided on the appropriate level of government involvement in healthcare. A poll conducted by the Kaiser Family

Foundation found that a majority of people (74 percent) believe the federal government should do more to provide health insurance for Americans. This percentage has been relatively stable since 2008. However, there is a partisan divide on this issue: According to the survey, 94 percent of Democrats are strongly in favor of more government intervention, compared with only 40 percent of Republicans. Support from Democrats has been stable since 2008, whereas Republican support dropped from 49 percent in 2008 to 40 percent in 2019. Yet many of those who oppose government involvement in healthcare still believe that the Medicare and Medicaid programs should continue. Far from any easy resolution, this debate will certainly continue for many years to come (Kaiser Family Foundation 2020).

After reading this chapter you will be able to

➤➤ Discuss the ways in which governments influence healthcare in the United States.

➤➤ Describe why governments in the United States make regulations.

➤➤ Comprehend the purpose of licensure and what it accomplishes and lacks.

➤➤ Talk about the major agencies that regulate healthcare in the United States.

Learning Objectives

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C o p y r i g h t 2 0 2 1 . H e a l t h A d m i n i s t r a t i o n P r e s s .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

EBSCO Publishing : eBook Collection (EBSCOhost) - printed on 11/8/2022 9:45 AM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS AN: 2681750 ; Kenneth L. Johnson, Stephen L. Walston.; Healthcare in the United States: Clinical, Financial, and Operational Dimensions Account: s4264928.main.eds

H e a l t h c a r e i n t h e U n i t e d S t a t e s1 6 6

Like governments around the world, governments in the United States—at the federal, state, and local levels—are actively involved in the regulation, provision, and funding of healthcare. Today, more and more citizens believe that government has a primary respon- sibility to ensure that Americans have access to healthcare coverage.

Federal and state governments’ involvement in healthcare expanded dramatically in the mid-1960s as a result of the enactment of Medicare and Medicaid. By 2016, the federal and state governments paid for 45.2 percent of total healthcare costs in the United States (CMS 2020a). Today, governments are involved in healthcare through regulation, subsidies for research and education, tax policy, payments, and the provision of healthcare. Government involvement in healthcare has grown as healthcare costs have continued to rise, and government entities have intervened to try to solve the problems of quality, cost, and access. Over time, more Americans support government intervention and involvement in healthcare.

reguLatiOn

Because the decisions made by providers, facilities, and insurance companies affect Ameri- cans’ lives and health, healthcare is one of the most regulated industries in the United States (Rubenfire 2017). Regulation of healthcare occurs through a patchwork of federal and state laws. Almost every aspect of healthcare is regulated. For example, regulations dictate minimal healthcare standards to protect consumers from unsafe environments; from incompetent, impaired, or poorly trained providers; and from services that could cause harm. Regulatory efforts often focus on structural requirements, such as having sinks in all patient rooms, and ensuring minimum competency levels for healthcare providers through educational or licensure requirements. For example, to practice medicine, a physician must take a number of steps that are regulated by different government and nongovernment entities (see sidebar).

➤➤ Discuss the main ways that healthcare is purchased in the United States.

➤➤ List and describe the two largest healthcare systems owned and operated by the

US government.

➤➤ Outline the costs of providing healthcare to people who are incarcerated.

➤➤ Describe the types of government-sponsored programs for health services

research and training and the rationale for them.

➤➤ Talk about your personal opinion regarding the role of government in

healthcare.

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 6 7

Regulations usually are developed as a result of legislation. Laws are passed, and then regulations must be put in place to ensure compliance with the law. As the laws change, regulations proliferate. In 2016, for instance, the federal government alone added 23,531 pages of regulations affecting hospitals and health systems (Rubenfire 2017).

The responsibility for crafting, implementing, and enforcing regulations falls to government departments and agencies. The largest federal healthcare agency is the US Department of Health and Human Services (HHS). In 2020, the HHS had a budget of more than $1.29 trillion and employed more than 79,000 people (HHS 2020). As illus- trated in exhibit 7.1, the HHS is composed of many agencies that have responsibilities for specific areas of healthcare. By far the largest HHS agency is the Centers for Medicare & Medicaid Services (CMS), which spends more than $1 trillion per year.

The federal government provides standards and rules for almost all healthcare settings, including long-term care facilities, home health care agencies, hospitals, and ambulatory care centers, but it leaves regulation and inspections primarily to state governments and accreditation agencies.

Licensure

Almost all licenses for healthcare professionals are granted by state or local authorities. Licenses are awarded by a government licensing agency and give an individual the legal authority to work in a profession. The requirements for licenses depend on the occupation

DEBATE TIME Regulatory Hurdles to Practice Medicine

The path to practicing medicine is paved with regulatory hurdles implemented by an

assortment of bureaucracies. An individual who wants to become a physician first must

attend a medical school that is accredited by a private body, then take a national exami-

nation administered by another nongovernmental organization, obtain licensure from

a state medical board, complete a hospital residency that is funded and governed by

the federal Medicare program, receive certification from a private specialty board, and,

finally, obtain clinical privileges at a hospital that may operate as either a private or

public entity (Field 2008).

Why do we require such regulation before we allow doctors to practice? Is there any

negative aspect of this regulation?

*

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 6 8

Agency Function 2020 Budget

Centers for Medicare & Medicaid Services

Administers the two largest federal health- care programs, Medicare and Medicaid. CMS also administers other major programs such as the State Children’s Health Insur- ance Program; the Medicare Prescription Drug, Improvement, and Modernization Act; and the Health Insurance Portability and Accountability Act

$1.2 trillion

Administration for Children and Families

Provides services to improve the economic and social well-being of children, families, individuals and communities

$52 billion

National Institutes of Health

Conducts biomedical and public health research; composed of 27 institutes and centers

$41.7 billion

Health Resources and Services Administration

Directs national health programs that improve Americans’ health by ensuring equitable access to comprehensive, quality healthcare

$10.7 billion

Centers for Disease Control and Prevention

Promotes health and quality of life by pre- venting and controlling disease, injury, and disability; monitors health, detects and investigates health problems, conducts research to enhance prevention, develops and advocates sound public health policies

$6.6 billion

Food and Drug Administration

Ensures the safety of foods and cosmetics and the safety and efficacy of pharmaceu- ticals, biological products, and medical devices

$6.2 billion

Indian Health Service Provides direct medical and public health services to members of federally recognized Native American tribes and Alaska Native people

$6.0 billion

Substance Abuse and Mental Health Services Administration

Works to improve the quality and availability of prevention, treatment, and rehabilitative services to reduce illness, death, disability, and cost to society resulting from substance abuse and mental illness

$5.5 billion

exhibit 7.1 Agencies of the

US Department of Health and Human

Services

Source: HHS (2020).

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 6 9

and state regulations, but all licenses have predetermined criteria, such as a specific college degree or a passing grade on a state-administered exam.

Almost three-quarters of all healthcare practitioners and technical personnel hold a license. Physicians, dentists, nurses, pharmacists, dental hygienists, occupational therapists, physical therapists, audiologists, and dental assistants, among many others, are healthcare professions that most often require a license (Torpey 2016). As seen in exhibit 7.2, the requirements even for a nurse aide certification can be lengthy.

Licensure serves the following purposes (NCSBN 2009):

➤◆ Protect the public from unscrupulous, incompetent, and unethical practitioners

➤◆ Assure the public of a minimum level of competence from healthcare providers

➤◆ Provide a mechanism to discipline providers who fail to comply with professional standards

However, some claim that licensing laws increase the costs of and diminish access to healthcare. License requirements may unreasonably restrict the scope of many health- care professionals. This may be especially true for physician assistants, nurses, and nurse practitioners, as some states, such as California, Texas, and Florida, restrict the ability to prescribe medications, while others grant full practice authority. These restrictions may increase costs and limit access (Timmons 2016).

• Education. Complete 75 hours of training through a program approved by the Department of Social and Health Services

• Examination. Successfully pass the home care aide certification examination • State license verification. Submit all states where the applicant holds or did

hold credentials • Personal data. Each applicant must answer personal data questions and must

explain any convictions or legal proceedings • Background check. Successfully pass a background check • Annual renewal requirements. Credentials expire on the credential holder’s

birthday • Continuing education. Twelve hours of continuing education approved by the

Department of Social and Health Services is due each year with renewal of the certification.

exhibit 7.2 Washington State Home Care Aide License Requirements

Source: Washington State Department of Health (2020).

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 7 0

The COVID-19 pandemic highlighted the problem of state-level licensure. During the pandemic, many states with high rates of the virus had difficulty bringing in nurses and doctors who were licensed in other states, prompting calls to facilitate multistate licensing (Mitchell and Thierer 2020).

gOvernment as a Purchaser Of heaLthcare

Governments in the United States have also become major purchasers of healthcare. In fact, government’s share of US health spending amounts to almost half of total healthcare expenditures (Himmelstein and Woolhandler 2016). As discussed in chapter 1, Medi- care and Medicaid are major healthcare programs that are paid for by the US federal government and the states. Medicare is a national program that is paid for by the federal government, while Medicaid is a state-based program that is paid for jointly by state and federal governments.

The federal government is the largest purchaser of healthcare in the United States, spending more than $750 billion in 2018 for services provided to nearly 60 million citi- zens, primarily for hospital, physician, prescription drugs, and dialysis services (CMS 2020a; Cubanski, Neuman, and Freed 2019). Medicare payments account for more than 21 percent of all US healthcare expenses. Medicaid covers about 44 million people, and its expenditures account for about 16 percent of US healthcare costs, totaling $597 billion in 2018 (CMS 2020b; HHS 2018; Rosenbaum et al. 2018).

As shown in exhibit 7.3, the largest expenditures for Medicare are payments for Medicare Parts A, B, and C, which are the traditional ways in which Medicare has covered hospital and outpatient medical services (see the next section for an explanation of these components of Medicare). However, Parts A and B payments have decreased, from 68 percent of total Medicare expenditures in 2008 to 55 percent in 2018. This shift can be primarily attributed to the growth of Medicare Part C, the managed care Medicare programs, which in 2018 accounted for 32 percent of spending.

medicare

As shown in exhibit 7.4, most people receiving Medicare are over the age of 65. People with disabilities who are younger than 65 and individuals who have end-stage renal disease and require dialysis or a kidney transplant are also eligible for Medicare. In 2019, the lat- ter groups accounted for only 8.5 million (13.9 percent) of the 61.3 million people with Medicare coverage. Medicare is a national program that provides standardized benefits to those who are eligible. Medicare benefits comprise four parts, A through D:

➤◆ Part A pays for inpatient hospital, skilled nursing facility, some home health, and hospice care costs. Medicare patients pay an annual deductible for Part

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 7 1

$49 $62 $67 $78 $100 $95 $99 $116 $136 $160

$189 $233

$314 $338

$363 $367

$381 $403

$0

$100

$200

$300

$400

$500

$600

$700

$800

2008 2010 2012 2014 2016 2018

Part D Part C Parts A and B

Source: Data from Cubanski, Neuman, and Freed (2019).

0%

10%

20%

30%

40%

50%

60%

70%

2008 2010 2012 2014 2016 2018

Part D 11% 12% 12% 13% 15% 13%

Part C 21% 22% 24% 26% 28% 32%

Parts A & B 68% 66% 64% 61% 57% 55%

Part D Part C Parts A and B

exhibit 7.3 Share of Medicare Payments, 2008–2018

A benefits, which was $1,364 in 2019. Part A also includes coinsurance for extended inpatient hospital stays and skilled nursing facility admissions. Everyone who is eligible for Medicare can enroll in Part A, and most pay no monthly premium. Part A is funded primarily through a payroll tax.

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 7 2

➤◆ Part B pays for physician, outpatient, preventive, and some home health services. Many services have an annual deductible, which was $198 in 2020, and usually coinsurance of 20 percent. Coinsurance and deductibles are not charged for most wellness or preventive services. Medicare enrollees can choose to opt out of Part B. Those who want coverage must enroll in Part B and pay a monthly premium, which was $144.60 in 2020. Part B is funded primarily by general taxes and Part B premiums.

➤◆ Part C, also known as Medicare Advantage, allows Medicare enrollees to join a private managed care organization (MCO) health plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO). Enrollees receive all Medicare-covered Part A and Part B services and usually Part D benefits. Those who enroll in Part C pay a monthly premium; the average across private plans was $28 in 2019.

➤◆ Part D pays for prescription drugs through private plans that contract with Medicare. Part D helps pay for enrollees’ drug costs. Enrollees pay monthly premiums, which in 2019 averaged $41 per month. Enrollment in Part D is voluntary. Part D is funded through general taxes, monthly premiums, and state payments (Kaiser Family Foundation 2019; Medicare Advantage 2019).

Medicare primarily pays providers on a fee-for-service basis. As seen in exhibit 7.5, under this payment method, providers are paid for each service that they provide. For

exhibit 7.4 Medicare

Beneficiaries by Type, 2019

(millions)

52.9

8.5

> 65 years Disabled and Dialysis

Source: CMS (2020a).

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 7 3

instance, hospital payments are based on predetermined rates for each visit or treatment and can be adjusted for the severity of a patient’s illness and other factors. Base payments are set for each of more than 700 categories of diagnoses (called diagnosis-related groups or DRGs). Under fee-for service payment, providers are paid more when they see more patients and deliver more services. About 70 percent of Medicare reimbursements are fee- for-service payments. The remaining 30 percent of payments are made through Medicare Part C. These plans are provided by private companies, which are paid a flat amount per person per month (capitation, as mentioned in chapter 3) for hospital and physician care (RevCycle Intelligence 2018).

The fee-for-service payment system, referred to as a prospective payment system, has been in place since the mid-1980s (Cubanski et al. 2015). However, many people believe that this payment system is outdated. In its place, a variety of value-based pay- ment models have been proposed, which, it is argued, would be more effective at hold- ing providers accountable for the cost and quality of the healthcare that they provide. To move toward value-based payment, the system of paying for healthcare must change (Horner et al. 2019).

To move toward value-based care, many argue that full or partial capitation is needed to control costs and improve quality (James and Poulsen 2016). As seen in exhibit 7.6, capitation differs from fee-for-service in that it pays for a package of services, rather than for each service individually. Full capitation involves paying a fixed amount to an organization to provide a comprehensive set of healthcare services for a set period of time; partial capitation pays a fixed amount for a narrower set of healthcare services. For instance, a fixed payment for only physician or hospital services would be considered partial capitation.

Others think that bundled payments are the best way to improve patient satisfaction and control costs (Maddox and Epstein 2018). Bundled payments provide a set payment

value-based payment

A payment system

in which provider

payments are linked

to the cost and quality

of care.

full capitation

A payment method

in which a fixed

amount is paid to an

organization to provide

a comprehensive

package of healthcare

services for a set

period of time.

partial capitation

A payment method in

which an organization

is paid a fixed amount

to provide a select set

of healthcare services

for a set period of time.

bundled payments

A payment method

in which healthcare

providers are paid a set

amount for an episode

or cycle of care (e.g.,

hip surgery).

exhibit 7.5 Fee-for-Service Reimbursement

Fee-for-Service: Pay for each service separately

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 7 4

for an episode or cycle of care. For example, some insurers make fixed payments for hip and knee replacements that include all the costs of the procedure for hospital, physicians, and tests.

medicaid and chiLdren’s heaLth insurance PrOgram (chiP)

Two major health insurance partnerships between the US government and the states are Medicaid and the Children’s Health Insurance Program (CHIP). In January 2020, Med- icaid covered 63.9 million Americans, and CHIP provided care to 9.6 million children (Medicaid.gov 2020).

Medicaid provides health insurance for about 20 percent of Americans and is administered jointly by the federal and state governments. Therefore, eligibility require- ments and payment systems for Medicaid vary according to state laws. Medicaid eligibility generally is based on individuals’ income in relation to the federal poverty level (FPL). Almost all states provide Medicaid to children who live in families with incomes up to 200 percent of the FPL, which in 2019 was $42,660 for a family of three. Eligibility for parents varies much more across states: In 11 states, only parents earning less than 50 percent of the FPL, $10,665 in 2019, are eligible for Medicaid; 6 states cover those earning up to 138 percent of the FPL, and 33 states provide Medicaid coverage for those with incomes greater than 138 percent of the FPL. Coverage for adults who are not parents typically is lower. In 13 states, adults without children at any income level are ineligible for Medicaid (Brooks et al. 2020).

exhibit 7.6 Capitated

Reimbursement Capitation: One payment for a

package of services

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 7 5

Medicaid provides health insurance for a wide swath of Americans. Exhibit 7.7 shows that 83 percent of poor children and 61 percent of the nonelderly poor, along with 62 percent of nursing home patients, are covered by Medicaid. In addition, almost half of births are paid for through Medicaid.

Only about one-third of Medicaid payments are made on a fee-for-service basis. Instead, many states have shifted to capitated payments. Many states now pay provid- ers through managed cared organizations (MCOs) under alternative payment methods (capitation, partial capitation, or bundled payments). In 2019, 33 states paid for Medicaid services through MCOs, with more proposing this form of payment. At that time, more than half the states reported that their top priority was better aligning Medicaid payments with health outcomes (Gifford et al. 2019).

MCOs are organizations that “manage” the patients’ healthcare by establishing preferred (or restrictive) networks and by setting policies to reduce costs (see chapter 8 for further discussion of MCOs). Some MCOs may go beyond managing traditional healthcare services to address issues of housing, mental health, substance abuse, and transportation (RevCycle Intelligence 2018; Rosenbaum et al. 2018). Some states, such as Oregon, call their MCOs “coordinated care organizations,” which set capitation rates that cover Medicaid patients and many of their citizens (see sidebar on next page).

exhibit 7.7 Share of the Population Covered by Medicaid, 2017

83%

62%

61%

49%

38%

19%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Poor Children*

Nursing Home Patients

Nonelderly Poor*

Births

All Children

Medicare Beneficiaries

* Income below the federal poverty line.

Source: Kaiser Family Foundation (2019).

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 7 6

CHIP, signed into law in 1997, was designed to provide health insurance to children living with families whose incomes are too high to qualify for Medicaid. The program gives federal matching funds to states to provide this health insurance. Most states extend CHIP to children whose families earn up to at least 200 percent of the FPL. Many states have combined their CHIP and Medicaid programs. In 2019, 16 states admin- istered their CHIP programs as extensions of their Medicaid programs. However, in 2020, 35 states operated separate CHIP programs. Like Medicaid, CHIP benefits, coverage, enrollment requirements, and cost-sharing requirements vary from state to state. For instance, 30 states charge a premium or enrollment fee for some children, and 21 states charge copayments (Brooks et al. 2020).

Both Medicaid and CHIP provide health- care for a sizeable share of Americans. As shown in

exhibit 7.8, these two government health programs provide health insurance for more than half of Americans under the age of 21 and for almost 20 percent of people aged 27 to 45.

exhibit 7.8 Share of the

US Population Covered by

Medicaid and CHIP by Age, 2017

0%

10%

20%

30%

40%

50%

60%

< 21 years 21 to 26 years 27 to 45 years 46 to 64 years 65+ years

54%

7%

19% 14%

7%

Source: Medicaid.gov (2020).

THE OREGON HEALTH AUTHORITY’S 2018 CAPITATION RATES

Many states are setting capitated rates to cover their Medic-

aid populations. For example, Oregon pays capitated rates for

their coordinated care organizations (CCOs). The state pays

a per-member-per-month amount to the CCOs “to coordinate

healthcare for nearly 1 million Oregonians on the Oregon

Health Plan (Medicaid).” In 2018 Oregon paid an average net

payment of $427.70 per month for each member. The state

does pay CCOs more per member for people with disabili-

ties, as they generally have higher healthcare costs (Sawyers

2018). Such rates are often adjusted annually to reflect cost

and use changes.

*

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 7 7

Other federaL gOvernment heaLth suPPOrt

As a result of the passage of the Affordable Care Act (ACA) in 2010, the federal government has also begun to provide large subsidies for lower-income individuals to purchase health insurance. The Congressional Budget Office estimates that between 2019 and 2028, these subsidies will cost $800 million, while Medicaid and associated benefits will cost about $4 trillion (CBO 2018).

The federal government also helps pay for prescription drugs. Since 2003, with the passage of the Medicare Prescription Drug, Improvement, and Modernization Act, the federal government dramatically increased the amount it pays for prescriptions. This law, often referred to as the Medicare Part D Prescription Drug Benefit, is a voluntary benefit requiring a moderate premium that Medicare recipients pay. In 2019, the average monthly premium was $33.19 (National Council on Aging 2019). Medicare now spends more than $174 billion annually for prescription medications, and the costs continue to escalate (Luhby 2018).

gOvernment as a PrOvider Of heaLthcare

Governments in the United States also own and operate healthcare services. Many of these services are targeted to improve the lives and take care of the poor or particular groups of citizens. For example, the federal government operates the Veterans Health

DEBATE TIME Privatize Healthcare for the VA System?

Should the VA privatize and pay private healthcare providers to take care of veterans?

The US Department of Veterans Affairs has proposed to take billions of dollars used to

operate government-run veterans’ hospitals to instead pay private providers. If this plan

is approved, veterans could more easily obtain care in private hospitals. Many veterans

experience long wait times to access hospitals and veterans’ clinics. Proposed solutions

to these delays have fractured by political party, with Republicans pushing privatization

and Democrats favoring an increase in the number of VA doctors and hospital space.

Proponents of privatization point to shorter wait times and more choices. Opponents

note that monies would come from existing VA operations; this could cause existing

VA hospitals to close and private costs to skyrocket, as experts predict that the cost of

allowing veterans to use private services could exceed $100 billion per year (Steinhauer

and Philipps 2019). What do you think the VA should do?

*

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 7 8

Administration (VHA); the Military Health System (MHS), which includes military hospitals and clinics; and the Indian Health Service. In addition, states and counties provide many healthcare services, including hospitals, public health departments, and healthcare for the incarcerated.

The Veterans Health Administration is both the largest government-owned health- care system and the largest healthcare system in the United States overall, providing care at more than 1,200 facilities, including 170 hospitals and 1,074 outpatient sites. The VHA serves about 9 million military veterans per year and has a budget of nearly $200 billion per year. As a large-scale organization, the VHA also has large-scale problems. For instance, it for decades has struggled with an antiquated medical record-keeping system, long wait times for some services, frequent leadership turnover, and challenges attracting personnel (Steinhauer 2020; Wax-Thibodeaux 2018).

The federal government also owns and generally operates healthcare facilities for active and retired military personnel and their dependents through the MHS, which is part of the US Department of Defense. The MHS serves more than 9.5 million beneficiaries. It has an annual budget of about $50 billion and comprises 723 military treatment facilities, 109 of which are located outside the United States (CRS 2019). The mission of the MHS focuses on keeping military personnel and their families healthy so that they are able to carry out their military national security and wartime functions (MHS 2020).

The federal government also provides healthcare services through programs of the Indian Health Service (IHS). Through the IHS, the US government operates health services for Native Americans or contracts with tribes to provide their own healthcare services. The IHS serves members from 573 federally recognized tribes, totaling 2.3 million people. An annual budget of more than $5 billion funds 45 hospitals, 335 health centers, and 217 clinics and health stations (IHS 2019). However, many of the facilities struggle to main- tain their buildings and update their technology. Many IHS facilities lack the necessary organization and structure to meet patients’ health needs and improve their health (see sidebar).

States and local governments also own and provide services through state and county facilities, such as state mental health hospitals, county hos- pitals, public health departments, and healthcare facilities in jails and prisons. As seen in exhibit 7.9,

Indian Health Service

The federal government

health system that

provides healthcare

services to Native

Americans.

STRUGGLING IHS FACILITIES

A government evaluation of the IHS found major underlying

problems, such as a lack of clear structure and roles, that

may keep the troubled agency from fixing long-standing qual-

ity issues. The agency lacked formal structures, policies, and

definitions of roles to correct problems. Accountability was

lacking. In addition, hospital performance and problems were

not understood by the system’s leadership, which has led to

a lack of confidence in the leadership’s ability to achieve the

necessary changes. One employee told the survey team that

making change was very difficult: “It feels like we are trudging

in the mud. Things are more difficult bureaucratically than they

should be” (Murrin 2019).

*

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 7 9

state and local governments spend almost one-third of their annual budgets on healthcare; that share is projected to continue to increase substantially over the coming years.

Counties provide healthcare services in many ways. There are more than 900 county- supported hospitals, 800 county-owned long-term care facilities, and almost 2,000 county public health departments across the United States. The majority of these facilities are located in rural or small counties and may be the only provider available in the area (National Association of Counties 2018).

Public health department services are organized and supported financially at the state and local levels. State health departments have the primary functions of providing health surveillance, promoting health, setting and enforcing standards, and providing health services.

Public health is provided by a mix of state and local governments. Some states, such as New Mexico, South Carolina, and Vermont, have centralized state public health organizations, whereas others, such as Florida and Georgia, share the responsibilities with local public health agencies. Still other states, such as California and New York, have decen- tralized local public health entities. More than 2,800 local health departments exist in the United States; their services vary widely according to the populations they serve (ASTHO 2012; CDC 2020; Leider et al. 2018).

Public health agencies also play a major role in emergency preparedness and responses to disasters (e.g., floods, hurricanes). Public health agencies provide critical training, com- munication, coordination with other government agencies, and infectious disease and injury prevention before, during, and after disasters (Trust for America’s Health 2018).

Perhaps surprisingly, the United States spends relatively little on public health— only about $12 billion a year. For comparison, the food stamp program spends more than $100 billion annually (Carroll and Frakt 2018). Many experts believe that public health expenditures should be increased dramatically, arguing that as much as 30 percent of total healthcare spending is dedicated to low-value services that could be shifted to higher-value public health activities (Tran, Zimmerman, and Fielding 2017).

Year Percentage

2005 27.60%

2015 30.70%

2025 estimated 38.30%

exhibit 7.9 Share of State and Local Budgets Spent on Healthcare and Social Services

Source: Data from Court (2018).

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 8 0

Governments also run healthcare facilities for those who are incarcerated. Prisoners are one of the few populations that are constitutionally guar- anteed medical treatment. The United States has the largest prison population among industrialized countries, with 2.3 million incarcerated in 1,833 state prisons, 110 federal prisons, 1,772 juvenile correction facilities, 3,134 local jails, 218 immi- gration detention facilities, and 80 Indian county jails. The majority of prisoners (1.3 million) are incarcerated in state prisons and 631,000 in local jails (Sawyer and Wagner 2020). Federal, state, and local governments pay for prisons and jails and their associated healthcare costs. Correctional facilities in many states have become part of the healthcare safety net for the poor.

Healthcare in correctional institutions may be provided directly by employees of the govern-

ment that operates them, or, as in many states, care may be contracted out to private companies. However care is provided, healthcare costs for the incarcerated are high and increasing (see sidebar).

gOvernment-sPOnsOred heaLth services research and training

State and federal governments also sponsor and fund health services research. The US federal government in particular provides significant support for health services research, contributing almost $36 billion—around 23 percent of all healthcare research dollars spent in the United States. Responsibility for health services research is spread across a num- ber of federal agencies. These sponsors include the National Institutes of Health, the US Department of Defense, the Centers for Medicare & Medicaid Services, the US Food and Drug Administration, the National Science Foundation, the Centers for Disease Control and Prevention, the US Department of Veterans Affairs, and the Agency for Healthcare Research and Quality. As exhibit 7.10 shows, the National Institutes of Health controls and allocates the vast majority, more than 82 percent, of federal government’s annual research investment (Research America 2020).

The federal government also provides significant funding for training of healthcare professionals. The US federal government spends about $15 billion, about two-thirds through Medicare payments, on training new doctors each year through its Graduate

HIGH HEALTH COSTS FOR THE INCARCERATED

State and local governments allocate large amounts of money

to healthcare provided in prisons; these amounts sometimes

overshadow governments’ other public health expendi-

tures. For instance, in Cook County, Illinois (where Chicago is

located), the Health and Hospitals System spent nearly $100

million providing healthcare in correctional institutions in fiscal

year 2016—more than seven times the amount that the county

spent on traditional public health services. Likewise, in Cum-

berland County, North Carolina, healthcare for the incarcerated

receives more local funding than any other health program

(Pew Charitable Trusts 2018).

*

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 8 1

Medical Education program (Millman 2014). In addition, the Health Resources and Services Administration (HRSA), part of the HHS, provides almost $10 billion to pro- grams to assist medically underserved areas, including about $775 million for workforce programs. As exhibit 7.11 illustrates, the HRSA sponsors many programs to train health- care professionals. The largest expenditures are for the National Health Service Corps and Nursing Workforce Development (HRSA 2019). The National Health Service Corps gives

exhibit 7.10 Medical and Health Research Spending by Federal Agency, 2017 (millions)

$0 $5,000 $10,000$15,000$20,000$25,000$30,000$35,000

National Institutes of Health

National Science Foundation

US Department of Defense

Centers for Disease Control and Prevention

US Department of Veterans Affairs

Agency for Healthcare Research and Quality

$32,000

$7,400

$2,100

$880

$780

$323

Source: Data from Research America (2020).

exhibit 7.11 HRSA Training Programs (millions)

$0 $500 $1,000 $1,500 $2,000 $2,500

Ryan White HIV/AIDS Program

National Health Service Corps

Family Planning

Nursing Workforce Development

Teaching Health Center Graduate Medical Education Payment

Rural Outreach Grants

340B Drug Pricing Program

Organ Transplantation

$2,260

$310

$286

$83

$60

$51

$26

$24

Source: Data from HRSA (2019).

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 8 2

NATIONAL HEALTH SERVICE CORPS SCHOLARSHIPS

Meeting the need for primary care providers, especially in rural areas, remains a

challenge. One way the government is seeking to address these shortages is by

providing scholarships for those studying in needed healthcare professions. One

federal agency, the National Health Service Corps, provides scholarships to health

professions students in primary care disciplines, including physicians, dentists, nurse

practitioners, certified nurse-midwives, and physician assistants. The scholarships

cover tuition, fees, and educational costs and provide a monthly stipend for a minimum

of two years and up to four years. For every year of scholarship funding, one year

of service commitment is required, generally in low-income areas that have chronic

healthcare service needs.

Since the program’s inception, more than 50,000 healthcare professionals have

taken advantage of the scholarships and served in one of more than 5,000 approved

sites. Many of these locations would not have had these healthcare services available

in their area without this program (see https://bhw.hrsa.gov/loansscholarships/nhsc).

*

scholarships to a wide array of healthcare professionals in exchange for a commitment to work in low-income areas of the country after graduation (see sidebar).

Government also extends its involvement in healthcare by allowing the costs of employer-sponsored healthcare to be exempt from taxes. This exemption is the largest federal tax break, amounting to about $250 billion per year. Tax-exempt employer-paid health insurance encourages the purchase of more health insurance than employees might otherwise purchase; most of this subsidy goes to those who are employed and generally more well-off (Butler 2015). Some have suggested that this popular exemption is unfair and inefficient, as it lowers employees’ take-home pay and fuels the rapid increase in healthcare costs (Antos 2016).

majOr LegisLatiOn

The US government has passed many laws influencing the practice of and access to health- care. Many of these laws were enacted to protect patients or to expand patients’ access to healthcare services. Some of the major acts that were passed in the last three decades are highlighted here.

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 8 3

The Emergency Medical Treatment and Labor Act was passed in 1986 to prevent “patient dumping,” the practice of emergency rooms refusing to treat people who lack the financial resources to pay for their care. Because of this law, emergency rooms must minimally screen patients with appropriate diagnostic tests and examinations to determine whether an emergency medical condition is present. If such a condition exists, the hospital must treat and stabilize the patient without regard to their finances (Sawyer 2017).

The Health Insurance Portability and Accountability Act (HIPAA) was enacted in 1996. This law set national standards to protect the privacy and security of patients’ health information. Privacy and security concerns became especially important with the widespread introduction of electronic health records and health information systems (HHS 2013). Penalties for HIPAA violations can be severe. For example, in 2018, the University of Texas’s MD Anderson Cancer Center was fined $4,348,000 for HIPAA viola- tions (Cohen 2018). In addition, HIPAA protected health insurance coverage for people changing jobs, restricted the use of preexisting conditions to deny medical claims, and set guidelines for medical savings accounts, among other things (Edemekong, Annamaraju, and Haydel 2020).

The Balanced Budget Act of 1997 authorized Medicare Part C, expanding man- aged care programs under Medicare. The law also expanded the State Children’s Health Insurance Program, which pays for health insurance for children whose families earn less than 200 percent of the federal poverty level. The legislation also reduced Medicare spend- ing (Moon 1997).

The ACA, enacted in 2010, spurred major healthcare reform and increased govern- ment involvement in healthcare. The law provided subsidies to allow lower-income people (those earning between 100 and 400 percent of the federal poverty level) to buy health insurance, expanded the Medicaid program, prohibited insurance companies from refus- ing coverage for preexisting conditions, allowed parents to keep children on their insur- ance coverage until age 26, and defined ten required essential health benefits that must be included in health insurance plans (HealthCare.gov 2020).

the cOntested rOLe Of gOvernment in heaLthcare

The role of government in healthcare continues to be a bitterly contested political issue: Up to two-thirds of Americans believe that universal health coverage should be provided to all Americans, while one-third oppose government involvement. Fifty-four percent of Americans favor a national Medicare-for-all health plan, and 41 percent oppose such a plan. This issue marks a significant political divide, with 71 percent of Republicans wanting the government to stay out of healthcare, insisting on Medicaid cuts and a repeal of the ACA, while 79 percent of Democrats are in favor of promoting greater government involvement in healthcare and expansion of existing programs to provide greater access to care (Kaiser Family Foundation 2020; Levin and Ponnuru 2018).

Emergency Medical

Treatment and Labor

Act

A federal law passed

in 1986 to prevent

“patient dumping,” the

practice of emergency

rooms refusing to treat

people who lack the

financial resources to

pay for their care.

Health Insurance

Portability and

Accountability Act

(HIPAA)

A federal law passed in

1996 that set national

standards to protect

the privacy and security

of patients’ health

information.

Balanced Budget Act

of 1997

A federal law that

authorized Medicare

Part C, expanding

managed care

Medicare programs and

the State Children’s

Health Insurance

Program.

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 8 4

Some have long called for greater government intervention in healthcare to resolve the cost inequities and quality problems that vex the US healthcare system (Schoenbaum, Audet, and Davis 2003). This debate regarding the role of government in healthcare began long ago and will certainly continue. Given the amount that the United States spends on healthcare and continuously increasing costs, health costs have become a top healthcare concern for many Americans. Nevertheless, most Democrats (84 percent) and indepen- dents (64 percent) oppose major restrictions on Medicaid; a slight majority (51 percent) of Republicans do (Kirzinger, Wu, and Brodie 2018). Many Democrats see healthcare access as a moral imperative. To be sure, the extent of future government involvement in healthcare will be a major topic of discussion in future elections and legislative debates (Krieg and Wright 2018).

The federal, state, and local governments in the United States are actively involved in the regulation, provision, and funding of healthcare. Healthcare is one of the most regulated industries in the United States. Regulations usually are developed as a result of legislation and seek to establish minimum standards to protect healthcare consumers. Regulation occurs at both the state and federal levels. States generally have responsibility for regulat- ing healthcare providers and insurance companies, while the federal government oversees almost all aspects of healthcare.

The largest federal healthcare agency is the US Department of Health and Human Services (HHS), which has a budget of more than $1.15 trillion and employs more than 79,000 people. The HHS is composed of agencies that have responsibilities for specific areas of healthcare; the HHS agency with the largest annual budget is the Centers for Medicare & Medicaid Services.

Most healthcare professionals require licenses to practice, which are issued by state and local governments. Licenses are necessary to protect the public, assure a level of competence from healthcare providers, and provide a mechanism to discipline providers who fail to meet professional standards.

Governments influence healthcare by being major purchasers of care. The US federal government spends more than $700 billion on care for about 60 million Medicare recipients and almost $600 billion for about 75 million Medicaid recipients. Since the passage of the Affordable Care Act in 2010, the federal government also subsidizes the purchase of health insurance for lower-income people.

Governments also own and operate healthcare services. The federal government provides healthcare through the Veterans Health Administration, the Military Health Service, and the Indian Health Service. States operate hospitals, public health departments, and

summary

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 8 5

healthcare facilities in prisons and jails. Healthcare expenses for state and local govern- ments account for almost one-third of their budgets.

Many health services research and training programs are sponsored by the federal government. The US government contributes about $36 billion for healthcare research through many different agencies. In addition, billions are spent annually to support the training of healthcare professionals.

The government is indirectly involved in healthcare by providing tax exemptions for employers’ cost of employer-sponsored healthcare. This costs the federal government about $250 billion a year in lost taxes.

In the past three decades, several important healthcare laws have had significant impacts on healthcare in the United States. These include the Emergency Medical Treatment and Labor Act, which requires emergency treatment to be provided regardless of ability to pay; the Health Insurance Portability and Accountability Act, which protects the privacy and security of patients’ health information; the Balanced Budget Act of 1997, which expanded Medicare programs and children’s health insurance; and the Affordable Care Act, which increased subsidies for the poor and standardized health insurance offerings, among many other provisions.

The role of government in healthcare continues to evolve, as Americans see the cost of healthcare as a major issue. The future of government involvement is complicated by the polarized positions taken by the major political parties in the United States. The extent of future government involvement in healthcare will be a major topic of discussion in future elections and legislative debates.

1. What caused the escalation of healthcare costs and government involvement in healthcare during the mid-1960s?

2. What type of standards do regulations seek to set? 3. What level of government regulates physicians and insurance companies? 4. What does the Food and Drug Administration do? 5. What percentage of healthcare practitioners and technical personnel have licenses? 6. How does government involvement provide a mechanism to discipline healthcare

providers who fail to comply with professional standards? 7. How many people have Medicare or Medicaid coverage? 8. What does Medicare Part D cover? 9. What is the largest government-owned healthcare system, and who does it serve?

10. In your opinion, why does the United States spend relatively little on public health? 11. What percentage of research is funded by government? 12. What obligations do those who accept scholarships from the National Health

Service Corps make?

QuestiOns

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H e a l t h c a r e i n t h e U n i t e d S t a t e s1 8 6

1. Public health services are organized differently depending on the state. Go to the CDC’s Health Department Governance page at www.cdc.gov/stltpublichealth/ sitesgovernance. Choose two states: one that has a centralized health department and one that has a decentralized health system. Compare the organizations and the services they offer. Write a one-page paper explaining why you think the structures of the organizations and their services differ.

2. Read about the many activities performed by the Health Resources and Services Administration at www.hrsa.gov/sites/default/files/hrsa/about/budget/budget- justification-2018.pdf. Write a one-page paper discussing (1) why the US federal government should be involved in these programs or (2) why the US federal govern- ment should not be involved in these programs.

getting a Physician License in cOLOradO

Rebecca has worked as a physician for ten years in Virginia, but she has always dreamed of practicing medicine in Colorado. She has finally decided to move, but she knows that each state medical board has different requirements and takes a different amount of time to process medical licenses. In a few states, such as Texas and Arkansas, the medical licen- sure process takes six months or more. Some states offer reciprocal licensing agreements, meaning that they accept medical licenses from other states. However, Colorado does not. To get a medical license, Rebecca wonders what she will need to do and why.

Discussion Questions

1. Why are most physicians and healthcare professionals licensed by states and not the national government?

2. What steps does Rebecca need to take to get licensed in Colorado? See the state’s licensing requirements at www.colorado.gov/pacific/dora/ Physician_Licensing_Requirements.

veterans administratiOn system Or cOntract

Some people advocate retaining the healthcare system administered and operated by the US Department of Veterans Affairs (VA), which is made up of 172 hospitals and more than 1,000 outpatient sites. However, others are now pushing to expand the VA Choice program, which was set up in 2014. This proposal would make the VA system more like Medicare by

assignments

cases

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C h a p t e r 7 : G o v e r n m e n t I n v o l v e m e n t i n U S H e a l t h c a r e 1 8 7

allow it to contract with outside, independent private healthcare providers. However, the implementation of such a system remains contentious. Many worry that contracting with outside providers will change the nature and role of the VA. Others believe that contracting will improve access and response time.

Discussion Questions

1. In your opinion, what are the advantages and disadvantages of owning, funding, and providing care in the same healthcare system versus contracting for services?

2. Search the internet and find two articles that discuss the VA Choice program and the problems it has had. What are these problems, and how could they be fixed?

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C H A P T E R 8

THE ECONOMICS OF HEALTHCARE

What is the value of economics in healthcare? Healthcare is complicated, and economics provides a lens through which to see and understand the complexities. “Economics does not allow us to predict the future, but it does allow us to see the world more clearly. It is

a good pair of glasses, not a crystal ball.” Economics also helps us weigh the trade-offs that are inher- ent in healthcare decisions. “Everything has a cost. . . . ‘There ain’t no such thing as a free lunch.’ Economics taught me that time has a cost. Even if I am attending a “free” lecture, watching a “free” movie online, or enjoying someone else’s “free” food, I am paying a cost, whatever else I could have done. . . . Economics taught me to consider all available alternatives. Every decision is about the best choice given the proper understanding of cost, not just price. Viewing time, price, and countless other subjects under one idea, cost, helps improve decision-making. Dollars and cents can be an easy approximation, but life isn’t about easy” (Albrecht 2014). This chapter provides some basic economic principles to help you understand decision-making in healthcare.

After reading this chapter you will be able to

➤➤ Discuss the principles of health economics.

➤➤ Describe how the allocation of scarce resources affects the production function and the

output of products and services.

➤➤ Compare the concepts of diminishing returns and opportunity costs.

➤➤ Evaluate the impact of adverse selection on risk pools.

Learning Objectives

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