Healthcare Systems Assignment 1


Delivering Health Care in America


Leiyu Shi, DrPH, MBA, MPA Professor, Bloomberg School of Public Health

Director, Johns Hopkins Primary Care Policy Center Johns Hopkins University

Baltimore, Maryland

Douglas A. Singh, PhD, MBA Associate Professor Emeritus of Management

School of Business and Economics Indiana University, South Bend

South Bend, Indiana


Copyright Page

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Library of Congress Cataloging-in-Publication Data Names: Shi, Leiyu, author. | Singh, Douglas A., 1946- author. Title: Delivering health care in America : a systems approach / Leiyu Shi, Douglas A. Singh. Description: Seventh edition. | Burlington, Massachusetts : Jones & Bartlett Learning, [2019] | Includes bibliographical references and index. Identifiers: LCCN 2017015329 | ISBN 9781284124491 (pbk.) Subjects: | MESH: Delivery of Health Care | Health Policy | Health Services | United States Classification: LCC RA395.A3 | NLM W 84 AA1 | DDC 362.10973— dc23 LC record available at


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Contents Preface

List of Exhibits

List of Figures List of Tables

List of Abbreviations/Acronyms

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

An Overview of the Scope and Size of the System

A Broad Description of the System

Basic Components of a Health Care Delivery System

Insurance and Health Care Reform

Role of Managed Care

Major Characteristics of the U.S. Health Care System

Trends and Directions

Significance for Health Care Practitioners

Significance for Health Care Managers

Health Care Systems of Other Countries

Global Health Challenges and Reform

The Systems Framework


Test Your Understanding


PART I System Foundations

Chapter 2 Beliefs, Values, and Health Introduction

Significance for Managers and Policymakers

Basic Concepts of Health

Quality of Life

Risk Factors and Disease

Health Promotion and Disease Prevention

Disease Prevention Under the Affordable Care Act

Public Health

Health Protection and Preparedness in the United States

Determinants of Health

Measures Related to Health

Anthro-Cultural Beliefs and Values

Integration of Individual and Population Health


Test Your Understanding


Chapter 3 The Evolution of Health Services in the United States Introduction

Medical Services in the Preindustrial Era

Medical Services in the Postindustrial Era

Medical Care in the Corporate Era

Globalization of Health Care

The Era of Health Care Reform


Test Your Understanding


PART II System Resources

Chapter 4 Health Services Professionals Introduction


Issues in Medical Practice, Training, and Supply

International Medical Graduates



Other Doctoral-Level Health Professionals


Advanced Practice Nurses

Midlevel Providers

Allied Health Professionals

Health Services Administrators

Global Health Workforce Challenges


Test Your Understanding


Appendix 4-A List of Professional Associations

Chapter 5 Medical Technology Introduction

What Is Medical Technology?

Information Technology and Informatics

The Internet, E-Health, M-Health, and E-Therapy

Telemedicine, Telehealth, and Remote Monitoring

Innovation, Diffusion, and Utilization of Medical Technology

The Government’s Role in Technology Diffusion

The Impact of Medical Technology

The Assessment of Medical Technology

Directions and Issues in Health Technology Assessment

Health Care Reform and Medical Technology


Test Your Understanding


Chapter 6 Health Services Financing Introduction

The Role and Scope of Health Services Financing

Financing and Cost Control

The Insurance Function

Private Health Insurance

Private Coverage and Cost Under the Affordable Care Act

Public Health Insurance

The Payment Function

National Health Care Expenditures

Current Directions and Issues


Test Your Understanding


PART III System Processes

Chapter 7 Outpatient and Primary Care Services Introduction

What Is Outpatient Care?

The Scope of Outpatient Services

Primary Care

Primary Care and the Affordable Care Act

New Directions in Primary Care

Primary Care Providers

Growth in Outpatient Services

Types of Outpatient Care Settings and Methods of Delivery

Complementary and Alternative Medicine

Utilization of Outpatient Services

Primary Care in Other Countries


Test Your Understanding


Chapter 8 Inpatient Facilities and Services Introduction

Hospital Transformation in the United States

The Expansion Phase: Late 1800s to Mid-1980s

The Downsizing Phase: Mid-1980s Onward

Some Key Utilization Measures and Operational Concepts

Factors That Affect Hospital Employment

Hospital Costs

Types of Hospitals

Expectations for Nonprofit Hospitals

Some Management Concepts

Licensure, Certification, and Accreditation

The Magnet Recognition Program

Ethical and Legal Issues in Patient Care


Test Your Understanding


Chapter 9 Managed Care and Integrated Organizations Introduction

What Is Managed Care?

Evolution of Managed Care

Growth of Managed Care

Efficiencies and Inefficiencies in Managed Care

Cost Control in Managed Care

Types of Managed Care Organizations

Trends in Managed Care

Impact on Cost, Access, and Quality

Managed Care Backlash, Regulation, and the Aftermath

Organizational Integration

Basic Forms of Integration

Highly Integrated Health Care Systems


Test Your Understanding


Chapter 10 Long-Term Care Introduction

The Nature of Long-Term Care

Long-Term Care Services

Users of Long-Term Care

Level of Care Continuum

Home- and Community-Based Services

Institutional Long-Term Care Continuum

Specialized Care Facilities

Continuing Care Retirement Communities

Institutional Trends, Utilization, and Costs

Insurance for Long-Term Care


Test Your Understanding


Chapter 11 Health Services for Special Populations Introduction

Framework to Study Vulnerable Populations

Racial/Ethnic Minorities

The Uninsured



Rural Health

Migrant Workers

The Homeless

Mental Health

The Chronically Ill



Test Your Understanding


PART IV System Outcomes

Chapter 12 Cost, Access, and Quality Introduction

Cost of Health Care

Reasons for Cost Escalation

Cost Containment: Regulatory Approaches

Cost Containment: Competitive Approaches

Cost Containment Under Health Reform

Access to Care

The Affordable Care Act and Access to Care

Quality of Care

Dimensions of Quality

Quality Assessment and Assurance

Public Reporting of Quality

The Affordable Care Act and Quality of Care


Test Your Understanding


Chapter 13 Health Policy Introduction

What Is Health Policy?

Principal Features of U.S. Health Policy

The Development of Legislative Health Policy

The Policy Cycle

Policy Implementation

Critical Policy Issues


Test Your Understanding


PART V System Outlook

Chapter 14 The Future of Health Services Delivery Introduction

Forces of Future Change

The Future of Health Care Reform

The Health Care Delivery Infrastructure of the Future

The Future of Long-Term Care

Global Threats and International Cooperation

New Frontiers in Clinical Technology

The Future of Evidence-Based Health Care


Test Your Understanding




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Preface With this Seventh Edition, we celebrate 20 years of serving instructors, students, policymakers, and others, both at home and overseas, with up-to-date information on the dynamic U.S. health care delivery system. Much has changed, and much will continue to change in the future, as the nation grapples with critical issues of access, cost, and quality. Indeed, much of the developing and developed world will also be contending with similar issues.

People in the United States, in particular, have just gotten a taste of a far-reaching health care reform through President Barack Obama’s signature Affordable Care Act (ACA), nicknamed “Obamacare.” To date, this law has produced mixed results that are documented in this new edition.

At the time this edition went to press, we were left with promises of another reform under the slogan “Repeal and replace Obamacare,” a move championed by President Donald Trump, who had made it one of the centerpieces of his presidential campaign. Much remains to be seen as to how this promise will play out.

On May 4, 2017, the U.S. House of Representatives passed the American Health Care Act (AHCA) by a vote of 217 to 213, with Republican support. The bill is likely to undergo significant changes

in the U.S. Senate. Hence, what the new law may eventually look like was unknown at the time this manuscript went to press. As was the case with the ACA, for which the Democratic Party played an exclusive role in its passage, contentious debates, partisanship, and deal making among both Republicans and Democrats have marked the progress in moving the new law through Congress.

Although we have chosen to sidestep any premature speculation about the fate of the ACA and the shape of its replacement, wherever possible, we have presented trends and facts that support certain conclusions. Mainly, experiences and outcomes under the ACA have been highlighted in this edition.

On his first day in office in January 2017, President Trump signed an executive order to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [Affordable Care] Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, health care providers, health insurers, patients, recipients of health care services, purchasers of health insurance, or makers of medical devices, products, or medications.” This executive order effectively repealed small portions of the ACA that deal with taxation and fees.

Going forward, the issues of universal coverage and affordability of insurance and health care will be critical. Under the ACA, approximately 27 million people remained uninsured, even though the uninsurance rate in the United States dropped from 13.3% to 10.9% between 2013 and 2016. The majority of the newly insured individuals were covered under Medicaid, the nation’s safety net health insurance program for the poor.

Another thorny issue will be how to provide health care for the millions of illegal immigrants who obtain services mainly through hospital emergency departments, and through charitable sources to some extent. Is there a better, more cost-effective way to address their needs?

The affordability of health insurance in the non-employment-based private market was severely eroded under the ACA, mainly for those who did not qualify for federal subsidies to buy insurance. The reason for the rate hikes in this segment was that few young and healthy people enrolled in health care plans under the ACA. Consequently, for many people, premium costs rose to unaffordable levels in 2016. People who really needed to use health care enrolled in much larger numbers than healthier individuals. Such an adverse selection prompted the chief executive of Aetna Insurance, Mark Bertolini, to remark that the marketplace for individual health insurance coverage was in a “death spiral.” Some large insurance companies either pulled out of the government- sponsored health care exchanges or were planning to do so because of financial losses sustained under the ACA.

▶ New to This Edition This edition continues to reference some of the main features of the ACA wherever it was important to provide contextual discussions from historical and policy perspectives. Several chapters cover the main provisions of the 21st Century Cures Act, which, after a long delay, was finally passed by Congress and signed by President Obama in December 2016.

As in the past, this text has been updated throughout with the latest pertinent data, trends, and research findings available at the time the manuscript was prepared. Copious illustrations in the form of examples, facts, figures, tables, and exhibits continue to make the text come alive. Following is a list of the main additions and revisions:

Chapter 1 Updates the impact of the Affordable Care Act (ACA)

Critical global health issues and health care reforms in other countries

Chapter 2 Health insurance under the ACA Evaluation of progress made toward the Healthy People 2020 goals Information on global pandemics and infectious diseases

Chapter 3 Expanded section: Reform of mental health care Complete revision of the section: Era of health care reform

Chapter 4 Major issues related to the health care workforce Updated information on nonphysician providers

Chapter 5 New section: Electronic health records and quality of care Global trends in biomedical research and a new table on R&D expenditures New section: Drugs from overseas New section: Health care reform and medical technology

Chapter 6 New section: Private coverage and cost under the Affordable Care Act New section: Medicaid experiences under the ACA New section: Issues with Medicaid New section: Long-term care hospital payment systems

New section: Value-based reimbursement (discusses the MACRA and Medicare Shared Savings Program) Updated current directions and issues in financing

Chapter 7 Research findings using the Primary Care Assessment Tool Measurement and achievement of the patient-centered medical home The impact of community health centers

Chapter 8 New section: Comparative data from the Organization for Economic Cooperation and Development on hospital access and utilization Comparative hospital prices in selected countries New section: Factors that affect hospital employment New section: Rise in bad debts New section: State mental health institutions Update on physician-owned specialty hospitals Medicare designations of sole community hospitals and Medicare- dependent hospitals Patient outcomes at Magnet hospitals New section: Hospital costs

Chapter 9 “Any willing provider” and “freedom of choice” laws under managed care regulations The latest on accountable care organizations

Chapter 10 New section: Recent policies for community- based services

Chapter 11 Updated information on vulnerable subpopulations Expanded coverage on chronically ill patients

Chapter 12 Current issues in health care costs, access, and quality Pay-for-performance in health care Quality initiatives in both the public and private sectors

Chapter 13 Current critical policy challenges Future health policy issues in both the United States and abroad

Chapter 14 Almost all sections have been completely updated New section: No single payer New section: Reforming the reform New section: Universal coverage and access New section: Toward population health

As in the previous editions, our aim is to continue to meet the needs of both graduate and undergraduate students. We have attempted to make each chapter complete, without making it overwhelming for beginners. Instructors, of course, will choose the sections they decide are most appropriate for their courses.

As in the past, we invite comments from our readers. Communications can be directed to either or both authors:

Leiyu Shi Department of Health Policy and Management Bloomberg School of Public Health

Johns Hopkins University 624 North Broadway, Room 409 Baltimore, MD 21205-1996 [email protected]

Douglas A. Singh [email protected]

We appreciate the work of Hailun Liang and Megha Parikh in providing assistance in the preparation of selected chapters of this text.

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List of Exhibits Exhibit 3-1 Evolution of the U.S. Health Care Delivery System

Exhibit 3-2 Groundbreaking Medical Discoveries

Exhibit 4-1 Definitions of Medical Specialties and Subspecialties

Exhibit 4-2 Examples of Allied Health Professionals

Exhibit 6-1 Key Differences Between a Health Reimbursement Arrangement and a Health Savings Account

Exhibit 6-2 Medicare Part A Financing, Benefits, Deductible, and Copayments for 2017

Exhibit 6-3 Medicare Part B Financing, Benefits, Deductible, and Coinsurance for 2017

Exhibit 6-4 Medicare Part D Benefits and Individual Out-of-Pocket Costs for 2017

Exhibit 9-1 The Evolution of Managed Care

Exhibit 11-1 The Vulnerability Framework

Exhibit 11-2 Predisposing, Enabling, and Need Characteristics of Vulnerability

Exhibit 12-1 Regulation-Based and Competition-Based Cost- Containment Strategies

Exhibit 13-1 Key Health Care Concerns of Selected Interest Groups

Exhibit 13-2 Arguments for Enhancing States’ Role in Health Policy Making

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List of Figures Figure 1-1 Basic health care delivery functions.

Figure 1-2 External forces affecting health care delivery.

Figure 1-3 Relationship between price, supply, and demand under free-market conditions.

Figure 1-4 Trends and directions in health care delivery.

Figure 1-5 The systems model and related chapters.

Figure 2-1 The four dimensions of holistic health.

Figure 2-2 The Epidemiology Triangle.

Figure 2-3 WHO Commission on Social Determinants of Health conceptual framework.

Figure 2-4 Integrated model for holistic health.

Figure 2-5 Action model to achieve U.S. Healthy People 2020 overarching goals.

Figure 4-1 Ambulatory care visits to physicians according to physician specialty, 2012.

Figure 4-2 Supply of U.S. physicians, including international medical graduates (IMGs), per 100,000 population, 1985–2013.

Figure 4-3 Trend in U.S. primary care generalists of medicine.

Figure 4-4 IMG physicians as a proportion of total active physicians.

Figure 6-1 Influence of financing on the delivery of health services.

Figure 6-2 Health insurance status of the total U.S. population, 2015.

Figure 6-3 Sources of Medicare financing, 2015.

Figure 6-4 Medicare spending for services, 2015.

Figure 6-5 Medicaid spending for services, 2014.

Figure 6-6 Proportional distribution of U.S. private and public shares of national health expenditures.

Figure 6-7 The U.S. health dollar, 2015.

Figure 7-1 The coordination role of primary care in health care delivery.

Figure 7-2 Percentage of total surgeries performed in outpatient departments of U.S. community hospitals, 1980– 2013.

Figure 7-3 Growth in the number of medical group practices in the United States.

Figure 7-4 Ambulatory care visits in the United States.

Figure 7-5 Medical procedures by location.

Figure 7-6 Demographic characteristics of U.S. home health patients, 2013.

Figure 7-7 Estimated payments for home care by payment source, 2014.

Figure 7-8 Types of hospice agencies, 2014.

Figure 7-9 Coverage of patients for hospice care at the time of admission, 2014.

Figure 8-1 Trends in the number of U.S. community hospital beds per 1,000 resident population.

Figure 8-2 The decline in the number of U.S. community hospitals and beds.

Figure 8-3 Ratio of hospital outpatient visits to inpatient days for all U.S. hospitals, 1980–2013 (selected years).

Figure 8-4 Trends in average length of stay in nonfederal short- stay hospitals, selected years.

Figure 8-5 Average lengths of stay by U.S. hospital ownership, selected years.

Figure 8-6 Breakdown of U.S. community hospitals by size, 2013.

Figure 8-7 Change in occupancy rates in U.S. community hospitals, 1960–2013 (selected years).

Figure 8-8 Proportion of total U.S. hospitals by type of hospital, 2014.

Figure 8-9 Breakdown of U.S. community hospitals by type of ownership, 2013.

Figure 8-10 Hospital governance and operational structures.

Figure 9-1 Percentage of worker enrollment in health plans, selected years.

Figure 9-2 Integration of health care delivery functions through managed care.

Figure 9-3 Growth in the cost of U.S. health insurance (private employers), 1980–1995.

Figure 9-4 Care coordination and utilization control through gatekeeping.

Figure 9-5 Case management function in care coordination.

Figure 9-6 Percentage of covered employees enrolled in HMO plans, selected years.

Figure 9-7 The IPA-HMO model.

Figure 9-8 Percentage of covered employees enrolled in PPO plans, selected years.

Figure 9-9 Percentage of covered employees enrolled in POS plans, selected years.

Figure 9-10 Share of managed care enrollments in employer- based health plans, 2016.

Figure 9-11 Organizational integration strategies.

Figure 10-1 People with multiple chronic conditions are more likely to have activity limitations.

Figure 10-2 Medicare enrollees age 65 and older with functional limitations according to where they live, 2009.

Figure 10-3 Key characteristics of a well-designed long-term care system.

Figure 10-4 Range of services for individuals in need of long-term care.

Figure 10-5 Users of long-term care by age group.

Figure 10-6 Most frequently provided services to home health patients.

Figure 10-7 Sources of payment for home health care, 2014.

Figure 10-8 Changes in the percentages of nursing home residents with various conditions between 2005 and 2015.

Figure 10-9 Distinctly certified units in a nursing home.

Figure 10-10 Sources of financing nursing home care, 2014.

Figure 11-1 Percentage of U.S. live births weighing less than 2,500 grams by mother’s detailed race.

Figure 11-2 Percentage of U.S. mothers who smoked cigarettes during pregnancy according to mother’s race.

Figure 11-3 Alcohol consumption by persons 18 years of age and older.

Figure 11-4 Use of mammography by women 40 years of age and older, 2013.

Figure 11-5 U.S. life expectancy at birth, 1970–2014.

Figure 11-6 Age-adjusted maternal mortality rates.

Figure 11-7 Respondent-assessed health status.

Figure 11-8 Current cigarette smoking by persons 18 years of age and older, age adjusted, 2014.

Figure 11-9 Percentage of female students of total enrollment in schools for selected health occupations, 2013–2014.

Figure 11-10 Contraceptive use in the past month among women 15–44 years old, 2011–2013.

Figure 11-11 AIDS cases reported in the United States, 1987–2014.

Figure 11-12 Federal spending for HIV/AIDS by category, FY 2016.

Figure 12-1 Average annual percentage growth in U.S. national health care spending, 1960–2014.

Figure 12-2 Annual percentage change in CPI and medical inflation, 1975–2014.

Figure 12-3 Annual percentage change in U.S. national health care expenditures and GDP, 1980–2013.

Figure 12-4 U.S. health care spending as a percentage of GDP for selected OECD countries, 1985 and 2014.

Figure 12-5 Life expectancy of Americans at birth, age 65, and age 75, 1900–2014 (selected years).

Figure 12-6 Change in U.S. population mix between 1970 and 2014, and projections for 2030.

Figure 12-7 Increase in U.S. per capita Medicare spending, 1970– 2014 (selected years).

Figure 12-8 Framework for access in the managed care context.

Figure 12-9 The Donabedian model.

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List of Tables Table 1-1 The Complexity of Health Care Delivery

Table 1-2 The Continuum of Health Care Services

Table 2-1 Percentage of U.S. Population with Behavioral Risks

Table 2-2 Annual Percentage Decline in U.S. Cancer Mortality, 1991–2013

Table 2-3 Leading Causes of Death, 2014

Table 2-4 U.S. Life Expectancy at Birth—2002, 2007, and 2014

Table 2-5 Comparison of Market Justice and Social Justice

Table 2-6 Healthy People 2020 Topic Areas

Table 4-1 Persons Employed in Health Service Sites

Table 4-2 Active U.S. Physicians According to Type of Physician and Number per 10,000 Population

Table 4-3 U.S. Physicians According to Activity and Place of Medical Education, 2013

Table 4-4 Mean Annual Compensation for U.S. Physicians by Specialty, May 2016 (in Dollars)

Table 4-5 Percentage of Total Enrollment of Students in Programs for Selected Health Occupations, by Race, 2008–2009

Table 5-1 Examples of Medical Technologies

Table 5-2 MRI Units Available per 1,000,000 Population in Selected Countries, 2014

Table 5-3 Global Biomedical R&D Expenditures in Selected Regions, 2007 and 2012

Table 5-4 Summary of FDA Legislation

Table 6-1 Trends in Employment-Based Health Insurance, Selected Years

Table 6-2 Medicare: Enrolled Population and Expenditures in Selected Years

Table 6-3 Status of HI and SMI Trust Funds (Billions of Dollars), 2012–2015

Table 6-4 U.S. National Health Expenditures in Selected Years

Table 6-5 Percentage Distribution of U.S. National Health Expenditures, 2010 and 2015

Table 7-1 Owners, Providers, and Settings for Ambulatory Care Services

Table 7-2 Growth in Female U.S. Resident Population by Age Groups Between 1980 and 2014 (in Thousands)

Table 7-3 Selected Organizational Characteristics of U.S. Home Health and Hospice Care Agencies in the United States, 2014

Table 7-4 Home Health and Hospice Care Patients Served at the Time of the Interview, by Agency Type and Number of Patients in the United States, 2007

Table 7-5 U.S. Physician Characteristics, 2013

Table 7-6 Principal Reason for Visiting a Physician

Table 7-7 Primary Diagnosis Group

Table 8-1 Share of Personal Health Expenditures Used for Hospital Care

Table 8-2 Discharges, Average Length of Stay, and Average Cost per Stay in U.S. Community Hospitals, 2012

Table 8-3 Inpatient Hospital Utilization: Comparative Data for Selected OECD Countries, 2012 (or Nearest Year)

Table 8-4 Cost per Inpatient Day in Selected Countries, 2012

Table 8-5 Changes in Number of U.S. Hospitals, Beds, Average Size, and Occupancy Rates

Table 8-6 The Largest U.S. Multihospital Chains, 2014

Table 10-1 Trends in Number of Long-Term Care Facilities, Beds/Resident Capacity, and Prices, Selected Years

Table 11-1 Characteristics of U.S. Mothers by Race/Ethnicity

Table 11-2 Age-Adjusted Death Rates for Selected Causes of Death, 1970–2014

Table 11-3 Infant, Neonatal, and Postneonatal Mortality Rates by Mother’s Race (per 1,000 Live Births)

Table 11-4 Selected Health Risks Among Persons 20 Years and Older, 2011–2014

Table 11-5 Vaccinations of Children 19–35 Months of Age for Selected Diseases According to Race, Poverty Status, and Residence in a Metropolitan Statistical Area (MSA), 2014 (%)

Table 11-6 Mental Health Organizations, 2010

Table 11-7 Mental Health Providers by Discipline, Selected Years

Table 11-8 AIDS Cases Reported in the United States, 2010–2014 Cumulative and 2014

Table 12-1 Average Annual Percentage Increase in U.S. National Health Care Spending, 1975–2014

Table 12-2 Total U.S. Health Care Expenditures as a Proportion of GDP and per Capita Health Care Expenditures (Selected Years, Selected OECD Countries; per Capita Expenditures in U.S. Dollars)

Table 12-3 Visits to Office-Based Physicians, 2012

Table 12-4 Number of Health Care Visits According to Selected Patient Characteristics, 2014

Table 12-5 Dental Visits in the Past Year Among Persons 18–64 Years of Age, 2014

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List of Abbreviations/Acronyms

A AALL—American Association of Labor Legislation

AAMC—Association of American Medical Colleges

AA/PIs—Asian Americans and Pacific Islanders

AAs—Asian Americans

ACA—Affordable Care Act

ACNM—American College of Nurse-Midwives

ACO—accountable care organization

ACS—American College of Surgeons

ADA—American Dental Association

ADC—adult day care

ADLs—activities of daily living

ADN—associate’s degree nurse

AFC—adult foster care

AHA—American Hospital Association

AHRQ—Agency for Healthcare Research and Quality

AIANs—American Indians and Alaska Natives

AIDS—acquired immunodeficiency syndrome

ALF—assisted living facility

ALOS—average length of stay

AMA—American Medical Association

AMDA—American Medical Directors Association

ANA—American Nurses Association

APCs—ambulatory payment classifications

APN—advanced practice nurse

ARRA—American Recovery and Reinvestment Act

ASPR—Assistant Secretary for Preparedness and Response


BBA—Balanced Budget Act

BPCI—bundled payments for care improvement

BSN—baccalaureate degree in nursing

BWC—Biological and Toxin Weapons Convention

C CAH—critical access hospital

CAM—complementary and alternative medicine

CBO—Congressional Budget Office

CCAH—continuing care at home

CCRC—continuing care retirement center/community

CDC—Centers for Disease Control and Prevention

CDSS—clinical decision support system

CEO—chief executive officer

CEPH—Council on Education for Public Health

CER—comparative effectiveness research

CF—conversion factor

CHAMPVA—Civilian Health and Medical Program of the Department of Veterans Affairs

CHC—community health center

CHIP—Children’s Health Insurance Program

CMGs—case-mix groups

C/MHCs—community and migrant health centers

CMS—Centers for Medicare and Medicaid Services

CNA—certified nursing assistant

CNM—certified nurse-midwife

CNS—clinical nurse specialist

COBRA—Consolidated Omnibus Budget Reconciliation Act

CON—certificate of need

COPC—community-oriented primary care

COTA—certified occupational therapy assistant

COTH—Council of Teaching Hospitals and Health Systems

CPI—consumer price index

CPOE—computerized provider order entry

CPT—Current Procedural Terminology

CQI—continuous quality improvement

CRNA—certified registered nurse anesthetist

CT—computed tomography

D DC—Doctor of Chiropractic

DD—developmental disability

DDS—Doctor of Dental Surgery

DGME—Direct Graduate Medical Education

DHHS—U.S. Department of Health and Human Services

DHS—Department of Homeland Security

DMD—Doctor of Dental Medicine

DME—durable medical equipment

DO—Doctor of Osteopathic Medicine

DoD—Department of Defense

DPM—Doctor of Podiatric Medicine

DRA—Deficit Reduction Act

DRGs—diagnosis-related groups

DSM-5—Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition

DTP—diphtheria/tetanus/pertussis (vaccine)

E EBM—evidence-based medicine

EBRI—Employee Benefit Research Institute


ECU—extended care unit

ED—emergency department

EHRs—electronic health records

EMT—emergency medical technician

EMTALA—Emergency Medical Treatment and Active Labor Act

ENP—Elderly Nutrition Program

ERISA—Employee Retirement Income Security Act

ESRD—end-stage renal disease

F FD&C Act—Federal Food, Drug, and Cosmetic Act

FDA—Food and Drug Administration

FMAP—Federal Medical Assistance Percentage

FPL—federal poverty level

FTE—full-time equivalent

FY—fiscal year

G GAO—General Accounting Office

GDP—gross domestic product

GP—general practitioner

H HAART—highly active antiretroviral therapy

HCBS—home- and community-based services

HCBW—home- and community-based waiver

HCH—Health Care for the Homeless

HCPCS—Healthcare Common Procedures Coding System

HDHP—high-deductible health plan

HDHP/SO—high-deductible health plan with a savings option

HEDIS—Healthcare Effectiveness Data and Information Set

HHRG—home health resource group

HI—hospital insurance

HIAA—Health Insurance Association of America

Hib—Haemophilus influenzae serotype b

HIO—health information organization

HIPAA—Health Insurance Portability and Accountability Act

HIT—health information technology

HITECH— Health Information Technology for Economic and Clinical Health Act

HIV—human immunodeficiency virus

HMO—health maintenance organization

HMO Act—Health Maintenance Organization Act

HPSAs—health professional shortage areas

HPV—human papillomavirus

HRA—health reimbursement arrangement

HRQL—health-related quality of life

HRSA—Health Resources and Services Administration

HSA—health savings account

HTA—health technology assessment

HUD—U.S. Department of Housing and Urban Development


IADLs—instrumental activities of daily living

ICF—intermediate care facility

ICF/IID—intermediate care facilities for individuals with intellectual disabilities

ICF/MR—intermediate care facilities for the mentally retarded

ID—intellectual disability

IDD—intellectual/developmental disability

IDEA—Individuals with Disabilities Education Act

IDS—integrated delivery systems

IDU—injection drug use

IHR—International Health Regulations

IHS—Indian Health Service

IME—Indirect Medical Education

IMGs—international medical graduates

IOM—Institute of Medicine

IPA—independent practice association

IRB—institutional review board

IRF—inpatient rehabilitation facility

IRMAA—Income-Related Monthly Adjustment Amount

IRS—Internal Revenue Service

IS—information systems

IT—information technology


L LPN—licensed practical nurse

LTC—long-term care

LTCH—long-term care hospital

LVN—licensed vocational nurse

M MA—Medicare Advantage

MA-PD—Medicare Advantage Prescription Drug Plan

MA-SNP—Medicare Advantage Special Needs Plan

MACPAC—Medicaid and CHIP Payment and Access Commission

MACRA—Medicare Access and CHIP Reauthorization Act

MBA—Master of Business Administration

MCOs—managed care organizations

MD—Doctor of Medicine

MDS—Minimum Data Set

MedPAC—Medicare Payment Advisory Com- mission

MEPS—Medical Expenditure Panel Survey

MERS—Middle East respiratory syndrome

MFP—Money Follows the Person

MHA—Master of Health Administration

MHS—multihospital system

MHSA—Master of Health Services Administration

MIPS—Merit-based Incentive Payment System

MLP—midlevel provider

MLR—medical loss ratio

MMA—Medicare Prescription Drug, Improvement, and Modernization Act

MMR—measles/mumps/rubella vaccine

MPA—Master of Public Administration/Affairs

MPFS—Medicare Physician Fee Schedule

MPH—Master of Public Health

MRHFP—Medicare Rural Hospital Flexibility Program

MRI—magnetic resonance imaging

MSA—metropolitan statistical area

MS-DRGs—Medicare severity diagnosis-related groups

MSO—management services organization

MSSP—Medicare Shared Savings Program

MUAs—medically underserved areas

N NAB—National Association of Boards of Examiners of Long-Term Care Administrators

NAPBC—National Action Plan on Breast Cancer

NCCAM—National Center for Complementary and Alternative Medicine

NCCIH—National Center for Complementary and Integrative Health

NCHS—National Center for Health Statistics

NCQA—National Committee for Quality Assurance

NF—nursing facility

NGC—National Guideline Clearinghouse

NHC—neighborhood health center

NHE—national health expenditures

NHI—national health insurance

NHS—national health system

NHS—U.K. National Health Service

NHSC—National Health Service Corps

NICE—National Institute for Health and Clinical Excellence

NIH—National Institutes of Health

NIMH—National Institute of Mental Health

NP—nurse practitioner

NPP—nonphysician practitioner

NRP—National Response Plan

O OAM—Office of Alternative Medicine

OBRA—Omnibus Budget Reconciliation Act

OD—Doctor of Optometry

OI—opportunistic infection

OPPS—Outpatient Prospective Payment System

OT—occupational therapist

OWH—Office on Women’s Health

P P4P—pay-for-performance

PA—physician assistant

PACE—Program of All-Inclusive Care for the Elderly

PAHPA—Pandemic and All-Hazards Preparedness Act

PASRR—Preadmission Screening and Resident Review

PBMs—pharmacy benefits managers

PCCM—primary care case management

PCGs—primary care groups

PCMH—patient-centered medical home

PCP—primary care physician

PDP—stand-alone prescription drug plan

PERS—personal emergency response system

PET—positron emission tomography

PFFS—private fee-for-service

PharmD—Doctor of Pharmacy

PhD—Doctor of Philosophy

PHI—personal health information

PHO—physician–hospital organization

PhRMA—Pharmaceutical Research and Manufacturers of America

PMPM—per member per month

POS—point-of-service (plan)

PPD—per-patient day (rate)

PPM—physician practice management

PPO—preferred provider organization

PPS—prospective payment system

PRO—peer review organization

PSO—provider-sponsored organization

PSRO—professional standards review organization

PsyD—Doctor of Psychology

PTA—physical therapy assistant

PTCA—percutaneous transluminal coronary angioplasty

PT—physical therapist

Q QALY—quality-adjusted life year

QI—quality indicator

QIO—quality improvement organization

R R&D—research and development

RBRVS—resource-based relative value scales

RN—registered nurse

RUGs—resource utilization groups

RVUs—relative value units

RWJF—Robert Wood Johnson Foundation

S SAMHSA—Substance Abuse and Mental Health Services Administration

SARS—severe acute respiratory syndrome

SAV—small area variations

SES—socioeconomic status

SGR—sustainable growth rate

SHI—socialized health insurance

SMI—supplementary medical insurance

SNF—skilled nursing facility

SPECT—single-photon emission computed tomography

SSI—Supplemental Security Income

STD—sexually transmitted disease

T TAH—total artificial heart

TANF—Temporary Assistance for Needy Families

TCU—transitional care unit

TEFRA—Tax Equity and Fiscal Responsibility Act

TPA—third-party administrator

TQM—total quality management

U UCR—usual, customary, and reasonable

UR—utilization review

V VA—Department of Veterans Affairs

VBP—Value-Based Purchasing

VHA—Veterans Health Administration

VISN—Veterans Integrated Service Network

W WHO—World Health Organization

WIC—Special Supplemental Nutrition Program for Women, Infants, and Children

Chapter opener photo: © f11photo/Shutterstock

CHAPTER 1 An Overview of U.S. Health Care Delivery


■ 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


The U.S. health care delivery system is a behemoth that is almost impossible for any single entity to manage and control.

▶ 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 automatically covered by health insurance.

Though U.S. health care is often called a system because is has various features, components, and services, it may be misleading to talk about the American health care delivery “system,” because a true, cohesive system does not exist (Wolinsky, 1988). Indeed, a major feature of the U.S. health care system is its fragmented 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 structural and conceptual basis for the delivery of health care services, this text is organized 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 referred 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 delivered in other countries are also presented 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 continuing care. A large number of managed care organizations (MCOs) and integrated networks now provide a continuum of care, covering many of the service components.

TABLE 1-1 The Complexity of Health Care Delivery

Education/Research Suppliers Insurers Providers Payers Government

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

Pharmaceutical companies Multipurpose suppliers Biotechnology companies

Managed care plans Blue Cross/Blue Shield plans Commercial insurers Self-insured employers Medicare Medicaid Veterans Affairs Tricare

Preventive Care Health departments Primary Care Physician offices Community health centers Dentists Nonphysician providers Subacute Care Subacute care facilities Ambulatory surgery centers Acute Care Hospitals Auxiliary Services Pharmacists Diagnostic clinics

Blue Cross/Blue Shield plans Commercial insurers Employers Third-party administrators State agencies

Public insurance financing Health regulations Health policy Research funding Public health

Administration, Indian Health Service, National Institutes of Health, Substance Abuse and Mental Health Services Administration) Professional associations Trade associations

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

The U.S. health care delivery system is massive, with total employment that exceeded 16.4 million people in 2010 in various health delivery settings. This number included more than 838,000 professionally active doctors of medicine (MDs), 70,480 osteopathic physicians (DOs), and 2.6 million active nurses (U.S. Census Bureau, 2012). The majority of health care and health services professionals (5.98 million) work in ambulatory health service settings, such as the offices of physicians, dentists, and other health practitioners, medical and diagnostic laboratories, and home health care service locations. Smaller proportions of these professionals are employed by hospitals (4.7 million) and nursing and residential care facilities (3.13 million). The vast array of health care institutions in the United States includes approximately 5,795 hospitals, 15,700 nursing homes, and 13,337 substance abuse treatment facilities (U.S. Census Bureau, 2012).

In 2015, 1,375 federally qualified health center grantees, with 188,851 full-time employees, provided preventive and primary care services to approximately 24.3 million people living in medically underserved rural and urban areas (Health Resources and

Services Administration [HRSA], 2015). Various types of health care professionals are trained in 180 medical and osteopathic schools (Association of American Medical Colleges, 2017), 66 dental schools (American Dental Association, 2017), 136 schools of pharmacy (American Association of Colleges of Pharmacy, 2017), 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 function as a rational and integrated network of components designed to work together coherently. To the contrary, it is a kaleidoscope of financing, insurance, delivery, and payment mechanisms that remain loosely coordinated. Each of these basic functional components represents an amalgam of public (government) and private 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, military personnel, American Indians/Alaska Natives, and some uninsured people. Nevertheless, the financing, insurance, payment, and delivery functions largely remain in private hands.

The market-oriented economy in the United States attracts a variety of private 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 private sector. The government finances public insurance through Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) for a significant portion of the country’s low-income, elderly, disabled, and pediatric populations. However, insurance arrangements for many publicly insured people are made through private entities, such as health maintenance organizations (HMOs), and health care services are rendered by private physicians 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 arrangements for health care services Numerous insurance agencies or MCOs that employ various mechanisms 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 medical services are delivered Numerous consulting firms offering expertise in planning, cost containment, electronic systems, quality, and restructuring of resources

There is little standardization in a system 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, overlap, 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 entrepreneurial system seek to manipulate financial incentives to their own advantage, without regard to their impact on the system 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 system 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 objectives: (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 technology, training, and research. It offers some of the most sophisticated institutions, 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 functional 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 integrated and may be indistinguishable. Managed care arrangements also integrate the four functions to varying degrees.

FIGURE 1-1 Basic health care delivery functions.

Financing Financing is necessary to obtain health insurance or to pay for health care services. For most privately insured Americans, health insurance is employment based; that is, the employers finance health care as a fringe benefit for their employees. A dependent spouse or children may also be covered by the working spouse’s or working parent’s employer. Most employers purchase health insurance for their employees through an MCO or an insurance company selected by the employer. Small employers may or may not be in a position to afford health insurance coverage for their employees. In public programs, the government functions as the financier; the insurance function may be carved out to an HMO.

Insurance Insurance protects the insured against financial catastrophe by providing expensive health care services when needed. The insurance function determines the package of health services that the insured individual is entitled to receive. 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 disbursement of funds to the health care providers.

Delivery The term “delivery” refers to the provision of health care services by various providers. 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 medical equipment (e.g., wheelchairs, walkers, ostomy supplies, oxygen). With few exceptions, most providers render services to people who have health insurance and even those covered under public insurance programs receive health care services from private providers.

Payment The payment function deals with reimbursement 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 insurance 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 covered 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 individuals, 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 Medicaid. The program for children from low-income families, another federal/state partnership, is called the Children’s Health Insurance Program (CHIP).

However, the predominant employment-based financing system in the United States has left some employed individuals uninsured for two main reasons. First, some small businesses simply cannot get group insurance at affordable rates and, therefore, are not able to offer health insurance as a benefit to their employees. Second, in some work settings, participation in health insurance programs is voluntary, 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 insurance premium; instead, most require their employees to pay a portion of the cost. This is called premium cost sharing. Self- employed people and other individuals who are not covered by employer-based plans have to obtain health insurance on their own. Individual rates are typically 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.

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 insurance coverage. The Patient Protection and Affordable Care Act of 2010, more commonly 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 2010, when insurance companies were mandated to start covering children and young adults younger than age 26 under their parents’ health insurance plans. Most other insurance provisions went into effect on January 1, 2014, except for a mandate for employers to provide health insurance, which was postponed until 2015. 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 expansion based on a 2012 ruling by the U.S. Supreme Court. Individuals without private or public insurance had to obtain health insurance from participating 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 Medicaid 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 Parente and Feldman (2013) 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 later in this text.

By March 2015, approximately 16.5 million uninsured Americans had gained health insurance coverage due to the Affordable Care Act (“Impact of Obamacare on Coverage,” 2016). By 2016, an estimated 20 million had gained coverage (Uberoi et al., 2016), and by 2017, 31 states and the District of Columbia had expanded Medicaid through the ACA’s provisions (Kaiser Family Foundation, 2017). By March 2016, states that had expanded Medicaid experienced an 8.1% decline in their uninsured rate (from 18.2% to 10.1%). States that had not expanded Medicaid experienced a comparably smaller decline of 7.3%—from 23.4% to 16.1% (“Impact of Obamacare on Coverage,” 2016). 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 uninsured rate declined from 22.4% to 10.6% among African Americans, from 41.8% to 30.5% among Hispanics, and from 14.3% to 7.0% among whites (Uberoi et al., 2016). 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 18.9% to 9.5%, whereas the uninsured rate among males decreased from 21.8% to 13.6% (Uberoi et al., 2016). Despite these gains, however, the ACA left more than 27.3 million Americans uninsured in 2016 (Cohen et al., 2016).

During his first week in office in January 2017, President Donald Trump signed an Executive Order to repeal and replace the ACA (commonly referred to as Obamacare) in an effort to minimize the ACA’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.

▶ Role of Managed Care Under traditional insurance, the four basic health delivery functions have been fragmented; with few exceptions, the financiers, insurers, providers, and payers have been different entities. However, during the 1990s, health care delivery in the United States 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, determination 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 efficiency by integrating the four functions of health care delivery discussed earlier; (2) employs mechanisms to control (manage) 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 organization (PPO), to offer a selected health plan to its employees. In this case, the MCO 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 covered 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 delivery under fee-for-service plans, managed 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 predictability 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 services delivery system. These forces consist of a national political climate, economic development, technological progress, social and cultural values, physical environment, population characteristics (i.e., demographic and health trends), and global influences (FIGURE 1-2). The combined interaction of these environmental forces influence the course of health care delivery.

FIGURE 1-2 External forces affecting 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 practice 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 is no longer accepted as an unachievable goal.

No Central Agency Unlike health care systems in most developed nations, the U.S. health care system is not administratively controlled by a department or agency. Most other developed 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 allocate resources within budgetary limits. As a consequence, both availability of services and payments to providers are subject to such budgetary constraints. The governments of these nations also control the proliferation 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 available to citizens. For instance, the availability of specialized services is restricted.

By contrast, the United States has a mainly private system of financing and delivery. Private financing, predominantly through employers, accounts for approximately 52% of total health care expenditures; the government finances the remaining 48% (Centers for Medicare and Medicaid, 2015). Private delivery of health care means that the majority of hospitals and physician clinics are private businesses, which are independent 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 standards of participation through health policy and regulation, meaning providers must comply with the standards established by the government to be certified to provide services to Medicare, Medicaid, and CHIP beneficiaries. Certification standards are regarded as minimum standards of quality in most sectors of the health care industry.

Partial Access Access means the ability of an individual 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 insurance with their own private funds; (4) are able to pay for services privately; or (5) can obtain charity or subsidized care. Health insurance is the primary means for ensuring 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 physician services to anyone regardless of ability 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

emergency departments (EDs) are required to evaluate a patient’s condition and render medically needed services for which the hospital does not receive any direct payments unless the patient is able to pay. Therefore, even uninsured are able to obtain medical care for acute illness. While one can say that the United States does have a form of universal catastrophic health insurance, it does not guarantee the uninsured access to continual basic and routine care, commonly referred to as primary care (Altman and Reinhardt, 1996).

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 a theoretical 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 system 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 does 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 external agency. Rather, prices are governed by the free and unencumbered interaction 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 quantity demanded will increase as the price is lowered for a given product or service. Conversely, the quantity demanded will decrease as the price increases.

FIGURE 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 nonmarket

forces. It is important to keep in mind that these conditions exist only under free-market conditions,

which are not characteristic of the U.S. health care market.

At first glance, it might appear that multiple patients and providers do exist. Most patients, however, 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 the power from the patients to the administrators of the plans. The

result is that the health plans—not the patients—are the real buyers in the health care services market. Private health plans, in many instances, offer 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 external 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 been forcing providers to form alliances and integrated delivery systems on the supply side. In certain geographic sectors of the country, a single giant medical system has taken over as the sole provider of major health care services, restricting competition. As the overall health care system continues 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 market requires that patients have information about the appropriateness of various services to their needs. Such information is difficult to obtain because technology-driven medical care has become highly sophisticated. Knowledge about new diagnostic methods, intervention techniques, and more effective drugs fall in the domain of the professional physician, not the patient. Moreover, 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 information 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 purpose of insurance is to protect against the risk of unforeseen catastrophic events. Since the fundamental purpose of insurance is to reimburse major expenses when unlikely events occur, having insurance for basic and routine health care undermines 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 occurrence of a loss. The probability that you will suffer a loss by fire is very small. If a fire does occur and cause major damage, insurance will cover the loss, but insurance 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 the ability of patients 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 medical experts believe a person should have to remain or become healthy (Feldstein, 1993). Second, the delivery of health care can result in demand creation. This follows from self- assessed need, which, coupled with moral hazard, leads to greater utilization, creating an artificial demand because prices are not taken into consideration. Practitioners who have a financial interest in additional treatments also create artificial demand (Hemenway

and Fallon, 1985). This is 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 (Altman and Wallack, 1996). Demand creation occurs when physicians prescribe medical care beyond what is clinically necessary. This can include practices such as making more frequent follow-up appointments than necessary, prescribing excessive medical tests, or performing unnecessary surgery (Santerre and Neun, 1996).

In a free market, patients have information 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 to illustrate item-based (also known as fee-for-service) pricing. Patients can generally obtain 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 anesthetists, and pathologists. These providers, sometimes referred to as phantom providers, 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. Package pricing can help overcome these drawbacks, but it has made relatively little headway for pricing medical procedures. Package pricing refers to a bundled fee for a package of related services. In the surgery example, this would mean one all-inclusive price for the surgeon’s fees, hospital facilities, supplies, diagnostics, pathology, anesthesia, and postsurgical follow-up.

Third-Party Insurers and Payers Insurance often functions as the intermediary among those who finance, deliver, and receive health care. The insurance intermediary

does not have an incentive to be the patient’s advocate on either price or quality. At best, employees can air their dissatisfactions with the plan to their employer, who has the power to discontinue the current plan and choose another company. In reality, 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 also referred to as a single-payer system because there is one primary payer, the government. When delivering services, providers send the bill to a government agency that subsequently sends payments 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. Multiple payers 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 establishes its own format. Payments can be denied for not precisely following the requirements set by each payer. Denied claims necessitate rebilling. When only partial payment is received, some health plans may allow the provider to balance bill the patient for the amount the health plan did not pay, the difference between provider charges and insurance payment. Other plans prohibit balance billing. Even when the balance billing option is available to the provider, it triggers a new cycle of billings and collection efforts. Providers must sometimes engage in lengthy collection efforts, including 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 actually 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 administrative costs—costs associated with billing, collections, bad debts, and maintaining medical records—than do the national health care systems in other countries.

Power Balancing The U.S. health care system involves multiple 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, physicians, and hospitals make up the powerful 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 interference with the way they practice medicine; 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 programs 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 reimbursement 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 conflicting self-interests, achieving comprehensive system-wide reform has been 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 the 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 lawsuits is a real consideration in the practice of medicine. To protect themselves against the possibility of litigation, practitioners may engage in what is referred to as defensive medicine by prescribing additional diagnostic 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 been the hotbed of research and innovation in new medical technology. Growth in science and technology often creates demand for new services despite shrinking resources to finance sophisticated care. People generally 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 technicians want to try the latest gadgets. Hospitals 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 providers 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), restorative (e.g., physical, occupational, and speech therapies), and preventive (i.e., prenatal care, mammograms, and immunizations). 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 configuration 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.

TABLE 1-2 The Continuum of Health Care Services

Types of Health Services

Delivery Settings

Preventive care Public health programs Community programs Personal lifestyles Primary care settings

Primary care Physician’s office or clinic Community health centers Self-care Alternative medicine

Specialized care Specialist provider clinics

Chronic care Primary care settings Specialist provider clinics Home health Long-term care facilities Self-care Alternative medicine

Long-term care Long-term care facilities Home health

Subacute care Special subacute units (hospitals, long-term care facilities) Home health Outpatient surgical centers

Acute care Hospitals

Rehabilitative care Rehabilitation departments (hospitals, long-term care facilities) Home health Outpatient rehabilitation centers

End-of-life care Hospice services provided in a variety of settings

Quest for Quality Even though the definition and measurement 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 compliance with those standards. There are higher expectations for improved health outcomes at the individual and community levels. The concept of continual quality improvement has also received much emphasis in managing health care institutions.

▶ Trends and Directions Since the 1980s, the U.S. health care delivery system has continued to undergo fundamental shifts in emphasis, summarized in FIGURE 1-4. Later chapters discuss these transformations in greater detail and focus on the factors driving them.

FIGURE 1-4 Trends and directions in health care delivery.

These trends have been primarily driven by the desire to promote health while reducing costs. An example of a fundamental shift is the concept of health itself. Health is now increasingly seen as the presence of wellness rather than solely the absence of illness. Such a change requires new methods for wellness promotion, although the treatment of illness remains the primary goal of the health care delivery system. The ACA had partially shifted the focus from disease treatment to disease prevention, better health outcomes for individuals and communities, 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. This is challenging because

patients are more informed about high-tech discoveries while economic conditions are also more uncertain. In response, players in the health care system have been moving toward providing more effective and efficient quality care. Recent trends have focused more on delivery of services by mid-level health professionals and health coaches as well as use of health information technology (HIT). However, the health care system continues to face challenges related to managing costs, focusing on care delivery, adopting new technologies, delivering new operating models, and meeting various federal and state regulations (Deloitte, 2017).

Patients with multiple chronic conditions use the most health services and each chronic condition increases costs by a factor of three (DeVore, 2014). Managing chronic diseases has been a major focus of efforts to control health care costs. Chronic care models, patient-centered care, and continuous care are being implemented as means to improve health care delivery performance, quality, and patient health outcomes. In particular, patient-centered medical homes (PCMHs) and ambulatory intensive care units (A-ICUs) are being incorporated into accountable care organizations (ACOs). The main objective in establishing these programs is to better manage chronic conditions exclusively within a “clinically integrated, financially accountable primary care practice” (DeVore, 2014). Ultimately, providers hope these measures can address behavioral health needs, lower hospital utilization rates, decrease inpatient bed-days, shorten lengths of stay, limit admissions and readmissions, and minimize ED visits.

Mid-level health care professionals and health coaches are important for managing chronic conditions and reducing costs. Health coaches, for examples, complement medical professionals by getting to know patients through one-on-one 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.

Similarly, HIT has helped improve access to information and, consequently, health. The market for telemedicine and remote monitoring applications was estimated to double from $11.6 billion in 2011 to $27.3 billion in 2016 (DeVore, 2014). This growth is 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 otherwise need inpatient care. In this way, HIT also 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 decision support tools, enabled providers to automate processes to reduce redundancy, and captured more clinical data (DeVore, 2014). Trends toward greater interoperability of health information systems, along with open source interfaces, will allow for greater transparency, increased availability of data, and more creative use of data.

▶ Significance for Health Care Practitioners

An understanding of the intricacies within the health services system would be beneficial to all those who come in contact with the system. In their respective training programs, health professionals, such as physicians, nurses, technicians, therapists, dietitians, and pharmacists may understand 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 professionals 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 system has specific implications for both private and public health services managers, who must understand the macro environment in which they make critical 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 government regulations.

For the foreseeable future, the environment of health care delivery will remain fluid and dynamic. The viability of delivery and the success of health care managers often depends on how the managers react to the system dynamics. Timeliness 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 indispensable 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 executive 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, insurance, 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 departments must be eliminated, modified, or added. Would the changes involve further 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 providers and the recipients of care.

Handling Threats and Opportunities Changes in any of the functions of financing, 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 services in the establishments they manage. Health care reform has brought more individuals into the U.S. health care system, creating greater demand for health services. Planning and staffing to ensure the right mix of health care workers are available to meet this anticipated surge in demand are critical.


Senior managers are often responsible for strategic planning regarding which services 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 delivery, 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, payment, and delivery functions. New opportunities must be explored before any newly evolving segments of the market become crowded with competition. An understanding of the dynamics within the system is essential to forging new marketing strategies that will let the institution stay ahead of the competition and, in some cases, find a service niche.

Complying with Regulations Delivery of health care services is heavily regulated. Health care managers must comply with government regulations, such as standards of participation in government programs, licensing rules, 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 drastic changes to their reimbursement methodologies that have triggered the need for operational changes in the way services are organized and delivered. Private agencies, such as the Joint Commission, also play an indirect regulatory role, mainly in the monitoring of 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 themselves with the rules and regulations governing their areas of operation.

Following 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, managers can be in a better position to fulfill their organizational missions to enhance access, improve service quality, and achieve efficiency 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 coverage (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 private providers. In the context of the quad-function model, NHI requires a tighter consolidation of the financing, insurance, and payment functions 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 infrastructure 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 consolidation of all four functions. In a socialized health insurance (SHI) system, such as that found in Germany, government-mandated contributions from employers and employees finance health care. Private providers deliver health care services. Private, not-for-profit insurance companies, called sickness funds, are responsible for collecting the contributions and paying physicians and hospitals (Santerre and Neun, 1996). The insurance and payment 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 the remainder of 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 discussion 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 a sample 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 system is built on the philosophy that everyone should contribute to the cost of health care according to his or her capacity to pay. In addition to carrying Medicare, approximately 49% of Australians carry private health insurance (Australian Government, Department of Health, 2016) to cover gaps in public coverage, such as dental services and care received in private 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 nonpurchasers (Healy, 2002). Public hospital spending is funded by the government, but private hospitals offer better choices. Costs incurred by patients receiving private 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 composed 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 established the

architecture for national health insurance reform. In particular, the Agreement provides for more sustainable funding arrangements for Australia’s health system. At the same time, the National Health Reform Act 2011 establishes a new Independent Hospital Pricing Authority and a National Health Performance Authority. The Pricing Authority determines and publishes the national price for services provided by public hospitals. The Commonwealth Government determines its contribution to funding public hospitals on the basis of these prices. The Performance Authority is charged with monitoring and reporting on the performance of local hospital networks, public and private hospitals, primary health care organizations, and other bodies or organizations that provide health care services. The 2011 act also provides a new statutory framework for the Australian Commission on Safety and Quality in Health Care (Australian Government, 2011).

Australia is focused on developing various health service delivery models to contain costs and provide quality and accessible care (Brownie et al., 2014). Notably, Australia has encouraged interprofessional practice as a means to enhance socioeconomic development and improve health outcomes (Brownie et al., 2014). COAG defined new 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 hospital 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 Welfare, 2017).

Additionally, Australia has developed a National Primary Health Care Strategy and established a Preventative Health Taskforce to lead its National Preventative Health Strategy (Policy Review, 2010). The National Primary Health Care Strategy aims to better incentivize prevention, promote evidence-based management of chronic disease, support the role of general practitioners 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, such as physiotherapists and dieticians (Policy Review, 2010). The Preventative Health Taskforce aims to stop the obesity epidemic, reduce the prevalence of daily smoking to less than 9%, reduce the prevalence of binge consumption and other harmful alcohol consumption habits by 30%, and reduce the 17- year life expectancy gap between indigenous and non-indigenous people by the year 2020 (Policy Review, 2010). Other health reforms seek to achieve continuity of care, provide high-quality education and training for existing and incoming health care workers, and embed a culture of interprofessional 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 revenues; 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 expenditures, and nonconsumption expenditures (Canadian Institute for Health Information, 2012). Many employers also offer private insurance that gives their employees supplemental coverage.

Provincial and territorial departments of health have the responsibility to administer 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 surgery (46.9 weeks) (Barua et al., 2016).

Nearly all the Canadian provinces—Ontario is one of the exceptions —have resorted to regionalization of health care services, through the creation of administrative districts within each province. The objective of regionalization is to decentralize authority and responsibility in order to more efficiently address local needs and to promote citizen participation in health care decision making (Church and Barker, 1998). The majority of Canadian hospitals are operated as private nonprofit entities run by community boards of trustees, voluntary organizations, or municipalities, and most physicians are in private practice (Health Canada, 2013). Most provinces use global budgets and allocate set reimbursement amounts for each hospital. Physicians are paid fee-for-service rates, which are negotiated between each provincial government and medical association (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, pharmaceutical management, EHRs, health innovation, 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 delivery and financing remains a challenge. Spending on health care has increased dramatically in recent decades, from approximately 7% of program spending at the provincial level in the 1970s to almost 41% in 2015.

It is expected to surpass 50% in every province and territory within the next few years (Barua et al., 2016).

With global pressure on 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 associations; and (2) a lack of follow-through from provincial governments (Dickson, 2016).

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 Minister and Attorney General, 2016). Other initiatives include collaboration between provincial and territorial governments to purchase drugs in bulk and cut costs in order to make drugs more affordable to patients and also a program to improve access to high-quality mental health services, 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 significant changes. In urban China, health insurance has evolved from a predominantly public insurance (either government or public enterprise) system to a multipayer system. Government employees are covered under government insurance as a part of their benefits. Employees for public enterprises are largely covered through public enterprise insurance, but the actual benefits and payments vary according to the financial well-being of the enterprises. Employees of foreign businesses or joint ventures are typically well insured through private insurance arrangements. Almost all of these plans contain costs through a variety of means, such as experience-

based premiums, deductibles, copayments, and health benefit dollars (i.e., pre-allocated benefit dollars for health care that can be converted into income if not fully used). The unemployed, self- employed, and employees working for small enterprises (public 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 Cooperative 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 are still very limited.

Similarly to the United States, China has been facing the growing problems of a large uninsured population and health care cost inflation. Although health care funding was increased by 87% 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 dependents, 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. Health care cost inflation is also growing 7% faster than the growth rate for China’s gross domestic product (GDP), which is 16% per year (Yip and Hsiao, 2008).

In recent years, health care delivery 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, these are still flaws in this system, particularly in monitoring infectious diseases in the remote localities that comprise some districts (Blumenthal and Hsiao, 2005).

To fix some of its problems, the Chinese government has pushed through health reform initiatives in five major areas: health insurance, pharmaceuticals, primary care, public health, and public/community hospitals. For example, it created the New Cooperative Medical Scheme to provide rural areas with a government-run voluntary insurance program. This program is intended to prevent individuals living in these areas from becoming impoverished 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 uninsured children, elderly persons, and other nonworking urban residents and enrolls them into the program at the household level rather than at the individual level (Wagstaff et al., 2009).

To improve access to primary care, China has reestablished community health centers (CHCs) 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 CHCs that can provide prevention, home care, and rehabilitative services (Yip and Hsiao, 2008; Yip and Mahal, 2008). The CHCs have not been very popular among the public because of their perceived lack of quality and because of

their poor reputation from perceived lack of quality. It remains uncertain whether China will restore its previously integrated health care delivery system, aimed at achieving universal access, or continue on its current course toward greater medical specialization and privatization.

Another major component of Chinese health reform has been the establishment of an essential drug system that aims to enhance access to and reduce out-of-pocket spending for essential medicines. The reform policies specified a comprehensive system including selection, procurement, pricing, prescription, and quality and safety standards (Barber et al., 2013).

In terms of public hospital reform, quality, efficiency, and development of a hospital governance structure have been emphasized. Several pilot reforms have been launched in various cities in China, but no national implementation plan has been formulated (Yip et al., 2012).

China’s National Health and Family Planning Commission (previously the Ministry of Health) and State Council have detailed several health reform objectives, such as constraining drug prices, enhancing the affordability of medical services at public hospitals, and improving staff performance (Hsu, 2015). Eliminating markups on drug sales in hospitals has led to financial losses in country-level pilot programs, although government subsidies to these programs have increased.

In 2012, China lifted restrictions on foreign investments in private hospitals in an effort to increase the number of hospitals 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 those privately insured to deduct 2,400

Renminbi 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 underdevelopment in rural areas. Thus, the latest reforms target three main areas: infrastructure development, reduction of costs expansion of insurance coverage, and investment in novel technologies. Importantly, 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. “About 86 percent of the population receive their primary coverage through SHI and 11 percent through substitutive PHI” and there are also special programs to cover the rest of the population (Blumel and Busse, 2016). Sickness funds act as purchasing entities by negotiating contracts with hospitals. However, paying for the increasing costs of medical care has proved challenging in Germany because of an aging population, fewer people in the workforce, and stagnant 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. Inpatient care is paid per admission based on diagnosis-related groups (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 introduced 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 (World Health Organization [WHO], 2014). The Hospital 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 quality of medical services, patient satisfaction, and accessibility of health services in rural communities (WHO, 2014).

The most 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 municipalities the right to establish medical treatment centers, gave patients the right to see a specialist within 4 weeks, and promoted 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 workplace, and long-term care facilities. In addition, the 2016 Hospital Care Structure Reform Act introduced quality aspects in the regulation of hospital volume and payments (Blumel and Busse, 2016). Substantial 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 is called the National Health Service (NHS). The 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 hospital-based specialists and other staff on a salaried basis. The primary care physicians, 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 were on average 7,171 patients per practice and 1,530 patients per GP (Thorlby and Arora, 2016).

The NHS emphasizes free point 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 Commissioning 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 responsibility for community health services; each person living in a given geographic area is assigned to a particular PCT. A typical PCT is responsible for approximately 50,000 to 250,000 patients (Dixon and Robinson, 2002). PCTs function independently 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).

England, Scotland, Wales, and Northern Ireland are taking their own approaches to health care. England is moving toward decentralization, reinforcement of an internal market, and more localized decision making (HSPM, 2015). Scotland and Wales are dissolving the internal market and centralizing authority. While Scotland is embracing a publicly funded universal health system, England is emphasizing 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 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 system (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 systems, creating multispecialty community providers, and fostering collaborations in acute care. These models will redesign services 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 individuals. When the National Health Insurance (NHI) Law went into effect in 1995, it made insurance coverage mandatory for all Israeli citizens. Adults are required to pay a health tax. General tax revenues supplement the health tax revenues, which the government 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 NHI. In 2013, public funds accounted for 60% of NHI revenues. The remaining share came from individuals’ copayments, supplemental health insurance, and sales of health products (Rosen, 2016).

Health plans (or sickness funds) offer a predefined basic package of health care services and are prohibited from discriminating against those who have preexisting medical conditions. Recent reforms have added mental health and dental care for children to the benefits package (WHO, 2015). The capitation formula has built-in incentives for the funds to accept a larger number of elderly and chronically ill members. Rather than relying 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 system 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 the health plans, the country’s strict regulatory controls on the supply of hospital 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 information exchange for sharing clinical patient data across all general hospitals, health plans, and other providers in the country. Emerging challenges include an increasing 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 hospital care, reducing surgical waiting times,

and enhancing dissemination of comparative 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. Generally, large employers (with more than 300 employees) have their own health programs. Nearly 2,000 private, nonprofit health insurance societies manage insurance for large firms. Smaller companies either band together to provide private health insurance or belong to a government-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 salaries as premiums and receive coverage for approximately 90% of the cost of medical services, with some limitations. 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 public/private payments for medical services, arguing that private payments should be allowed for services not covered by medical 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 create 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 technologies 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 treatment, proportionate to patients’ length of stay regardless of actual provision of tests and interventions. In theory, the DPC system will incentivize hospitals to become more efficient (Nomura and Nakayama, 2005).

Japan’s economic stagnation in the last several years has led to an increased pressure to contain the country’s health care costs (Ikegami and Campbell, 2004). 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 policy required residents in LTC facilities to pay for room and board. It also 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 long-term care systems face sustainability issues similar to those found in the United States, including rising costs and increasing demands for services. The Japanese government is considering and pursuing several options: preventive services, promotion of community- based services, and increases in taxes, premiums, and fees. In 2011, reform centered on the comprehensive community care model was implemented. This model ensures access to long-term care, medical or hospital care, preventive services, residential care facilities, and “life support” (or legal services) within a community

where an elder lives. The focus on prevention and service consolidation is expected to result in health 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 will run 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 systematically 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 GPs and FPs (clinics or hospitals), how organ-specialists currently providing primary 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 working person, including the self-employed, to deposit a portion of earnings into an individual Medisave account. Employers are required to match employee contributions. These savings can be withdrawn only for two purposes: (1) to pay for hospital services and some selected, expensive physician services; or (2) to purchase a government-sponsored insurance plan, called MediShield, for catastrophic (expensive and major) illness. For basic and routine services, people 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, 1995). 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 Management 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 management 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 discouraging 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 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 Middle East and North Africa, South Asia, and sub-Saharan Africa. Of these regions, the latter two have the least resources and the greatest health burden.

On a per-capita basis, industrialized countries have six times as many hospital beds and three times as many physicians than do developing countries. People with private financial means can find reasonably good health care in many parts of the developing world. Unfortunately, the majority of the populations have to depend on limited government services 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 coverage to decrease the financial impoverishment due to health spending, improve health, and increase access to care (Lagomarsino et al., 2012). Trends in health reforms in developing countries include increasing enrollment in government-sponsored health insurance, expanded benefits packages, decreasing out-of- pocket expenditures, and increasing the government’s share of health spending. Countries that have successfully met the Millennium Development 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 environmental 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 Challenges and Reform

There is a huge gap in health care and health status between developing and developed countries. For example, in 2014, the global life expectancy at birth was 71.4 years of age, but life expectancy in the African region was only 60 years (WHO, 2016). In that same year, infant mortality rates varied between 2 deaths per 1,000 live births and 110 deaths per 1,000 live births. There were also wide variations 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, combined 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 universal health coverage (Lagomarsino et al., 2012). Even so, international health assistance continues to play a significant role in health care in many developing countries. Global aid for health care increased from $10 billion in 2000 to $27 billion in 2010 (Sachs, 2012), but then began to decrease in 2011 because of a global recession (Organization for Economic Cooperation and Development [OECD], 2012).

Since 1999, the Bill and Melinda Gates Foundation (2017) has invested $7 billion in international health delivery programs. This foundation’s focus is on coordination of delivery efforts, strengthening of country health systems, and building of integrated delivery systems. Funded initiatives include community health worker programs, information and communications 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 strengthening six interrelated health system functions: (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 of that initiative 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 delivery 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 one understand that the structure of health care services in the United States is based on some foundations, 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).

FIGURE 1-5 The systems model and related chapters.

System Foundations The current health care system is not an accident. Historical, cultural, social, and economic factors 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 delivery can fulfill its primary objective without deploying the necessary human and nonhuman resources. Human resources consist of the various types and categories of workers directly engaged in the delivery of health services to patients. Such personnel—physicians, nurses, dentists, pharmacists, other doctoral-trained professionals, 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 delivery 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 (Health Services Professionals chapter). The nonhuman resources include medical technology and health services financing (discussed in the chapters with those titles, respectively).

Resources are closely intertwined with access to health care. For instance, in certain rural areas of the United States, access is restricted due to a shortage 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 affect access indirectly.

System Processes System resources influence the development and change in the physical infrastructure—such as hospitals, clinics, and nursing homes—essential for the different processes of health care delivery. Most health care services are delivered in noninstitutional settings, mainly associated with processes referred to as outpatient care (Outpatient and Primary Care Services chapter). Institutional health services provided in hospitals, nursing homes, and rehabilitation institutions, for example, are predominantly inpatient services

(Inpatient Facilities and Services chapter). Managed care and integrated systems (discussed in the chapter with that title) represent a fundamental change in the financing (including payment and insurance) and delivery of health care. Special institutional and community-based settings have been developed for long-term care (discussed in the chapter with that title). Delivery of services should be tailored to meet the special needs of certain vulnerable population groups (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 accomplish, 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 standards of quality. The previous three elements of the systems model play a critical role in fulfilling this objective. Access, cost, and quality are the main outcome criteria to evaluate the success of a health care delivery system (Cost, Access, and Quality chapter). Issues and concerns regarding these criteria trigger broad initiatives for reforming the system through health policy (Health Policy chapter).

System Outlook A dynamic health care system must be forward looking. In essence, it must project into the future the accomplishment of desired system outcomes in view of anticipated social, economic, political, technological, informational, ecological, anthro-cultural, and global forces of change (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 subsystems. Health care is delivered through an amalgam of private and public financing, 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 governed 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 perfect health care insurance system, and most nations with a national health care program also have a private sector that varies in size. Because of resource limitations, universal access remains a theoretical concept even in countries that offer universal health insurance coverage. The developing countries of the world also face serious challenges due to the scarcity of resources and strong underlying needs for services in those nations.

Health care managers must understand how the health care delivery system works and evolves. Such an understanding can help them maintain a strategic position within the macro environment of the health care system. The systems framework provides an organized approach to an understanding of the various components of the U.S. health care delivery system.

▶ Test Your Understanding

Terminology access

administrative costs

balance bill

defensive medicine



free market

global budgets

health care reform

health plan

managed care



moral hazard

national health insurance (NHI)

national health system (NHS)


package pricing

phantom providers

premium cost sharing

primary care


provider-induced demand

quad-function model


single-payer system

socialized health insurance (SHI)

standards of participation


third party


universal access

universal coverage


Review Questions 1. Why does cost containment remain an elusive goal in U.S. health

services delivery? 2. What are the two main objectives of a health care delivery system? 3. Name the four basic functional components of the U.S. health care

delivery system. Which 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 are without 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 insurance 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 government 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?

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

13. What is socialized health insurance (SHI)?

14. Provide a general overview of the Affordable Care Act. What is its main goal?

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© f11photo/Shutterstock

PART I System Foundations CHAPTER 2 Beliefs, Values, and Health

CHAPTER 3 The Evolution of Health Services in the United States

Chapter opener photo: © f11photo/Shutterstock

CHAPTER 2 Beliefs, Values, and Health


■ Study the concepts of health and disease, risk factors, and the role of health promotion and disease prevention.

■ Summarize the disease prevention requisites under the Affordable Care Act. ■ Get an overview of public health and appreciate its expanding role in health protection both in

the United States and globally. ■ Explore the determinants of health and measures related to health. ■ Understand the American anthro-cultural values and their implications for health care delivery. ■ Evaluate justice and equity in health care according to contrasting theories. ■ Explore the integration of individual and population health.

“This is the market justice system. Social justice is over there.”

▶ Introduction From an economic perspective, curative medicine appears to produce decreasing returns in health improvement while increasing health care expenditures (Saward and Sorensen, 1980). There has also been a growing recognition of the benefits afforded to society by the promotion of health and the prevention of disease, disability, and premature death. Even so, progress in this direction has been slow because of the prevailing social values and beliefs, which continue to focus on curing diseases rather than promoting health. The common definitions of health, as well as measures for evaluating health status, reflect similar inclinations. This chapter proposes a balanced approach to health, although fully achieving such an ideal is not without difficult challenges. The 10-year Healthy People initiatives, undertaken by the U.S. Department of Health and Human Services (DHHS) since 1980, illustrate steps taken in this direction, even though these initiatives have been typically strong in rhetoric but weak in actionable strategies and sustainable funding.

Anthro-cultural factors reflected in the beliefs and values ingrained in American culture have been influential in laying the foundations of a U.S. health care system that has remained predominantly private, as opposed to a tax-financed national health care program. Discussion of this theme begins in this chapter and continues in the Evolution of Health Services in the United States chapter, where failures of past proposals to create a nationalized health care system are discussed in the context of cultural beliefs and values.

This chapter further explores the issue of equity in the distribution of health services, using contrasting theories of market justice and social justice. U.S. health care delivery incorporates both principles, which are complementary in some ways and create conflicts in other areas.

▶ Significance for Managers and Policymakers

Materials covered in this chapter have several implications for health services managers and policymakers alike:

The health status of a population has tremendous bearing on the utilization of health services, assuming the services are readily available. Planning of health services must be governed by demographic and health trends and initiatives toward reducing disease and disability. The basic meanings of health, determinants of health, and health risk appraisal should be used to design appropriate educational, preventive, and therapeutic initiatives. There is a growing emphasis on evaluating the effectiveness of health care organizations based on the contributions they make to community and population health. The concepts discussed in this chapter can guide administrators in implementing programs that have the greatest value to their communities. Quantified measures of health status and utilization can be used by managers and policymakers to evaluate the adequacy and effectiveness of existing programs, plan new strategies, measure progress, and discontinue ineffective services.

▶ Basic Concepts of Health

Health In the United States, the concepts of health and health care have largely been governed by the medical model, more specifically referred to as the biomedical model. The medical model defines health as the absence of illness or disease. This definition implies that optimal health exists when a person is free of symptoms and does not require medical treatment. However, it is not a definition of health in the true sense. This prevailing view of health emphasizes clinical diagnoses and medical interventions to treat disease or symptoms of disease, but fails to account for prevention of disease and health promotion. Therefore, when the term “health care delivery” is used, in reality it refers to medical care delivery.

Medical sociologists have gone a step further in defining health as the state of optimal capacity of an individual to perform his or her expected social roles and tasks, such as work, school, and household chores (Parsons, 1972). A person who is unable (as opposed to unwilling) to perform his or her social roles in society is considered sick. However, this concept also seems inadequate because many people continue to engage in their social obligations despite suffering from pain, cough, colds, and other types of temporary disabilities, including mental distress. Their efforts are counterbalanced by individuals who shirk their social responsibilities even when they may be in good health. In other words, optimal health is not necessarily reflected in a person’s engagement in social roles and responsibilities.

An emphasis on both the physical and mental dimensions of health is found in the definition of health proposed by the Society for Academic Emergency Medicine. According to this organization,

health is “a state of physical and mental well-being that facilitates the achievement of individual and societal goals” (Ethics Committee, Society for Academic Emergency Medicine, 1992). This view of health recognizes the importance of achieving harmony between the physiological and emotional dimensions.

The definition of health developed by the World Health Organization (WHO) is most often cited as the ideal for health care delivery systems; it recognizes that optimal health is more than the absence of disease or infirmity. WHO (1948) defines health as “a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.” As a biopsychosocial model, WHO’s definition specifically identifies social well-being as a third dimension of health. For example, having a social support network is positively associated with resilience to life stresses, self-esteem, and social relations. Conversely, many studies show that social isolation is associated with a higher risk of poor health and mortality (Pantell et al., 2013).

WHO has also defined a health care system as all the activities whose primary purpose is to promote, restore, or maintain health (McKee, 2001). As this chapter points out, health care should include much more than medical care. Thus, health care can be defined as a variety of services believed to improve a person’s health and well-being.

In recent decades, increased interest has been directed toward holistic health, which emphasizes the well-being of every aspect of what makes a person whole and complete. Thus, holistic medicine seeks to treat the individual as a whole person (Ward, 1995). For example, within this approach, diagnosis and treatment would take into account the mental, emotional, spiritual, nutritional, environmental, and other factors surrounding the origin of disease (Cohen, 2003).

In addition to the physical, mental, and social aspects necessary for optimal health, the spiritual dimension is incorporated as a fourth element in holistic health (FIGURE 2-1). A growing volume of medical literature, both in the United States and abroad, points to the healing effects of a person’s religion and spirituality on morbidity and mortality. The importance of spirituality as an aspect of health care is also reflected in a number of policy documents produced by the WHO (2003) and other bodies.

FIGURE 2-1 The four dimensions of holistic health.

Based on their extensive review of the literature, Chida et al. (2009) concluded that religious practice/spirituality is associated with reductions in deaths from all causes as well as deaths from cardiovascular diseases. Patients with heart disease who attend regular religious services have been found to have a significant survival advantage (Oman et al., 2002). Religious and spiritual beliefs and practices have been shown to have a positive impact on a person’s physical, mental, and social well-being. In addition, many studies have identified a positive relationship between religious practice and protective health behaviors (Chida et al., 2009). Several religious communities promote healthy lifestyles in terms of (lack of) tobacco use, (lack of) alcohol consumption, and diet. An examination of the literature found a reduced risk for cancer in these communities (Hoff et al., 2008). Spiritual well-being

has also been recognized as an important internal resource for helping people cope with illness. For instance, in a study conducted at the University of Michigan, 93% of the women undergoing cancer treatment indicated that their religious lives helped them sustain their hope (Roberts et al., 1997). Studies have also found that a large percentage of patients want their physicians to consider their spiritual needs, and almost half express a desire for the physicians to pray with them if they can (Post et al., 2000).

The spiritual dimension is frequently tied to one’s religious beliefs, values, morals, and practices. Broadly, this dimension is described as meaning, purpose, and fulfillment in life; hope and will to live; faith; and a person’s relationship with God (Marwick, 1995; Ross, 1995; Swanson, 1995). A clinically tested scale to measure spiritual well-being included categories such as belief in a power greater than oneself, purpose in life, faith, trust in providence, prayer, meditation, group worship, ability to forgive, and gratitude for life (Hatch et al., 1998). In addition, several formal assessments have been developed to help physicians address the spiritual needs of their patients. One such tool is the HOPE Questions, which enable physicians to speak about spirituality with their patients so as to obtain important information about patients’ view of health care and faith (Anandarajoh and Hight, 2001).

Respect for patient values and beliefs is increasingly recognized as an important aspect of culturally appropriate care by the medical community. An increasing number of medical schools and continuing education courses now offer formal courses in spirituality in medicine (Fortin and Barnett, 2004). Furthermore, the Joint Commission (2003) recommends that health care institutions accommodate and assess patients’ spiritual beliefs and practices as a routine part of care.

The Committee on Religion and Psychiatry of the American Psychiatric Association has issued a position statement to emphasize the importance of maintaining respect for a patient’s

religious/spiritual beliefs. In fact, in 2013, “religious or spiritual problem” was included as a diagnostic category for the first time in the most recent edition of the Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-5). The holistic approach to health also alludes to the need to incorporate alternative therapies into the predominant medical model.

▶ Quality of Life The term quality of life is used to capture the essence of overall satisfaction with life during and following a person’s encounter with the health care delivery system. This term is employed in two ways. First, it is an indicator of how satisfied a person is with his or her experiences while receiving health care. Specific life domains— such as comfort factors, respect, privacy, security, degree of independence, decision-making autonomy, and attention to personal preferences—are significant to most people. These factors, in turn, are now regarded as rights that patients can demand during any type of health care encounter. Second, quality of life can refer to a person’s overall satisfaction with life and with self-perceptions of health, particularly after some medical intervention. The implication is that desirable processes during medical treatment and successful outcomes should subsequently have a positive effect on an individual’s ability to function, carry out social roles and obligations, and have a sense of fulfillment and self-worth.

▶ Risk Factors and Disease The occurrence of disease involves more than just a single factor. For example, the mere presence of the tubercle bacillus does not automatically mean the infected person will develop tuberculosis. Other factors, such as poverty, overcrowding, and malnutrition, may be essential for development of the disease (Friedman, 1980). Hence, tracing risk factors—attributes that increase the likelihood of developing a particular disease or negative health condition in the future—requires a broad approach.

One useful explanation of disease occurrence (for communicable diseases, in particular) is provided by the tripartite model, sometimes referred to as the Epidemiology Triangle (FIGURE 2-2). In this model, the host is the organism—generally, a human—that becomes sick. Factors associated with the host include genetic makeup, level of immunity, fitness, and personal habits and behaviors. For the host to become sick, an agent must be present, although presence of an agent does not ensure that disease will occur. In the previous example, tubercle bacillus is the agent for tuberculosis. Other examples of agents include chemicals, radiation, tobacco smoke, dietary indiscretions, and nutritional deficiencies. The third entity, environment, is external to the host and includes the physical, social, cultural, and economic aspects of the environment. Examples include sanitation, air pollution, anthro- cultural beliefs, social equity, social norms, and economic status. The environmental factors play a moderating role that can either enhance or reduce susceptibility to disease. Because the three entities of host, agent, and environment often interact to produce disease, disease prevention efforts should focus on a broad approach to mitigate or eliminate risk factors associated with all three entities.

FIGURE 2-2 The Epidemiology Triangle.

Behavioral Risk Factors Certain individual behaviors and personal lifestyle choices represent important risk factors for illness and disease. For example, smoking has been identified as the leading cause of preventable disease and death in the United States because it significantly increases the risk of heart disease, stroke, lung cancer, and chronic lung disease (DHHS, 2004). Substance abuse, inadequate physical exercise, a high-fat diet, irresponsible use of motor vehicles, and unsafe sex are additional examples of behavioral risk factors. TABLE 2-1 presents the percentages of the U.S. population with selected behavioral risks.

TABLE 2-1 Percentage of U.S. Population with Behavioral Risks

Behavioral Risks Percentage of Population


Alcohol (12 years and older) 52.7 2014

Marijuana (12 years and older) 8.4 2014

Cocaine use (12th graders) 1.0 2014

Cocaine use (10th graders) 0.6 2014

Cocaine use (8th graders) 0.5 2014

Cigarette smoking (18 years and older) 16.8 2014

Hypertension (20 years and older) 30.4 2011– 2014

Overweight and obese (20 years and older)

69.5 2011– 2014

Serum cholesterol (20 years and older) 12.1 2011– 2014

Note: Data are based on household interviews of a sample of the civilian noninstitutionalized population 12 years of age and older in the coterminous United States.

Data from National Center for Health Statistics (NCHS). 2016. Health, United States, 2015. Hyattsville, MD: Department of Health and Human Services. pp. 2, 192, 194, 202, 216.

Acute, Subacute, and Chronic Conditions Disease can be classified as acute, subacute, or chronic. An acute condition is relatively severe, episodic (of short duration), and often treatable and subject to recovery. Treatments are generally provided in a hospital. Examples of acute conditions include a sudden interruption of kidney function and a myocardial infarction (heart attack). A subacute condition is a less severe phase of an acute illness. It can be a postacute condition, requiring continuity of treatment after discharge from a hospital. Examples include ventilator and head trauma care. A chronic condition is one that persists over time, is not severe, but is generally irreversible. A

chronic condition may be kept under control through appropriate medical treatment, but if left untreated, it may lead to severe and life-threatening health problems. Examples of chronic conditions are hypertension, asthma, arthritis, heart disease, and diabetes. Contributors to chronic disease include ethnic, cultural, and behavioral factors and the social and physical environment, as discussed later in this chapter.

In the United States, chronic diseases have become the leading cause of death and disability. Almost 50% of Americans have at least one chronic illness (Robert Wood Johnson Foundation [RWJF], 2010), and 8.7 out of every 10 deaths are attributable to chronic disease, with heart disease and cancer accounting for nearly 50% of all deaths (WHO, 2011). Cardiovascular diseases are responsible for one-fourth of all deaths annually. While heart disease is largely preventable, the burden associated with this disease continues to grow.

Approximately half of Americans have at least one of the major clinical risk factors: high low-density lipoprotein (LDL) cholesterol, high blood pressure, or smoking (Centers for Disease Control and Prevention [CDC], 2011). Other major risk factors include physical inactivity, diabetes, and obesity (Kannel and Abbott, 1984).

Cancer is the second leading cause of death in the United States, with more than 1.5 million people being diagnosed with cancer annually (Xu et al., 2016). The most commonly diagnosed types of cancer are breast cancer, prostate cancer, lung cancer, and colon cancer (CDC, 2016a). Although the specific risk factors vary by type of cancer, general risk factors include family history, age, exposure to cancerous substances, diet, obesity and tobacco use.

As of 2016, more than 29 million Americans were living with diabetes and another 86 million were living with prediabetes, a health condition that increases the risk of type 2 diabetes (CDC, 2016b). The major risk factor for diabetes is obesity.

Chronic diseases have a major impact on the economy, in terms of both medical costs and lost productivity. Approximately 71% of all health care spending is attributable to people with at least one chronic condition (Gerteis et al., 2014). For example, the estimated cost of diagnosed diabetes in 2012 was $245 billion, which includes $69 billion in reduced productivity. The high costs of prescription medications, hospital inpatient care, and diabetes supplies contribute to the $176 billion in medical costs associated with this disease (American Diabetes Association, 2013). The economic burden of heart disease and stroke is also high, with these conditions costing the U.S. economy approximately $207 billion each year for health care services, medications, and lost productivity (Mozaffarian et al., 2016). In total, cardiovascular disease is responsible for an estimated $317 billion annually in direct and indirect costs. The direct medical costs for cancer are approximately $88 billion per year in the United States, and the economic burden of this disease is expected to increase significantly in the future due to the growth and aging of the population, improvements in survival, and increased costs of care (Yabroff et al., 2011).

Three main reasons underlie the rise of chronic conditions in the U.S. population:

New diagnostic methods, medical procedures, and pharmaceuticals have significantly improved the treatment of acute illnesses, survival rates, and longevity, but these achievements have had the consequence of creating a larger population living with chronic conditions. The prevalence of chronic disease is expected to continue to rise with an aging population and longer life expectancy. Screening and diagnosis have expanded in scope, frequency, and accuracy (RWJF, 2010). Lifestyle choices, such as consumption of high-salt and high-fat diets and sedentary lifestyles, are risk factors that contribute to the development of chronic conditions.

Some risk factors that contribute to the most common chronic diseases can be modified through prevention. For example, smoking, obesity, physical inactivity, and poor nutrition are risk factors for most chronic diseases. Proven prevention methods include lifestyle change programs, though such programs are notoriously difficult to sustain. Increasing prevention efforts and awareness of the need to reduce cholesterol levels and hypertension so as to prevent heart disease and stroke remains a challenge (Franco et al., 2011). In the United States, obesity and diabetes rates have increased over the last several decades, at least in part due to changes in food consumption and technological advances, which have reduced energy expenditure in labor- intensive occupations (Caballero, 2007; Finkelstein et al., 2005; Franco et al., 2009). State and local health departments face challenges in enacting health-promotion programs such as budget restrictions. Moreover, many state and local programs directed at people with chronic diseases have been reduced or eliminated (Johnson et al., 2011). Chronic disease programs are not standardized or comprehensive in most health care settings (Bauer et al., 2014; Maylahn et al., 2013).

The CDC supports strengthened collaboration between public health agencies and private health care providers to prevent chronic diseases and improve population health. One comprehensive initiative geared toward meeting this aim was launched by the DHHS with funding of $650 million allocated to the American Recovery and Reinvestment Act of 2009. The goal of this initiative, called Communities Putting Prevention to Work (CPPW), is to “reduce risk factors, prevent/delay chronic disease, promote wellness in children and adults, and provide positive, sustainable health change in communities” (DHHS, 2010a). By June 2013, CPPW had met 73% of its objectives (CDC, 2013a). CPPW was successful in increasing access to environments with healthy food and beverage options in communities nationwide. It also created bike lanes in cities, supported the development of walking trails, and provided guidelines for daily physical activity in schools to

increase access to physical activity activities. The program decreased exposure to second-hand smoke through expansion of smoke-free areas and expanded smoking cessation services. In addition, CPPW increased local capacity to improve public health interventions, developed products to support public health departments, and guided the development of programs to better support long-term community health. It is estimated that if these health improvements are sustained in CPPW communities beyond the intervention period, there will be 14,000 fewer deaths and $2.4 billion in health care costs will be averted through 2020 (Khavjou et al., 2014).

▶ Health Promotion and Disease Prevention

A program of health promotion and disease prevention is built on three main principles:

Risk factors associated with host, agent, environment, and their health consequences are evaluated through a process called health risk appraisal. Only when the risk factors and their health consequences are known can interventions be developed to help individuals adopt healthier lifestyles. Interventions for counteracting the key risk factors include two main approaches: (1) behavior modification geared toward the goal of adopting healthier lifestyles; and (2) therapeutic interventions. Adequate public health and social services, as discussed later in this chapter, include all health-related services designed to minimize risk factors and their negative effects so as to prevent disease, control disease outbreaks, and contain the spread of infectious agents.

Various avenues can be used in motivating individuals to alter behaviors that may contribute to disease, disability, or death. Behavior can be modified through educational programs and incentives directed at specific high-risk populations. For example, in the case of cigarette smoking, health promotion efforts aim to build people’s knowledge, attitudes, and skills to avoid or quit smoking. These efforts also seek to reduce the number of advertisements and environmental enticements that promote nicotine addiction. Likewise, financial incentives and disincentives, such as higher cigarette taxes, have been used to discourage purchase of cigarettes.

Therapeutic interventions fall into three areas of preventive effort: primary prevention, secondary prevention, and tertiary prevention.

Primary prevention refers to activities undertaken to reduce the probability that a disease will develop in the future (Kane, 1988). The objective of primary prevention is to restrain the development of a disease or negative health condition before it occurs. For example, therapeutic interventions can include community health efforts to assist patients in smoking cessation and exercise programs to prevent conditions such as lung cancer and heart disease. Safety training and practices at the workplace can reduce serious work-related injuries. Prenatal care is known to lower infant mortality rates. Immunization has had a greater impact on prevention against childhood diseases and mortality reduction than has any other public health intervention besides providing clean water (Plotkin and Plotkin, 2012). Hand washing, refrigeration of foods, garbage collection, sewage treatment, and protection of the water supply are other examples of primary prevention (Timmreck, 1994). There have been numerous incidents where training on food safety and proper cooking could have prevented outbreaks of potentially deadly episodes, such as those caused by Escherichia coli.

Secondary prevention refers to early detection and treatment of disease. Health screenings and periodic health examinations are just two examples. Screening for hypertension, cancers, and diabetes, for example, has been instrumental in prescribing early treatment for these conditions. The main objective of secondary prevention is to block the progression of a disease or an injury— that is, to keep it from developing into an impairment or disability (Timmreck, 1994).

Tertiary prevention refers to interventions that could prevent complications from chronic conditions and prevent further illness, injury, or disability. For example, regular turning of bed-bound patients prevents pressure sores, rehabilitation therapies can prevent permanent disability, and infection control practices in hospitals and nursing homes are designed to prevent iatrogenic

illnesses (i.e., illnesses or injuries caused by the process of health care).

As shown in TABLE 2-2, prevention, early detection, and treatment efforts helped reduce cancer mortality quite significantly between 1991 and 2013. This decrease was the first sustained decline since record keeping was instituted in the 1930s.

TABLE 2-2 Annual Percentage Decline in U.S. Cancer Mortality, 1991–2013

Type of Cancer

1991– 1995

1994– 2003

1998– 2007

2001– 2010

2009– 2013

All cancers 3.0 1.1 1.4 1.5 1.5

Breast cancer 6.3 2.5 2.2 2.2 1.9

Cervical cancer 9.7 3.6 2.6 1.5 0.8

Ovarian cancer 4.8 0.5 0.8 2.0 2.1

Prostate cancer 6.3 3.5 3.1 2.7 3.6

Data from National Center for Health Statistics, Centers for Disease Control and Prevention, National Cancer Institute, SEER Cancer Statistics Review, 1975–2010; National Cancer Institute. 2016. State cancer profiles . Available at:

▶ Disease Prevention Under the Affordable Care Act

Prevention and wellness received significant emphasis under the Affordable Care Act (ACA). At least partially as a result of the ACA, an estimated 137 million Americans, including 28.5 million children, received no cost coverage for preventive services (Office of the Assistant Secretary for Planning and Evaluation, 2015).

Other ACA initiatives included the Prevention and Public Health Fund (PPHF) for national preventive efforts and programs geared toward improving health outcomes and enhancing quality of health care (American Public Health Association, 2013). The Office of the Surgeon General developed a National Prevention Strategy to encourage partnerships among federal, state, tribal, local, and territorial governments; business, industry, and other private-sector entities; philanthropic organizations; community and faith-based organizations; and everyday Americans to improve health through prevention (National Prevention Council, 2011).

As one example of a federally driven effort directed toward reducing chronic disease, the CDC established a National Diabetes Prevention Program (NDPP). In 2012, six organizations received $6.75 million to develop partnerships with the aim of reaching people with prediabetes (CDC, 2013b, 2013c). Through the NDPP, organizations nationwide offer diabetes prevention lifestyle programs in health care clinics, pharmacies, wellness centers, worksites, and other community centers. These organizations also work to increase awareness of lifestyle changes. Organizations encourage health professionals to refer patients with prediabetes to a lifestyle change program. The program has also increased awareness across employers, some of which now provide coverage for lifestyle change programs as health benefits for their employees.

The NDPP is working to ensure quality and standardized reporting and to monitor and evaluate program effectiveness (CDC, 2016c).

In 2011, $10 million in federal funding was made available to establish and evaluate comprehensive workplace wellness programs (DHHS, 2011b). Beginning in 2014, $200 million in wellness grants was made available to small businesses to encourage the establishment of wellness programs and employee health-promotion incentives (Anderko et al., 2012). In 2015, 46.8 million employees worked in firms that offered wellness programs. Although workplace wellness programs are diverse and vary in the services and activities offered, they are all required to promote health and/or prevent disease to qualify for federal funding support. Of the companies that provided health benefits in 2015, 50% offered wellness programs for tobacco cessation, weight control, nutrition, and other lifestyle or behavioral coaching (Mattke et al., 2013). Health-promotion activities, such as on-site vaccination services, biometric screenings, fitness benefits, and health food options at the workplace, are also common. The majority of workplaces that offer wellness programs offer a combination of screening and intervention services. These programs have been shown to generate savings in medical costs of approximately $3 for every $1 spent on the program and to reduce absenteeism (Baicker et al., 2010).

▶ Public Health Public health remains poorly understood by its prime beneficiaries, the public. For some people, public health evokes images of a massive social enterprise or welfare system. To others, the term means health care services for everyone. Still another image of public health is of a body of knowledge and techniques that can be applied to health-related problems (Turnock, 1997). However, none of these ideas adequately reflects what public health is.

The Institute of Medicine (1988) has proposed that the mission of public health should be understood as fulfilling “society’s interest in assuring conditions in which people can be healthy.” Public health deals with broad societal concerns about ensuring conditions that promote optimal health for the society as a whole. It involves the application of scientific knowledge to counteract any threats that may jeopardize the health and safety of the general population. Because of its extensive scope, the vast majority of public health efforts are carried out by government agencies, such as the CDC in the United States.

Three main distinctions can be seen between the practices of medicine and public health:

Medicine focuses on the individual patient—diagnosing symptoms, treating and preventing disease, relieving pain and suffering, and maintaining or restoring normal function. Public health, in contrast, focuses on populations (Shi and Johnson, 2014). The emphases in modern medicine are the biological causes of disease and the development of treatments and therapies. In contrast, public health focuses on (1) identifying environmental, social, and behavioral risk factors as well as emerging or potential risks that may threaten people’s health and safety; and (2)

implementing population-wide interventions to minimize these risk factors (Peters et al., 2001). Medicine focuses on the treatment of disease and recovery of health, whereas public health deals with various efforts to prevent disease and counteract threats that may negatively affect people’s health.

Public health activities range from providing education on nutrition to passing laws that enhance automobile safety. For example, public health includes dissemination, both to the public and to health professionals, of timely information about important health issues, particularly when communicable diseases pose potential threats to large segments of a population.

Compared to medicine, public health involves a broader range of professionals. The medical sector encompasses physicians, nurses, dentists, therapists, social workers, psychologists, nutritionists, health educators, pharmacists, laboratory technicians, health services administrators, and so forth. In addition to these professionals, the public health forum includes professionals such as sanitarians, epidemiologists, statisticians, industrial hygienists, environmental health specialists, food and drug inspectors, toxicologists, and economists (Lasker, 1997).

Health Protection and Environmental Health Health protection is one of the main public health functions. In the 1850s, John Snow successfully traced cholera outbreaks in London to contamination of the Broad Street water pump (Rosen, 1993). Since then, environmental health has specifically dealt with preventing the spread of disease through water, air, and food (Schneider, 2000). Environmental health science, along with other public health measures, was instrumental in reducing the risk of infectious diseases during the 1900s. For example, in 1900, pneumonia, tuberculosis, and diarrhea, along with enteritis, were

the top three killers in the United States (CDC, 1999); that is no longer the case today (TABLE 2-3). With the rapid industrialization that occurred during the 20th century, environmental health faced new challenges due to serious health hazards from chemicals, industrial waste, infectious waste, radiation, asbestos, and other toxic substances. In the 21st century, the possession of chemical, biological, and nuclear agents by terrorists and rogue nations have emerged as a new environmental threat.

TABLE 2-3 Leading Causes of Death, 2014

Cause of Death Deaths Percentage of All Deaths

All causes 2,626,418 100.0

Diseases of the heart 614,348 23.4

Malignant neoplasms 591,699 22.5

Chronic lower respiratory diseases 147,101 5.6

Unintentional injuries 136,053 5.2

Cerebrovascular diseases 133,103 5.1

Alzheimer’s disease 93,541 3.6

Diabetes mellitus 76,488 2.9

Influenza and pneumonia 55,227 2.1

Nephritis, nephrotic syndrome, and nephrosis

48,146 1.8

Suicide 42,773 1.6

Data from National Center for Health Statistics (NCHS). 2016. Health, United States, 2015. Hyattsville, MD: Department of Health and Human Services. p. 107.

Health Protection During Global Pandemics Over time, public health has become a complex global undertaking. Its main goal of protecting the health and safety of populations from a variety of old and new threats cannot be achieved without global cooperation. Influenza is the most common infectious disease on a global scale, affecting nearly 3 to 5 million people annually and resulting in 250,000 to 500,000 deaths (Thompson et al., 2009). It spreads around the world in a yearly outbreak.

The global threat of avian influenza has also elicited a public health response. The CDC launched a website dedicated to educating the public about avian influenza, the means by which it is spread, and past and current outbreaks. This website contains specific information for health professionals, travelers, the poultry industry, state departments of health, and people with possible exposures to avian influenza (CDC, 2007).

Although several strains of influenza exist, the subtypes currently circulating among humans are H1N1 and H3N2 (WHO, 2016a). After a novel H1N1 influenza virus emerged from Mexico in April 2009, U.S. health officials anticipated and prepared for an influenza pandemic, and these efforts stretched the response capabilities of the public health system. The virus affected every U.S. state, and Americans were left unprotected because of the unavailability of antiviral medications. Since then, a global effort has been undertaken to establish collaborative networks to exchange information and contain global pandemics (WHO, 2013).

Coronaviruses are believed to cause a large percentage of all common colds in adults (Committee on Infectious Diseases et al., 2015). However, two strains of coronavirus have particularly serious health effects. Severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS) coronavirus

outbreaks occurred in 2003 and 2012, respectively. In 2003, SARS —a contagious disease that is accompanied by fever and symptoms of pneumonia or other respiratory illness—spread from China to Canada. Worldwide, more than 8,000 people were affected by this infection (CDC, 2012). MERS still occurs in parts of the Middle East. Since 2012, 27 countries have reported cases of MERS, for a total of 1,888 cases and 670 deaths from this disease (WHO, 2016b).

WHO’s (2016c) 2016 World Malaria Report provides estimates of the global prevalence and mortality due to malaria. In 2015, there were an estimated 212 million malaria cases and 429,000 malaria deaths worldwide. The majority of cases were in Africa (90%), followed by southeast Asia (7%). The global incidence of malaria decreased by 21% between 2010 and 2015, and the number of deaths decreased by 29% in the same time period.

The Global Tuberculosis (TB) Report, also published by WHO (2016d), provides current estimates of the worldwide TB epidemic. In 2015, there were an estimated 10.4 million incident TB cases worldwide. Sixty percent of cases were concentrated in six countries: India, Indonesia, China, Nigeria, Pakistan, and South Africa. Multidrug-resistant TB cases are especially problematic, with 480,000 new cases in 2015 and an additional 100,000 new cases of rifampicin-resistant TB. An estimated 1.4 million deaths due to TB occurred in 2015. Nevertheless, the number of TB deaths fell 22% between 2000 and 2015, and TB treatment averted 49 million deaths globally. Even so, TB remains among the top 10 causes of death worldwide.

Prevent HIV, Test and Treat All: Progress Report 2016, a WHO (2016e) report, provides estimates of the global human immunodeficiency virus (HIV)/acquired immunodeficiency syndrome (AIDS) epidemic. As of 2015, 36.7 million people were living with HIV/AIDS worldwide; in that same year, 1.1 million people died of AIDS-related illnesses. This mortality was the lowest number of

deaths from HIV/AIDS in 2 decades. The burden of the pandemic is greatest in sub-Saharan Africa, where an estimated 25.5 million people are living with the disease (70% of all people living with HIV worldwide) as of 2017. In 2015, 800,000 people in this region died from HIV/AIDS. Approximately 66% of all new HIV infections occur in this region as well. As of June 2016, 18.2 million people living with HIV globally were receiving life-prolonging antiretroviral therapy (ART), compared to 7.5 million people in 2010 and fewer than 1 million people in 2000. Additionally, access to ART to prevent transmission of HIV from mother to baby is increasing, with new HIV infections among newborns declining by 50% since 2010.

While some types of hepatitis are more problematic (i.e., hepatitis B and C) than others, all variants of this infection are viral in nature and present in the global population. An estimated 400 million people are affected by at least one type of viral hepatitis, and 6 to 10 million are newly infected annually. In total, approximately 1.4 million people die from hepatitis each year globally (GBD 2013 Mortality and Causes of Death Collaborators, 2015; Jacobsen and Wiersma, 2010). Hepatitis B accounts for approximately 686,000 deaths each year, and an estimated 240 million chronic infections. In sub-Saharan Africa and East Asia, 5% to 10% of the population is chronically infected with hepatitis B; in the Middle East and India, an estimated 2% to 5% of the population is chronically infected. Approximately 130 to 150 million people have chronic hepatitis C, and 700,000 die annually from related liver diseases. Africa, Central Asia, and East Asia are the regions most affected by the hepatitis C pandemic.

The most current outbreak of the Ebola virus, which started in December 2013 and ended in April 2016, led to more than 28,000 cases and 11,000 deaths in Africa (WHO, 2016f). The countries most severely affected by the recent major Ebola outbreak— Guinea, Sierra Leone, and Liberia—are all in West Africa. Now that the outbreak has ended, the current focus is on preparedness and prevention of future epidemics (WHO Ebola Response Team et

al., 2016). In December 2016, scientists reported highly promising results for an experimental Ebola vaccine (Henao-Restrepo et al., 2017). The first vaccine to prevent infections from this virus, it is estimated to be 70% to 100% effective.

▶ Health Protection and Preparedness in the United States

Since the horrific events of what is commonly referred to as 9/11 (the terrorism attacks on September 11, 2001), the United States has begun a new chapter in health protection. These efforts to protect the health and safety of Americans began in June 2002 when President George W. Bush signed into law the Public Health Security and Bioterrorism Preparedness Response Act of 2002. Subsequently, the Homeland Security Act of 2002 created the Department of Homeland Security (DHS) and called for a major restructuring of the nation’s resources, with the primary mission of helping prevent, protect against, and respond to any acts of terrorism in the United States. It also provided better tools to contain attacks on food and water supplies, protect the nation’s vital infrastructures (i.e., nuclear facilities), and track biological materials anywhere in the United States. The term bioterrorism encompasses the use of chemical, biological, and nuclear agents to cause harm to relatively large civilian populations.

Today, health protection and preparedness comprises a massive operation to deal with any natural or human-made threats. Dealing with such threats requires large-scale preparations, which include appropriate tools and training for workers in medical care, public health, emergency care, and civil defense agencies at the federal, state, and local levels. It requires national initiatives to develop countermeasures, such as new vaccines, a robust public health infrastructure, and coordination among numerous agencies. It also requires development of an infrastructure that can handle large numbers of casualties and isolation facilities for contagious patients. Hospitals, public health agencies, and civil defense must be linked together through information systems. Containment of

infectious agents, such as smallpox, necessitates quick detection, treatment, isolation, and organized efforts to protect the unaffected population. Rapid cleanup, evacuation of the affected population, and transfer of victims to medical care facilities require detailed plans and logistics.

The United States has confronted several major natural disasters in the 21st century, such as Hurricane Katrina in 2005, Hurricane Sandy in 2012, and tornadoes in Oklahoma in 2013, as well as human-made mass casualties such as the Boston Marathon bombing on April 15, 2013. Health protection and preparedness have become ongoing efforts through revitalized initiatives such as the Pandemic and All-Hazards Preparedness Act (PAHPA) of 2006, which also authorized a new Assistant Secretary for Preparedness and Response (ASPR) within the DHHS and called for the establishment of a quadrennial National Health Security Strategy (NHSS). The CDC has developed the National Biosurveillance Strategy for Human Health, which covers six priority areas: electronic health information exchange, electronic laboratory information exchange, unstructured data, integrated biosurveillance information, global disease detection and collaboration, and biosurveillance workforce. Based on the National Health Security Strategy developed by the DHHS in 2009, Healthy People 2020 focused on four areas for reinforcement under an overarching goal to “improve the Nation’s ability to prevent, prepare for, respond to, and recover from a major health incident”: time to release official information about a public health emergency, time for designated personnel to respond to an emergency, Laboratory Response Network (LRN) laboratories, and time to develop after-action reports and improvement plans in states (DHHS, 2010b). A progress report shows that most states and localities have strong biological laboratory capabilities and capacities, with nearly 90% of laboratories in the LRN reachable around the clock (CDC, 2010b).

In 2011, the Health Alert Network (HAN) was established; this nationwide program is designed to facilitate communication,

information, and distance learning related to health threats, including bioterrorism (DHHS, 2011a). When fully established, the network will link together local health departments and other components of bioterrorism preparedness and response, such as laboratories and state health departments.

One of the key concepts of preparedness is surge capacity, defined as “the ability of a health care facility or system to expand its operations to safely treat an abnormally large influx of patients” (Bonnett and Peery, 2007). The initial response is conducted at a local health care facility, such as a hospital. Strategies for expanding the surge capacity of a hospital include early discharge of stable patients, cancellation of elective procedures and admissions, conversion of private rooms to double rooms, reopening of closed areas, revision of staff work hours to a 12-hour disaster shift, callback of off-duty personnel, and establishment of temporary external shelters for patient holding (Hick et al., 2004).

If the local level response becomes overloaded or incapacitated, a second tier of disaster response can be activated: community-level surge capacity. Cooperative regional planning necessitates sharing of staff and supplies across a network of regional health care facilities (Hick et al., 2004). An important aspect of disaster planning at the community level entails the transportation logistics for the region. The number of ambulances in the area and the means of accessing such resources during an event is crucial to delivering proper care to critical patients (Kearns et al., 2013).

The final tier of disaster response involves federal aid under the National Disaster Medical System (NDMS), which dates back to the 1980s and was designed to accommodate large numbers of military casualties. Disaster Medical Assistance Teams (DMATs) are a vital component of the NDMS that directly respond to the needs of an overwhelmed community. DMATs deploy with trained personnel (in both medical and ancillary services), equipped with tents, water filtration, generators, and medical supplies (Stopford, 2005).

Developments in technology have made major contributions to advances in disaster preparedness. For example, the United States is using new information and communication technologies to streamline emergency responses among various organizations. Social media is increasingly being used as a tool by governments, communities, and organizations for a range of purposes in disaster preparedness (i.e., detecting an event; connecting individuals following a disaster; and preparing and receiving disaster preparedness information, warnings, and signals) (Houston et al., 2015).

Despite the progress that has been made, disaster preparedness efforts in the United States remain fragmented and underfunded. For example, review, rotation, replacement, and upgrading of equipment and supplies in the system on a regular basis remain challenging (Cohen and Mulvaney, 2005). Given the differences in institutional and local structures, it is difficult to develop clear and objective standards and methods while still respecting local authorities (Nelson et al., 2007). Other challenges include retention of high-quality staff in emergency departments and having insufficient funding and resources to provide education and training opportunities (Walsh et al., 2015).

▶ Determinants of Health Health determinants are major factors that affect the health and well-being of individuals and populations. An understanding of health determinants is necessary to plan and implement any positive interventions that improve health and longevity.

Blum’s Model of Health Determinants In 1974, Blum (1981) proposed an “Environment of Health” model, later called the “Force Field and Well-Being Paradigms of Health.” Blum proposed that four major inputs contribute to health and well- being (“force fields”): environment, lifestyle, heredity, and medical care. All of these factors must be considered simultaneously when addressing the health status of an individual or a population. In other words, there is no single pathway to better health because health determinants interact in complex ways. Consequently, improvement in health requires a multipronged approach.

The four wedges in Blum’s model represent the four major force fields. The size of each wedge signifies its relative importance. Thus, the most important force field is environment, followed by lifestyle and heredity. Medical care has the least impact on health and well-being.

Blum’s model also explains that the four main forces operate within a much broader context, and are affected by broad national and international factors, such as a nation’s population characteristics, natural resources, ecological balance, human satisfactions, and cultural systems. One of these factors is the type of health care delivery system. In the United States, the majority of health care expenditures is devoted to the treatment of medical conditions,

rather than to the prevention of factors that produce those medical conditions in the first place.

Environment Environmental factors encompass the physical, socioeconomic, sociopolitical, and sociocultural dimensions. Among physical environmental factors are air pollution, food and water contaminants, radiation, toxic chemicals, wastes, disease vectors, safety hazards, and habitat alterations.

The positive relationship between socioeconomic status (SES) and health may be explained by the general likelihood that people who have better education also have higher incomes. The greater the economic gap between the rich and the poor is in a given geographic area, the worse the health status of the overall population in that area is likely to be. It has been suggested that wide income gaps produce less social cohesion, greater psychosocial stress, and consequently, poorer health (Wilkinson, 1997). For example, social cohesion—characterized by a hospitable social environment in which people trust each other and participate in communal activities—is linked to lower overall mortality and better self-rated health (Kawachi et al., 1997, 1999). Even countries with national health insurance programs, such as the United Kingdom, Australia, Denmark, and Sweden, experience persistent and widening disparities in health according to socioeconomic status (Pincus et al., 1998). The joint relationship of income inequality and availability of primary care has also been found to be significantly associated with individuals’ self-rated health status (Shi et al., 2002).

Lifestyle Lifestyle factors, also known as behavioral risk factors, were discussed earlier in this chapter. This section provides some illustrations of how lifestyle factors are related to health. Studies have shown that diet plays a major role in most of today’s significant health problems. Heart disease, diabetes, stroke, and

cancer are some of the diseases with direct links to dietary choices. Throughout the world, incidence and mortality rates for many forms of cancer are rising, though research has clearly indicated that a significant portion of cancer is preventable. Researchers estimate that 30% to 50% of all cancers and as many as 30% to 35% of cancer deaths are linked to diet (World Cancer Research Fund and American Institute for Cancer Research, 2007). Research also shows that a diet rich in fruits, vegetables, and low-fat dairy foods, and a diet low in saturated and total fat, can substantially lower blood pressure (see, for example, the DASH Eating Plan recommended by DHHS [2006]).

Increasing exercise and physical activity is a potentially useful, effective, and acceptable method for reducing the risk of colon cancer (Macfarlane and Lowenfels, 1994) and many other health problems. Smoking and alcohol consumption are also important lifestyle factors that impact health. In addition to increasing the risk of lung cancer, smoking increases the risk of coronary heart disease and stroke by 2 to 4 times (DHHS, 2014). Half of all cancer deaths and nearly half of all cancer diagnoses could potentially be prevented through a healthy lifestyle that includes not smoking, drinking in moderation, maintaining a healthy weight, and exercising regularly (Song and Giovannucci, 2016).

Heredity Genetic factors may predispose individuals to certain diseases. While cancer is not entirely genetic, cancer can occur when the body’s healthy genes lose their ability to suppress malignant growth or when other genetic processes stop working properly (Davis and Webster, 2002). While people can do little about the genetic makeup they have inherited, their lifestyle and behavior can significantly impact their progeny. Finally, advances in gene therapy hold the promise of treating a variety of inherited or acquired diseases.

Medical Care

Although the factors of lifestyle, environment, and heredity are more important in the determination of health, medical care is, nevertheless, a key factor affecting health. Though, according to Blum, medical care is the least important factor in determining health and well-being, the United States focuses more on medical research and development of new medical technologies than it does on the other three factors. It can be noted that significant declines in mortality rates were achieved well before the modernization of Western medicine and the escalation in medical care expenditures.

The availability of primary care may be one way in which income inequality influences population-level health outcomes. Research by Shi and colleagues (Shi and Starfield, 2001; Shi et al., 1999) suggests that access to primary care significantly correlates with reduced mortality, increased life expectancy, and improved birth outcomes. Access to primary care includes access to and use of preventive services, which can prevent illness or detect disease at an earlier, often more treatable stage. In the United States, individuals living in states with a higher primary care physician-to- population ratio are more likely to report good health than those living in states with a lower ratio (Shi et al., 2002).

Contemporary Models of Health Determinants More recent models have built upon and extended Blum’s framework of health determinants. For example, the model proposed by Dahlgren and Whitehead (2006) identifies age, sex, and genetic makeup as fixed factors, but state that other factors can be modified to positively influence population health. While individual lifestyle factors can benefit or damage health, broader social, economic, cultural, and environmental conditions often have greater influence on both individual and population health.

Another model by Ansari and colleagues (2003) have proposed a public health model of the social determinants of health in which the determinants are categorized into four major groups: social determinants, health care system attributes, disease-inducing behaviors, and health outcomes.

The WHO Commission on Social Determinants of Health (2008) concluded that “the social conditions in which people are born, live, and work are the single most important determinant of one’s health status” (Satcher, 2010). The WHO model provides a conceptual framework for understanding the socioeconomic and political contexts, structural determinants, intermediary determinants (including material circumstances, social‒environmental circumstances, behavioral and biological factors, social cohesion, and the health care system), and the impact on health equity and well-being measured as health outcomes (FIGURE 2-3).

FIGURE 2-3 WHO Commission on Social Determinants of Health conceptual framework.

Reproduced from Centers for Disease Control and Prevention (CDC). 2010a. Establishing a holistic

framework to reduce inequities in HIV, viral hepatitis, STDs, and tuberculosis in the United States.

Available at:

Accessed April 2017. Modified from Solar, O., and A. Irwin; World Health Organization (WHO). 2010.

A conceptual framework for action on the social determinants of health. Social Determinants of

Health Discussion Paper 2 (Policy and Practice). Geneva, Switzerland: WHO.

U.S. government agencies, such as the CDC and DHHS, have recognized the need to address health inequities. The CDC’s National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention adopted the WHO framework on social determinants of health as a guide for its activities.

▶ Measures Related to Health Certain quantitative measures are commonly applied to health, health status, and the utilization of health care. The conceptual approaches for defining health and its distribution help form a vision for the future, and objective measures play a critical role in evaluating the success of programs and directing future planning activities. Practical approaches for measuring health are, however, quite limited, and mental health is more difficult to quantify and measure than physical health. An objective evaluation of social and spiritual health is even more obscure.

The concept of population, as it applies to population health, has been borrowed from the disciplines of statistics and epidemiology. The term “population” is not restricted to describing the total population. Although commonly used in this way, the term population may also apply to a defined subpopulation—for example, age groups, marital categories, income levels, occupation categories, racial/ethnic groups, people having a common disease, people in a certain risk category, or people in a certain community or geographic region of a country. The main advantage of studying subpopulations is that it helps trace the existence of health problems to a defined group. Doing so avoids the likelihood that serious problems in a minority group will be hidden within the favorable statistics of the majority. By pinpointing health problems in certain well-defined groups, targeted interventions and new policy initiatives can be deployed in the most effective manner.

Measures of Physical Health Physical health status is often interpreted through morbidity (disease and disability) and mortality (death) rates. In addition, self- perceived health status is a commonly used indicator of health and

well-being because it is highly correlated with many objective measures of health status. With this measure, respondents are asked to rate their health as excellent, very good, good, fair, or poor. Self-perceived health status is also a good predictor of patient-initiated physician visits, including general medical and mental health visits.

Longevity Life expectancy—a prediction of how long a person will live—is widely used as a basic measure of health status. The two common measures are life expectancy at birth (TABLE 2-4)—or how long a newborn can expect to live—and life expectancy at age 65— expected remaining years of life for someone at age 65. These measures are actuarially determined and published by government agencies such as the National Center for Health Statistics (NCHS). The U.S. Census Bureau (2016) has projected that life expectancy in the United States will increase from 78.8 years in 2014 to 84.1 years in 2050.

TABLE 2-4 U.S. Life Expectancy at Birth—2002, 2007, and 2014

Year Total Male Female

2002 77.0 74.4 79.6

White 77.5 74.9 80.1

Black 72.2 68.7 75.4

2007 78.1 75.5 80.6

White 78.5 76.0 80.9

Black 73.8 70.3 77.0

2014 78.8 76.4 81.2

White 79.0 76.7 81.4

Black 75.6 72.5 78.4

Data from National Center for Health Statistics (NCHS). 2016. Health, United States, 2015. Hyattsville, MD: Department of Health and Human Services. p. 95.

Morbidity The measurement of morbidity or disease, such as cancer or heart disease, is expressed as a ratio or proportion of those who have the problem and the population at risk. The population at risk includes all the people in the same community or population group who could acquire a disease or condition (Smith, 1979).

Incidence and prevalence are two widely used indicators for the number of cases, people who end up acquiring a negative health condition. Both incidence and prevalence rates can apply to disease, disability, or death.

Incidence counts the number of new cases occurring in the population at risk within a certain period of time, such as a month or a year (Smith, 1979; FORMULA 2-1). It describes the extent to which people in a given population acquire a given disease during a specified time period. Incidence is particularly useful in estimating the significance or magnitude of conditions of relatively short duration. Declining levels of incidence indicate successful health promotion and disease prevention efforts because they prevent new cases (Ibrahim, 1985). High levels of incidence may suggest an impending epidemic, a large number of people who get a specific disease from a common source.


Incidence = Number of new cases during a specified period/Population at risk

Prevalence determines the total number of cases at a specific point in time, in a defined population (FORMULA 2-2). Prevalence is useful in quantifying the magnitude of illnesses of a relatively long

duration. Decreased prevalence indicates success of treatment programs by shortening the duration of illness (Ibrahim, 1985).


Prevalence = Total number of cases at a specific point in time/Specified population

The calculation of rates often requires dividing a small number by a large number representing a defined population. The result is a fraction. To make the fractions meaningful and interpretable, they are multiplied by 100 (to get a percentage), by 1,000 (to get a rate per 1,000 people), by 10,000 (to get a rate per 10,000 people), or by a higher multiple of 10.

Disability Disease and injury can lead to temporary or permanent, as well as partial or total, disability. Although the idea of morbidity includes disabilities, as well as disease, specific measures of disability have been developed. Some commonly used measures are the number of days of bed confinement, days missed from work or school, and days of restricted activity. All measures are in reference to a specific time period, such as a year.

One of the most widely used measures of physical disability among the elderly, in particular, is the activities of daily living (ADLs) scale. The ADLs identify personal care functions with which a disabled person may need assistance. Depending on the extent of disability, personal care needs can be met through adaptive devices; care rendered by another individual, such as a family member; or care in a nursing facility. Consequently, the ADL scale is appropriate for evaluating disability in both community-dwelling and institutionalized adults. The classic ADL scale, developed by Katz and Akpom (1979), includes six basic activities: eating, bathing, dressing, using the toilet, maintaining continence, and transferring from bed to chair. To evaluate disability in community- dwelling adults, a modified Katz scale, which consists of seven

items, is used (Ostir et al., 1999). Five of these items—feeding, bathing, dressing, using the toilet, and transferring from bed to chair—have been retained from the original Katz scale. The additional two items are grooming and walking a distance of 8 feet. Thus, the modified scale includes items measuring self-care and mobility.

Another commonly used measure of physical function is the instrumental activities of daily living (IADLs) scale. This scale measures activities that are necessary for living independently in the community, such as using the telephone, driving a car or traveling alone on a bus or by taxi, shopping, preparing meals, doing light housework, taking medicines, handling money, doing heavy housework, walking up and down stairs, and walking a half- mile without help. IADLs typically require higher cognitive functioning than ADLs and, as such, are not purely physical tests of functional disability. The IADL scale measures the level of functioning in activities that are important for self-sufficiency, such as the ability to live independently.

Mortality Death rates are computed in different forms as indicators of population health. Crude rates refer to the total population; they are not specific to any age group or disease category (FORMULA 2-3).


Crude death rate = Total deaths (usually in 1 year)/Total population

Specific rates are useful because death rates vary greatly by race, sex, age, and type of disease or condition. Specific rates allow health care professionals to target programs at the appropriate population subgroups (Dever, 1984). Examples of specific rates are the age-specific mortality rate (FORMULA 2-4) and the cause- specific mortality rate (FORMULA 2-5). The age-specific mortality

rate provides a measure of the risk (or probability) of dying when a person is in a certain age group. The cause-specific mortality rate provides a measure of the risk (or probability) of dying from a specific cause.


Age-specific mortality rate = Number of deaths within a certain age group/Total number of persons in that age group


Cause-specific mortality rate = Number of deaths from a specific disease/Total population

The infant mortality rate (actually a ratio; FORMULA 2-6) is an indicator that reflects the health status of the mother and the child throughout pregnancy and the birth process. It also reflects the level of prenatal and postnatal care (Timmreck, 1994).


Infant mortality rate = Number of deaths from birth to 1 year of age (in 1 year)/Number of live births during the same year

Demographic Change In addition to measures of disease and mortality, changes in the composition of a population over time are important in planning health services. Population change involves three components: births, deaths, and migration (Dever, 1984). For example, the migration of elderly individuals to the southern and southwestern states requires planning of adequate retirement and long-term care services in those states. Longevity is also an important factor that determines demographic change. For example, lower death rates, lower birth rates, and greater longevity, taken collectively, indicate

an aging population. This section presents measures of births and migration.

Births Natality and fertility are two measures associated with births. Natality, or the birth rate, is useful in assessing the influence of births on demographic change and is measured by the crude birth rate (FORMULA 2-7).


Crude birth rate = Number of live births (usually in 1 year)/Total population

Fertility refers to the capacity of a population to reproduce (FORMULA 2-8). Fertility is a more precise measure than natality because fertility relates actual births to the sector of the population capable of giving birth.


Fertility rate = Number of live births (usually in 1 year)/Number of females aged 15–44

Migration Migration refers to the geographic movement of populations between defined geographic units and involves a permanent change of residence. The net migration rate (FORMULA 2-9) defines the change in the population as a result of immigration (in- migration) and emigration (out-migration) (Dever, 1984). This rate is calculated for a specified period, such as 1 year, 2 years, 5 years, and so on.


Net migration rate = (Number of immigrants – Number of emigrants)/Total population (during a specific period of time)

Measures of Mental Health Measurement of mental health is less objective than measurement of mortality and morbidity because mental health often encompasses feelings that cannot be observed. In contrast, physical functioning, as reflected in behaviors and performances, can be more readily observed. Hence, measurement of mental health more appropriately refers to assessment rather than measurement. Mental health can be assessed by the presence of certain symptoms, including both psychophysiologic and psychological symptoms. Examples of psychophysiologic symptoms are low energy, headache, and upset stomach. Examples of psychological symptoms are nervousness, depression, and anxiety.

Self-assessment of one’s psychological state may also be used for mental health assessment. Self-assessment can be obtained through self-reports of frequency and intensity of psychological distress, anxiety, depression, and psychological well-being.

Measures of Social Health Measures of social health extend beyond the individual to encompass the extent of social contacts across various facets of life, such as family life, work life, and community life. Breslow (1972) attempted to measure social health along four dimensions: (1) employability based on educational achievement, occupational status, and job experience; (2) marital satisfaction; (3) sociability, determined by the number of close friends and relatives; and (4) community involvement, encompassing attendance at religious services, political activity, and organizational membership.

Social health status is sometimes evaluated in terms of social contacts and social resources. Social contacts are the number of social contacts or social activities a person engages in within a specified period. Examples are visits with friends and relatives, as

well as attendance at social events, such as conferences, picnics, or other outings. Social resources refer to social contacts that can be relied on for support, such as relatives, friends, neighbors, and members of a religious congregation. Social contacts can be observed, and they are the more objective of the two categories; however, one criticism of social contact measures is their focus on events and activities, with little consideration of how the events are personally experienced. Unlike social contacts, social resources cannot be directly observed and are best measured by asking the individuals direct questions. Evaluative questions include whether these individuals can rely on their social contacts to provide tangible support and needed companionship and whether they feel cared for, loved, and wanted.

Measures of Spiritual Health Depending on the person’s individual, social, and cultural context, spiritual well-being can have a large variety of connotations. Such variations make it extremely difficult to propose standardized approaches for measuring the spiritual dimension. Attempts to measure this dimension are illustrated in the General Social Survey, which includes people’s self-perceptions about happiness, religious experiences, and their degree of involvement in activities, such as prayer and attending religious services.

A wide range of tools for spiritual assessment are now available. Generic methods of spiritual assessment are not associated with any particular religion or practice, so they do not require a detailed understanding of any particular religious tradition (Draper, 2012). An example of a generic scale is the tool developed by Vella- Brodrick and Allen (1995), which evaluates items such as reaching out for spiritual intervention; engaging in meditation, yoga, or prayer; duration of meditation or prayer for inner peace; frequency of meditation or prayer; reading about one’s religious beliefs; and discussions or readings about ethical and moral issues. Quantitative measurement scales are also available to assess

dimensions such as general spirituality, spiritual well-being, spiritual needs, and spiritual coping (Monod et al., 2011), but their use has been confined mainly to clinical research.

Measures of Health Services Utilization Utilization refers to the consumption of health care services and the extent to which health care services are used. Measures of utilization can be used to determine which individuals in a population group do or do not receive certain types of medical services. With this type of measure, a health care provider, such as a hospital, can find out the extent to which its services are used. Managers can use these measures to decide whether certain services should be added or eliminated, and health planners can determine whether programs have been effective in reaching their targeted populations. For example, managers can use these measures to ascertain how many hospital beds are required to meet the acute care needs of a given population (Pasley et al., 1995). Therefore, measures of utilization play a critical role in the planning of health care delivery capacity. Measures of utilization are too numerous to be covered here, but some common measures are provided (FORMULAS 2-10 to 2-16).

Crude Measures of Utilization


Access to primary care services = Number of persons in a given population who visited a primary care provider in a given year/Size of the population

(This measure is generally expressed as a percentage; that is, the fraction is multiplied by 100.)


Utilization of primary care services = Number of primary care visits by people in a given population in a given year/Size of the population

(This measure is generally expressed as number of visits per person per year.)

Specific Measures of Utilization


Utilization of targeted services = Number of people in a specific targeted population using special services (or visits)/Size of the targeted population group

(The fraction obtained is multiplied by 100, 1,000, or a higher multiple of 10 to facilitate interpretation of the result.)


Utilization of specific inpatient services = Number of inpatient days/Size of the population

(The fraction obtained is multiplied by 100, 1,000, or a higher multiple of 10 to facilitate interpretation of the result.)

Measures of Institution-Specific Utilization


Average daily census = Total number of inpatient days in a given time period/Number of days in the same time period


Occupancy rate = Total number of inpatient days in a given time period/Total number of available beds during the same time period


Average daily census/Total number of beds in the facility

(This measure is expressed as a percentage; that is, the fraction is multiplied by 100.)


Average length of stay = Total number of inpatient days during a given time period/Total number of patients served during the same time period

Measures of Global Health Global monitoring of changes in the health of various populations requires the use of “tried and true” global health indicators. Global health indicators can be divided into those that directly measure health phenomena (e.g., diseases, deaths, use of services) and indirect measures (e.g., social development, education and poverty indicators); these are also referred to as proximal and distal indicators, respectively. As one example, when using population statistics to describe levels of educational attainment and access to safe water and sanitation, it is possible to accurately categorize a country as having a population with high, medium, or low burden of disease (Larson and Mercer, 2004).

WHO (2015) compiles more than 100 indicators of a broad range of key public health issues. Commonly used indicators of life expectancy and mortality include life expectancy at age 60, healthy life expectancy at birth, infant and under-5 mortality rates, and the adult mortality rate. Cause-specific mortality rates are collected for selected communicable and noncommunicable diseases. Health services indicators reflect the extent to which people receive important health interventions. These services include unmet needs for family planning, prenatal care coverage, births attended by skilled health personnel, vaccination coverage, and other prevention and treatment coverage for common diseases among children. It is also important to report indicators of risk factors that are associated with increased mortality and morbidity. In order to assess the risk of transmission of diarrheal disease, it is important to know the percentage of the population that do not have safe water supplies and sanitation. Use of solid fuels in households is a proxy indicator for household pollution. Indicators of the prevalence of diabetes, hypertension, and obesity all signal the risk of cardiovascular disease and several types of cancer.

Indirect indicators of global health include health system indicators related to the workforce, infrastructure, medical technologies and

devices, and government expenditures on health. Demographic and socioeconomic factors that are major determinants of health include primary school enrollment, population living in poverty, population size, crude birth and death rates, total fertility rates, and per-capita gross national income.

▶ Anthro-Cultural Beliefs and Values

A value system orients the members of a society toward defining what is desirable for that society. It has been observed that even a society as complex and highly diverse as that found in the United States can be said to have a relatively well-integrated system of institutionalized common values at the societal level (Parsons, 1972). Although such a view still prevails, American society now includes distinct subcultures whose membership has increased significantly due to a steady influx of immigrants from different parts of the world.

The current system of health services delivery has roots in the traditional beliefs and values espoused by the American people. This belief and value system governs the training and general orientation of health care providers, the type of health delivery settings, the financing and allocation of resources, and access to health care in the United States.

Among the main beliefs and values prevalent in the American culture are those outlined here.

1. The United States has a strong belief in the advancement of science and the application of scientific methods to medicine. This belief was instrumental in the creation of the medical model that primarily governs U.S. health care delivery. As a result, the United States has long led the world in medical breakthroughs. These developments have had numerous implications for health services delivery:

A. They increase the demand for the latest treatments and raise patients’ expectations for finding cures.

B. Because medical professionals focus on clinical interventions, they do not provide adequate emphasis on the holistic aspects of health and

use of alternative therapies. C. Health care professionals have been trained to focus on physical

symptoms rather than the underlying causes of disease. D. Integrating diagnosis and treatment with disease prevention has

lagged behind other concerns. E. Most research efforts have focused on the development of medical

technology. Fewer resources have been committed to the preservation and enhancement of health and well-being.

F. Medical specialists, using the latest technologies, are held in higher esteem and earn higher incomes than do general practitioners.

G. The desirability of health care delivery institutions such as hospitals is often evaluated based on their acquisition of advanced technology.

H. Whereas biomedicine has taken central stage in the biomedical model, mental health diagnosis and treatment have been relegated to a lesser status.

I. The biomedical model has neglected the social and spiritual elements of health.

2. The United States has been a champion of capitalism. Due to the public’s strong belief in capitalism, health care has largely been viewed as an economic good (or service), not as a public resource.

3. A culture of capitalism promotes entrepreneurial spirit and self- determination. Hence, individual capabilities to obtain health services have largely determined the production and consumption of health care (i.e., which services will be produced, where and in which quantities, and who will have access to those services). Some key implications are as follows:

A. Upper-tier access to health care services is available mainly through private health insurance. Those with public insurance fall in a second tier. The uninsured make up a third tier.

B. A clear distinction exists between the types of services for poor and affluent communities, and between the types of services available in rural and inner-city locations.

C. The culture of individualism emphasizes individual health rather than population health. Consequently, medical practice has been directed at keeping the individual healthy, rather than the entire community.

D. A concern for the most underprivileged classes in society—the poor, elderly, disabled, and children—led to the creation of the public programs Medicaid, Medicare, and the Children’s Health Insurance Program (CHIP).

4. U.S. health care delivery is guided by principles of free enterprise and a general distrust of big government. Hence, health care delivery is largely in private hands, and a separation exists between public health functions and the private practice of medicine.

Equitable Distribution of Health Care Scarcity of economic resources is a central economic concept. From this perspective, health care can be viewed as an economic good. Two fundamental questions arise with regard to how scarce health care resources ought to be used:

How much health care should be produced? How should health care be distributed?

The first question concerns the appropriate combination of health services that should be produced in relation to all other goods and services in the overall economy. If more health care is produced, a society may concomitantly devote fewer resources to producing some other goods, such as food, clothing, and transportation. The second question affects individuals at a more personal level— namely, it deals with who can receive which type of medical service, and how access to services will be restricted.

The production, distribution, and subsequent consumption of health care must be perceived as equitable by a society. No society has found a perfectly equitable method to distribute limited economic resources. In fact, any method of resource distribution inevitably leaves some inequalities in its wake. Therefore, societies try to allocate resources according to some guiding principles that are deemed acceptable by the particular society. Such principles are ingrained in a society’s value and belief system. It is recognized,

for example, that not everyone can receive everything medical science has to offer.

A just and fair allocation of health care poses conceptual and practical difficulties. Hence, a theory of justice is necessary to resolve the problem of health care allocation (Jonsen, 1986). Even though various ethical principles can be used to guide decisions pertaining to just and fair allocation of health care in individual circumstances, the concern about providing equitable access to health services on a population level is addressed by two contrasting theories referred to as market justice and social justice.

Market Justice The principle of market justice leaves the fair distribution of health care up to the market forces in a free economy. Medical care and its benefits are distributed based on people’s willingness and ability to pay (Santerre and Neun, 2010). In other words, people are entitled to purchase a share of the available goods and services that they value; they purchase these valued goods and services by means of wealth acquired through their own efforts. This is how most goods and services are distributed in a free market. The free market implies that giving people something they have not earned would be morally and economically wrong.

The Overview of U.S. Health Care Delivery chapter discussed several characteristics that describe a free market. These market characteristics are a precondition to the distribution of health care services according to market justice principles. As previously mentioned, health care in the United States is not delivered in a free market; it is delivered in a quasi-market. Hence, market justice principles are only partially applicable to the U.S. health care delivery system. Distribution of health care according to market justice is based on the following key assumptions:

Health care is like any other economic good or service, the distribution and consumption of which are determined by the free

market forces of supply and demand. Individuals are responsible for their own achievements. With the rewards of their achievements, people are free to obtain various economic goods and services, including health care. When individuals pursue their own best interests, the interests of society as a whole are best served (Ferguson and Maurice, 1970). People make rational choices in their decisions to purchase health care products and services. Grossman (1972) proposed that health is also an investment commodity—in other words, people consider the purchase of health services an investment. For example, the investment has a monetary payoff when it reduces the number of sick days, making extra time available for productive activities, such as earning a living. Alternatively, it can have a utility payoff—a payoff in terms of satisfaction—when it makes life more enjoyable and fulfilling. People, in consultation with their physicians, know what is best for them. This assumption implies that people place a certain degree of trust in their physicians and that the physician–patient relationship is ongoing. The marketplace works best with minimum interference from the government. In other words, the market, rather than the government, can allocate health care resources in the most efficient and equitable manner.

Under market justice, the production of health care is determined by how much consumers are willing and able to purchase health care at the prevailing market prices. Thus, prices and ability to pay ration the quantity and type of health care services that people consume. The uninsured and individuals who lack sufficient income to pay for private health care services face barriers to obtaining health care. Such limitations to obtaining health care are referred to as demand-side rationing, or “rationing by ability to pay” (Feldstein, 1994). To some extent, the uninsured may be able to overcome some barriers through charitable services.

The key characteristics of the market justice system and their implications are summarized in TABLE 2-5. Market justice

emphasizes individual—rather than collective—responsibility for health. It proposes private—rather than government—solutions to social problems of health.

TABLE 2-5 Comparison of Market Justice and Social Justice

Market Justice Social Justice


Views health care as an economic good

Views health care as a social resource

Assumes free-market conditions for health services delivery

Requires active government involvement in health services delivery

Assumes that markets are more efficient in allocating health resources equitably

Assumes that the government is more efficient in allocating health resources equitably

Production and distribution of health care determined by market-based demand

Medical resource allocation determined by central planning

Medical care distribution based on people’s ability to pay

Ability to pay is inconsequential for receiving medical care

Access to medical care viewed as an economic reward of personal effort and achievement

Equal access to medical services viewed as a basic right


Individual responsibility for health

Collective responsibility for health

Benefits based on individual purchasing power

Everyone is entitled to a basic package of benefits

Limited obligation to the collective good

Strong obligation to the collective good

Emphasis on individual well- being

Community well-being supersedes that of the individual

Private solutions to social problems

Public solutions to social problems

Rationing based on ability to pay

Planned rationing of health care

Social Justice The idea of social justice is at odds with the principles of capitalism and market justice. The term “social justice” was invented in the 19 century by the critics of capitalism to describe the “good society” (Kristol, 1978). According to the principle of social justice, the equitable distribution of health care is a societal responsibility, which is best achieved by letting the government take over the production and distribution of health care. Social justice regards health care as a social good rather than an economic good that should be collectively financed and available to all citizens regardless of the individual recipient’s ability to pay. The main characteristics and implications of social justice are summarized in Table 2-5.

Canadians and Europeans long ago reached a broad consensus that health care is a social good (Reinhardt, 1994). Public health also has a social justice orientation (Turnock, 1997). Under the social justice system, inability to obtain medical services because of a lack of financial resources is considered inequitable.


Accordingly, a just distribution of health care must be based on need, not simply on the individual’s ability to purchase such care in the marketplace (demand). Need for health care is determined either by the patient or by a health professional.

The principle of social justice is also based on certain assumptions:

Health care is different from most other goods and services. Health- seeking behavior is governed primarily by need rather than by ability to pay. Responsibility for health is shared. Individuals are not held completely responsible for their condition because factors outside their control may have brought on the condition. Society is held responsible because individuals cannot control certain environmental factors, such as economic inequalities, unemployment, or unsanitary conditions. Society has an obligation to the collective good. The well-being of the community is superior to that of the individual. An unhealthy individual is a burden on society. A person carrying a deadly infection, for example, is a threat to society. Society, therefore, is obligated to cure the problem by providing health care to the individual. By doing so, the whole society will benefit. The government, not the market, can better decide through central planning how much health care to produce and how to distribute it to all citizens.

Just as true market justice does not exist in health care, so true social justice also does not exist. In the real world, no society can afford to provide unlimited amounts of health care to all its citizens (Feldstein, 1994). The government may offer insurance coverage to all, but must also find ways to limit the availability of certain health care services. For example, under the social justice principle, the government decides how technology will be dispersed and who will be allowed access to certain types of costly high-tech services, even though basic services may be available to all. The government engages in supply-side rationing, which is also referred to as planned rationing, or nonprice rationing. In social justice systems,

the government uses “health planning” to limit the supply of health care services, although the limited resources are often more equally dispersed throughout the country than is generally the case under a market justice system. The necessity of rationing health care explains why citizens of a country can be given universal coverage but not universal access. Even when a covered individual has a medical need, depending on the nature of health services required, he or she may have to wait until services become available.

Justice in the U.S. Health Delivery System In a quasi-perfect or imperfect market, such as the market for health care delivery in the United States, elements of both the market and social justice principles exist. In some areas, the principles of market and social justice complement each other. In other areas, the two present conflicts.

The two contrasting principles complement each other in the employer-based health insurance available to most middle-class working Americans (market justice) and the publicly financed Medicare, Medicaid, and CHIP coverage for certain disadvantaged groups (social justice). Insured populations access health care services delivered mainly by private practitioners and private institutions (market justice). Tax-supported county and city hospitals, public health clinics, and community health centers can be accessed by the uninsured in areas where such services are available (social justice).

Market and social justice principles create conflicts when health care resources are not uniformly distributed throughout the United States, and when there is a general shortage of primary care physicians (an issue discussed in the Health Services Professionals chapter). Consequently, in spite of having public insurance, many Medicaid-covered patients have difficulty obtaining timely access,

particularly in rural and inner-city areas. This conflict is partly created by artificially low reimbursement from public programs; in comparison, reimbursement from private payers is more generous.

Limitations of Market Justice The principles of market justice work well for allocating economic goods when their unequal distribution does not affect the larger society. For example, based on individual success, people live in different sizes and styles of homes, drive different types of automobiles, and spend their money on a variety of things. In other cases, the allocation of resources has wider repercussions for society. In these areas, market justice has severe limitations:

Market justice principles fail to rectify critical human concerns. Pervasive social problems, such as crime, illiteracy, and homelessness, can significantly weaken the cohesion of a society. Indeed, the United States has recognized such issues and instituted programs based on the social justice principle to combat such problems. These programs have added police protection, publicly supported education, and subsidized housing for many poor and elderly populations. Health care is an important social issue because it not only affects human productivity and achievement but also provides basic human dignity. Market justice does not always protect a society. Individual health issues can have negative consequences for society because ill health is not always confined to the individual. The AIDS epidemic is an example of how a society can be put at serious risk by illness originally affecting just a few subpopulations. The initial spread of the SARS epidemic in Beijing, China, was largely due to patients with SARS symptoms being turned away by hospitals because they were not able to pay in advance for the cost of the treatment. Similar to clean air and water, health care is a social concern that, in the long run, protects against the burden of preventable disease and disability—a burden that is ultimately borne by society at large.

Market justice does not work well in health care delivery. On the one hand, a growing national economy and prosperity in the past did not materially reduce the number of uninsured Americans. On the other hand, the number of uninsured increases during economic downturns. For example, during the 2007–2009 recession, 5 million Americans lost employment-based health insurance (Holahan, 2011).

▶ Integration of Individual and Population Health

It has been recognized that the typical emphasis on the treatment of acute illness in hospitals, biomedical research, and high technology has not significantly improved the population’s health. Instead, the medical model should be integrated with a disease- prevention, health-promotion, primary care–based model to produce significant gains in health. Society will always need the benefits of modern science and technology for the treatment of disease, but health promotion and primary care can prevent and delay the onset of many diseases, disability, and premature death. An integrated approach will improve the overall health of the population, enhance people’s quality of life, and conserve health care resources.

The real challenge for the health care delivery system is incorporating the medical and wellness models within the holistic context of health. For instance, the Ottawa Charter for Health Promotion mentions caring, holism, and ecology as essential issues in developing strategies for health promotion (de Leeuw, 1989). “Holism” and “ecology” refer to the complex relationships that exist among (1) the individual; (2) the health care delivery system; and (3) the physical, social, cultural, and economic environmental factors. In addition, as noted by an increasing body of research, the spiritual dimension must be incorporated into the integrated model.

Another equally important challenge for the health care delivery system is focusing on both individual and population health outcomes. The nature of health is complex, and the interrelationships among the physical, mental, social, and spiritual dimensions are not well understood. Translating this multidimensional framework of health into specific actions that are

efficiently configured to achieve better individual and community health is one of the greatest challenges that today’s health care systems face.

For an integrated approach to become reality, the best American ingenuity must be applied in addressing health-spending reductions and coordination of services among public health agencies, hospitals, and other health care providers. Community hospitals, in particular, are increasingly held accountable for the health status of the communities in which they are located. To fulfill this mission, hospitals must first conduct a health assessment of their communities. Such assessments provide broad perspectives of the local population’s health and point to specific needs that health care providers can address. These assessments can help pinpoint interventions that should be given priority to improve the population’s health status or address critical issues pertaining to certain subgroups within the population.

Healthy People Initiatives Since 1980, the United States has undertaken 10-year plans outlining certain key national health objectives to be accomplished during each of the 10-year periods. The objectives are developed by a consortium of national and state organizations under the leadership of the U.S. Surgeon General. The first of these programs, with objectives for 1990, provided national goals for reducing premature deaths among all age groups and for reducing the average number of days of illness among persons older than age 65. A final review of this program concluded that positive changes in premature deaths had been achieved for all age categories except adolescents, but that illness among the elderly had not been reduced. However, the review set the stage to develop and modify the goals and objectives for the subsequent 10-year program (Chrvala and Bulger, 1999).

Healthy People 2000: National Health Promotion and Disease Prevention Objectives identified three main goals to be reached by the year 2000: (1) increase the span of healthy life for Americans; (2) reduce health disparities and wasteful care; and (3) promote individual responsibility and accountability for one’s health as well as improved access to basic services. In a broad sense, these services include medical care, preventive services, health promotion, and social policy to improve education, lifestyle, employment, and housing (FIGURE 2-4). According to the final review, the major accomplishments of Healthy People 2000 included surpassing the targets for reducing deaths from coronary heart disease and cancer; meeting the targets for mammography exams, violent deaths, tobacco-related deaths, and incidence rates of AIDS and syphilis; nearly meeting the targets for infant mortality and number of children with elevated levels of lead in their blood; and making some progress toward reducing health disparities among special populations.

FIGURE 2-4 Integrated model for holistic health.

The Ottawa Charter has proposed achieving health objectives through social public policy and community action. An integrated approach also necessitates creation of a new model for training health care professionals that forms partnerships with the community (Henry, 1993). The following paragraphs describe examples of community partnerships reflected in community health assessments and Healthy People initiatives. Community health assessment is a method used to conduct broad assessments of populations at a local or state level. To integrate individual and community health, the assessment is best conducted through collaboration with community members and local authorities (DHHS, 1992).

Healthy People 2010: Healthy People in Healthy Communities continued the earlier tradition as an instrument to improve the health of the American people in the first decade of the 21st century. It focused on two broad goals: (1) to increase quality and years of healthy life; and (2) to eliminate health disparities. It went a step beyond the previous initiatives by emphasizing the role of community partners (businesses, local governments, and civic, professional, and religious organizations) as effective agents for improving health in their local communities (DHHS, 1998). The final report revealed that 23% of the targets were met or exceeded and that the nation had made progress toward 48% of the targets. Specifically, life expectancy at birth, expected years in good or better health, and expected years free of activity limitations all improved, though expected years free of selected chronic diseases decreased. While many of the targets have been met or are in progress, the goal of reducing health disparities has not been achieved. Health disparities identified in approximately 80% of the objectives have not changed, and they even increased in another 13% of the objectives (NCHS, 2012). Hence, challenges remain in the reduction of chronic conditions and health disparities among population groups.

Healthy People 2020 Launched in 2010, Healthy People 2020 (DHHS, 2010b) has a fivefold mission: (1) identify nationwide health improvement priorities; (2) increase public awareness and understanding of the determinants of health, disease, and disability and the opportunities for progress; (3) provide measurable objectives and goals that can be used at the national, state, and local levels; (4) engage multiple sectors to take actions that are driven by the best available evidence and knowledge; and (5) identify critical research and data collection needs. This initiative also has four overarching goals:

Attain high-quality and longer lives free of preventable disease, disability, injury, and premature death.

Achieve health equity, eliminate disparities, and improve the health of all groups. Create social and physical environments that promote good health for all. Promote quality of life, healthy development, and healthy behaviors across all life stages.

These overarching goals are in line with the tradition of earlier Healthy People initiatives but place particular emphasis on the determinants of health.

FIGURE 2-5 illustrates the action model to achieve the Healthy People 2020 overarching goals. This model illustrates that interventions (i.e., policies, programs, information) influence the determinants of health at four levels and lead to improvements in outcomes: (1) individual; (2) social, family, and community; (3) living and working conditions; and (4) broad social, economic, cultural, health, and environmental conditions. Results are to be demonstrated through assessment, monitoring, and evaluation, and the dissemination of findings will provide feedback for future interventions.

FIGURE 2-5 Action model to achieve U.S. Healthy People 2020 overarching goals.

Courtesy of Department of Health and Human Services (DHHS). 2008. The Secretary’s Advisory

Committee on National Health Promotion and Disease Prevention Objectives for 2020. 2008. Phase I

report: Recommendations for the framework and format of Healthy People 2020. Section IV.

Advisory Committee findings and recommendations. Available at: Accessed April 2017.

Healthy People 2020 differs from previous Healthy People initiatives in that it includes multiple new topic areas to its objectives list, such as adolescent health, genomics, global health, health communication and health information technology, and social determinants of health. Healthy People 2020 has 42 topic areas, with 13 new areas (TABLE 2-6).

TABLE 2-6 Healthy People 2020 Topic Areas

1. Access to health services 22. HIV


2. Adolescent health 23. Immunization and infectious diseases

3. Arthritis, osteoporosis, and chronic back conditions

24. Injury and violence prevention

4. Blood disorders and blood safety 25. Lesbian, gay, bisexual, and transgender health

5. Cancer 26. Maternal, infant, and child health

6. Chronic kidney disease 27. Medical product safety

7. Dementias, including Alzheimer’s disease

28. Mental health and mental disorders

8. Diabetes 29. Nutrition and weight status

9. Disability and health 30. Occupational safety and health

10. Early and middle childhood 31. Older adults

11. Educational and community-based programs

32. Oral health

12. Environmental health 33. Physical activity

13. Family planning 34. Preparedness

14. Food safety 35. Public health infrastructure

15. Genomics 36. Respiratory diseases

16. Global health 37. Sexually transmitted diseases

17. Health communication and health information technology

38. Sleep health

18. Health care-associated infections 39. Social determinants of health

19. Health-related quality of life and well- being

40. Substance abuse

20. Hearing and other sensory or communication disorders

41. Tobacco use

21. Heart disease and stroke 42. Vision


1 1


1 1





1 1


New topic area.

Measurement of Healthy People 2020 Healthy People 2020 establishes four foundational health measures to monitor progress toward achieving its goals. The foundational health measures include general health status, health-related quality of life and well-being, determinants of health, and disparities. Measures of general health status include life expectancy, healthy life expectancy, years of potential life lost, physically and mentally unhealthy days, self-assessed health status, limitations of activity, and chronic disease prevalence. Measures of health-related quality of life and well-being include physical, mental, and social health-related quality of life, well- being/satisfaction, and participation in common activities. Healthy People 2020 defines determinants of health as “a range of personal, social, economic, and environmental factors that influence health status. Determinants of health include such things as biology, genetics, individual behavior, access to health services, and the environment in which people are born, live, learn, play, work, and age.” Measures of disparities and inequity include differences in health status based on race/ethnicity, gender, physical and mental ability, and geography (DHHS, 2010b).

Global health is also an important topic area in Healthy People 2020. The measurement of global health focuses on two aspects: (1) measuring the reduction of global diseases in the United States, including malaria and tuberculosis (TB); and (2) measuring “global capacity in support of the International Health Regulations to detect and contain emerging health threats” (DHHS, 2010b). The indicators include the number of global disease detection (GDD) regional centers worldwide, the number of public health professionals trained by GDD programs worldwide, the number of public health professionals trained by GDD programs worldwide, and the number of diagnostic tests established or improved by GDD programs (DHHS, 2010b).


Achievement of Healthy People 2020 Ongoing review has focused on how well the health care system is working toward achieving its delineated goals (Healthy People 2020, 2014). The findings of these ongoing studies are compared to the baseline data from the beginning of the 10-year period to determine whether adequate progress has occurred.

In total, Healthy People 2020 contains 42 topic areas with more than 1,200 objectives. A subset of 26 of the objectives, known as the leading health indicators (LHI), is used to track the progress of the initiative and communicate high-priority health issues. Of the 26 LHIs, 4 indicators have met or exceeded their Healthy People 2020 targets, 10 show improvement, 8 show little or undetectable change, and 3 are getting worse. One indicator has only baseline data available.

To date, indicators for access to health services show little change in this area. Although the proportion of people with medical insurance increased under the ACA, the target of 100% has not been reached. Similarly, access to a usual-care provider has increased but has not met Healthy People 2020’s target.

Many of the LHIs for clinical preventive services show improvement. The percentage of adults receiving colorectal cancer screenings, adults with hypertension whose blood pressure is controlled, and children receiving recommended vaccines have all increased significantly, moving toward the Healthy People 2020 target (Egan et al., 2014). In contrast, the rate of adults with diabetes who also have poor glycemic control has not shown any significant improvement.

Some environmental quality indicators have not only met their Healthy People 2020 goals, but actually exceeded them. The Air Quality Index, which assesses changes in air quality by number and severity of unhealthy days, met its goal. Likewise, the goal for

reducing the percentage of children exposed to secondhand smoke has been achieved.

So far, the LHIs for injury and violence show positive progress. Injury deaths have decreased by 43% and the homicide rate has declined by 13%, both of which meet the Healthy People 2020 targets.

Maternal and child health LHIs are significantly improving, with infant deaths and total preterm live births almost achieving their Healthy People 2020 targets. Conversely, the LHIs for mental health appear to be significantly worse than those measures at baseline. The suicide rate has increased by 7%, and the percentage of adolescents with major depressive episodes has increased by almost 10%.

The LHIs for nutrition, physical activity, and obesity mostly show little or no detectable change. Rates of obesity among adults, children, and adolescents have all increased between 4% and 5%, although these changes are not statistically significant. Intake of vegetables remains stagnant. In a promising development, the percentage of adults meeting the federal physical activity guidelines has increased by 13%, exceeding the Healthy People 2020 target.

In the area of oral health, the LHI is moving away from the target, showing a 6% decrease in the percentage of children, adolescents, and adults who had a dental visit in the past year. In contrast, the LHIs for reproductive and sexual health and social determinants show some progress toward the Healthy People 2020 goals. Substance abuse indicators are mixed. While the number of adolescents using alcohol or illicit drugs has decreased, the prevalence of binge drinking among adults shows no change. The prevalence of adolescent cigarette smoking has slightly decreased, with the overall cigarette smoking rate showing an even larger decrease of approximately 12%.

▶ Summary The delivery of health care is primarily driven by the medical model, which emphasizes illness rather than wellness. Holistic concepts of health, along with the integration of medical care with preventive and health promotional efforts, need to be adopted to significantly improve the health of Americans. Such an approach would require individuals to take responsibility for their own health-oriented behaviors, as well as the establishment of community partnerships to improve both personal and community health. Understanding the determinants of health, providing health education, utilizing community health assessment, and promoting national initiatives, such as Healthy People, are essential to accomplish these goals. Healthy People 2020, launched in 2010, continues its goals of improving health and eliminating health disparities in the United States. Public health has drawn increased attention in recent times because of the growing recognition of its role in health protection, environmental health, and preparedness for natural disasters and bioterrorism. Moreover, public health has now become global in its scope.

Programs to address the various facets of health and its determinants, and ongoing initiatives in the areas of prevention, health promotion, health protection, and equality, are complex undertakings and require substantial financial resources. Objective measures play a critical role both in evaluating the success of various programs and in directing future planning activities.

The broad concern of achieving equitable access to health services can be addressed by considering the contrasting theories of market justice and social justice. Countries offering universal coverage have adopted the principles of social justice, under which the government finances health care services and decides on the distribution of those services. However, because no country can

afford to provide unlimited amounts of health care to all citizens, supply-side rationing becomes inevitable in such a system. Many of the characteristics of the U.S. health care system trace back to the beliefs and values underlying the American culture. Under market justice, not all citizens have health insurance coverage, a phenomenon called demand-side rationing.

▶ Test Your Understanding

Terminology activities of daily living (ADLs)

acute condition




chronic condition

community health assessment

crude rates

demand-side rationing



environmental health



health care

health determinants

health risk appraisal

holistic health

holistic medicine


iatrogenic illnesses



instrumental activities of daily living (IADLs)

life expectancy

market justice

medical model





planned rationing

population at risk


primary prevention

public health

quality of life

risk factors

secondary prevention

social contacts

social justice

social resources

subacute condition

supply-side rationing

surge capacity

tertiary prevention


Review Questions 1. What is the role of health risk appraisal in health promotion and

disease prevention? 2. Health promotion and disease prevention may require both

behavioral modification and therapeutic intervention. Discuss. 3. Discuss the definitions of health presented in this chapter in terms

of their implications for the health care delivery system. 4. What are the main objectives of public health? 5. Discuss the significance of an individual’s quality of life from the

health care delivery perspective. 6. Which “preparedness”-related measures have been taken to cope

with potential natural and human-made disasters since the tragic

events of 9/11? Assess their effectiveness. 7. The Blum model points to four key determinants of health. Discuss

their implications for health care delivery. 8. What has been the main cause of the dichotomy between the way

physical and mental health issues have traditionally been addressed by the health care delivery system?

9. Discuss the main cultural beliefs and values in American society that have influenced health care delivery, including how they have shaped the health care delivery system.

10. Briefly describe the concepts of market justice and social justice. In which ways do the two principles complement each other, and in which ways are they in conflict in the U.S. system of health care delivery?

11. Describe how health care is rationed in the market justice and social justice systems.

12. To what extent do you think the objectives set forth in Healthy People initiatives can achieve the vision of an integrated approach to health care delivery in the United States?

13. What are the major differences between Healthy People 2020 and the previous Healthy People initiatives?

14. How can health care administrators and policymakers use the various measures of health status and service utilization? Please use examples to illustrate your answer.

15. Using the data given in the table: A. Compute crude birth rates for 2005 and 2010. B. Compute crude death rates for 2005 and 2010. C. Compute cancer mortality rates for 2005 and 2010. D. Answer the following questions:

1. Did the infant death rates improve between 2005 and 2010?

2. Which conclusions can you draw about the demographic change in this population?

3. Have efforts to prevent death from heart disease been successful in this population?

Population 2005 2010

Total 248,710 262,755

Male 121,239 128,314

Female 127,471 134,441

Whites 208,704 218,086

Blacks 30,483 33,141

Number of live births 4,250 3,840

Number of infant deaths (birth to 1 year) 39 35

Number of total deaths 1,294 1,324

Deaths from heart disease 378 363

Deaths from cancer 336 342

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Chapter opener photo: © f11photo/Shutterstock

CHAPTER 3 The Evolution of Health Services in the United States


■ Discover historical developments that have shaped the U.S. health care delivery system. ■ Understand the history of mental health care in the United States. ■ Evaluate why the system has been resistant to national health insurance reforms. ■ Explore the corporatization of health care. ■ Identify the globalization of health care. ■ Obtain a historical perspective on the Affordable Care Act. ■ Assess the prospects of new health care reform efforts.

Where’s the market?

▶ Introduction Delivery of health care in the United States evolved quite differently from the systems in Europe. The U.S. health care system has been shaped by the country’s anthro-cultural values and a series of social, political, and economic antecedents. Because social, political, and economic contexts are not static, their shifting influences lend a certain dynamism to the health care delivery system. Conversely, cultural beliefs and values remain relatively stable over time. As a consequence of the persistent resistance of American anthro-cultural values to a government-run national health care program, initiatives toward establishing such a system had long failed to make any significant progress. Instead, the interaction of forces just mentioned led to certain compromises that resulted in incremental changes over time. Incremental changes, both small and large, since 1935 have gradually shifted U.S. health care from a mainly private enterprise to one in which both the private and public sectors have a substantial role in financing and insurance of health care for different population groups in the United States.

American medicine did not emerge as a professional entity until the beginning of the 20th century, with the progress in biomedical science. Since then, the U.S. health care delivery system has been a growth enterprise. The evolution of medical science and technology has played a key role in shaping the U.S. health care delivery system, and has been a primary factor in fueling the growth of national health care expenditures. Advancement of technology has influenced other factors as well, such as medical education, growth of alternative settings for health services delivery, and corporatization of medicine. In many respects, health care delivery has also become a global enterprise.

This chapter traces the evolution of health care delivery through historical phases, each demarcating a major change in the structure of the delivery system. The first evolutionary phase is the preindustrial era from the middle of the 18th century to the latter part of the 19th century. The second phase is the postindustrial era beginning in the late 19th century. The third phase—called the corporate era—became recognized in the latter part of the 20th century. Corporatization of medicine has played a major role in the globalization of health care.

Since the Obama presidency, health care reform has taken center stage in American politics. The Affordable Care Act (ACA) was passed in 2010 to bring about sweeping changes in U.S. health care delivery; however, many of its promises remained unfulfilled. These issues could very well have been one main reason behind the victory of Donald Trump in the 2016 presidential election. President Trump’s promises to the American people signal that the era of health care reform continues, but now is expected to take a different turn.

The practice of medicine is central to the delivery of health care; therefore, a portion of this chapter is devoted to tracing the transformations in medical practice from a weak and insecure trade to an independent, highly respected, and lucrative profession. Developments since the corporatization stage, however, have made a significant impact on practice styles and have compromised the autonomy that physicians had historically enjoyed. EXHIBIT 3-1 provides a snapshot of the historical developments in U.S. health care delivery.

EXHIBIT 3-1 Evolution of the U.S. Health Care Delivery System

Development of science and technology

Mid-18th to Late 19th Century Late 19th to Late 20th Century

Late 20th to 21st Century

Open entry into medical practice

Scientific basis of medicine

Corporatization - Managed care

Intense competition Weak and unorganized profession Apprenticeship training Undeveloped hospitals Almshouses and pesthouses Dispensaries Mental asylums Private payment for services Low demand for services Private medical schools providing only general education

Urbanization Emergence of the modern hospital Emergence of organized medicine Reform of medical training Licensing Specialization in medicine Development of public health Community mental health Birth of workers’ compensation Emergence of private insurance Failure of national health insurance Medicaid and Medicare

- Organizational integration - Diluted physician autonomy Globalization - Global telemedicine - Medical tourism - U.S. health care investment abroad - Migration of professionals - Global health Era of health care reform - The Affordable Care Act - Prospects for new reforms

Consumer sovereignty Professional dominance Government and corporate dominance

Beliefs and values/Social, economic, and political constraints

▶ Medical Services in the Preindustrial Era

From colonial times to the beginning of the 20th century, American medicine lagged behind the advances in medical science, experimental research, and medical education that were taking place in Great Britain, France, and Germany. While London, Paris, and Berlin flourished as major research centers, Americans had a tendency to neglect research in basic sciences and to place more emphasis on applied science (Shryock, 1966). In addition, American attitudes about medical treatment placed strong emphasis on natural history and conservative common sense (Stevens, 1971). Consequently, the practice of medicine in the United States had a strong domestic—rather than professional— character. Medical services, when deemed appropriate by the consumer, were purchased out of one’s private funds because there was no health insurance. The health care market was characterized by competition among providers, and the consumer decided who the provider would be. Thus, the consumer was sovereign in the health care market and health care was delivered under free-market conditions.

Five main factors explain why the medical profession remained largely an insignificant trade in preindustrial America:

1. Medical practice was in disarray. 2. Medical procedures were primitive. 3. An institutional core was missing. 4. Demand was unstable. 5. Medical education was substandard.

Medical Practice in Disarray

The early practice of medicine could be regarded more as a trade than a profession. It did not require the rigorous course of study, clinical practice, residency training, board exams, or licensing without which it is impossible to practice today. At the close of the Civil War (1861–1865), “anyone who had the inclination to set himself up as a physician could do so, the exigencies of the market alone determining who would prove successful in the field and who would not” (Hamowy, 1979). The clergy, for example, often combined medical services and religious duties. The generally well- educated clergyman or government official was more learned in medicine than physicians were at the time (Shryock, 1966). Tradesmen, such as tailors, barbers, commodity merchants, and persons engaged in numerous other trades, also practiced the healing arts by selling herbal prescriptions, nostrums, elixirs, and cathartics. Likewise, midwives, homeopaths, and naturalists could practice medicine without being subject to any restrictions. The red-and-white striped poles (symbolizing blood and bandages) seen outside barbershops are reminders that barbers also functioned as surgeons at one time, using the same blade to cut hair, shave beards, and bleed the sick.

This era of medical pluralism has been referred to as a “war zone” by Kaptchuk and Eisenberg (2001) because it was marked by bitter antagonism among the various practicing sects. Eventually, in 1847, the American Medical Association (AMA) was founded with the main purpose of erecting a barrier between orthodox practitioners and the “irregulars” (Rothstein, 1972).

In the absence of minimum standards of medical training, entry into private practice was relatively easy for both trained and untrained practitioners, creating intense competition. Medicine as a profession was weak and unorganized. Hence, physicians did not enjoy the prestige, influence, and incomes that they later earned. Many physicians found it necessary to engage in a second occupation because income from medical practice alone was inadequate to support a family. It is estimated that most physicians’

incomes in the mid-19th century placed them at the lower end of the middle class (Starr, 1982). In 1830, there were approximately 6,800 physicians in the United States, serving primarily the upper classes (Gabe et al., 1994). It was not until 1870 that medical education was reformed and licensing laws were passed in the United States.

Primitive Medical Procedures Up until the mid-1800s, medical care was based more on primitive medical traditions than on science. In the absence of diagnostic tools, a theory of “intake and outgo” served as an explanation for all diseases (Rosenberg, 1979). It was believed that diseases needed to be expelled from the body. Hence, bleeding, use of emetics (to induce vomiting) and diuretics (to increase urination), and purging with enemas and purgatives (to clean the bowels) were popular forms of clinical therapy.

When George Washington became ill with an inflamed throat in 1799, he, too, was bled by physicians. One of the attending physicians argued, unsuccessfully, in favor of making an incision to open the trachea, which today would be considered a more enlightened procedure. The bleeding most likely weakened Washington’s resistance, and historians have debated whether it played a role in his death (Clark, 1998).

Surgeries were limited because anesthesia had not yet been developed and antiseptic techniques were not known. Stethoscopes and x-rays had not been discovered, clinical thermometers were not in use, and microscopes were not available for a better understanding of pathology. Physicians relied mainly on their five senses and experience to diagnose and treat medical problems. Hence, in most cases, physicians did not possess any technical expertise greater than that of the mothers and grandparents at home or experienced neighbors in the community.

Missing Institutional Core In the United States, widespread development of hospitals did not occur before the 1880s. A few isolated hospitals were either built or developed in rented private houses in large cities, such as Philadelphia, New York, Boston, Cincinnati, New Orleans, and St. Louis. By contrast, general hospital expansion began much before the 1800s in France and Great Britain (Stevens, 1971).

In Europe, medical professionals were closely associated with hospitals. New advances in medical science were being pioneered, which European hospitals readily adopted. The medical profession came to be highly regarded because of its close association with an establishment that was scientifically advanced. In contrast, American hospitals played only a small part in medical practice because most hospitals served a social welfare function by taking care of the poor, those without families, or those who were away from home on travel.

The Almshouse and the Pesthouse In the United States, the almshouse, also called a poorhouse, was the common ancestor of both hospitals and nursing homes. The poorhouse program was adopted from the Elizabethan system of public charity based on English Poor Laws. The first poorhouse in the United States is recorded to have opened in 1660 in Boston (Wagner, 2005). Almshouses served primarily general welfare functions by providing food and shelter to the destitute of society. Therefore, the main function of the almshouse was custodial. Caring for the sick was incidental because some of the residents would inevitably become ill and would be cared for in an adjoining infirmary. Almshouses were unspecialized institutions that admitted poor and needy persons of all kinds: the elderly, the orphaned, the insane, the ill, and the disabled. Hence, the early hospital-type institutions emerged mainly to take care of indigent people whose families could not care for them.

Another type of institution, the pesthouse, was operated by local governments (primarily in seaports) to quarantine people who had contracted a contagious disease, such as cholera, smallpox, typhoid, or yellow fever. The main function of a pesthouse was to isolate people with contagious diseases to prevent the spread of disease among the population. These institutions were the predecessors of contagious-disease and tuberculosis hospitals.

The Dispensary Dispensaries were established as outpatient clinics, independent of hospitals, to provide free care to those who could not afford to pay. Urban workers and their families often depended on such charity (Rosen, 1983).

Starting with Philadelphia in 1786, dispensaries gradually spread to other cities. These private institutions were financed by bequests and voluntary subscriptions. Their main function was to provide basic medical care and to dispense drugs to ambulatory patients (Raffel, 1980). Generally, young physicians and medical students desiring clinical experience staffed the dispensaries, as well as hospital wards, on a part-time basis for little or no income (Martensen, 1996). This model served a dual purpose: It provided needed services to the poor and enabled both physicians and medical students to gain experience diagnosing and treating a variety of cases. Later, as the practice of specialized medicine, as well as teaching and research, was transferred to hospital settings, many dispensaries were gradually absorbed into hospitals as outpatient departments. Indeed, outpatient or ambulatory care departments became an important locale for specialty consultation services within large hospitals (Raffel, 1980).

The Mental Asylum Mental health care was seen as largely the responsibility of state and local governments. At this time, little was known about what caused mental illness or how to treat it. Although some mental health patients were confined to almshouses, asylums were built by

states for patients with untreatable, chronic mental illness. The first such asylum was built around 1770 in Williamsburg, Virginia. When the Pennsylvania Hospital opened in Philadelphia in 1752, its basement was used as a mental asylum. Attendants in these asylums employed physical and psychological techniques in an effort to return patients to some level of rational thinking. Techniques such as bleeding, forced vomiting, and hot and ice-cold baths were also used.

Between 1894 and World War I, the State Care Acts were passed, centralizing financial responsibility for mentally ill patients in every state government. Local governments took advantage of this opportunity to send all those persons with a mental illness, including dependent older citizens, to the state asylums. The quality of care in public asylums deteriorated rapidly, as overcrowding and underfunding ran rampant (U.S. Surgeon General, 1999). Subsequent reforms are discussed in the section “Reform of Mental Health Care.”

The Dreaded Hospital Not until the 1850s were hospitals similar to those in Europe developed in the United States. These early hospitals had deplorable conditions due to a lack of resources. Poor sanitation and inadequate ventilation were hallmarks of these facilities. Unhygienic practices prevailed because nurses were unskilled and untrained. The early hospitals also had an undesirable image of being houses of death. The mortality rate among hospital patients, both in Europe and America, stood around 74% in the 1870s (Falk, 1999). People went into hospitals because of dire consequences, not by personal choice. It is not hard to imagine why members of the middle and upper classes, in particular, shunned such establishments.

Unstable Demand

Professional services suffered from low demand in the mainly rural, preindustrial society, and much of the medical care was provided by people who were not physicians. The most competent physicians were located in more populated communities (Bordley and Harvey, 1976). In the small communities of rural America, a strong spirit of self-reliance prevailed. Families and communities were accustomed to treating the sick, often using folk remedies passed from one generation to the next. It was also common to consult published books and pamphlets that gave advice on home remedies (Rosen, 1983).

The market for physicians’ services was also limited by economic conditions. Many families could not afford to pay for medical services. Two factors contributed to the high costs associated with obtaining professional medical care:

The indirect costs of transportation and the “opportunity cost” of travel (i.e., forgone value of time that could have been used for something more productive) could easily outweigh the direct costs of physicians’ fees. The costs of travel often doubled because two people, the physician and an emissary, had to make the trip back and forth. For a farmer, a trip of 10 miles into town could mean an entire day’s work lost. Farmers had to cover travel costs and the opportunity cost of time spent traveling. Mileage charges amounted to four or five times the basic fee for a visit if a physician had to travel 5 to 10 miles. Hence, most families obtained only occasional intervention from physicians, generally for nonroutine and severe conditions (Starr, 1982).

Personal health services had to be purchased without the help of government or private insurance. Private practice and fee for service—the practice of billing separately for each individual type of service performed—became firmly embedded in American medical care.

Similar to physicians, dentists were private entrepreneurs who made their living by private fee-for-service (PFFS) dental practice. Their services were not in great demand, however, because there was little public concern about dental health during this era (Anderson, 1990).

Substandard Medical Education From about 1800 to 1850, medical training was largely received through individual apprenticeship with a practicing physician, referred to as a preceptor, rather than through university education. Many of the preceptors were themselves poorly trained, especially in basic medical sciences (Rothstein, 1972). By 1800, only four small medical schools were operating in the United States: College of Philadelphia (whose medical school was established in 1756, and which later became the University of Pennsylvania), King’s College (whose medical school was established in 1768, and which later became Columbia University), Harvard Medical School (opened in 1782), and the Geisel School of Medicine at Dartmouth College (started in 1797).

American physicians later established medical schools in large numbers, partly to enhance their professional status and prestige and partly to enhance their income. Medical schools were inexpensive to operate and often quite profitable. All that was required was a faculty of four or more physicians, a classroom, a back room in which to conduct dissections, and legal authority to confer degrees. Operating expenses were met totally out of student fees that were paid directly to the physicians (Rothstein, 1972). Physicians would affiliate with a local college for the conferral of degrees and use of classroom facilities. Large numbers of men entered medical practice, as education in medicine became readily available and unrestricted entry into the profession was still possible (Hamowy, 1979). Gradually, as physicians from medical schools began to outnumber those from the apprenticeship system, the Doctor of Medicine (MD) degree became the standard of

competence. The number of medical schools tripled between 1800 and 1820, then tripled again between 1820 and 1850, with 42 being in operation by 1850 (Rothstein, 1972). Academic preparation gradually replaced apprenticeship training.

At this point, medical education in the United States was seriously deficient in science-based training, unlike European medical schools. Medical schools in the United States did not have laboratories, and clinical observation and practice were not part of the curriculum. In contrast, European medical schools, particularly those in Germany, emphasized laboratory-based medical research. At the University of Berlin, for example, professors were expected to conduct research as well as teach, and were paid by the state. In contrast, in American medical schools, students were taught by local practitioners, who were ill equipped in education and training. Unlike in Europe, where medical education was financed and regulated by the government, proprietary medical schools in the United States set their own standards (Numbers and Warner, 1985). A “year” of medical school in the United States generally lasted only 4 months and only 2 years of attendance was required for graduation. In addition, American medical students customarily repeated the same courses they had taken during their first year again during their second year (Numbers and Warner, 1985; Rosner, 2001). The physicians’ desire to keep their schools profitable also contributed to low standards and a lack of rigor: They feared that higher standards in medical education would drive enrollments down, which could force the schools into bankruptcy (Starr, 1982).

▶ Medical Services in the Postindustrial Era

In the postindustrial period, American physicians, unlike other physicians in the world, were highly successful in retaining private practice of medicine and resisting national health care. Physicians delivered scientifically and technically advanced services to insured patients; became an organized medical profession; and gained power, prestige, and financial success. Notably, much of this transformation occurred in the aftermath of the Civil War. Social and scientific changes in the period following the war were accompanied by a transition from a rural, agricultural economy to a system of industrial capitalism. Mass production techniques used in the war were applied to peacetime industries. Railroads linked the east and west coasts of the United States, and small towns became cities (Stevens, 1971).

The American system for delivering health care took its current shape during this period. The well-defined role of employers in providing workers’ compensation for work-related injuries and illnesses, together with other economic considerations, was instrumental in the growth of private health insurance. Even though attempts to pass national health care legislation failed, rising costs of health care prompted Congress to create the publicly financed programs, such as Medicare and Medicaid, for the most vulnerable members of society.

Growth of Professional Sovereignty The 1920s represented a milestone in the consolidation of physicians’ professional power. During and after World War I, physicians’ incomes grew sharply, and their prominence as members of a true profession finally emerged. Of course, this

prestige and power did not materialize overnight. Through the years, several factors interacted to gradually transform medicine from a weak, insecure, and isolated trade into a profession of power and authority. Seven key factors contributed to this transformation:

Urbanization Science and technology Institutionalization Dependency Autonomy and organization Licensing Educational reform

Urbanization Urbanization created increased reliance on the specialized skills of paid professionals in several ways. First, it distanced people from their families and the neighborhoods where family-based care was traditionally given. Women began working outside the home and could no longer care for sick members of the family.

Second, physicians became less expensive to consult as telephones, automobiles, and paved roads reduced the opportunity cost of time and travel and medical care became more affordable. Urban development attracted more and more Americans to the growing towns and cities. In 1840, only 11% of the U.S. population lived in urban areas; by 1900, the proportion of the U.S. population living in urban areas grew to 40% (Stevens, 1971).

The trend away from home visits and toward office practice also began to develop around this time (Rosen, 1983). Physicians moved to cities and towns in large numbers to be closer to their growing markets. Better geographic proximity of patients enabled physicians to see more patients in a given amount of time. Whereas physicians in 1850 saw, on average, only 5 to 7 patients per day, by the early 1940s, the average patient load of general practitioners had risen to 18 to 22 patients per day (Starr, 1982).

Science and Technology EXHIBIT 3-2 summarizes some of the groundbreaking scientific discoveries in medicine. Advances in bacteriology, antiseptic surgery, anesthesia, immunology, and diagnostic techniques, along with an expanding repertoire of new drugs, gave medicine an aura of legitimacy and complexity, and the therapeutic effectiveness of scientific medicine became widely recognized.

EXHIBIT 3-2 Groundbreaking Medical Discoveries

The discovery of anesthesia was instrumental in advancing the practice of surgery. Nitrous oxide (laughing gas) was first employed as an anesthetic around 1846 for tooth extraction by Horace Wells, a dentist. Ether anesthesia for surgery was first successfully used in 1846 at Massachusetts General Hospital. Before anesthesia was discovered, strong doses of alcohol were used to dull the sensations. A surgeon who could do procedures, such as limb amputations, in the shortest length of time was held in high regard. Around 1847, Ignaz Semmelweis, a Hungarian physician practicing in a hospital in Vienna, implemented the policy of hand washing. Thus, aseptic technique was born. Semmelweis was concerned about the high death rate from puerperal fever among women after childbirth. Even though the germ theory of disease was unknown at this time, Semmelweis surmised that there might be a connection between puerperal fever and the common practice by medical students of not washing their hands before delivering babies and right after doing dissections. Semmelweis’s hunch was right. Louis Pasteur, a French scientist, is generally credited with pioneering the germ theory of disease and microbiology around 1860. Pasteur demonstrated sterilization techniques, such as boiling to kill microorganisms and withholding exposure to air to prevent contamination. Joseph Lister, a British surgeon, is often referred to as the father of antiseptic surgery. Around 1865, Lister used carbolic acid to wash wounds and popularized the chemical inhibition of infection (antisepsis) during surgery. Advances in diagnostics and imaging can be traced to the discovery of x-rays in 1895 by Wilhelm Roentgen, a German professor of physics. Radiology became the first machine- based medical specialty. Some of the first training schools in x-ray therapy and radiography in the United States attracted photographers and electricians to become doctors in roentgenology (from the inventor’s name). Alexander Fleming, a Scottish scientist, discovered the antibacterial properties of penicillin in 1929.

When advanced technical knowledge becomes essential to practice a profession and the benefits of professional services are widely recognized, a greater acceptance and a legitimate need for the services of that profession are simultaneously created. Cultural authority refers to the general acceptance of and reliance on the

judgment of the members of a profession (Starr, 1982) because of their superior knowledge and expertise. Cultural authority legitimizes a profession in the eyes of common people. Advances in medical science and technology bestowed this legitimacy on the medical profession because medical practice could no longer remain within the domain of lay competence.

Scientific and technological change also required improved therapeutic competence of physicians in the diagnosis and treatment of disease. Developing these skills was no longer possible without specialized training. Science-based medicine created an increased demand for advanced services that were no longer available through family and neighbors.

Physicians’ cultural authority was further bolstered when medical decisions became necessary in various aspects of health care delivery. For example, physicians decide whether a person should be admitted to a hospital or a nursing home and for how long, whether surgical or nonsurgical treatments should be used, and which medications should be prescribed. Physicians’ decisions have a profound influence on other providers and nonproviders alike. The judgment and opinions of physicians even affect aspects of a person’s life outside the delivery of health care. For example, physicians often evaluate the fitness of persons for jobs during the pre-employment physical examinations many employers demand. Physicians assess the disability of the ill and the injured in workers’ compensation cases. Granting of medical leave for sickness and release back to work require authorizations from physicians. Payment of medical claims requires physicians’ evaluations. Other health care professionals, such as nurses, therapists, and dietitians, are expected to follow physicians’ orders for treatment. Thus, during disease and disability, and sometimes even in good health, people’s lives have become increasingly governed by decisions made by physicians.


The evolution of medical technology and the professionalization of medical and nursing staffs enabled advanced treatments that necessitated the pooling of resources in a common arena of care (Burns, 2004). As had already occurred in Europe, in the United States, hospitals became the core around which the delivery of medical services was organized. Thus, development of hospitals as the center for the practice of scientific medicine and the professionalization of medical practice became closely intertwined.

Indeed, physicians and hospitals developed a symbiotic relationship. For economic reasons, as hospitals expanded, their survival became increasingly dependent on physicians to keep the beds filled because the physicians decided where to hospitalize their patients. Therefore, hospitals had to make every effort to keep the physicians satisfied, which enhanced physicians’ professional dominance, even though they were not employees of the hospitals. In turn, physicians exerted enormous influence over hospital policy. Also, for the first time, hospitals began conforming to both physician practice patterns and public expectations about medicine as a modern scientific enterprise. The expansion of surgery, in particular, had profound implications for hospitals, physicians, and the public. As hospitals added specialized facilities and staff, their regular use became indispensable to physicians and surgeons, who in earlier times had been able to manage their practices with little reference to hospitals (Martensen, 1996).

Hospitals in the United States did not expand and become more directly related to medical care until the late 1890s. However, as late as the 1930s, hospitals continued to experience frequent deaths among their patients due to infections that could not be prevented or cured. Despite these problems, hospital use increased due to the great influx of immigrants into large American cities (Falk, 1999). From only a few dozen facilities in 1875, the number of general hospitals in the United States exploded to 4,000 facilities by 1900 (Anderson, 1990) and to 5,000 facilities by 1913 (Wright, 1997).

Dependency Patients depend on the medical profession’s judgment and assistance. This dependency is created because society expects a sick person to seek medical help and try to get well. The patient is then expected to comply with medical instructions. In addition, dependency is created by the profession’s cultural authority because its medical judgments must be relied on to (1) legitimize a person’s sickness; (2) exempt the individual from social role obligations, such as work or school; and (3) provide competent medical care so the person can get well and resume his or her social role obligations. Moreover, in conjunction with the physician’s cultural authority, the need for hospital services for critical illness and surgery creates dependency when patients are transferred from their homes to a hospital or surgery center.

Once physicians’ cultural authority became legitimized, the sphere of their influence expanded into nearly all aspects of health care delivery. For example, laws were passed that prohibited individuals from obtaining certain classes of drugs without a physician’s prescription. Health insurance paid for treatments only when they were rendered or prescribed by physicians. Thus, beneficiaries of health insurance became dependent on physicians to obtain covered services. The referral role (gatekeeping) of primary care physicians in some managed care plans has also increased patients’ dependency on primary care physicians for referral to specialized services.

Autonomy and Organization For a long time, physicians’ ability to remain free of control from hospitals and insurance companies remained a prominent feature of American medicine. Hospitals and insurance companies could have hired physicians on salary to provide medical services, but individual physicians who took up practice in a corporate setting were castigated by the medical profession and pressured to abandon such practices. In some states, courts ruled that corporations could not employ licensed physicians without

engaging in the unlicensed practice of medicine, a legal doctrine that became known as the “corporate practice doctrine” (Farmer and Douglas, 2001). Independence from corporate control enhanced private entrepreneurship and put American physicians in an enviable strategic position in relation to hospitals and insurance companies. Later, a formally organized medical profession was in a much better position to resist control from outside entities.

The AMA was formed in 1847, but it had little clout during its first half-century of existence. Its membership was small, with no permanent organization and scant resources. The AMA did not attain real strength until it was organized into county and state medical societies and until state societies were incorporated, delegating greater control at the local level. As part of the organizational reform, the AMA also began, in 1904, to concentrate attention on medical education (Bordley and Harvey, 1976). Since then, it has been the chief proponent for the practitioners of conventional medicine in the United States. Although the AMA often stressed the importance of raising the quality of care for patients and protecting the uninformed consumer from “quacks” and “charlatans,” its principal goal—like that of other professional associations—was to advance the professionalization, prestige, and financial well-being of its members. The AMA vigorously pursued its objectives by promoting the establishment of state medical licensing laws and the legal requirement that, to be licensed to practice, a physician must be a graduate of an AMA-approved medical school. The concerted activities of physicians through the AMA are collectively referred to as organized medicine, to distinguish them from the uncoordinated actions of individual physicians competing in the marketplace (Goodman and Musgrave, 1992).

Licensing Under the Medical Practice Acts established in the 1870s, medical licensure in the United States became a function of the states (Stevens, 1971). By 1896, 26 states had enacted medical licensure

laws (Anderson, 1990). Licensing of physicians and upgrading of medical school standards developed hand in hand. At first, licensing required only a medical school diploma. Later, candidates could be rejected if the school they had attended was judged inadequate (Starr, 1982).

Through both licensure and upgrading of medical school standards, physicians obtained a clear monopoly on the practice of medicine (Anderson, 1990). The early licensing laws served to protect physicians from the competitive pressures posed by potential new entrants into the medical profession. Physicians led the campaign to restrict the practice of medicine. As biomedicine gained political and economic ground, the biomedical community expelled providers such as homeopaths, naturopaths, and chiropractors from medical societies; prohibited professional association with them; and encouraged prosecution of such providers for unlicensed medical practice (Rothstein, 1972). In 1888, in a landmark Supreme Court decision, Dent v. West Virginia, Justice Stephen J. Field wrote that no one had the right to practice “without having the necessary qualifications of learning and skill” (Haber, 1974). In the late 1880s and 1890s, many states revised laws to require all candidates for licensure, including those holding medical degrees, to pass an examination (Kaufman, 1980).

Educational Reform Reform of medical education started around 1870, with the affiliation of medical schools with universities. In 1871, Harvard Medical School, under the leadership of a new university president, Charles Eliot, completely revolutionized the system of medical education. The academic year was extended from 4 to 9 months, and the length of medical education was increased from 2 to 3 years. Following the European model, laboratory instruction and clinical subjects, such as chemistry, physiology, anatomy, and pathology, were added to the curriculum.

Johns Hopkins University took the lead in further reforming medical education when it opened its medical school in 1893, under the leadership of William H. Welch, who trained in Germany. For the first time, medical education became a graduate training course, requiring a college degree—not a high school diploma—as an entrance requirement. Johns Hopkins had well-equipped laboratories, a full-time faculty for teaching the basic science courses, and its own teaching hospital (Rothstein, 1972). Standards at Johns Hopkins became the model of medical education in other leading institutions around the country. The heightened standards made it difficult for proprietary schools to survive, and, in time, those schools were closed.

The Association of American Medical Colleges (AAMC) was founded in 1876 by 22 medical schools (Coggeshall, 1965). Later, the AAMC set minimum standards for medical education, including a 4-year curriculum, but it was unable to enforce its recommendations.

In 1904, the AMA created the Council on Medical Education, which inspected the existing medical schools and found that fewer than half provided acceptable levels of training. The AMA did not publish its findings but did obtain the help of the Carnegie Foundation for the Advancement of Teaching to provide a rating of medical schools (Goodman and Musgrave, 1992). The Carnegie Foundation appointed Abraham Flexner to investigate medical schools located in both the United States and Canada. The Flexner Report, published in 1910, had a profound effect on medical education reform. Its recommendations were widely accepted by both the profession and the public. Schools that did not meet the proposed standards were forced to close. State laws were established, requiring graduation from a medical school accredited by the AMA as the basis for obtaining a license to practice medicine (Haglund and Dowling, 1993).

Once advanced graduate education became an integral part of medical training, it further legitimized the profession’s authority and galvanized its sovereignty. Stevens (1971) noted that American medicine moved toward professional maturity between 1890 and 1914, mainly as a direct result of educational reform.

Specialization in Medicine Specialization has been a hallmark of American medicine, albeit one that has resulted in an oversupply of specialists in relation to generalists. This distinctive aspect of medical practice in the United States explains why the structure of medicine did not develop around a nucleus of primary care.

Lack of a rational coordination of medical care in the United States has been one consequence of the preoccupation with specialization. In Great Britain, for example, the medical profession has divided itself into general practitioners (GPs), who practice in the community, and consultants, who hold specialist positions in hospitals. This kind of stratification did not develop in American medicine. Primary care physicians (PCPs) in America were not assigned the role that GPs had in Britain, where patients could consult a specialist only by referral from a GP. Unlike Great Britain, where GPs hold a key intermediary position in relation to the rest of the health care delivery system, the United States has lacked such a gatekeeping and coordinating role. Only since the early 1990s, under health maintenance organizations (HMOs), has the gatekeeping model, which requires initial contact with a generalist and the generalist’s referral to a specialist, gained prominence in the United States.

Reform of Mental Health Care At the turn of the 20th century, the scientific study and treatment of mental illnesses, called neuropathology, had just begun. Later, in 1946, federal funding was made available under the National Mental

Health Act for psychiatric education and research. Signed by President Harry Truman, this law was enacted in response to the large number of World War II veterans who suffered from “battle fatigue” (National Association of State Mental Health Program Directors [NASMHPD], 2014). At about the same time, several reports and studies exposed poor and abusive conditions in state mental asylums.

In 1949, the National Institute of Mental Health (NIMH) was established with the goal of creating a better understanding of mental health issues through research. Six years later, the Mental Health Study Act of 1955 called for a thorough nationwide analysis of mental health and related problems. The task was assigned to a Joint Commission on Mental Illness and Health, which produced a comprehensive report, Action for Mental Health, in 1960. In 1963, President John F. Kennedy called for a shift from institutional care to community-based services, and for integration of people with mental disorders into the mainstream of American life (Kennedy, 1963). Several factors contributed to the emerging belief that early treatment of mental disorders and early intervention in the community would be effective in preventing subsequent hospitalization (Grob, 2005). In addition, reformers of the mental health system argued that long-term institutional care was neglectful, ineffective, and even harmful (U.S. Surgeon General, 1999).

By the 1960s, the concept of community mental health was born, and deinstitutionalization became a major thrust of mental health reform. By this time, new drugs for treating psychosis and depression had become available. The NIMH played a leading role in championing the substitution of confinement to asylums with community-oriented care (Grob, 2005). Passage of the Community Mental Health Centers Act of 1963, signed by President Kennedy, lent support to the joint policies of “community care” and “deinstitutionalization.” Under this act, federal funding became available to build community mental health centers. For the first

time, federal money was granted to the states for mental health treatment (Ramsey, 2011). This policy change ushered in the era of community mental health services and the end of the state psychiatric hospital as the core of the mental health care system in the United States (NASMHPD, 2014).

From 1970 to 2002, state-run psychiatric hospital beds dropped from 207 to 20 beds per 100,000 population (Foley et al., 2006). The deinstitutionalization movement further intensified after the U.S. Supreme Court’s 1999 decision in Olmstead v. L.C., which directed U.S. states to provide community-based services, whenever appropriate, to people with mental illness. Today, state mental institutions still provide long-term treatment to people with severe and persistent mental illness (Patrick et al., 2006).

Around 1994, state-controlled money spent on community-based mental health services started to exceed the spending for institutionalized care. By 2012, fewer than 6% of people receiving mental health treatment used inpatient care (Substance Abuse and Mental Health Services Administration, 2013), and approximately 23% of all state funds for mental health were used for care in psychiatric hospitals (NASMHPD, 2014). By comparison, in the mid-1950s, inpatient services accounted for roughly 84% of the state and local funds devoted to mental health care (Fein, 1958). In achieving such remarkable results, income support programs for the disabled and low-income people—mainly Social Security Disability Insurance, Supplemental Security Income, and housing subsidies—played a critical role, along with the establishment of Medicare and Medicaid and the expansion of private insurance to cover mental health services on par with health care (Glied and Frank, 2016). As a result of these changes, mental health care in the United States is now an example of conjoint social and health policies.

Mental health parity acts were passed in 1996 and 2008 to address equality in insurance coverage for mental and physical health. The

1996 law did not mandate coverage for mental health, but mainly focused on parity for annual or lifetime dollar limits in coverage, and allowed waivers for certain cost increases. The 2008 law added to the previous law by prohibiting differences in cost sharing between treatments for mental and physical health; it also applied to substance abuse, which the previous law did not (Goodell, 2014). Both the laws, however, left loopholes in coverage for mental health treatments.

The 21st Century Cures Act, which had been held up in the U.S. Senate for nearly 1.5 years, was finally passed by Congress and signed by President Obama in December 2016. Among other initiatives, the law provided funds to strengthen parity laws, improve health care for people with serious mental illness, fight the opioid epidemic, and advance research into treating Alzheimer’s disease (“Major provisions of the 21st Century Cures Act,” 2017).

Development of Public Health Historically, public health practices in the United States concentrated on sanitary regulation, the study of epidemics, and vital statistics. The growth of urban centers for the purpose of commerce and industry, unsanitary living conditions in densely populated areas, inadequate methods of sewage and garbage disposal, limited access to clean water, and long work hours in unsafe and exploitative industries led to periodic epidemics of cholera, smallpox, typhoid, tuberculosis, yellow fever, and other diseases. Such outbreaks led to arduous efforts to protect the public interest. For example, in 1793, the national capital had to be moved out of Philadelphia due to a devastating outbreak of yellow fever. This epidemic prompted the city to develop its first board of health that same year. Subsequently, in 1850, Lemuel Shattuck outlined the blueprint for the development of a public health system in Massachusetts. Shattuck also called for the establishment of state and local health departments.

A threatening outbreak of cholera in 1873 mobilized the New York City Health Department to alleviate the worst sanitary conditions within the city. Previously, cholera epidemics in 1832 and 1848– 1849 had swept through American cities and towns, killing thousands within a few weeks (Duffy, 1971). Until about 1900, infectious diseases posed the greatest health threat to society. The development of public health played a major role in curtailing the spread of infection among populations. Simultaneously, widespread public health measures and better medical care were instrumental in reducing mortality and increasing life expectancy.

By 1900, most states had health departments that were responsible for a variety of public health efforts, such as sanitary inspections, communicable disease control, operation of state laboratories, vital statistics, health education, and regulation of food and water (Turnock, 1997; Williams, 1995). Public health functions were later extended to fill gaps in the medical care system. Such functions, however, were limited mainly to child immunizations, care of mothers and infants, health screening in public schools, and family planning. Federal grants were also made available to state and local governments for programs in substance abuse, mental health, and disease prevention services (Turnock, 1997).

Public health has remained separate from the private practice of medicine because of the skepticism of private physicians, who feared that the government could use the boards of health to regulate the private practice of medicine (Rothstein, 1972). Fear of government intervention, loss of autonomy, and erosion of personal incomes created a wall of separation between public health and private medical practice. Under this dichotomous relationship, medicine has concentrated on the physical health of the individual, whereas public health has focused on the health of whole populations and communities. The extent of collaboration between the two has been largely confined to the requirement by public health departments that private practitioners report cases of contagious diseases, such as sexually transmitted diseases, human

immunodeficiency virus (HIV) infection, and acquired immune deficiency syndrome (AIDS), and any outbreaks of cases such as West Nile virus and other types of infections.

Health Services for Veterans Shortly after World War I, the U.S. government started to provide hospital services to veterans with service-related disabilities and for non-service-related disabilities if the veteran declared an inability to pay for private care. At first, the federal government contracted for services with private hospitals. Over time, however, the Department of Veterans Affairs (formerly called Veterans Administration) built its own hospitals, outpatient clinics, and nursing homes.

Birth of Workers’ Compensation The first broad-coverage health insurance in the United States emerged in the form of workers’ compensation programs, which were introduced in 1914 (Whitted, 1993). The theory underlying workers’ compensation is that all accidents that occur during the course of employment and all illnesses directly attributable to the workplace must be regarded as risks of industry. In other words, the employer is financially liable for the full cost of such injuries and illnesses regardless of who is at fault.

Workers’ compensation was originally concerned with cash payments to workers for wages lost due to job-related injuries and disease. Compensation for medical expenses and death benefits to the survivors were later added. Looking at the trend, some reformers believed that, since Americans had been persuaded to adopt compulsory insurance against industrial accidents, they could also be persuaded to adopt compulsory insurance against sickness. In essence, workers’ compensation served as a trial balloon for the idea of government-sponsored universal health insurance in the United States. However, the growth of private health insurance, along with other key factors discussed later, has

prevented any proposals for a national health care program from taking hold.

Rise of Private Health Insurance Historically, private health insurance was commonly referred to as voluntary health insurance, in contrast to proposals for a government-sponsored compulsory health insurance system. At least some private insurance coverage—albeit limited to bodily injuries—has been available since approximately 1850. By 1900, health insurance policies became available, but their initial role was to protect against loss of income during sickness and temporary disability (Whitted, 1993). Later, coverage was added for surgical fees, but the emphasis remained on replacing lost income. Thus, the coverage was, in reality, disability insurance rather than health insurance (Mayer and Mayer, 1984).

As detailed in subsequent sections, technological, social, and economic factors created a general need for health insurance. However, economic conditions that prompted private initiatives, the self-interests of the well-organized medical profession, and the momentum of a successful health insurance enterprise gave private health insurance a firm footing in the United States. Later, economic conditions during the World War II period laid the foundations for health insurance to become an employment-based benefit.

Technological, Social, and Economic Factors The health insurance movement of the early 20th century was the product of three converging developments—technological, social, and economic. From a technological perspective, medicine offered new and better treatments. Because of its well-established healing values, medical care had become individually and socially desirable, which created a growing demand for medical services. From an economic perspective, people could predict neither their future needs for medical care nor the costs, both of which had been

gradually increasing. In short, scientific and technological advances made health care more desirable but less affordable. These developments pointed to the need for some kind of insurance that could spread the financial risks over a large number of people.

Early Blanket Insurance Policies In 1911, insurance companies began to offer blanket policies for large industrial populations, usually covering life insurance, accidents, sickness, and nursing services. A few industrial and railroad companies set up their own medical plans, covering specified medical benefits, as did several unions and fraternal orders. Nevertheless, the total amount of voluntary health insurance remained minute (Stevens, 1971).

Economic Necessity and the Baylor Plan The Great Depression, which started at the end of 1929, forced hospitals to turn from philanthropic donations to patient fees for support. Patients now faced not only loss of income from illness, but also increased debt from medical care costs when they became sick. People needed protection from the economic consequences of sickness and hospitalization, while hospitals needed protection from economic instability (Mayer and Mayer, 1984). During the Depression, occupancy rates in hospitals fell, income from endowments and contributions dropped sharply, and the charity patient load almost quadrupled (Richardson, 1945).

In 1929, the blueprint for modern health insurance was established when Justin F. Kimball began a hospital insurance plan for public school teachers at the Baylor University Hospital in Dallas, Texas. Kimball was able to enroll more than 1,200 teachers, who paid 50 cents per month for a maximum of 21 days of hospital care. Within a few years, the Baylor plan became the model for Blue Cross plans around the country (Raffel, 1980). At first, other independent hospitals copied Baylor and started offering single-hospital plans. It was not long before community-wide plans, offered jointly by more than one hospital, became popular because they provided

consumers a choice of hospitals. The hospitals agreed to provide services in exchange for a fixed monthly payment by the plans. In essence, these were prepaid plans for hospital services. A prepaid plan is a contractual arrangement under which a provider must provide all needed services to a group of members (or enrollees) in exchange for a fixed monthly fee paid in advance. This concept was later adopted by managed care.

Successful Private Enterprise: The Blue Cross Plans A hospital plan in Minnesota was the first to use the name Blue Cross in 1933 (Davis, 1996). The American Hospital Association (AHA) lent support to the hospital plans and became the coordinating agency to unite these plans into the Blue Cross network (Koch, 1993; Raffel, 1980). The Blue Cross plans were nonprofit—that is, they had no shareholders who would receive profit distributions—and covered only hospital charges, as not to infringe on the domain of private physicians (Starr, 1982).

Later, control of the plans was transferred to a completely independent body, the Blue Cross Commission, which subsequently became the Blue Cross Association (Raffel, 1980). In 1946, Blue Cross plans in 43 states served 20 million members. Between 1940 and 1950, driven by the widespread adoption of these plans, the proportion of the U.S. population covered by hospital insurance increased from 9% to 57% (Anderson, 1990).

Self-Interests of Physicians: Birth of Blue Shield Voluntary health insurance had received the AMA’s endorsement, but the AMA had also made it clear that private health insurance plans should include only hospital care. Given the AMA’s position, it is not surprising that the first Blue Shield plan designed to pay for physicians’ bills was started by the California Medical Association, which established the California Physicians’ Service in 1939 (Raffel, 1980). By endorsing hospital insurance and by actively developing medical service plans, the medical profession committed itself to

private health insurance as the means to spread the financial risk of sickness and to ensure that its own interests would not be threatened.

From the medical profession’s point of view, voluntary health insurance, in conjunction with PFFS practice by physicians, was regarded as a desirable feature of the evolving U.S. health care system (Stevens, 1971). Throughout the Blue Shield movement, physicians dominated the boards of directors not only because they underwrote the plans, but also because the plans were, in a very real sense, their response to the challenge of national health insurance. In addition, the plans met the AMA’s stipulation of keeping medical matters in the hands of physicians (Raffel and Raffel, 1994).

Combined Hospital and Physician Coverage Even though Blue Cross and Blue Shield developed independently and were financially and organizationally distinct, they often worked together to provide hospital and physician coverage (Law, 1974). In 1974, the New York Superintendent of Insurance approved a merger of the Blue Cross and Blue Shield plans of Greater New York (Somers and Somers, 1977). Similar mergers occurred in other states. Today, Blue Cross and Blue Shield plans operate throughout the United States and other countries under the umbrella of the Blue Cross‒Blue Shield Association.

The for-profit insurance companies were initially skeptical of the Blue Cross plans and adopted a wait-and-see attitude toward entering the health care insurance market. Their apprehension was justified because no actuarial information was available to predict losses. Nevertheless, within a few years, lured by the success of the Blue Cross plans, commercial insurance companies also started offering health insurance.

Employment-Based Health Insurance

Between 1916 and 1918, 16 state legislatures, including New York and California, attempted to enact legislation mandating employers to provide health insurance, but these efforts were unsuccessful (Davis, 1996). Subsequently, three main developments pushed private health insurance to become employment based in the United States:

To control high inflation in the economy during the World War II period, Congress imposed wage freezes. In response, many employers started offering health insurance to their workers in lieu of wage increases. In 1948, the U.S. Supreme Court ruled that employee benefits, including health insurance, were a legitimate part of union– management negotiations. Health insurance then became a permanent part of employee benefits in the postwar era (Health Insurance Association of America [HIAA], 1991). In 1954, Congress amended the Internal Revenue Code to make employer-paid health coverage nontaxable. In terms of its economic value, employer-paid health insurance was equivalent to getting additional salary without having to pay taxes on it, which provided an incentive to obtain health insurance as an employer-furnished benefit.

Employment-based health insurance expanded rapidly. The economy was strong during the postwar years of the 1950s, and employers started offering more extensive benefits. This expansion led to the birth of “major medical” expense coverage to protect against prolonged or catastrophic illness or injury (Mayer and Mayer, 1984). Thus, private health insurance became the primary vehicle for the financing of health care services in the United States.

Failure of National Health Care Initiatives During the 1990s Starting in Germany in 1883, compulsory sickness insurance had spread throughout Europe by 1912. Sickness insurance was seen

as a natural outgrowth of insurance against workplace accidents. In the United States, the American Association of Labor Legislation (AALL) had been primarily responsible for leading the successful drive for workers’ compensation. Some social academics and labor leaders were the prominent members of the AALL, whose stated agenda was to initiate social reform through government action. Emboldened by its success in bringing about workers’ compensation, the AALL spearheaded the drive to establish a government-run health insurance system for the general population (Anderson, 1990). It also supported the Progressive (i.e., liberal) movement headed by former President Theodore Roosevelt, who was again running for the presidency in 1912 on a platform of social reform. Roosevelt, who might have been a national political sponsor for compulsory health insurance, was defeated by Woodrow Wilson, but the Progressive movement for national health insurance did not die.

The AALL continued its efforts to win support for a model for national health insurance by appealing to both social and economic concerns. The reformers argued that national health insurance would relieve poverty because sickness usually brought wage loss and high medical costs to individual families. Reformers also argued that national health insurance would contribute to economic efficiency by reducing illness, lengthening life, and diminishing the causes of industrial discontent (Starr, 1982). At the time, the leadership of the AMA outwardly supported a national plan, and the AALL and the AMA formed a united front to secure legislation meeting this goal. A standard health insurance bill was introduced in 15 states in 1917 (Stevens, 1971).

As long as compulsory health insurance was only under study and discussion, potential opponents paid no heed to it. Once bills were introduced into state legislatures, however, opponents expressed vehement disapproval of them. Eventually, the AMA’s support proved only superficial.

Historically, the repeated attempts to pass national health insurance legislation in the United States have failed for several reasons, which can be classified into four broad categories: political inexpediency, institutional dissimilarities, ideological differences, and tax aversion.

Political Inexpediency At the time when they embarked on their national health programs, countries in Western Europe—notably Germany and England—were experiencing labor unrest that threatened their political stability. Social insurance was seen as a means to obtain workers’ loyalty and ward off political threats. Conditions in the United States, by comparison, were quite different. There was no real threat to the country’s political stability. Unlike the governments in Europe, the U.S. government was highly decentralized and engaged in little direct regulation of the economy or social welfare. Although Congress had set up a system of compulsory hospital insurance for merchant seamen as early as 1798, it was an exceptional measure. Matters related to health and welfare were typically left to state and local governments, and as a general rule, these levels of government left as much as possible to private and voluntary action.

The entry of the United States into World War I in 1917 dealt a final political blow to the health insurance movement, as anti-German feelings were aroused among the U.S. populace. The U.S. government denounced German social insurance, and opponents of health insurance called it a Prussian menace, inconsistent with American values (Starr, 1982).

After attempts to pass compulsory health insurance laws failed at the state levels in California and New York, the AALL itself lost interest in an obviously lost cause. In 1920, the AMA’s House of Delegates approved a resolution condemning compulsory health insurance that would be regulated by the government (Numbers, 1985). The main aim of this resolution was to solidify the medical


profession against government interference with the practice of medicine.

Institutional Dissimilarities Germany and England established mutual benefit funds to provide insurance against the cost of sickness for a sector of the working population. Voluntary sickness funds were less developed in the United States than in Europe, reflecting less interest in health insurance and less familiarity with this concept. More important, American hospitals were mainly private, whereas in Europe they were largely government-operated facilities (Starr, 1982).

In the United States, national financing and payment mechanisms were viewed as inconsistent with health care delivered predominantly by private institutions. For instance, the compulsory health insurance proposals put forth by the AALL were regarded by individual members of the medical profession as a threat to their private practice because such proposals would shift the primary source of income of medical professionals from individual patients to the government (Anderson, 1990). Any efforts that would potentially erode the fee-for-service payment system and let private practice of medicine be controlled by a powerful third party— particularly the government—were opposed.

The insurance industry feared losing the income it derived from disability insurance, some insurance against medical services, and funeral benefits (Anderson, 1990). The pharmaceutical industry feared the government would curtail its profits by acting as a monopoly buyer, and retail pharmacists feared that hospitals would establish their own pharmacies under a government-run national health care program (Anderson, 1990). Employers also saw the proposals as contrary to their interests. Spokespersons for U.S. business rejected the argument that national health insurance would add to productivity and efficiency. It may seem ironic, but the labor unions—the American Federation of Labor, in particular—also denounced compulsory health insurance at the time. Union leaders


were afraid the government would usurp their own legitimate role of providing social benefits, thereby weakening the unions’ influence in the workplace. Organized labor was the largest and most powerful interest group at that time, and its lack of support is considered instrumental in the defeat of national health insurance (Anderson, 1990).

Ideological Differences In the American experience, individualism and self-determination, distrust of government, and reliance on the private sector to address social concerns—collectively seen as typical American values—have stood as a bulwark against anything perceived as an attack on individual liberties. These beliefs and values have typically represented the sentiments of the American middle class, whose support was necessary for any broad-based health care reform. Conversely, during times of national distress, such as the Great Depression, pure necessity may have legitimized the advancement of social programs, such as the New Deal programs of the Franklin Roosevelt era (for example, Social Security legislation providing old-age pensions and unemployment compensation).

In the early 1940s, during Roosevelt’s presidency, several bills on national health insurance were introduced in Congress, but they all failed to pass. Perhaps the most notable bill was the Wagner- Murray-Dingell bill, drafted in 1943 and named after the bill’s congressional sponsors. World War II diverted the nation’s attention to other issues, however, and without the president’s active support the bill died quietly (Numbers, 1985).

In 1946, Harry Truman became the first president to make an appeal for a national health care program (Anderson, 1990). Unlike the Progressives, who had proposed a plan for the working class, Truman proposed a single health insurance plan that would include all classes of society. At the president’s behest, the Wagner- Murray-Dingell bill was redrafted and reintroduced. The AMA was vehement in opposing the plan. Other interest groups, such as the

AHA, also opposed it. By this time, private health insurance had expanded. Initial public reaction to the Wagner-Murray-Dingell bill was positive; however, when a government-controlled medical plan was compared to private insurance, polls showed that only 12% of the public favored extending Social Security to include health insurance (Numbers, 1985).

During this era of the Cold War, any attempts to introduce national health insurance were met with the stigmatizing label of socialized medicine—a label that has since become synonymous with any large-scale government-sponsored expansion of health insurance or intrusion in the private practice of medicine. The Republicans took control of Congress in 1946, and any interest in enacting national health insurance was put to rest. However, to the surprise of many, Truman was reelected in 1948, and he promised to establish a national health insurance system if the Democrats were returned to power (Starr, 1982). Fearing the inevitable, the AMA levied a $25 fee on each of its members to build a war chest of $3.5 million (Anderson, 1990), which was a substantial sum of money at the time. The AMA hired the public relations firm of Whitaker and Baxter and spent $1.5 million, in 1949 alone, to launch one of the most expensive lobbying efforts in American history. The campaign directly linked national health insurance with Communism so that the idea of “socialized medicine” was firmly implanted in the public’s minds. In 1952, the election of a Republican president, Dwight Eisenhower, effectively ended any further debate over national health insurance.

Tax Aversion Americans have generally supported the idea that the government ought to help people who are in financial need to pay for their medical care. However, most Americans have not favored an increase in their own taxes to pay for such care. This reluctance is perhaps why health care reform failed in 1993.


While seeking the presidency in 1991, then Governor Bill Clinton made health system reform a major campaign issue. Not since Harry Truman’s initiatives in the 1940s had such a bold attempt to overhaul the U.S. health care system been made by a presidential candidate. In the Pennsylvania U.S. Senate election in November 1991, the victory of Democrat Harris Wofford over Republican Richard Thornburgh sent a clear signal that the time for a national health care program might be ripe. Wofford’s call for national health insurance was widely supported by middle-class Pennsylvanians. Election results in other states were not quite as decisive on the issue of health care reform, but various public polls seemed to suggest that the rising cost of health care was a concern for many people. Against this backdrop, both Bill Clinton and the running incumbent, President George H. W. Bush, advanced health care reform proposals.

After taking office in 1992, President Clinton made health system reform a top priority. His wife, Hillary Clinton, was given the leadership role for the Task Force on National Health Reform. A complex piece of legislation, the Health Security Act, was introduced in November 1993, but within the first year it died in Congress. Policy experts and public opinion leaders have debated over what went wrong. Some of the fundamental causes for the failure of the Clinton plan were no doubt historical in nature, as discussed previously in this chapter. According to one seasoned political observer, James J. Mongan, the reform debate in Congress was not about the expansion of health care services, but rather about the financing of the proposed services. Avoiding tax increases, it appeared, took priority over expanding health insurance coverage and caused the demise of Clinton’s health care reform initiatives (Mongan, 1995).

Creation of Medicare and Medicaid The year 1965 marked a major turning point in U.S. health policy. Up to this point, private health insurance was the only widely

available source of payment for health care, and it was available primarily to middle-class working Americans and their families. Many of the elderly, the unemployed, and the poor had to rely on their own resources, on limited public programs, or on charity from hospitals and individual physicians. Often, when charity care was provided, private payers were charged more to make up the difference, a practice referred to as cost shifting or cross- subsidization. In 1965, Congress passed the amendments to the Social Security Act and created the Medicare and Medicaid programs. Thus, for the first time in U.S. history, the government assumed direct responsibility for paying for health care on behalf of two vulnerable population groups—the elderly and the poor (Potter and Longest, 1994).

Through both the debates over how to protect the public from the rising costs of health care and the opposition to national health insurance, one thing had become clear: Government intervention was not desired insofar as it pertained to how most Americans received health care, with one exception. That exception came into play when reform initiatives were proposed for the underprivileged and vulnerable classes. In principle, the poor were considered a special class who could be served through a government- sponsored program. The elderly—those 65 years of age and older —were another group who had started to receive increased attention in the 1950s. On their own, most of the poor and the elderly could not afford the increasing costs of health care. Also, because the health status of these subpopulations was significantly worse than that of the general population, they required a higher level of health care services. The elderly, in particular, had higher incidence and prevalence of disease compared to younger groups. It was also estimated that less than half of the elderly population was covered by private health insurance. By this time, the growing elderly middle class was also becoming a politically active force.

In 1957, a bill introduced in Congress by Aime Forand provided momentum for including necessary hospital and nursing home care

as an extension of Social Security benefits for the elderly (Stevens, 1971). In response, the AMA undertook a massive public relations campaign that portrayed the proposed government insurance plan as a threat to the physician–patient relationship. The bill stalled, but public hearings around the country, which were packed with elderly attendees, produced intense grassroots support that pushed the issue onto the national agenda (Starr, 1982). A compromise bill, the Medical Assistance Act (Public Law 86–778), also known as the Kerr-Mills Act, was passed and went into effect in 1960. Under this act, federal grants were given to the states to extend health services provided by the state welfare programs to those low- income elderly who previously did not qualify for such services (Anderson, 1990). Since the program was based on a means test that limited eligibility to people below a predetermined income level, it was opposed by liberal congressional representatives, who labeled it as a source of humiliation to the elderly (Starr, 1982). Within 3 years, the program was declared ineffective because many states did not even implement it (Stevens, 1971). In 1964, however, health insurance for the aged and the poor became top priorities of President Lyndon Johnson’s Great Society programs.

During the debate over Medicare, the AMA developed its own “Eldercare” proposal, which called for a federal–state program to subsidize private insurance policies for hospital and physician services. Representative John W. Byrnes introduced yet another proposal, dubbed “Bettercare.” It proposed a federal program based on partial premium contributions by the elderly, with the remainder subsidized by the government. Other proposals included tax credits and tax deductions for health insurance premiums.

In the end, a three-layered program emerged from the debate. The first two layers constituted Part A and Part B of Medicare, or Title XVIII of the Social Security Amendment of 1965, which sought to provide health insurance to the elderly. Based on Forand’s initial bill, the administration’s proposal to finance hospital insurance and partial nursing home coverage for the elderly through Social

Security became Part A of Medicare. The Byrnes proposal to cover physicians’ bills through government-subsidized insurance became Part B of Medicare. An extension of the Kerr-Mills program of federal matching funds to the states, based on each state’s financial needs, became Medicaid, or Title XIX of the Social Security Amendment of 1965. The Medicaid program was intended for indigent persons, based on means tests established by each state, but was expanded to include all age groups, not just the poor elderly (Stevens, 1971).

Although adopted together, Medicare and Medicaid reflected sharply different traditions. Medicare enjoyed broad grassroots support and, because it was attached to the Social Security program, had no class distinction. Medicaid, however, was burdened by the stigma of public welfare. Medicare had uniform national standards for eligibility and benefits; Medicaid varied from state to state in terms of eligibility and benefits. Medicare allowed physicians to balance bill—that is, charge the patient the amount above the program’s set fees and recoup the difference. In contrast, Medicaid prohibited balance billing and, consequently, had limited participation from physicians (Starr, 1982). Medicaid, in essence, created a two-tier system of medical care delivery because, even today, many physicians refuse to accept Medicaid- covered patients due to the low fees paid by the government for their care.

Not surprisingly, shortly after Medicare and Medicaid became operational, national spending for health services began to rise, as did public outlays of funds in relation to private spending for health services (Anderson, 1990). For example, national health expenditures (NHE), which had increased by 50% from 1960 to 1965, jumped by 78% from 1965 to 1970, and by 71% from 1970 to 1975. Similarly, public expenditures for health care, which were stable at 25% of NHE for 1955, 1960, and 1965, increased to 36.5% of NHE in 1970, and to 42.1% of NHE in 1975 (based on data from Bureau of the Census, 1976).

Regulatory Role of Public Health Agencies With the expansion of the publicly financed Medicare and Medicaid programs, the regulatory powers of government have increasingly encroached upon the private sector. This incursion is possible because the government provides financing for the two programs, but services are delivered by the private sector. After the federal government developed the standards for participation in the Medicare program, states developed their own regulations in conjunction with the Medicaid program. The regulations often overlapped, and the federal government delegated authority to the states to carry out the monitoring of regulatory compliance. As a result, the regulatory powers assigned to state public health agencies increased dramatically. Thus, most institutions of health care delivery are subject to annual scrutiny by public health agencies under the authority delegated to them by the federal and state governments.

▶ Medical Care in the Corporate Era

Early Developments As pointed out previously, corporate practice of medicine—that is, delivery of medical care by for-profit corporations—was historically prohibited by law, being labeled as “commercialism” in medicine. The AMA, however, recognized the need for certain industries located in remote areas—such as railroads, mining, and lumber companies—to employ or contract with practicing physicians. As early as 1882, companies such as Northern Pacific Railroad started to provide direct medical care to their employees.

In the early- to mid-1900s, the health care delivery landscape began to change. Physicians in specialty practices were brought together into group practices. The Mayo Clinic, started in Rochester, Minnesota, in 1887, became the model for consolidating specialists into group practice—an arrangement that presented certain economic advantages, such as sharing of expenses and incomes. Family practitioners joined in, and many group practices started to offer multispecialty services. These innovations led to the formation of prepaid group plans.

Prepaid group plans began enrolling employee groups under capitated fee arrangements, through which these groups received comprehensive services for a fixed monthly fee paid in advance. Prepaid group practice plans first became popular in some large urban markets in the United States. The AMA opposed the first such plan, the Group Health Association of Washington (started in 1937 in Washington, D.C.), but was found guilty of restraint of trade, in violation of the Sherman Antitrust Act. This verdict may have been crucial in paving the way for the growth of other prepaid

group practice plans. For example, the HIP Health Plan of New York, started in 1947, stands as one of the most successful programs, providing comprehensive medical services through organized medical groups of family physicians and specialists (Raffel, 1980). Similarly, Kaiser-Permanente, started in 1942, has grown on the West Coast.

The corporate era began in earnest in the latter part of the 20th century, as employment of physicians by certain industries, group practices, and capitation plans sowed the seeds of managed care, which first appeared in the form of HMOs.

The HMO Act of 1973 The Health Maintenance Organization Act (HMO Act) of 1973 was passed during the Richard Nixon administration, with the objective of stimulating growth of HMOs by providing federal funds for the establishment and expansion of new HMOs (Wilson and Neuhauser, 1985). The underlying reason for supporting the growth of HMOs was the belief that prepaid medical care, as an alternative to traditional fee-for-service practice, would stimulate competition among health plans, enhance efficiency, and control the rising health care expenditures. The HMO Act required employers with 25 or more employees to offer an HMO alternative if one was available in their geographic area. The objective was to create 1,700 HMOs to enroll 40 million members by 1976 (Iglehart, 1994). Ultimately, the HMO Act failed to achieve this objective. By 1976, only 174 HMOs had formed, with an enrollment of 6 million (Public Health Service, 1995). Employers did not take the HMO option seriously and continued to offer traditional fee-for-service insurance until their own health insurance expenses started to grow rapidly during the 1980s.

Corporatization of Health Care

Delivery By the dawn of the 21st century, business environment in the United States—and indeed around the world—had become the domain of large corporations. At the same time, tremendous advances were occurring in global communications, transportation, medical and information technology, and international trade. Health care delivery has not remained immune to these transformations.

Managed care organizations (MCOs) are, in many regards, indistinguishable from large insurance corporations. The rising tide of managed care consolidated immense purchasing power on the demand side. To counteract this imbalance, providers began to consolidate their practices, and larger, integrated health care organizations began forming. As a result, many large hospitals and group practices have become part of larger health systems that deliver hospital services in addition to outpatient care, long-term care, and specialized rehabilitation.

In a health care landscape that is increasingly dominated by corporations, individual physicians have struggled to preserve their autonomy. As a matter of survival, many physicians have consolidated their services within large clinics, formed strategic partnerships with hospitals, or started their own specialty hospitals. There is also a growing trend of physicians choosing to become employees of hospitals and other medical corporations.

Corporatization has shifted marketplace power from individuals to corporations. The days of consumer dominance in health care are long gone.

▶ Globalization of Health Care Globalization, from social and economic perspectives, has been another hallmark of the 21st century. Globalization refers to various forms of cross-border economic activities, characterized by transnational movement and exchange of goods, services, people, and capital. Corporatization, transportation, and telecommunications have been key enabling factors in globalization.

From the standpoint of cross-border trade in health services, Mutchnick and colleagues (2005) identified four different modes of economic interrelationships:

Telemedicine enables cross-border information exchange and delivery of certain services. For example, teleradiology (the electronic transmission of radiologic images over a distance) enables physicians in the United States to transmit radiologic images to Australia, where they are interpreted and reported back the next day (McDonnell, 2006). Telemedicine consulting services in pathology and radiology are being delivered to other parts of the world by cutting-edge U.S. medical institutions, such as Johns Hopkins Hospital. Consumers travel abroad to receive elective, nonemergency medical care, referred to as medical tourism. The Centers for Disease Control and Prevention (CDC, 2012) has estimated that as many as 750,000 U.S. residents travel abroad each year to receive medical and dental care. Specialty hospitals, such as the Apollo chain in India and Bumrungrad International Hospital in Thailand, offer state-of-the-art medical facilities to foreigners at a fraction of the cost for the same procedures done in the United States or Europe. Physicians and hospitals outside the United States have clear competitive advantages: reasonable malpractice costs, minimum regulation, and lower costs of labor. As a result of these

efficiencies, Indian specialty hospitals can do quality liver transplants for one-tenth of the cost in U.S. hospitals (Mutchnick et al., 2005). Some health insurance companies have also started to explore cheaper options for their covered members to receive certain costly services overseas. Conversely, dignitaries and other wealthy foreigners come to multispecialty centers in the United States, such as the Mayo Clinic, to receive highly specialized services. Foreign direct investment in health services enterprises benefits foreign citizens. For example, Chindex International, a U.S. corporation, provides medical equipment, supplies, and medical services in China. Chindex’s United Family Healthcare serves Beijing, Shanghai, and Guangzhou. Health professionals move to other countries that have high demand for their services and offer better economic opportunities than their native countries. For example, nurses from other countries are moving to the United States and the United Kingdom to relieve the existing personnel shortages in those nations. Health care workers from Indonesia are migrating to Japan for similar reasons (Shinohara, 2016).

To this list, we can add three more aspects of globalization of health care:

Corporations based in the United States have increasingly expanded their operations overseas. As a result, an increasing number of Americans are now working overseas as expatriates. Health insurance companies based in the United States are, in turn, having to develop benefit plans for these expatriates. According to a survey of 87 insurance companies, health care is also becoming one of the most sought-after employee benefits worldwide, even in countries that have national health insurance programs. Moreover, the cost of medical care overseas is rising at a faster rate than the rate of inflation in the general economy (Cavanaugh, 2008). Hence, the cost-effective delivery of health care is becoming a major challenge worldwide.

Medical care delivery by U.S. providers is in demand overseas. American provider organizations—such as Johns Hopkins Hospital, Cleveland Clinic, Mayo Clinic, Duke University Medical Center, and several others—are now delivering medical services in various developing countries. The realities of globalization have resulted in a discipline called global health—that is, efforts to protect the entire global community against threats to people’s health and to deliver cost- effective public health and clinical services to the world’s population. It is now widely recognized that no country can ensure the health of its own population in isolation from the rest of the world (DeCock et al., 2013).

Cross-border collaborations in health care are also on the rise, mainly triggered by worldwide health care budgetary constraints. For example, the United States and Japan are collaboratively developing and testing medical devices (Uchida et al., 2013). India’s Apollo Group is exporting telemedicine services from its Apollo Gleneagles Hospital in Kolkata (India) to patients in Bangladesh, Nepal, Bhutan, and Myanmar. It provides telediagnostic and teleconsultation from its center in Karaganda Oblast in Kazakhstan to the region, and partners with Health Services America and Medstaff International in the United States for billing, documentation of clinical and administrative records, coding of medical processes, and insurance claims processing (Smith et al., 2009).

Globalization has also produced some negative effects. The developing world pays a steep price when emigration leaves these countries with shortages of trained professionals. The burden of disease in these countries is often greater than it is in the developed world, and emigration merely exacerbates these countries’ inability to provide adequate health care to their own populations (Norcini and Mazmanian, 2005). As developing countries become more prosperous, their citizens tend to acquire Western tastes and lifestyles. In some instances, negative health consequences follow. For example, increased use of motorized

vehicles results in a lack of physical exercise, which, along with changes in diet, greatly increases the prevalence of chronic diseases, such as heart disease and diabetes, in the developing world.

Globalization has also brought some new threats to health. For instance, the threat of infectious diseases has increased, as diseases appearing in one country can spread rapidly to other countries. HIV/AIDS, hepatitis B, and hepatitis C infections have spread worldwide.

▶ The Era of Health Care Reform

Efforts to reform the health care system in a comprehensive way have had a checkered past in the United States, as discussed previously. Passage of the ACA in 2010 was a bold undertaking that sought to bring about major reforms. Under the Trump presidency, however, there is every indication that the ACA, as crafted, may be short-lived.

Passage of the Affordable Care Act On March 21, 2010, the U.S. House of Representatives passed, by a narrow vote of 219–212, the Patient Protection and Affordable Care Act, which was signed into law 2 days later by President Barack Obama. A week later, on March 30, the president signed the Health Care and Education Reconciliation Act of 2010, which amended certain provisions of the first law, mainly to raise additional revenues through taxation to pay for expanded health care services. Together the two laws comprise the principal features of what came to be known as the Affordable Care Act, commonly known as Obamacare. Not a single Republican in Congress voted in favor of these bills.

At least six factors can be cited that led to the ACA’s successful passage. First, the Democratic Party held not only the presidency, but also majorities in the two houses of Congress. That made it easier for Obama to push forward his agenda. In fact, in the early days of his presidency, Obama confidently stated that this was “the best chance of reform we have ever had” (White House, 2009).

Second, there is some question as to whether the Democrats had intended to make health care reform a bipartisan effort—but their

control of the executive and legislative branches gave them great power to set the agenda for health care reform, despite any Republican demurrals. A public option was initially included in the bill, but was later dropped because of opposition from both Republican and Democratic lawmakers.

Third, deliberations in Congress over the reform bill took place behind closed doors so that the American public had little to no participation and scant understanding of the bill. Without any knowledge of the content in these proceedings, opponents were unable to mount a challenge to specific aspects of the ACA.

Fourth, the benefits of the proposed health care reform were overstated, making them more attractive to the public. For example, in a televised address to the nation on August 8, 2009, Obama claimed that his reform would “protect people against unfair insurance practices; provide quality, affordable insurance to every American; and bring down rising costs that are swamping families, businesses, and our budgets” (White House, 2009). In that same address, the president said, “Under the reforms we seek, if you like your doctor, you can keep your doctor. If you like your health care plan, you can keep your health care plan.” This refrain was repeated numerous times to “sell” the plan to the American public. Obama may also have created the illusion of universal coverage by stating that “while reform is obviously essential for the 46 million Americans who don’t have health insurance, it will also provide more stability and security to the hundreds of millions who do” (White House, 2009). Unfortunately, the final version of the ACA did not fully meet those lofty goals.

Fifth, the ACA won the backing of major health care industry representatives. Even the AMA reluctantly pledged its support for the legislation, in a complete reversal of its traditional stance toward major health care reform proposals.

Sixth, subsequent to the Clinton presidency, the White House was held by a Republican, George W. Bush. For half of his 8-year


tenure, both houses of Congress were under Republican control. Yet, Bush’s focus remained on incremental reform, even though a large segment of the U.S. population did not have health insurance. While the United States was still mired in a deep economic recession, Obama made health care reform a top priority and tied his reform proposals to future economic growth and prosperity—a winning strategy, as it turned out (White House, 2009).

The Patchy Legacy of the ACA The ACA was partially successful in reducing the number of Americans without health insurance, which stood at 43 million in 2013, before the ACA’s main provisions went into effect. Under the ACA, approximately 17 million of the uninsured gained health insurance coverage (Carman et al., 2015). Frean and colleagues (2016) analyzed the insurance coverage gains in 2014 when the main insurance provisions of the law went into effect. They reported that the biggest gains were attributed to Medicaid enrollment, although, at the time, only approximately half of the states had chosen to expand their Medicaid programs to enroll people who became newly eligible under the ACA. While Medicaid accounted for roughly 60% of ACA coverage gains, the other 40% was attributed to the law’s income-based federal subsidies, which enabled low-income individuals to purchase coverage on the new government-established health insurance exchanges.

Another key feature of the law was the individual mandate, which required all legal residents of the United States to either have what the law had designated as “minimum essential coverage” or pay a penalty tax. Frean and colleagues (2016) found that overall coverage rates did not respond to the mandate. Indeed, many people chose to pay the penalty instead of buying health insurance because of the high cost of insurance relative to the size of penalty. Moreover, the ACA’s effects on employer-sponsored insurance were found to be essentially nil.




In short, the primary gains under Obamacare were made by the newly qualified Medicaid beneficiaries and those who received adequate federal subsidies to purchase insurance through the exchanges. Thus, Obamacare did help low-income people to obtain health insurance, but significant numbers of Americans were still left without coverage. For example, despite the ACA’s promise to achieve near-universal health coverage, approximately 24 million working-age adults remained uninsured in 2016. These uninsured adults were disproportionately poor, young (ages 19–34), and employed by small businesses. Lack of affordability proved to be a major reason for not purchasing health insurance through the exchanges (Collins et al., 2016). Thus, the label “affordable” in the law’s title turned out to be a misnomer for many Americans.

While insurance coverage is often the focus of attention in most published reports, the ability to obtain health care services—that is, access—is much more valuable for assessing a program’s success. A recent report concluded that a significant number of people who obtained insurance thanks to the ACA were also able to obtain a regular source of care and medical checkups. The authors cautioned, however, that the large increase in Medicaid enrollment under the ACA might stretch the capacity of a system that already had problems with provider participation in Medicaid (Kirby and Vistnes, 2016). Indeed, expanded access to services came mainly from obtaining care from hospital emergency departments (EDs) and community health centers (CHCs) (Goozner, 2015). Hence, the ACA did not respond to the problem of overcrowded EDs. Additionally, not all low-income Americans have access to CHCs because the centers are unevenly distributed in the United States. The ACA, however, enabled people with preexisting medical conditions to obtain health insurance, and young adults (up to age 26) were able to enroll under their parents’ plans.

Unfortunately, many Americans did not benefit from the ACA, and some actually lost ground. For a large segment of the American middle class, the ACA’s legacy was marred by unmet expectations.

Many Americans found that their existing health insurance did not comply with the new rules established under the ACA, and many consequently received cancellation notices from their insurance companies. These people were generally left with no choice but to purchase insurance through the government-run exchanges.

In 2013, the Congressional Budget Office (CBO) had projected that in 2016, 24 million people would gain private coverage by purchasing health insurance through the exchanges. When 2016 came, that estimate was cut by 50% to 12 million people (CBO, 2016). It is not entirely clear why health insurance sold through the exchanges did not prove more popular. Notably, ACA-compliant plans sold outside the exchanges carried higher premiums (McCue and Hall, 2015), making them less attractive to consumers.

Late 2016 may well have been a turning point for the ACA’s survival. The presidential election coincided with significant hikes in premiums as well as fewer choices for those consumers purchasing health insurance through the exchanges. The average premium increase for benchmark plans was 25%; it was more than 50% in some states. Also, three of the largest U.S. insurance companies— Aetna, United Health, and Humana—announced their decision to discontinue selling health insurance on most exchanges. In turn, a handful of states found themselves with only one insurer in the exchange (Muchmore, 2016a). Concerned about the unraveling of the exchanges, Obama called for more government intervention by proposing the “public option” that had been eliminated from the originally planned ACA, advocating for increased subsidies, and encouraging the 19 states that had chosen not to expand Medicaid to now do so (Muchmore, 2016b). These developments came even as some pundits announced that the ACA’s health insurance market reforms were working as intended, both inside and outside the exchanges (McCue and Hall, 2015).

Prospects for New Reforms

The victory of Donald Trump in the November 2016 presidential election stunned the pundits and the pollsters alike, but his message resonated with middle-class Americans despite fierce opposition to his candidacy from many quarters. Along with promises to grow the economy and secure the nation’s borders, Trump also promised to “repeal and replace Obamacare.” In contrast, his opponent, Hillary Clinton, proposed to morph Obamacare into a single-payer national health system in which the government would become the primary insurer and payer for people’s health care. Since the law’s inception, those who had favorable opinions of the ACA and those who had unfavorable opinions were about evenly split in polls conducted by the Henry J. Kaiser Family Foundation. As late as October 2016, polls showed an even split. The same polls also showed that small employers were worse off under the ACA. For most families, the ACA had made no difference, but 29% said they were worse off, whereas only 19% indicated that they were better off (Kirzinger et al., 2016). With a majority of Republicans in both houses of Congress, the Trump presidency had opened a new chapter in health care reform.

The Secretary of the Department of Health and Human Services in the Trump administration is Tom Price, an orthopedic surgeon, who was chairman of the House Budget Committee before assuming his new position. Price was a fierce critic of the ACA, and was assigned the responsibility to dismantle the ACA and replace it with a program featuring less government involvement in health care. Although the political environment may appear favorable, the task will not be easy. Reform will likely emerge after meandering through many efforts to tweak and derail this process—though that is nothing new in American policymaking.

Although there is little clarity at the time of this writing, we can speculate on five main fronts about the prospects for a full replacement of the ACA, based on observations in several areas since the 2016 election. First, the ACA is highly complex and many of its features are firmly entrenched in the U.S. health care system. Hence, full replacement of the ACA will be a daunting task. Second,

any major changes to the ACA will be fiercely opposed by the Democrats in Congress. Third, the American media is not likely to present unbiased reporting of the proposed changes and their likely effects on insurance coverage and access to health care. Fourth, public protests by supporters of the ACA will add to a distorted message. Fifth, court challenges to repeal the legislation will be mounted, perhaps in greater numbers than was the case with enactment of the ACA. The U.S. Supreme Court may again become the final arbiter of a new law.

While both opponents to and proponents of the ACA will have many hurdles to cross, change appears inevitable. Hours after taking the oath of office on January 20, 2017, President Trump signed his first executive order to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications” (Bernstein, 2017). In effect, this executive order suspended the collection of individual penalties under the ACA for not having health insurance.

Whereas Trump’s executive order is a small step, Congress is responsible for the formulation and passage of a reform bill. During deliberations over the ACA, Republican lawmakers were in general agreement with the Democrats on four areas (Talev et al., 2009), which are likely to be incorporated in some form in a new reform bill: (1) All Americans should have access to coverage regardless of preexisting conditions; (2) small businesses should be able to receive insurance at prices comparable to large companies and labor unions; (3) government should provide some form of assistance to those who cannot afford insurance; and (4) insurers should offer incentives for preventive health behavior.

▶ Summary The evolution of health care services in the United States, which has spanned approximately 150 years, has come a long way—from the delivery of primitive care, to technologically advanced services delivered by small and large medical corporations that have increasingly crossed national boundaries. The need for health insurance was first recognized and addressed during the Great Depression. Unlike in Europe, where government-sponsored health insurance took root, health insurance in the United States began mainly as a private endeavor because of circumstances that did not parallel those in Europe. Even so, social, political, and economic exigencies and opportunities led to the creation of two major government health insurance programs, Medicare and Medicaid, in 1965. Since then, small-scale incremental reforms have been undertaken because they were politically and socially more acceptable than large-scale changes in how most middle-class Americans obtained health care services.

Historically, traditional American beliefs and values have acted as strong forces against attempts to initiate fundamental changes in the financing and delivery of health care. The ACA was passed without seeking consensus among Americans on how it fit with the basic values and ethics of the populace. Its provisions helped mainly low-income Americans obtain health insurance, but put greater financial burdens on the middle class. Repealing and replacing the ACA was one of President Trump’s campaign promises. The task of actually undoing the ACA, however, is challenging and faces many hurdles.

▶ Test Your Understanding

Terminology almshouse

balance bill

cost shifting


cultural authority

fee for service


global health


means test


medical tourism


organized medicine

Part A

Part B


prepaid plan

socialized medicine


Title XIX

voluntary health insurance

Review Questions 1. Why did the professionalization of medicine start later in the United

States than in some Western European nations?

2. Why did medicine have a domestic—rather than professional— character in the preindustrial era? How did urbanization change that?

3. Which factors explain why the demand for the services of a professional physician was inadequate in the preindustrial era? How did scientific medicine and technology change that?

4. How did the emergence of general hospitals strengthen the professional sovereignty of physicians?

5. Discuss the relationship of dependency within the context of the medical profession’s cultural and legitimized authority. What role did medical education reform play in galvanizing professional authority?

6. How did the organized medical profession manage to remain free of control by business firms, insurance companies, and hospitals until the latter part of the 20th century?

7. In general, discuss how technological, social, and economic factors created the need for health insurance.

8. Which conditions during the World War II period lent support to employer-based health insurance in the United States?

9. Discuss, with particular reference to the roles of (a) organized medicine, (b) the middle class, and (c) American beliefs and values, why reform efforts to bring in national health insurance have historically been unsuccessful in the United States.

10. Which particular factors that earlier may have been somewhat weak in bringing about national health insurance later led to the passage of Medicare and Medicaid?

11. On what basis were the elderly and the poor regarded as vulnerable groups for whom special government-sponsored programs needed to be created?

12. Discuss the government’s role in the delivery and financing of health care, with specific reference to the dichotomy between public health and private medicine.

13. Explain how contract practice and prepaid group practice were the prototypes of today’s managed care plans.

14. Discuss the main ways in which current delivery of health care has become corporatized.

15. In the context of globalization in health services, which main economic activities are discussed in this chapter?

16. From the standpoint of health insurance, what were the main accomplishments of the Affordable Care Act?

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Important seaports, such as Boston, were often con-fronted with the challenge of dealing with sickness or injuries of seamen. Congress enacted a law requiring that 20 cents per month be withheld from the wages of each seaman on American ships to support merchant marine hospitals (Raffel and Raffel, 1994).

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Rivalry and hostility after World War II between the United States and the former Soviet Union.

A government-sponsored insurance plan as an alternative to private insurance.

The ACA’s mandate for all states to expand Medicaid was struck down by the U.S. Supreme Court in a decision rendered on June 28, 2012. Expanding or not expanding Medicaid became an option for each state. Eventually, 31 states and the District of Columbia expanded Medicaid under the ACA.

Subsidies in the form of tax credits were made available to people with incomes between 100% and 400% of the federal poverty level (FPL). In 2014, 100% of the FPL was an annual income of $23,850 for a family of four.

The exchanges (also called marketplaces) were established by either the state or the federal government. Health insurance was sold on these exchanges by private insurance companies.






© f11photo/Shutterstock

PART II System Resources CHAPTER 4 Health Services Professionals

CHAPTER 5 Medical Technology

CHAPTER 6 Health Services Financing

Chapter opener photo: © f11photo/Shutterstock

CHAPTER 4 Health Services Professionals


■ Become familiar with the various types of health services professionals and their training, practice requirements, and practice settings.

■ Differentiate between primary care and specialty care, and identify the causes of the imbalance between primary care and specialty care in the United States.

■ Learn about the extent of maldistribution in the physician labor force and comprehend the reasons for such maldistribution.

■ Outline initiatives under the Affordable Care Act to relieve shortages of primary care providers and to ensure coordinated care delivery in team settings.

■ Appreciate the role of midlevel providers in health care delivery. ■ Understand the role of allied health professionals in health care delivery. ■ Discuss the functions and qualifications of health services administrators. ■ Assess global health workforce challenges.

“Hmm, they’re all beginning to look like me.”

▶ Introduction The U.S. health care industry is the largest and most powerful employer in the nation, accounting for more than 3% of the total labor force in the United States. In 2014, the health care sector contributed 17.1% of the United States’ gross domestic product (World Bank, 2014). Although the number of jobs in many areas of the U.S. economy have decreased since the beginning of the economic recession in December 2007, the health care sector has continued its growth trend. Overall demand for all types of health care services is also expected to continue to increase as the population ages. Hence, substantial growth is anticipated in health care and related occupations. The U.S. Bureau of Labor Statistics (2015a) has projected that “health care occupations” will grow by 19% between 2014 and 2024, whereas the entire U.S. workforce will grow by only 6.5% during the same period.

Health professionals are among the most well-educated and diverse of all labor groups. Almost all of these practitioner groups are now represented by their own professional associations, which are listed in APPENDIX 4-A at the end of this chapter.

Health services professionals work in a variety of health care settings, including hospitals, managed care organizations (MCOs), nursing care facilities, mental health institutions, insurance companies, pharmaceutical companies, outpatient facilities, community health centers, migrant health centers, mental health centers, school clinics, physicians’ offices, laboratories, voluntary health agencies, professional health associations, colleges of medicine and allied health professions, and research institutions. Most health professionals are employed by hospitals (40.6%), followed by nursing and personal care facilities (10.4%) and physician offices and clinics (9.4%) (TABLE 4-1).

TABLE 4-1 Persons Employed in Health Service Sites


2000 2016

Number of Persons (in thousands)

Percentage Distribution

Number of Persons (in thousands)

Percentage Distribution

All employed civilians

136,891 100.0 151,436 100.0

All health service sites

12,211 100.0 15,442 100.0

Offices and clinics of physicians

1,387 11.4 1,611 9.4

Offices and clinics of dentists

672 5.5 897 5.2

Offices and clinics of chiropractors

120 1.0 135 0.8

Offices and clinics of optometrists

95 0.8 133 0.8

Offices and clinics of other health practitioners

143 1.2 297 1.7

Outpatient care centers

772 6.3 1,603 9.3

Home health care services

548 4.5 1,495 8.7

Other health care services

1,027 8.4 1,417 8.2

Hospitals 5,202 42.6 6,990 40.6

Nursing care facilities

1,593 13.0 1,786 10.4

Residential care facilities, without nursing

652 5.3 846 4.9

Data from Division of Labor Force Statistics, U.S. Bureau of Labor Statistics. 2017. Labor force statistics from the current population survey. Available at: Accessed April 2017.

The expansion of the number and types of health services professionals is closely related to population trends, advances in research and technology, disease and illness trends, and changes in health care financing and delivery of services. New and complex medical techniques, equipment, and advanced computer-based information systems (ISs) are constantly introduced, and health services professionals must continually learn how to use these innovations. Specialization in medicine has contributed to the proliferation of different types of medical technicians. The shift from acute to chronic disease and a growing emphasis on prevention have created a greater need for professionals who are formally trained to address behavioral risk factors and the delivery of primary care. Increased insurance coverage under the Affordable Care Act (ACA) has also increased the demand for health services professionals.

This chapter provides an overview of the large array of health services professionals employed in diverse health delivery settings. It briefly discusses the training and practice requirements of various health professionals, their major roles, the practice settings in which they are employed, and some critical issues concerning their professions. Emphasis is placed on physicians because they play a leading role in the delivery of health care. At the same time, there has been increased recognition of the role midlevel providers play in boosting the nation’s primary care infrastructure.

▶ Physicians Physicians play a central role in the delivery of health services by evaluating patients and health conditions, diagnosing abnormalities, and prescribing treatments. Some physicians are engaged in medical education and research to find new and better ways to control and cure health problems. Many are involved in the prevention of illness.

All states require physicians to be licensed to practice. The licensure requirements include graduation from an accredited medical school that awards a Doctor of Medicine (MD) or Doctor of Osteopathic Medicine (DO) degree; successful completion of a licensing examination, governed by either the National Board of Medical Examiners or the National Board of Osteopathic Medical Examiners; and completion of a supervised internship/residency program (Stanfield et al., 2011) The term residency refers to graduate medical education in a specialty that takes the form of paid on-the-job training, usually in a hospital. Before entering a residency, which may last 2 to 6 years, most DOs serve a 12-month rotating internship after graduation.

The number of active physicians, both MDs and DOs, has steadily increased from 14.1 physicians per 10,000 population in 1950 to 29.4 per 10,000 population in 2013 (TABLE 4-2). Of the 172 medical schools in the United States, 141 teach allopathic medicine and award a Doctor of Medicine degree; 31 teach osteopathic medicine and award the Doctor of Osteopathic Medicine degree (National Center for Health Statistics, 2016).

TABLE 4-2 Active U.S. Physicians According to Type of Physician and Number per 10,000 Population

Year All Active Physicians

Doctors of Medicine

Doctors of Osteopathy

Active Physicians per 10,000 Population

1950 219,900 209,000 10,900 14.1

1960 259,500 247,300 12,200 14.0

1970 326,500 314,200 12,300 15.6

1980 427,122 409,992 17,130 19.0

1990 567,610 539,616 27,994 22.4

1995 672,859 637,192 35,667 25.0

2000 772,296 727,573 44,723 27.0

2010 865,342 794,862 70,480 27.2

2013 936,844 854,698 82,146 29.4

Data from National Center for Health Statistics. 1996. Health, United States, 1995. Hyattsville, MD: U.S. Department of Health and Human Services. p. 220; National Center for Health Statistics. 2002. Health, United States, 2002. Hyattsville, MD: U.S. Department of Health and Human Services. p. 274; National Center for Health Statistics. 2006. Health, United States, 2006. Hyattsville, MD: U.S. Department of Health and Human Services. p. 358; National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD: U.S. Department of Health and Human Services. p. 283.

Similarities and Differences Between MDs and DOs Both MDs and DOs use accepted methods of treatment, including drugs and surgery. The two differ mainly in their philosophies and approaches to medical treatment. Osteopathic medicine, practiced by DOs, emphasizes the musculoskeletal system of the body, such as correction of joints or tissues. In their treatment plans, DOs stress preventive medicine and take into account how factors such as diet and environment might influence natural resistance. They take a holistic approach to patient care. In

comparison, MDs are trained in allopathic medicine, which views medical treatment as an active intervention to counteract and neutralize the effects of disease. MDs, particularly generalists, may also use preventive medicine, along with allopathic treatments.

Approximately 8.8% of all active physicians in the United States are osteopaths (American Osteopathic Association, 2013). Roughly 48% of MDs and more than half of DOs work in primary care settings (National Center for Health Statistics, 2016).

Generalists and Specialists Most DOs are generalists and most MDs are specialists. In the United States, physicians trained in family medicine/general practice, general internal medicine, and general pediatrics are considered primary care physicians (PCPs) or generalists (Rich et al., 1994). Most PCPs provide preventive services (e.g., health examinations, immunizations, mammograms, Papanicolaou smears) and treat frequently occurring and less severe problems. Problems that occur less frequently or that require complex diagnostic or therapeutic approaches are referred to specialists after an initial evaluation.

Physicians in non-primary care specialties are referred to as specialists. Specialists must seek certification in an area of medical specialization, which commonly requires additional years of advanced residency training, followed by several years of practice in the specialty. A specialty board examination is often required as the final step in becoming a board-certified specialist. The common medical specialties, along with brief descriptions, are listed in EXHIBIT 4-1. Medical specialties may be divided into six major functional groups: (1) the subspecialties of internal medicine; (2) a broad group of medical specialties; (3) obstetrics and gynecology; (4) surgery of all types; (5) hospital-based radiology, anesthesiology, and pathology; and (6) psychiatry. The distribution of physicians by specialty appears in TABLE 4-3.

EXHIBIT 4-1 Definitions of Medical Specialties and Subspecialties

Allergists Treat conditions and illnesses caused by allergies or related to the immune system

Anesthesiologists Use drugs and gases to render patients unconscious during surgery

Cardiologists Treat heart diseases

Dermatologists Treat infections, growths, and injuries related to the skin

Emergency medicine

Work specifically in emergency departments, treating acute illnesses and emergency situations—for example, trauma

Family physicians Are prepared to handle most types of illnesses and care for the patient as a whole

General practitioners

Similar to family physicians—examine patients or order tests and have x-rays done to diagnose illness and treat the patient

Geriatricians Specialize in problems and diseases that accompany aging

Gynecologists Specialize in the care of the reproductive system of women

Internists Treat diseases related to the internal organs of the body—for example, conditions of the lungs, blood, kidneys, and heart

Neurologists Treat disorders of the central nervous system and order tests necessary to detect diseases

Obstetricians Work with women throughout their pregnancy, deliver infants, and care for the mother after the delivery

Oncologists Specialize in the diagnosis and treatment of cancers and tumors

Ophthalmologists Treat diseases and injuries of the eye

Otolaryngologists Specialize in the treatment of conditions or diseases of the ear, nose, and throat

Pathologists Study the characteristics, causes, and progression of diseases

Pediatricians Provide care for children from birth to adolescence

Preventive medicine

Includes occupational medicine, public health, and general preventive treatments

Psychiatrists Help patients recover from mental illness and regain their mental health

Radiologists Perform diagnosis and treatment by the use of x-rays and radioactive materials

Surgeons Operate on patients to treat disease, repair injury, correct deformities, and improve health

General surgeons Perform many different types of surgery, usually of relatively low difficulty

Neurologic surgeons

Specialize in surgery of the brain, spinal cord, and nervous system

Orthopaedic surgeons

Specialize in the repair of bones and joints

Plastic surgeons Repair malformed or injured parts of the body

Thoracic surgeons

Perform surgery in the chest cavity—for example, lung and heart surgery

Urologists Specialize in conditions of the urinary tract in both sexes and of the sexual/reproductive system in males

Data from Stanfield, P. S., et al. 2012. Introduction to the health professions. 6th ed. Burlington, MA: Jones & Bartlett Learning.

TABLE 4-3 U.S. Physicians According to Activity and Place of Medical Education, 2013

Activity and Place of Medical Education

Numbers Percentage Distribution

Doctors of medicine (professionally active)

854,698 100.0

Place of Medical Education

U.S. medical graduates 636,707 74.5

International medical graduates 217,991 25.5


Patient care 809,845 100.0

Office-based practice 600,863 74.2 100.0

General and family practice 80,240 13.4

Cardiovascular diseases 17,657 2.9

Dermatology 9,910 1.6

Gastroenterology 11,322 1.9


Internal medicine 120,439 20.0

Pediatrics 58,719 9.8

Pulmonary diseases 8,870 1.5

General surgery 25,024 4.2

Obstetrics and gynecology 34,780 5.8

Ophthalmology 16,331 2.7

Orthopaedic surgery 20,013 3.3

Otolaryngology 8,136 1.4

Plastic surgery 6,414 1.1

Urological surgery 8,563 1.4

Anesthesiology 33,218 5.5

Diagnostic radiology 18,203 3.0

Emergency medicine 23,414 3.9

Neurology 11,762 2.0

Pathology, anatomic/clinical 10,481 1.7

Psychiatry 26,696 4.4

Radiology 7,527 1.3

Other specialty 43,144 7.2

Hospital-based practice 208,982 25.8 100.0

Residents and interns 117,203 56.1

Full-time hospital staff 91,779 43.9

Excludes inactive, not classified, and address unknown.


Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD: U.S. Department of Health and Human Services. p. 283.

Work Settings and Practice Patterns Physicians practice in a variety of settings and arrangements. Some work in hospitals as medical residents or staff physicians. Others work in the public sector, such as federal government agencies, public health departments, community and migrant health centers, schools, and prisons. Most physicians, however, are office-based practitioners, and most physician contacts occur in physician offices. An increasing number of physicians are partners or salaried employees, working in both hospitals and various outpatient settings, such as group practices, freestanding ambulatory care clinics, and diagnostic imaging centers.

In 2012, physicians in general/family practice accounted for the greatest proportion of ambulatory care visits, followed by those in internal medicine and pediatrics (FIGURE 4-1). Physicians in obstetrics and gynecology tend to spend the most hours in patient care per week, even exceeding hours spent by surgeons. Surgeons have the highest average annual net income. Malpractice insurance premiums and operating expenses are the highest in obstetrics/gynecology.

FIGURE 4-1 Ambulatory care visits to physicians according to physician specialty, 2012.

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD:

U.S. Department of Health and Human Services. pp. 268–269.

Differences Between Primary and Specialty Care Primary care can be distinguished from specialty care based on the time, focus, and scope of services provided to patients. The five main areas of distinction are as follows:

In linear time sequence, primary care is first-contact care and is regarded as the entry point to the health care system. Specialty care, when needed, generally follows primary care. In a managed care environment where health services functions are integrated, PCPs serve as gatekeepers—an important role in controlling costs, utilization rates, and the rational allocation of resources. In the gatekeeping model, specialty care requires referral from PCPs.

Primary care is longitudinal. In other words, primary care providers follow through the course of treatment and coordinate various activities, including initial diagnosis, treatment, referral, consultation, monitoring, and follow-up. PCPs serve as patient advisors and advocates. Their coordinating role is especially important in ensuring continuity of care for chronic conditions. Because specialty care is episodic, it is more focused and intense than primary care. Primary care focuses on the person as a whole, whereas specialty care centers on particular diseases or organ systems of the body. Patients often have multiple problems simultaneously, a condition referred to as comorbidity. Treating comorbidities requires balancing multiple requirements, addressing changes in health conditions over time, and monitoring drug and disease interactions. Specialty care tends to be limited to illness episodes, the organ system, or the disease process involved. Comorbidities may necessitate referrals to multiple specialists, which present challenges in care coordination for PCPs. The difference in scope is reflected in how primary and specialty care providers are trained. Primary care students spend a significant amount of time in ambulatory care settings, familiarizing themselves with a variety of patient conditions and problems. Students in medical subspecialties spend significant time in inpatient hospitals, where they are exposed to state-of-the-art medical technology.

The Expanding Role of Hospitalists Since the mid-1990s, an increasing amount of inpatient medical care in the United States has been delivered by hospitalists, physicians who specialize in the care of hospitalized patients (Schneller, 2006). Hospitalists do not usually have a relationship with the patient prior to hospitalization. Essentially, the patient’s primary care provider entrusts the oversight of the patient’s care to a hospitalist upon admission, and the patient returns to the regular physician after discharge (Freed, 2004). Approximately 44,000

hospitalists practice in the United States (U.S. Bureau of Labor Statistics, 2015b).

The growth of the number of hospitalists is influenced by the desire of hospital executives, HMOs, and medical groups to reduce inpatient costs and increase efficiency without compromising quality or patient satisfaction. Published research shows that using hospitalists does, in fact, achieve these goals (Wachter, 2004). Research findings have also put to rest initial concerns from PCPs, who were accustomed to the traditional method of rounding on their hospitalized patients. The debate over hospitalists has largely shifted from quality and efficiency of performance to optimizing hospitalists’ skills and expanding their roles (Sehgal and Wachter, 2006). The American Board of Hospital Medicine (ABHM), founded in 2009 as a member board of the American Board of Physician Specialists (ABPS), is the only board of certification for hospital medicine.

Compared with traditional inpatient physicians model, the hospitalist model has a number of advantages. The on-site availability of a hospitalist ensures that a dedicated provider is readily available to respond to acute medical crises, manage tests, and answer questions, thereby reducing the time needed for treatments and improving the efficiency of discharge planning. This allows the hospitalist more time to communicate with patients, their families, and patients’ PCPs (White and Glazier, 2011). Studies have demonstrated that hospitalist care is associated with shorter lengths of stay, better quality of care, increased patient satisfaction, and lower inpatient costs (Chen et al., 2013; Coffman and Rundall, 2005; Goodwin et al., 2013; White and Glazier, 2011).

▶ Issues in Medical Practice, Training, and Supply

Research has shown that the way physicians practice medicine and prescribe treatments for similar conditions varies significantly. Physicians have at their disposal an increasing number of therapeutic options because of the exponential growth in medical science and technology. Conversely, increasing health care costs continue to threaten the viability of the health care delivery system. The responsibility physicians have to perform difficult balancing acts—simultaneously taking into account the availability of the most advanced treatments, uncertainties about their potential benefits, and whether the higher costs of treatment are justified—contributes to a confusing environment. Hence, support has been growing for the development and refinement of standardized clinical guidelines to streamline clinical decision making and improve quality of care (discussed in the Cost, Access, and Quality chapter). However, there have been some criticisms about the applicability, flexibility, and objectivity of some guidelines. Although the number of conditions for which guidelines are available is steadily increasing, guidelines for combinations of conditions (i.e., comorbidity) are not. Furthermore, many of the recommendations incorporated in the most well-accepted clinical guidelines allow for much flexibility, making it difficult to determine whether care provided by physicians complies with recommendations in the guidelines (Garber, 2005). In addition, the changing nature of chronic diseases and comorbidities is creating new challenges in the disease-centered reactive practice patterns (Starfield, 2011). A better care model, such as the chronic care model, requires patient-centered, longitudinal, coordinated, evidence-based, and information system–supported care, which facilitates physician–patient interaction and patient self- management (Coleman et al., 2009).

Medical Training The principal source of funding for graduate medical education is the Medicare program, which provides explicit payments to teaching hospitals for each resident in training. The government, however, does not mandate how these physicians should be trained. Medical and surgical services furnished by an intern or resident within the scope of his or her training program are covered as provider services, with Medicare paying for these services through Direct Graduate Medical Education (DGME) and Indirect Medical Education (IME) payments. DGME payments offset a portion of the direct costs associated with training physicians (e.g., resident stipends and benefits, supervising physician stipends and benefits). Teaching hospitals depend on IME payments to maintain the state-of-the-art facilities and equipment (such as Level 1 trauma centers), and specialized services (e.g., advanced cancer care) that are critical both for training health professionals and maintaining community health (Association of American Medical Colleges [AAMC], 2014).

Emphasis on hospital-based training in the United States has produced more specialists than PCPs. Meanwhile, the health care delivery system is evolving toward a primary care orientation. The increasing prevalence of chronic diseases further highlights the deficiency of the medical training model in the United States, which focuses mainly on acute interventions. Medical training in primary care needs to be refocused on patient-centered care (as described in the Outpatient and Primary Care Services chapter), general internal medicine, and longitudinal clinical experiences.

Supply of Medical Professionals Aided by tax-financed subsidies, the United States has experienced a steady increase in its physician labor force (Table 4-2; FIGURE 4- 2). In 2009, for example, there were 273 physicians per 100,000 population (U.S. Census Bureau, 2012). The growth, however, has

mainly occurred among specialists. The number of active physicians younger than age 75 is expected to grow from approximately 782,200 in 2014 to 825,200 by 2025 (AAMC, 2016).

FIGURE 4-2 Supply of U.S. physicians, including international medical graduates (IMGs), per 100,000 population, 1985–2013.

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD:

U.S. Department of Health and Human Services. p. 282.

A large influx of newly insured individuals seeking care is expected to strain the existing primary care infrastructure and result in personnel shortages in primary care (Schwartz, 2011). By 2025, an additional 52,000 PCPs would be needed (Petterson et al., 2012). The problem is that the primary care workforce is shrinking. According to a physician workforce report released by the AAMC

(2016), primary care specialties are expected to experience a shortfall of between 14,900 and 35,600 physicians by 2025. Physician retirement decisions are also projected to have the greatest impact on supply, and more than one-third of all currently active physicians will be 65 or older within the next decade (AAMC, 2016).

In 2013, $12 million in ACA funding was awarded to train more than 300 new primary care residents during the 2013–2014 academic year; 32 teaching health centers in 21 states received funding (U.S. Department of Health and Human Services [DHHS], 2013a). The ACA also provides for loan repayment for pediatric medical, mental health and surgical subspecialties—specialties known to have shortages—in exchange for professionals in these subspecialties providing care in medically underserved areas (MUAs). Additionally, the law authorizes grants to increase training in geriatrics and behavioral health, and provides incentives for general surgeons who practice in MUAs (Congressional Research Service, 2017). The effects of these initiatives will not be known for several years.

Maldistribution Maldistribution refers to either a surplus or a shortage of the type of physicians needed to maintain the health status of a given population at an optimal level. Neither shortages nor surpluses are desirable; they result in increased health care expenditures without a positive return in health outcomes. The United States faces maldistributions in terms of both geography and specialty.

Geographic Maldistribution One of the ironies of excess physician supply is that localities outside metropolitan areas (i.e., counties with fewer than 50,000 residents) continue to have physician shortages. Nonmetropolitan areas have 39.8 PCPs per 100,000 population, compared to 53.3 PCPs per 100,000 population in metropolitan areas (National Center for Health Statistics, 2014). Rural areas, in particular, lack

an adequate supply of both PCPs and specialists, even though residents in rural areas are sicker, older, and poorer than those in nonrural areas. Whereas 19.3% of the U.S. population lives in rural areas, only 11.4% of physicians practice there (National Center for Health Statistics, 2014).

The DHHS designates as Health Professional Shortage Areas (HPSAs) those urban or rural areas, population groups, or medical or other public facilities that have a shortage of providers in primary care, dental care, and mental health care. At the end of 2016, there were 6,626 designated primary care HPSAs, 5,493 dental HPSAs, and 4,627 mental health HPSAs in the United States (DHHS, 2013b).

Several federal programs have demonstrated success in increasing the supply of primary care services in rural areas. Some of these programs, which are discussed in the Health Services for Special Populations chapter, include the National Health Service Corps, which makes scholarship support conditional on a commitment to future service in an underserved area; the Migrant and Community Health Center Programs, which provide primary care services to the poor and underserved using federal grants; and support of primary care training programs and Area Health Education Centers.

Specialty Maldistribution Besides geographic maldistribution of physicians, a considerable imbalance exists between primary and specialty care in the United States. Approximately 47.7% of physicians work in primary care; the remaining 52.3% are specialists (Kaiser Family Foundation, 2016). In other industrialized countries, only 25% to 50% of physicians are specialists (Organization for Economic Cooperation and Development [OECD], 2016).

FIGURE 4-3 illustrates trends in the supply of PCPs. The proportion of active PCPs has been continually declining since 1949 and has reached its lowest point in recent years. Also, the number of

physicians entering primary care has been decreasing. According to one study, only 21.5% of third-year internal medicine graduating residents reported general internal medicine as their ultimate career plan. Most of the residents reported subspecialty career plans (West and Dupras, 2012). Moreover, one in six general internists leaves his or her practice by midcareer either due to dissatisfaction or by moving into a subspecialty of internal medicine (Bylsma et al., 2010). The increasing number of international medical graduates (IMGs) practicing in the United States has helped alleviate these PCP shortages to some extent.

FIGURE 4-3 Trend in U.S. primary care generalists of medicine.

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD:

U.S. Department of Health and Human Services. p. 284.

Growth of new medical technology is one major driving force behind the increasing number of specialists. Health care is often

delivered according to a model that concentrates on diseases and specialist care. Doctors, particularly specialists, increasingly rely on medical technology to diagnose and treat diseases. Most hospitals with the latest medical technologies try to become clinical centers that offer all major specialty fields and employ these specialists. Additionally, medical students may be further attracted to go into subspecialties because their training is organized around medical technologies. This may contribute to the expanding gap between the primary and specialty care workforces.

The higher incomes of specialists relative to PCPs have also contributed to an oversupply of specialists. In recent years, reimbursement systems designed to increase payments to PCPs have been implemented, but wide disparities between the incomes of generalists and specialists persist (TABLE 4-4). Specialists also tend to have more predictable work hours and enjoy higher prestige among their colleagues and the public at large (Rosenblatt and Lishner, 1991; Samuels and Shi, 1993). Higher status and prestige are also accorded to specialties employing the latest advances in medical technology. Unsurprisingly such considerations influence medical students’ career decisions.

TABLE 4-4 Mean Annual Compensation for U.S. Physicians by Specialty, May 2016 (in Dollars)

Anesthesiologists 269,600

Family and general practitioners 200,810

Internists, general 201,840

Obstetricians and gynecologists 234,310

Pediatricians, general 184,240

Psychiatrists 200,220

Surgeons 252,910

Physicians and surgeons, all other 205,560

Data from U.S. Bureau of Labor Statistics. 2017. Occupational employment and wages—May 2016. Available at: Accessed April 2017.

In terms of racial and ethnic diversity in the health workforce, TABLE 4-5 shows the percentage of total enrollment of students in programs for selected health occupations by race. This indicates that the trends in racial and ethnic diversity vary considerably by occupation, although minorities tend to be more represented among the lower-skilled occupations.

TABLE 4-5 Percentage of Total Enrollment of Students in Programs for Selected Health Occupations, by Race, 2008–2009

Race Allopathic Osteopathic Dentistry Pharmacy

All races 100.0 100.0 100.0 100.0

White, non-Hispanic 61.7 70.0 59.9 58.9

Black, non-Hispanic 7.1 3.5 5.8 6.4

Hispanic 8.1 3.7 6.2 4.1

American Indian 0.8 0.7 0.7 0.5

Asian 21.7 17.1 23.4 22.1

Data from National Center for Health Statistics. 2012. Health, United States, 2011. Hyattsville, MD: U.S. Department of Health and Human Services. p. 355.

The medical education environment in the United States is largely organized according to specialties and controlled by those who have achieved leadership positions by demonstrating their abilities in narrow scientific or clinical areas. Medical education in the United States emphasizes technology, intensive procedures, and tertiary care settings, which are generally more appealing to medical students than the more rudimentary field of primary care.

The imbalance between generalists and specialists has several undesirable consequences. Having too many specialists has contributed to the high volume of intensive, expensive, and invasive medical services, and consequently, to the rise in health care costs (Greenfield et al., 1992; Rosenblatt, 1992; Schroeder and Sandy, 1993; Wennberg et al., 1993). Seeking care directly from specialists is often less effective than getting primary care because the latter attempts to provide early intervention before complications develop (Starfield, 1992; Starfield and Simpson, 1993). Higher levels of primary care services are associated with lower overall death and lower mortality rates due to diseases of the heart and cancer (Shi, 1992, 1994). PCPs have been the major providers of care to minorities, the poor, and people living in underserved areas (Ginzberg, 1994; Starr, 1982). They can play a major role in overcoming health disparities (Lee et al., 2016; Shi et al., 2013). However, underserved populations suffer the most from PCP shortages.

▶ International Medical Graduates

The ratio of IMGs to the overall U.S. population has steadily grown over time (Figure 4-2), as has the ratio of IMGs to total active physicians practicing in the United States (FIGURE 4-4). Approximately 25.5% of professionally active physicians in the United States are IMGs, also known as foreign medical graduates (National Center for Health Statistics, 2016). This percentage translates into more than 217,000 active IMGs in the U.S. physician workforce (National Center for Health Statistics, 2016). An estimated one-fourth of all residency positions are filled by IMGs (Educational Commission for Foreign Medical Graduates, 2015), and an increasing number of IMGs are filling family practice residency slots (Kozakowski et al., 2016). In 1995, only 6.3% of IMGs entered family practice residencies; by 2015, that percentage had increased to 11.3% (Boulet et al., 2006; Kozakowski et al., 2016). IMGs account for 51% of all physicians in internal medicine, 7% in pediatrics, and 4.5% in psychiatry (Educational Commission for Foreign Medical Graduates, 2015).

FIGURE 4-4 IMG physicians as a proportion of total active physicians.

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD:

U.S. Department of Health and Human Services. p. 283.

▶ Dentists Dentists diagnose and treat dental problems related to the teeth, gums, and tissues of the mouth. All dentists must be licensed to practice. The licensure requirements include graduation from an accredited dental school that awards a Doctor of Dental Surgery (DDS) or Doctor of Dental Medicine (DMD) degree and successful completion of both written and practical examinations. Some states require dentists to obtain a specialty license before practicing as a specialist in that state (Stanfield et al., 2012).

Nine specialty areas are recognized by the American Dental Association (ADA): orthodontics (straightening teeth), oral and maxillofacial surgery (operating on the mouth and jaws), oral and maxillofacial radiology (producing and interpreting images of the mouth and jaws), pediatric dentistry (dental care for children), periodontics (treating gums), prosthodontics (making artificial teeth or dentures), endodontics (root canal therapy), public health dentistry (community dental health), and oral pathology (diseases of the mouth). The growth of dental specialties is influenced by technological advances, including implant dentistry, laser-guided surgery, orthognathic surgery (surgery performed on the bones of the jaw) for the restoration of facial form and function, new metal combinations for use in prosthetic devices, new bone graft materials in “tissue-guided regeneration” techniques, and new materials and instruments.

Many dentists are involved in the prevention of dental decay and gum disease. Dental prevention includes regular cleaning of patients’ teeth and educating patients on proper dental hygiene. Dentists also spot symptoms that require treatment by a physician. Dentists employ dental hygienists and assistants to perform many of the preventive and routine care services.

Dental hygienists work in dental offices and provide preventive dental care, including cleaning teeth and educating patients on proper dental care. Dental hygienists must be licensed to practice. The licensure requirements include graduation from an accredited school of dental hygiene and successful completion of both a national board written examination and a state or regional clinical examination. Many states require further examination on legal aspects of dental hygiene practice.

Dental assistants work for dentists in the preparation, examination, and treatment of patients. Dental assistants do not have to be licensed to work; however, formal training programs that offer a certificate or diploma are available. Dental assistants typically work alongside dentists.

Most dentists practice in private offices as solo or group practitioners. As such, dental offices operate as private businesses, and dentists often perform business tasks, such as staffing, financing, purchasing, leasing, and work scheduling. Some dentists are employed in clinics operated by private companies, retail stores, or franchised dental outlets. Group dental practices, which offer lower overhead and increased productivity, have grown slowly. The federal government also employs dentists, mainly in the hospitals and clinics of the Department of Veterans Affairs and the U.S. Public Health Service. Mean annual earnings of salaried dentists were $173,860 in 2015 (U.S. Bureau of Labor Statistics, 2017).

The emergence of employer-sponsored dental insurance caused an increased demand for dental care because it enabled a greater segment of the population to afford dental services. The demand for dentists will continue to grow because of the increase in populations, such as the elderly, who have high dental needs, and an increase in public awareness of the importance of dental care to maintain good general health status. Demand will also be affected by the fairly widespread appeal of cosmetic and esthetic dentistry,

the prevalence of dental insurance plans, and the inclusion of dental care as part of many public-funded programs, such as Head Start, Medicaid, community and migrant health centers, and maternal and infant care.

▶ Pharmacists The traditional role of pharmacists has been to dispense medicines prescribed by physicians, dentists, and podiatrists, and to provide consultation on the proper selection and use of medicines. All states require a license to practice pharmacy. The licensure requirements traditionally included graduation from an accredited pharmacy program that awards a Bachelor of Pharmacy or Doctor of Pharmacy (PharmD) degree, successful completion of a state board examination, and practical experience or completion of a supervised internship (Stanfield et al., 2012). Since 2005, the bachelor’s degree has been phased out, and a PharmD, requiring 6 years of postsecondary education, has become the standard. The mean annual earnings of pharmacists in 2015 were $120,270 (U.S. Bureau of Labor Statistics, 2017).

Although most pharmacists are generalists who dispense drugs and advise providers and patients, some become specialists. Pharmacotherapists, for example, specialize in drug therapy and work closely with physicians. Nutrition-support pharmacists determine and prepare drugs needed for nutritional therapy. Radiopharmacists, or nuclear pharmacists, produce radioactive drugs used for patient diagnosis and therapy.

Most pharmacists hold salaried positions and work in community pharmacies that are independently owned or are part of a national drugstore, discount store, or department store chain. Pharmacists are also employed by hospitals, MCOs, home health agencies, clinics, government health services organizations, and pharmaceutical manufacturers.

In recent decades, the role of pharmacists has expanded from primarily preparing and dispensing prescriptions to include educating on drug products and serving as experts on specific

drugs, drug interactions, and generic drug substitution. For example, under the Omnibus Budget Reconciliation Act of 1990, pharmacists are required to give consumers information about drugs and their potential misuse. This educating and counseling role of pharmacists is broadly referred to as pharmaceutical care. The American Council on Pharmaceutical Education (now the Accreditation Council for Pharmacy Education; 1992) defines pharmaceutical care as “a mode of pharmacy practice in which the pharmacist takes an active role on behalf of patients, by assisting prescribers in appropriate drug choices, by effecting distribution of medications to patients, and by assuming direct responsibilities to collaborate with other health care professionals and with patients to achieve the desired therapeutic outcome.” This concept entails a high level of drug knowledge, clinical skill, and independent judgment. It also requires that pharmacists share with other health professionals the responsibility for optimizing the outcome of patients’ drug therapies, such as health status, quality of life, and satisfaction (Helper and Strand, 1990; Schwartz, 1994; Strand et al., 1991). Physicians often consult pharmacists to identify and prevent potential drug-related problems and resolve actual drug- related problems (Morley and Strand, 1989). Recent studies also indicate that pharmacist-provided medication management can be beneficial for patients, especially those with multiple chronic conditions or complex medication regimens (Carter et al., 2012; Rafferty et al., 2016).

▶ Other Doctoral-Level Health Professionals

In addition to physicians, dentists, and some pharmacists, other health professionals have doctoral education, including optometrists, psychologists, podiatrists, and chiropractors.

Optometrists provide vision care, which includes examination, diagnosis, and correction of vision problems. They must be licensed to practice. The licensure requirements include the possession of a Doctor of Optometry (OD) degree and passing a written and clinical state board examination. Most optometrists work in solo or group practices. Some work for the government, optical stores, or vision care centers as salaried employees.

Psychologists provide patients with mental health care. They must be licensed or certified to practice. The ultimate recognition is the diplomate in psychology, which requires a Doctor of Philosophy (PhD) or Doctor of Psychology (PsyD) degree, a minimum of 5 years’ postdoctoral experience, and the successful completion of an examination by the American Board of Examiners in Professional Psychology. Psychologists may specialize in several areas, such as the clinical, counseling, developmental, educational, engineering, personnel, experimental, industrial, psychometric, rehabilitation, school, and social domains (Stanfield et al., 2012).

Podiatrists treat patients with diseases or deformities of the feet, including performing surgical operations, prescribing medications and corrective devices, and administering physiotherapy. They must be licensed to practice. Requirements for licensure include completion of an accredited program that awards a Doctor of Podiatric Medicine (DPM) degree and passing a national examination by the National Board of Podiatric Medical Examiners.

Most podiatrists work in private practice, but some are salaried employees of health service organizations.

Chiropractors provide treatment to patients through chiropractic (done by hand) manipulation, physiotherapy, and dietary counseling. They typically help patients with neurologic, muscular, and vascular disturbances. Chiropractic care is based on the belief that the body is a self-healing organism; thus, chiropractors do not prescribe drugs or perform surgery. Chiropractors must be licensed to practice. Requirements for licensure include completion of an accredited program that awards a 4-year Doctor of Chiropractic (DC) degree and passing an examination by the state chiropractic board. Most chiropractors work in private solo or group practice.

Doctoral nursing degrees include the Doctor of Nursing Practice (DNP), Doctor of Nursing Science (DNS), and Doctor of Philosophy in Nursing (PhD) (Ericksen, 2016). The DNS and PhD degrees are research focused, whereas the DNP emphasizes patient care and nursing practice (Ericksen, 2016). A doctoral degree is usually required to become a professor of nursing education or nurse researcher (Ericksen, 2016). Doctoral degrees are also preferred for nurse practitioners, clinical nurse specialists, nurse anesthetists, and nurse-midwives (American Association of Colleges of Nursing [AACN], 2014).

▶ Nurses Nurses constitute the largest group of health care professionals. The nursing profession developed around hospitals after World War I, primarily attracting women. Before that time, more than 70% of nurses worked in private duty, either in patients’ homes or hospitals for private-pay patients. Hospital-based nursing flourished after the war as the effectiveness of nursing care became apparent. Federal support of nursing education increased after World War II, with the passage of the Nursing Training Act of 1964, the Health Manpower Act of 1968, and the Nursing Training Act of 1971. However, despite federal support, state funding remains the primary source of financial support for nursing schools.

Nurses are the major caregivers for sick and injured patients, addressing their physical, mental, and emotional needs. All states require nurses to be licensed to practice. Nurses can be licensed in more than one state through examination or endorsement of a license issued by another state. The licensure requirements include graduation from an approved nursing program and successful completion of a national examination.

Their educational preparation distinguishes the two non-doctoral- degree levels of nurses. Registered nurses (RNs) must complete an associate’s degree in nursing (ADN), a diploma program, or a baccalaureate degree in nursing (BSN). ADN programs take about 2 to 3 years and are offered by community and junior colleges. Diploma programs take 2 to 3 years and are still offered by a few hospitals. BSN programs take 4 to 5 years and are offered by colleges and universities (Stanfield et al., 2012). Licensed practical nurses (LPNs)—called licensed vocational nurses (LVNs) in some states—must complete a state-approved program in practical nursing and a national written examination. Most practical nursing programs last about 1 year and include classroom study, as

well as supervised clinical practice. Nurse managers act as supervisors of other nurses; RNs supervise LPNs.

Nurses work in the same variety of settings as other health care professionals. In addition, they work in home health care, hospice care, and long-term care settings. A few work as private-duty nurses in patients’ homes. Nurses are often classified according to the settings in which they work—for example, hospital nurses, long- term care nurses, public health nurses, private-duty nurses, office nurses, and occupational health or industrial nurses.

With the remarkable growth in the various types of outpatient settings (see the Outpatient and Primary Care Services chapter), hospitals and nursing homes now treat patients who are much sicker than before. This means more patients require a greater amount of care when in residence at these settings. Hence, the ratio of nurses to patients has increased, and nurses’ work has become more intensive. The growing number of opportunities for RNs in supportive roles, such as case management, utilization review, quality assurance, and prevention counseling, has also expanded the demand for their services.

Between 2004 and 2014, the total full-time equivalent (FTE) RN workforce increased by 345,200 (American Hospital Association, 2016). In 2016, registered nurses made up one of the largest occupations in the United States, with more than 2.85 million RNs earning an average salary of $72,180 per year (U.S. Bureau of Labor Statistics, 2017). Projections of the future need for nurses indicate there will be a deficit of 918,232 RNs in 2030 (Juraschek et al., 2012). To make the nursing profession more attractive, health services organizations need to initiate measures such as creating incentive packages to attract new nurses, increasing pay and benefits to current nurses, introducing more flexible work schedules, awarding tuition reimbursement for continuing education, and providing on-site daycare assistance.

A nationwide shortage of primary care providers inspired the Advanced Nursing Education Expansion Program, an ACA component that allocated $30 million to support academic training programs for nurse practitioners and certified nurse-midwives. The funds are expected to help pay for instructors and for students’ housing and living expenses.

▶ Advanced Practice Nurses The term advanced practice nurse (APN) is a general classification of nurses who have education and clinical experience beyond that required of an RN. APNs include four areas of specialization (Cooper et al., 1998): clinical nurse specialists (CNSs), certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs), and certified nurse-midwives (CNMs). NPs and CNMs are also categorized as midlevel providers and are discussed in the next section. Besides being direct caregivers, APNs perform other professional activities, such as collaborating and consulting with other health care professionals; educating patients and other nurses; collecting data for clinical research projects; and participating in the development and implementation of total quality management programs, critical pathways, case management, and standards of care (Grossman, 1995).

Both CNSs and NPs work at hospitals, primary care, and other settings. Examples of CNS functions in an acute care hospital include taking the patient’s social and clinical history at the time of admission, conducting the physical assessment after the patient’s admission, adjusting IV infusion rates, managing pain, managing resuscitation orders, removing intracardiac catheters, and ordering routine laboratory tests and radiographic examinations. CNSs generally do not have the legal authority to prescribe drugs. NPs, by comparison, may prescribe drugs in most states. CRNAs are trained to manage anesthesia during surgery, and CNMs deliver babies and manage the care of mothers and healthy newborns before, during, and after delivery.

The requirements for becoming an APN vary greatly from state to state. In general, the designation requires a graduate degree in nursing or certification in an advanced practice specialty area.

▶ Midlevel Providers Midlevel providers (MLPs) are clinical professionals who practice in many areas similar to those in which physicians practice, but who do not have an MD or a DO degree. MLPs receive less advanced training than physicians but more training than RNs. MLPs, in many instances, can substitute for physicians. Nevertheless, they do not engage in the entire range of primary care or deal with complex cases requiring the expertise of a physician (Cooper et al., 1998). Efforts to formally establish the MLP role began in the late 1960s, in recognition of the fact that they could improve access to primary care, especially in rural areas.

MLPs include physician assistants (PAs), NPs, and CNMs. In the future, the expansion of health insurance coverage and the growth of the U.S. population will continue to drive the demand for MLPs (Jacobson and Jazowski, 2011). As of 2014, the supply of new NPs was increasing at 6.9% per capita, compared to a growth rate of 3.4% for the supply of physicians (National Center for Health Statistics, 2016). Approximately 20,000 NPs and PAs graduated in 2015, up from 11,200 of these MLPs in 2006 (American Hospital Association, 2016).

Roles for these skilled MLPs are expanding as the physician workforce shrinks, the population of seniors expands, and health care becomes accessible to more Americans. NPs, in particular, are assuming a pivotal role in health care. MLPs are capable of providing a large proportion of the primary care services provided by physicians. A substantial body of research evaluating the quality of primary care provided by MLPs shows that these providers perform as well as physicians on important clinical outcome measures, such as mortality, preventable hospitalizations, and improvement of patient health status (Agarwal et al., 2009; Evangelista et al., 2012; Kuo et al., 2015; Laurant et al., 2009). In

addition, patients report high levels of satisfaction with care provided by MLPs (Evangelista et al., 2012; Golden, 2014).

Nurse Practitioners The American Nurses Association (ANA) defines nurse practitioners (NPs) as individuals who have completed a program of study leading to competence as RNs in an expanded role. NPs constitute the largest group of MLPs. As of 2016, the United States had approximately 150,230 NPs (U.S. Bureau of Labor Statistics, 2017). Training for NPs covers topics of health promotion, disease prevention, health education, counseling, and disease management. NPs take health histories, provide physical exams and health assessments, and diagnose, treat, and manage patients with acute and chronic health conditions (AACN, 2014).

More than 6,000 new NPs are trained every year in 373 colleges and universities across the United States (AACN, 2016). The training of NPs may be a certificate program (at least 9 months in duration) or a master’s degree program (2 years of full-time study). States vary with regard to licensure and accreditation requirements for these roles. Most NPs are now trained in graduate or postgraduate nursing programs. In addition, NPs must complete clinical training in direct patient care. Certification examinations are offered by the American Nurses Credentialing Center, the American Academy of Nurse Practitioners, and specialty nursing organizations.

One major difference between the training and practice orientation of NPs and PAs is that NPs are oriented toward health promotion and education, whereas PAs are oriented more toward a medical model that focuses on disease (Hooker and McCaig, 2001). NPs spend extra time with patients to help them understand the need to take responsibility for their own health. NP specialties include pediatric, family, adult, psychiatric, and geriatric programs. NPs have statutory prescribing authority in almost all states, and they

may serve as independent providers without supervision. NPs can also receive direct reimbursement as providers under the Medicaid and Medicare programs.

Physician Assistants The American Academy of Physician Assistants (1986) defines physician assistants (PAs) as “part of the healthcare team . . . [who] work in a dependent relationship with a supervising physician to provide comprehensive care.” In 2014, there were approximately 94,400 jobs available for PAs in the United States (U.S. Bureau of Labor Statistics, 2015c).

PAs are licensed to perform medical procedures only under the supervision of a physician who may be on site or off site. Major services provided by PAs include evaluation, monitoring, diagnostics, therapeutics, counseling, and referral (Fitzgerald et al., 1995). In most states, PAs have the authority to prescribe medications.

As of 2017, 218 accredited PA training programs were operating in the United States, with a steady growth in enrollment (The Accreditation Review Commission on Education for the Physician Assistant, 2017). PA programs award bachelor’s degrees, certificates, associate degrees, master’s degrees, or doctoral degrees. The mean length of the program is 26 months (Hooker and Berlin, 2002). PAs are certified by the National Commission on Certification of Physician Assistants.

Certified Nurse-Midwives Certified nurse-midwives (CNMs) are RNs with additional training from a nurse-midwifery program, in areas such as maternal and fetal procedures, maternity and child nursing, and patient assessment (Endicott, 1976). CNMs deliver babies, provide family

planning education, manage gynecologic and obstetric care, and can substitute for obstetricians/gynecologists in prenatal and postnatal care. They are certified by the American College of Nurse- Midwives (ACNM) to provide care for normal expectant mothers. They refer abnormal or high-risk patients to obstetricians or jointly manage the care of such patients. There are approximately 39 ACNM-accredited nurse-midwifery education programs in the United States (ACNM, 2017).

Midwifery has never assumed the central role in the management of pregnancies in the United States that it has in Europe (Wagner, 1991). Physicians, mainly obstetricians, attend most deliveries in the United States, but some evidence indicates that, for low-risk pregnancies, CNMs are much less likely to use available technical tools to monitor or modify the course of labor. Patients of CNMs are less likely to be electronically monitored, have induced labor, or receive epidural anesthesia. These differences are associated with lower cesarean section rates and less use of resources, such as hospital stays, operating room costs, and use of anesthesia staff (Rosenblatt et al., 1997).

▶ Allied Health Professionals The term allied health is used loosely to categorize several different types of professionals in a vast number of health-related technical areas. Among these professionals are technicians, assistants, therapists, and technologists. These professionals receive specialized training, and their clinical interventions complement the work of physicians and nurses. Certain professionals, however, are allowed to practice independently, depending on state law.

In the early part of the 20th century, the health care provider workforce consisted of physicians, nurses, pharmacists, and optometrists. As knowledge in health sciences expanded and medical care became more complex, physicians found it difficult to spend the necessary time with their patients. Time constraints, as well as the limitations in learning new skills, created a need to train other professionals who could serve as adjuncts to or as substitutes for physicians and nurses.

Section 701 of the Public Health Service Act defines an allied health professional as someone who has received a certificate; associate’s, bachelor’s, or master’s degree; doctoral-level preparation; or post-baccalaureate training in a science related to health care and has responsibility for the delivery of health or related services. These services may include those associated with the identification, evaluation, and prevention of diseases and disorders, dietary and nutritional services, rehabilitation, and health system management.

Allied health professionals can be divided into two broad categories: technicians/assistants and therapists/technologists. EXHIBIT 4-2 lists the main allied health professions in the United States.

EXHIBIT 4-2 Examples of Allied Health Professionals

Activities coordinator Optician

Audiology technician Pharmacist

Cardiovascular technician Physical therapist

Cytotechnologist Physical therapy assistant

Dental assistant Physician assistant

Dietary food service manager Radiology technician

Exercise physiologist Recreation therapist

Histologic technician Registered dietitian

Laboratory technician Registered records administrator

Legal services Respiratory therapist

Medical records technician Respiratory therapy technician

Medical technologist Social services coordinator

Mental health worker Social worker

Nuclear medicine Speech therapist

Occupational therapist Speech therapy assistant

Occupational therapy assistant

As noted earlier, formal requirements for these professionals range from certificates gained in postsecondary educational programs to postgraduate degrees for some professions. Typically, technicians and assistants receive less than 2 years of postsecondary education. They require supervision from therapists or technologists to ensure that treatment plans are followed. Technicians and assistants include physical therapy assistants (PTAs), certified occupational therapy assistants (COTAs), medical laboratory technicians, radiologic technicians, and respiratory therapy technicians.

Technologists and therapists receive more advanced training. They evaluate patients, diagnose problems, and develop treatment plans. Many technologists and therapists have independent practices. For example, physical therapy is practiced in most U.S. states without the requirement of a prescription or referral from a physician. Many states also allow occupational therapists and speech therapists to see patients without referral from a physician.

Therapists Physical therapists (PTs) provide care for patients with movement dysfunction. Educational programs in physical therapy are accredited by the Commission on Accreditation of Physical Therapy Education. As of 2017, there were 236 physical therapy education programs in the United States. Currently, only graduate degree physical therapy programs are accredited. Master’s degree programs are typically 2 to 3 years in length, while doctoral degree programs last 3 years. To obtain a license, PTs must also pass the National Physical Therapy Examination or a similar state- administered exam (Commission on Accreditation in Physical Therapy Education, 2017).

Occupational therapists (OTs) help people of all ages improve their ability to perform tasks in their daily living and working environments. They work with individuals who have conditions that are mentally, physically, developmentally, or emotionally disabling. A master’s degree in occupational therapy is the typical minimum requirement for entry into the field. In 2015, 171 master’s degree programs or combined bachelor’s and master’s degree programs were accredited, and 15 doctoral degree programs were accredited by the Accreditation Council for Occupational Therapy Education (ACOTE, 2017).

Speech–language pathologists treat patients with speech and language problems. Audiologists treat patients with hearing problems. The American Speech‒Language‒Hearing Association is

the credentialing association for both audiologists and speech– language pathologists.

Other Allied Health Professionals Medical dietetics includes dietitians, nutritionists, and dietetic technicians who ensure that institutional foods and diets are prepared in accordance with acceptable nutritional standards. Dietitians are registered by the Commission on Dietetic Registration of the Academy of Nutrition and Dietetics.

Dispensing opticians fit eyeglasses and contact lenses. They are certified by the American Board of Opticianry and the National Contact Lens Examiners.

Social workers help patients and families cope with problems resulting from long-term illness, injury, and rehabilitation. The Council on Social Work Education accredits baccalaureate and master’s degree programs in social work in the United States.

Many programs are accredited by the Committee on Allied Health Education and Accreditation under the American Medical Association, including those for the following professionals:

Anesthesiologist assistants Cardiovascular technologists Cytotechnologists (study changes in body cells under a microscope) Diagnostic medical sonographers (work with ultrasound diagnostic procedures) Electroneurodiagnostic technologists (work with procedures related to the electrical activity of the brain and nervous system) Emergency medical technician–paramedics (provide medical emergent care to acutely ill or injured persons in prehospital settings)

Histologic technicians/technologists (analyze blood, tissue, and fluids) Medical assistants (perform a number of administrative and clinical duties in physicians’ offices) Medical illustrators Medical laboratory technicians Medical record administrators (direct the medical records department) Medical record technicians (organize and file medical records) Medical technologists (perform clinical laboratory testing) Nuclear medicine technologists (operate diagnostic imaging equipment and use radioactive drugs to assist in the diagnosis of illness) Ophthalmic medical technicians Perfusionists (operate life support respiratory and circulatory equipment) Radiologic technologists (perform diagnostic imaging exams, such as x-rays, computed tomography, magnetic resonance imaging, and mammography) Respiratory therapists and technicians (treat patients with breathing disorders) Specialists in blood bank technology Surgeon’s assistants Surgical technologists (prepare operating rooms and patients for surgery)

Certain health care workers are not required to be licensed, and they usually learn their skills on the job; however, their roles are limited to assisting other professionals in the provision of services. Examples include dietetic assistants, who assist dietitians or dietetic technicians in the provision of nutritional care; electroencephalogram technologists or technicians, who operate electroencephalographs; electrocardiogram (ECG) technicians, who operate electrocardiographs; paraoptometrics, including optometric technicians and assistants, who perform basic tasks related to vision care; health educators, who provide individuals and groups with facts on health, illness, and prevention; psychiatric/mental

health technicians, who provide care to patients with mental illness or developmental disabilities; and sanitarians, who collect samples for laboratory analysis and inspect facilities for compliance with public health regulations. Increasingly, these practitioners are seeking their credentials through certifications, registrations, and training programs.

As the number of older people in the United States continues to increase, and as new developments allow for the treatment of more medical conditions, more allied health professionals will be needed. For example, home health aides will be needed as more individuals seek care outside of traditional institutional settings. Jobs for LPNs/LVNs and pharmacy technicians are also expected to increase significantly, to roughly 117,300 and 34,700 positions, respectively by 2024 (U.S. Bureau of Labor Statistics, 2015c).

Allied health professionals represent an important part of the patient care system. They specialize in areas directly related to prevention, wellness, and management of acute and chronic diseases, as well as behavioral health problems. These professionals have a critical role in the health care system and provide comprehensive, patient-centered care to millions of individuals. Studies have affirmed their positive influence on health care services; allied health professionals improve patient access to care, patient volume, and service efficiency, as well as reduce costs of care (American Association of Community Colleges, 2014; Beazoglou et al., 2012; Post and Stoltenberg, 2014).

▶ Health Services Administrators

Health services administrators are employed at the top, middle, and entry levels of various types of organizations that deliver health services. Top-level administrators provide leadership and strategic direction, work closely with the governing boards (see the Inpatient Facilities and Services chapter), and are responsible for an organization’s long-term success. They are responsible for the operational, clinical, and financial outcomes of their entire organization. Middle-level administrators may have leadership roles for major service centers, such as outpatient, surgical, and nursing services, or they may be departmental managers in charge of single departments, such as diagnostics, dietary, rehabilitation, social services, environmental services, or medical records. Their jobs involve major planning and coordinating functions, organizing human and physical resources, directing and supervising, operational and financial controls, and decision making. They often have direct responsibility for implementing changes, creating efficiencies, and developing new procedures with respect to changes in the health care delivery system. Entry-level administrators may function as assistants to middle-level managers. They may supervise a small number of operatives. For example, their main function may be to oversee and assist with operations critical to the efficient operation of a departmental unit.

Today’s medical centers and integrated delivery organizations are among the most complex organizations to manage. Leaders in health care delivery face some unique challenges, including changes in financing and payment structures, as well as having to work with reduced levels of reimbursement. Other challenges include pressures to provide uncompensated care, greater responsibility for quality, accountability for community health,

separate contingencies imposed by public and private payers, uncertainties created by new policy developments, changing configurations in the competitive environment, and maintaining the integrity of an organization through the highest level of ethical standards.

Health services administration is taught at the bachelor’s and master’s levels in a variety of settings, and the programs lead to several different degrees. The settings for such academic programs include schools of medicine, public health, public administration, business administration, and allied health sciences. Bachelor’s degrees prepare students for entry-level positions. Mid- and senior- level positions require a graduate degree. The most common degrees are the Master of Health Administration (MHA) or Master of Health Services Administration (MHSA), Master of Business Administration (MBA, with a health care management emphasis), Master of Public Health (MPH), or Master of Public Administration (or Affairs; MPA). The schools of public health that are accredited by the Council on Education for Public Health (CEPH) play a key role in training health services administrators in their MHA (or MHSA) and MPH programs (CEPH, 2017). Compared to the MPH programs, however, the MHA programs have more course requirements designed to furnish skills in business management (both theory and applied management) and quantitative/analytical areas, which are considered crucial for managing today’s health services organizations. This disparity has been viewed as a concern that the schools of public health need to address (Singh et al., 1996).

Educational preparation of nursing home administrators is a notable exception to the MHA model. The training of nursing home administrators has largely been influenced by government licensing regulations. Even though licensure of nursing home administrators dates back to the mid-1960s, regulations favoring a formal postsecondary academic degree are more recent. Passing a national examination administered by the National Association of

Boards of Examiners of Long-Term Care Administrators (NAB) is a standard requirement. However, educational qualifications needed to obtain a license vary significantly from one state to another. Although approximately one-third of the states still require less than a bachelor’s degree as the minimum academic preparation, an increasing number of practicing nursing home administrators have at least a bachelor’s degree. The problem is that most state regulations call for only general levels of education rather than specialized preparation in long-term care administration. General education does not furnish adequate skills in all the domains of practice relevant to nursing home management (Singh et al., 1997). However, various colleges and universities offer specialized programs in nursing home administration.

▶ Global Health Workforce Challenges

A 2006 report issued by the World Health Organization (WHO) identified 57 countries that were facing a health workforce crisis, meaning that each country had fewer than 23 health workers per 10,000 people. Most of these countries are poor, and they are predominately located in sub-Saharan Africa. The report also pointed out that a provider shortage of 4.3 million doctors, midwives, nurses, and support workers existed (WHO, 2006).

Another WHO (2005) publication emphasized that the shift from acute to chronic health problems is placing different demands on the health care workforce, as addressing chronic diseases requires different resources and skill sets. The increased prevalence of chronic conditions globally introduces the need for the workforce to adopt a patient-centered approach, improve communication skills, ensure safety and quality of patient care, monitor patients across time, use available technology, and consider care from a population perspective (WHO, 2005).

A WHO report released in 2014 noted that increasing demands are being put on the health care sector by its aging health workforce. Staff retiring or leaving for better-paying jobs are not being replaced, and not enough young people are entering the profession or being adequately trained to replace them. Moreover, internal and international migration of health workers is also exacerbating regional imbalances (WHO, 2014a).

In Europe, while the number of physicians per capita is increasing, it appears to be insufficient to accommodate the growing needs of an aging population (Lang, 2011). In addition, there have been far more specialists than generalists in recent years; shortages of

nurses, physiotherapists, and occupational therapists are predicted to occur in the future (Lang, 2011).

The situation is similar in the United States, where the number of older adults is expected to double between 2005 and 2030 (Institute of Medicine, 2008). This trend will undoubtedly lead to an aging health workforce. On the patient side, the United States is hoping to add new people to the geriatric care-oriented workforce as well as retain the services of existing geriatric specialists (Institute of Medicine, 2008).

Growth in the number of non-MD providers may address these shortages to some extent (Riegel et al., 2012). Evidence supporting the involvement of non-MDs in the prevention and management of chronic health problems continues to grow. For example, integrating non-MDs into multidisciplinary health care teams has emerged as an effective strategy for improving the control of hypertension among high-risk populations (Brownstein et al., 2007; Fleming et al., 2015; Sookaneknun et al., 2004; Walsh et al., 2006). Non-MDs are effective in providing care for patients with chronic conditions, with their care resulting in improvements in patients’ ability to keep appointments, better compliance with prescribed regimens, increased risk reduction, and greater engagement of patients in self-monitoring and adherence to medications (Roark et al., 2011).

A growing public health concern across the globe is the migration of health professionals from developing countries to the United States, United Kingdom, Canada, and Australia. For example, IMGs make up 25% of the U.S. physician population, which includes U.S. citizens who go to medical schools abroad (Educational Commission for Foreign Medical Graduates, 2015). To address this migration, WHO has developed the Global Code of Practice on the International Recruitment of Health Personnel, which sets principles and voluntary standards for countries to consider in

workforce development and recruitment. This code includes the following components (WHO, 2014b):

Greater commitment to assist countries facing critical health worker shortages with their efforts to improve and support their health workforce Joint investment in research and ISs to monitor the international migration of health workers and develop evidence-based policies Commitment of member states to meet their health personnel needs with their own human resources as far as possible, including taking measures to educate, retain, and sustain their health workforces Enshrinement of migrant workers’ rights and ensuring they are equal to the rights of domestically trained health workers

The migration of health care workers is counterbalanced by another growing trend: medical tourism (see the Evolution of Health Services in the United States chapter). The medical tourism industry has undergone significant growth in recent decades, drawing patients from all over the world to medical facilities located in every global region. Medical tourism in the United States has grown steadily, with exports (i.e., travelers coming to the United States) having doubled, and imports (U.S. travelers going abroad) having increased almost nine-fold from a low base in the early 2000s (Chambers, 2015). Approximately 0.5% of all air travelers entering the United States annually—between 100,000 and 200,000 people —list health treatment as a reason for visiting (Chambers, 2015). Foreign patients most often cite access to advanced medical care as their reason for traveling to the United States for treatment. The three largest source markets for foreign travelers visiting the United States for health treatment in 2011 were the Caribbean, Europe, and Central America—accounting for 44%, 24%, and 10% of arrivals, respectively (U.S. Department of Commerce, 2011). U.S. outbound medical tourists are thought to make up approximately 10% of the worldwide total of medical tourists. Data from a U.S. Department of Commerce survey suggest that 150,000 to 320,000 U.S. travelers list health care as a reason for traveling abroad each

year, or between 0.2% and 0.6% of all outbound U.S. air travelers (U.S. Department of Commerce, 2011). Americans cite cost savings as the most common reason to go abroad for health treatment.

The market for medical tourism appears poised for further growth, with potentially far-reaching economic impacts on both the source and destination countries. Opportunities for financial benefits from medical tourism include potentially exerting competitive pressure on systems importing health care, which may help drive down the costs of health care services offered in domestic systems. Moreover, medical tourism can be an important source of foreign exchanges, with income being generated both for the health sector in particular and through general increases in tourist income. Some health systems within source countries might even develop relations with off-shore medical tourism facilities in an effort to alleviate their own excessive waiting lists and to lower health care costs (OECD, 2011).

▶ Summary Health services professionals in the United States constitute the largest labor force within the country. The development of these professionals is influenced by demographic trends, advances in research and technology, disease and illness trends, and the changing environment of health care financing and delivery.

Physicians play a leading role in the delivery of health services in the United States, though the country has a maldistribution of physicians both by specialty and by geography. The current shortages in the health care workforce, especially of PCPs, are likely to continue into the future, given the aging of the population, the growing burden of chronic diseases, and an increased number of insured patients. Various policies and programs have been used or proposed to address both physician imbalance and maldistribution, including regulation of health care professions, reimbursement initiatives targeting suitable incentives, targeted programs for underserved areas, changes in medical school curricula, changes in the financing of medical training, and a more rational referral system.

In addition to physicians, many other health services professionals contribute significantly to the delivery of health care, including nurses, dentists, pharmacists, optometrists, psychologists, podiatrists, chiropractors, midlevel providers, and other allied health professionals. These professionals, who require different levels of training, work in a variety of health care settings as complements to or substitutes for physicians.

Health services administrators face new challenges in the leadership of health care organizations. Meeting these challenges will require reforms in the educational programs designed to train

adequate managers for the various sectors of the health care industry.

▶ Test Your Understanding

Terminology advanced practice nurse (APN)

allied health

allied health professional

allopathic medicine

certified nurse-midwives (CNMs)



dental assistants

dental hygienists


doctoral nursing degrees



licensed practical nurses (LPNs)


nurse practitioners (NPs)

occupational therapists (OTs)


osteopathic medicine

pharmaceutical care


physical therapists (PTs)

physician assistants (PAs)


primary care


registered nurses (RNs)



specialty care

Review Questions 1. Describe the major types of health services professionals

(physicians, nurses, dentists, pharmacists, physician assistants, nurse practitioners, certified nurse-midwives), including their roles, training, practice requirements, and practice settings.

2. Which factors are associated with the development of health services professionals in the United States?

3. What are the major distinctions between primary care and specialty care?

4. Why is there a geographic maldistribution of the physician labor force in the United States?

5. Why is there an imbalance between primary care and specialty care in the United States?

6. Which measures have been or can be employed to overcome problems related to physician maldistribution and imbalance?

7. Who are midlevel providers? What are their roles in the delivery of health care?

8. In general, who are allied health professionals? What role do they play in the delivery of health services?

9. Provide a brief description of the roles and responsibilities of health services administrators.

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List of Professional Associations Academy of Nutrition and Dietetics Accreditation Council for Pharmacy Education American Academy of Nurse Practitioners American Academy of Physician Assistants American Art Therapy Association, Inc. American Association for Rehabilitation Therapy American Association for Respiratory Care American Association of Colleges of Nursing American Association of Colleges of Osteopathic Medicine American Association of Colleges of Pharmacy American Association of Medical Assistants American Chiropractic Association American College of Emergency Physicians American College of Health Care Administrators American College of Healthcare Executives American College of Nurse-Midwives American Dance Therapy Association American Dental Assistants Association American Dental Association American Dental Education Association American Dental Hygienists’ Association American Health Care Association American Horticultural Therapy Association American Hospital Association American Kinesiotherapy Association American Medical Association American Medical Technologists American Music Therapy Association American Nurses Association American Occupational Therapy Association American Optometric Association American Organization of Nurse Executives American Osteopathic Association American Pharmacists Association American Physical Therapy Association

American Psychiatric Association American Psychological Association American Public Health Association American Registry of Radiologic Technologists American School Health Association American Society of Clinical Pathology American Society of Health-System Pharmacists American Society of Radiologic Technologists American Speech–Language–Hearing Association American Therapeutic Recreation Association ASCP Board of Certification Association of American Medical Colleges Association of Schools and Colleges of Optometry Association of Schools and Programs of Public Health Association of Surgical Technologists Association of University Programs in Health Administration Council on Podiatric Medical Education Council on Social Work Education Dental Assisting National Board, Inc. Environmental Management Association Healthcare Financial Management Association Institute for Credentialing Excellence International Society for Clinical Laboratory Technology LeadingAge National Academy of Opticianry National Association for Practical Nurse Education and Service, Inc. National Association of Boards of Pharmacy National Association of Chain Drug Stores National Association of Emergency Medical Technicians National Association of Social Workers National Board for Respiratory Care National Board of Podiatric Medical Examiners National Council for Therapeutic Recreation Certification National Environmental Health Association National League for Nursing National Nurse-Led Care Consortium National Registry of Emergency Medical Technicians National Therapeutic Recreation Society Opticians Association of America Physician Assistant Education Association Society of Nuclear Medicine and Molecular Imaging

Chapter opener photo: © f11photo/Shutterstock

CHAPTER 5 Medical Technology


■ Understand the meaning and role of medical technology in health care delivery. ■ Appreciate the growing applications of information technology and informatics in the delivery of

health care. ■ Explore the different aspects of telemedicine and telehealth. ■ Survey the factors that drive the innovation, dissemination, and utilization of technology. ■ Discuss the government’s role in technology diffusion. ■ Examine the impact of technology on various aspects of domestic and global delivery of health

care. ■ Study the various facets of health technology assessment, and its current and future directions. ■ Summarize the status of medical technology under health care reform.

“This must be high technology.”

▶ Introduction Drake and colleagues (1993) labeled technology as “the boon and bane of medicine.” In one respect, medical technology has been a great blessing to modern civilization. Sophisticated diagnostic procedures have reduced complications and disability, new medical cures have increased longevity, and new drugs have helped stabilize chronic conditions. However, most new technology comes at a price that society must ultimately pay. A tremendous amount of costly research is necessary to produce most modern breakthroughs. Once technology is developed and put into use, even more costs are generated. Yet, issues surrounding the unrestrained development and use of new technology have received little attention from policymakers.

Historically, developments in science and technology were instrumental in transforming the nature of health care delivery during the postindustrial era in the United States. Since then, the ever-increasing proliferation of new technology has continued to profoundly alter many facets of health care delivery. Besides its role in medical cost inflation, technology has triggered other changes:

Technology has raised consumer expectations that the latest will also be the best. These expectations have led to increased demand for and utilization of new technology once it becomes available. Technology has changed the organization of medical services. Many specialized services that previously could be offered only in hospitals are now available in outpatient settings and patients’ homes. Technology has driven the scope and content of medical training and the practice of medicine, fueling specialization in medicine. Technology has influenced the way status is imputed to various medical workers. Specialization is held in higher regard than primary care and public health.

Technology assessment is becoming a growing activity because new drugs, devices, and procedures are not always effective or safe. Their effectiveness and potential negative consequences must be evaluated using scientific methods. Technology has raised complex social and ethical concerns that defy straightforward answers. Perplexing social and ethical controversies pertaining to modern innovations include the following questions, among others: Who should be subjected to the experimental evaluations of technological breakthroughs to assess their safety and effectiveness? Who should and who should not receive high-tech interventions? To what extent should life- supporting procedures be continued? How can safety and effectiveness be assured for experimental technologies, such as nanomedicine?

Globalization has also enveloped biomedical knowledge and technology. In both developed and developing nations, physicians have access to the same scientific knowledge through medical journals and the Internet. Most drugs and medical devices available in the United States are also available in almost all parts of the world. However, depending on the extent of supply-side rationing, the adoption of new technology often differs widely from one country to another. Thus, even in developed nations, people do not always have adequate access to the latest high-tech therapies. Conversely, in almost all parts of the world, people who possess adequate means can gain access to the latest and best in medicine regardless of the type of health care delivery system in their country.

This chapter discusses medical technology from multiple perspectives. Where appropriate, highlights from other countries are incorporated for comparative purposes.

▶ What Is Medical Technology?

At a fundamental level, medical technology is the practical application of the scientific body of knowledge for the purpose of improving health and creating efficiencies in the delivery of health care. Medical science has greatly benefited from rapid developments in other applied sciences, such as chemistry, physics, engineering, and pharmacology. For example, common applications of physics are found in x-ray technology, mammography, ultrasound, use of lasers, and magnetic resonance imaging (MRI). Chemistry has played a critical role in the development of drugs. Computer science and communication technologies have enabled the application of information technology in medicine and telemedicine. Bioengineering is employed in developing robotic systems used in surgery and advanced prostheses.

Nanomedicine is an emerging area, still in its infancy, that involves the application of nanotechnology for medical use. Nanotechnology is not confined to a single field, but rather requires an intense collaboration between disciplines to manipulate materials on the atomic and molecular level—one nanometer is one-billionth of a meter (Taub, 2011). Nanomedicine has potential applications in both diagnostics and therapeutics. For example, a screening test has been developed to identify lung cancer in its very early stages (Taub, 2011). Nanoparticles are being developed as effective carriers of drugs to target regions of the body that have been difficult to reach using traditional drug formulations (Thorley and Tetley, 2013).

Medical technology crosses many facets of health care delivery. TABLE 5-1 gives examples of some of the main applications of

medical technology.

TABLE 5-1 Examples of Medical Technologies

Type Examples

Diagnostic Computed tomography (CT) scan Fetal monitor Computerized electrocardiography Automated clinical laboratories Magnetic resonance imaging Blood pressure monitor

Survival (life saving) Intensive care unit (ICU) Cardiopulmonary resuscitation (CPR) Bone marrow transplant Liver transplant Autologous bone marrow transplant

Illness management Renal dialysis Pacemaker Percutaneous transluminal coronary angioplasty (PTCA) Stereotactic cingulotomy (psychosurgery)

Cure Hip joint replacement Organ transplant Lithotripter

Prevention Implantable automatic cardioverter- defibrillator Pediatric orthopedic repair Diet control for phenylketonuria Vaccines for immunization

Monitoring (body functions, vital signs) Wearable biosensors

Prosthetics Electromechanical limbs Artificial heart valves Artificial kidneysDental implants

Enabling (to assist or extend physical capabilities of medical professionals)

Robotic surgery Cyberknife surgery1


Nanoknife procedure Laser therapy

Adjunctive therapies Certain complementary treatments

System management Health information systems Telemedicine

Facilities and clinical settings Hospital satellite centers Clinical laboratories Subacute care units Modern home health

Organizational delivery structure Managed care Integrated delivery networks

A procedure in which high doses of radiation are used with pinpoint accuracy to destroy tumors.

A minimally invasive procedure that uses electric currents to destroy tumors.

Modified from Rosenthal, G. 1979. Anticipating the costs and benefits of new technology: A typology for policy. In: Medical technology: The culprit behind health care costs? S. Altman and R. Blendon, eds. Washington, DC: U.S. Government Printing Office. pp. 77–87.




▶ Information Technology and Informatics

Information technology (IT) deals with the transformation of data into useful information. IT involves determining data needs, gathering appropriate data, storing and analyzing the data, and reporting the information in a format desired by its end users. Different types of information are made available for specific uses to health care professionals, managers, payers, patients, researchers, and the government.

IT departments in health care organizations play a critical role in decisions to adopt new information technologies to improve health care delivery, increase organizational efficiency, and comply with various laws and regulations. Health care IT includes medical records systems to collect, transcribe, and store clinical data; radiology and clinical laboratory reporting systems; pharmacy data systems to monitor medication use and avoid errors, adverse reactions, and drug interactions; scheduling systems for patients, space (such as surgery suites), and personnel; and financial systems for billing and collections, materials management, and many other aspects of organizational management (Cohen, 2004a).

In health care organizations, IT applications fall into three general categories (Austin, 1992):

1. Clinical information systems involve the organized processing, storage, and retrieval of information to support patient care delivery. Electronic medical records, for example, provide quick and reliable information necessary to guide clinical decision making and produce timely reports on quality of care delivered. Computerized provider order entry (CPOE) enables clinicians to electronically transmit orders to a recipient—for example, from a physician’s

office to a pharmacy. The vast majority of hospitals and most outpatient practices now use some form of CPOE (Agency for Healthcare Research and Quality [AHRQ], 2016) with the intent of increasing efficiency and reducing medical errors.

2. Administrative information systems assist health care staff in carrying out financial and administrative support activities, such as payroll, patient accounting, billing, materials management, budgeting and cost control, and office automation. In medical clinics, CPOE technology may be set up to interface with the billing system to minimize rejected claims by pinpointing errors in billing codes.

3. Decision support systems provide information and analytical tools to support managerial and clinical decision making. Managerial decision support systems can be used to forecast patient volume, project staffing requirements, and schedule patients to optimize utilization of patient care and surgical facilities. Clinical decision support systems (CDSSs) are designed to improve clinical decision making. A patient’s unique clinical data are matched to a computerized knowledge base, and software algorithms generate patient-specific treatment protocols and recommendations (Haynes and Wilczynski, 2010). CDSSs are meant to help clinicians make better decisions, but not all CDSSs improve the way health care is delivered. One recent study showed that only 58% of CDSSs led to improved care and better patient outcomes (Medlock et al., 2016). Hence, CDSS use is not without challenges that need to be overcome.

Health informatics is broadly defined as the application of information science to improve the efficiency, accuracy, and reliability of health care services. Health informatics requires the use of IT but goes beyond IT by emphasizing the improvement of health care delivery. For example, designing and evaluating the effectiveness of CDSSs are tasks that fall within the domain of health informatics. Applications of informatics are also found in electronic health records and telemedicine.

Electronic Health Records and Systems Electronic health records (EHRs) are IT applications that enable the processing of any electronically stored information pertaining to individual patients for the purpose of delivering health care services (Murphy et al., 1999). EHRs replace the traditional paper medical records, which document a patient’s demographic information, problems and diagnoses, plan of care, progress notes, medications, vital signs, and past medical history, among other items. An EHR system with basic features should incorporate the ability to update patient demographics, view test results, maintain problem lists, compile clinical notes, and manage prescription ordering (Decker et al., 2012).

According to the Institute of Medicine (2003), a fully developed EHR system includes four key components:

Collection and storage of health information on individual patients over time Immediate electronic access to person- and population-level information by authorized users Availability of knowledge and decision support that enhances the quality, safety, and efficiency of patient care Support of efficient processes for health care delivery

Benefits and Drawbacks of EHRs It is generally believed that widespread adoption of EHR systems will lead to major savings in health care costs, reduced medical errors, and improved health (Hillestad et al., 2005). Research shows that EHR systems, when properly implemented, can improve quality of health care, promote time efficiencies, support adherence to clinical practice guidelines, and reduce the risk of medication errors and adverse drug effects (Campanella et al., 2015). EHRs have also facilitated access to, retrievability of, and portability of patient data.

Conversely, it has been argued that EHRs have changed the emphasis from patient-centeredness to institutional priorities, serving institutional interests (rather than patient interests) through the documentation process—for example, reimbursement, risk management, quality and work efficiency, and regulatory compliance. Consequently, adoption of EHRs has also increased the time and effort required in documentation (de Ruiter et al., 2016).

EHRs and Quality of Care Yanamadala and colleagues (2016) found no relationship between EHRs and quality of care as measured by mortality, readmission rates, and clinical complications. These researchers concluded: “To date, we have not yet seen the promised benefits of EHR systems on patient outcomes” in the hospital setting.

In contrast, in a study of at-risk hospital patients, Furukawa and colleagues (2016) found that the occurrence rate of adverse events was less likely among patients with cardiovascular disease, with pneumonia, or undergoing surgery in hospitals with fully electronic EHRs. Clearly, quality of care is multidimensional, and different proxies used for quality are likely to produce different results.

Adler-Milstein and colleagues (2015) also posit that experience with the use of EHRs over time (time-related effects) might show improvement in outcomes in more recent years compared to earlier years. These researchers found a positive association between EHR adoption and performance on process adherence and patient satisfaction, but not on efficiency. Ambulatory care settings that have adopted EHRs might find lowered hospital admission rates but not readmission rates for people with chronic health problems (Lammers et al., 2016).

In conclusion, to date the potential benefits of EHRs have not been fully realized. Future research should shed more light on the magnitude and nature of these benefits.

Interoperability Interoperability makes it possible to access individual records online from many separate, automated systems within an electronic network, eliminating the need for older methods, such as letters and faxes, for sharing a patient’s clinical information among providers. Physicians, for example, need timely information on test results. As a patient transitions from one clinical setting to another, coordination of the patient’s care becomes essential.

Health Information Organizations A health information organization (HIO) is an independent organization that brings together health care stakeholders within a defined geographic area and facilitates electronic information exchange among these stakeholders with the objective of improving the delivery of health care in the community. Such stakeholders often include not only health care providers, but also payers, laboratories, and sometimes public health departments. The HIO is managed by a board of directors consisting of representatives from the various stakeholder organizations. Apart from managing the actual exchange of information, HIOs assist providers in setting up protocols for information exchange and in building consensus on which types of information should be exchanged.

In the United States, local or regional systems for the exchange of health information across provider organizations have received support, rather than national systems. HIOs are still at an early stage in their evolution, although there is widespread interest in their development. In 2012, 29% of U.S. hospitals participated in an HIO (Furukawa et al., 2013).

Adoption of EHRs Both physician clinics and hospitals have been slow to adopt EHRs, mainly because of a lack of capital and the uncertain return on their investment (DesRoches et al., 2008). To promote EHR adoption, the federal government has created financial incentives for various

types of providers (discussed in the next subsection). Although EHR adoption increased significantly once these incentives were made available, not all health care organizations have chosen to implement EHRs. On the one hand, the main barriers to EHR adoption are cost (both initial and ongoing costs), technical concerns, technical support, and resistance to change (Kruse et al., 2016a). On the other hand, the main factors that facilitate the adoption of EHRs include efficiency, hospital size, quality, access to data, perceived value, and ability to transfer information (Kruse et al., 2016b).

Purchase and implementation of EHRs in large institutions can take as long as 2 years to complete. Also, implementation is not a one- time event, but rather an ongoing process of testing and modifying the system to make it more effective (Silow-Carroll et al., 2012).

Financial Incentives Under the HITECH Act To accelerate the adoption of EHRs, some major policy initiatives were launched during the George W. Bush administration. These initiatives culminated in the enactment of the Health Information Technology for Economic and Clinical Health (HITECH) Act, which became part of the American Recovery and Reinvestment Act (ARRA) of 2009—the $787 billion plan to stimulate the economy— passed shortly after the Barack Obama administration took office. The HITECH Act earmarked an estimated $19 billion in direct grants and financial incentives to promote the adoption of EHRs by hospitals and physicians (Wang et al., 2013).

Beginning in 2011, Medicare and Medicaid started offering financial incentives of up to $44,000 for Medicare providers and $63,750 for Medicaid providers for “meaningful use” of health information technology (Centers for Disease Control and Prevention [CDC], 2012). To demonstrate “meaningful use,” health care providers have to meet a range of metrics in areas such as quality, safety, efficiency, reduction of health disparities, patient engagement, care coordination, and security of health information (Halamka, 2010).

Meaningful use criteria have been phased in over three stages between 2011 and 2015. Starting in 2015, hospitals that fail to meet the meaningful use criteria are subject to financial penalties (DesRoches et al., 2013).

HITECH financial incentives may have had an impact on EHR adoption among small physician-owned practices (Cohen, 2016), but the evidence is weak that the HITECH Act has been instrumental in prompting physicians to adopt EHRs (Mennemeyer et al., 2016). Nevertheless, at least the cost-savings objective of the HITECH Act may have been achieved. Lammers and McLaughlin (2016) have reported overall lower Medicare expenditures for both inpatient and outpatient health care utilization when EHRs are in place.

Confidentiality Under the HIPAA Law To alleviate concerns by patients and providers about the confidentiality of patient information, the Health Insurance Portability and Accountability Act (HIPAA) of 1996 makes it illegal to gain access to a patient’s personal health information (PHI) for reasons other than health care delivery, operations, and reimbursement. The HIPAA legislation mandated strict controls on the transfer of personally identifiable health data between two entities, provisions for disclosure of protected information, and penalties for violation (Clayton, 2001). In January 2013, the U.S. Department of Health and Human Services (DHHS) issued revisions to HIPAA in conjunction with the HITECH Act. More stringent rules now apply to disclosure of breaches of confidential PHI, inclusion of vendors and subcontractors as “business associates” who must comply with HIPAA requirements, restrictions on the use of PHI for marketing purposes, patient authorization related to the use of PHI for research purposes, use of genetic information for underwriting purposes by health insurance companies, and patients’ right to receive electronic copies of their PHI (Thompson Coburn LLP, 2013).

Smart Card Technology Pocket-size smart cards that are embedded with a microchip have found applications in other industries for access control, but adoption of their use in health care delivery has been slow. A smart card that is designed for medical use holds personal medical information that can be accessed and updated at hospitals or physicians’ offices (Ellis, 2000). The public so far has viewed smart cards with suspicion and distrust. Australians, for example, suspect that smart cards pose problems with information security, personal privacy, and the specter of a national identification card (Martin and Rice, 2010). Americans have similar concerns (Horowitz, 2012).

▶ The Internet, E-Health, M- Health, and E-Therapy

With the growth of the Internet and the proliferation of mobile devices that offer online access, many patients are taking charge of their own health. A number of websites offer physician consultations, and others sell prescription medications. Patients are also forming online support communities to help themselves through discussion groups and bulletin boards. Consequently, patients are becoming active participants in their own health care. Information empowers patients, which leads to changes in the traditional patient–physician dynamics. Even though the vast majority of patients rely on and trust their physicians or other health care professionals for information, care, or support (Fox and Duggan, 2013), the Internet is often the first source of information that patients consult for specific health conditions (Marrie et al., 2013). Indeed, as many as 70% of American adults use the Internet as their first source for health information (Prestin et al., 2015).

Patients who perceive their doctors as less patient centered are more likely to go online for information (Li et al., 2014). Conversely, patients who are satisfied with the care they receive from their physicians tend to rely more on their physician than on the Internet, using the physician as the primary source of health information (Tustin, 2010).

The terms e-health, m-health, and e-therapy are related, and sometimes used interchangeably. There are, however, slight differences between them.


“E-health refers to all forms of electronic health care delivered over the Internet, ranging from informational, educational, and commercial ‘products’ to direct services offered by professionals, nonprofessionals, businesses, or consumers themselves” (Maheu et al., 2001). The use of e-health has grown as many providers have created secure Internet portals to enable patients to access their EHRs, allow patient–provider email messaging, and use mobile apps for smartphones and tablets (Ricciardi et al., 2013).

M-Health The term “mobile health,” or m-health, refers to “the use of wireless communication devices to support public health and clinical practice” (Kahn et al., 2010). These devices facilitate communication among researchers, clinicians, and patients. Physicians are also recognizing the potential utility of mobile computing. The most common current use is for EHR access (Sclafani et al., 2013).

E-Therapy E-therapy has emerged as an alternative to face-to-face therapy for behavioral health support and counseling (Skinner and Latchford, 2006). Also referred to as online therapy, e-counseling, teletherapy, or cyber-counseling, e-therapy refers to any type of professional therapeutic interaction that makes use of the Internet to connect qualified mental health professionals and their clients (Rochlen et al., 2004). Although e-therapy is not widely used at this point, many Internet mental health interventions have reported promising early results. Both therapist-led and self-directed online therapies can lead to significant alleviation of disorder-related symptomatology (Ybarra and Eaton, 2005). E-therapy has the potential of reaching a significant number of clients who need mental health services yet do not receive them (Wodarski and Frimpong, 2013). Nevertheless, this type of care remains controversial. Issues and

problems potentially best suited for online therapy include personal growth and fulfillment; adult children of alcoholics; anxiety disorders, including agoraphobia and social phobias; and body image and shame/guilt issues. Clients who are not appropriate candidates for online therapy include those who have suicidal ideation, thought disorders, borderline personality disorder, or unmonitored medical issues (Stofle, 2001).

Virtual Physician Visits Another emerging application of communication technology is virtual physician visits—that is, online clinical encounters between a patient and a physician. When properly conducted, virtual visits can be quite effective and result in high rates of patient satisfaction, particularly when video technology is incorporated. For example, in one study, such “visits” were effective in improving markers for 76% of the patients with uncontrolled diabetes (Robinson et al., 2016). In another study, patients regarded virtual visits with primary care physicians to be similar to face-to-face visits on measures such as time spent and interaction with the physician. Physicians were also highly satisfied with the virtual visit modality (Dixon and Stahl, 2009). Nevertheless, virtual visits are not appropriate for every type of physician–patient encounter. Virtual visits are a type of telemedicine practice, described in more detail in the next section.

▶ Telemedicine, Telehealth, and Remote Monitoring

The terms “telemedicine” and “telehealth” are often used interchangeably. Both employ telecommunication systems for the purpose of promoting health, but there is a technical difference between the two.

Telemedicine Versus Telehealth Telemedicine, or distance medicine, employs telecommunications technology for medical diagnosis and patient care when the provider and the client are separated by distance. Similar to a virtual visit, it eliminates the need for face-to-face contact between the examining physician and the patient. Unlike virtual visits, however, telemedicine has applications in the delivery of specialized medical services. Examples include teleradiology, the transmission of radiographic images and scans; telepathology, the viewing of tissue specimens via video-microscopy; telesurgery, controlling robots from a distance to perform surgical procedures; and clinical consultation provided by a wide range of specialists. The use and applications of telemedicine have been expanding, albeit at a slow pace. One example is its use among the prison population: Members of this population tend to be sicker than the general population, and their health care comes at a high cost. According to one analysis, the cost of transporting, guarding, and medically treating an inmate could exceed $2,000 per day (Teichert, 2016).

The term telehealth is broader in scope than telemedicine. It encompasses telemedicine, as traditionally known; educational, research, and administrative uses; and clinical applications that

involve a variety of caregivers, such as physicians, nurses, psychologists, and pharmacists (Field and Grigsby, 2002).

Characteristics of Telemedicine Telemedicine can be synchronous or asynchronous. Synchronous technology allows telecommunication to occur in real time. For example, interactive video conferencing allows two or more professionals to see and hear each other and even share documents in real time. The technology allows a specialist located at a distance to directly interview and examine a patient. By comparison, asynchronous technology employs store-and- forward technology that allows users to review the information later. Interpretation of scans in teleradiology is one example where asynchronous technology is employed.

Newer applications of telemedicine include in-home monitoring of patients. Vital signs, blood pressure, and blood glucose levels can be monitored remotely using video technology—a methodology that has been shown to be effective, well received by patients, capable of maintaining quality of care, and associated with the potential for cost savings (Johnston et al., 2000). Recently, remote monitoring of cardiac implantable electronic devices, such as pacemakers and implantable cardioverter‒defibrillators, has been gaining acceptance in the United States and Europe. This technology has been found to be highly effective in managing clinical events, such as arrhythmias, cardiovascular disease progression, and device malfunction, with remarkably few human interventions and low resource use (Ricci et al., 2013; Slotwiner and Wilkoff, 2013).

Rural populations, in particular, face various types of barriers to access of quality health care. These barriers, such as a shortage of providers, long travel distances, physical and social isolation, and weather-related difficulties, can be overcome with appropriate telehealth services. Despite the potential for using telemedicine to

deliver services to underserved rural populations, the technology has not yet been widely adopted. One of the main payers for services received by rural populations is Medicare, but its spending on telemedicine is largely reserved for mental health services and represents only a tiny fraction of overall Medicare spending (Neufeld and Doarn, 2015).

Despite the growing interest in telemedicine, its utilization remains limited due to an unclear or unidentified need for certain types of telemedicine services, uncertain reimbursement policies, absence of interstate licensure reciprocity, lack of universal access to necessary technology, concerns about patient confidentiality, and limited precedent regarding liability issues. Such issues are largely eliminated in the Veterans Health Administration (VHA) system. Results from the VHA demonstrate substantial cost savings and patient satisfaction with care delivered through telemedicine (Kahn et al., 2016).

Tele-ICU Recently, telemedicine has become a subspecialty of critical care practice (tele-intensive care unit, or tele-ICU). Tele-ICU involves a centralized or remotely based critical care team that is networked with the bedside ICU team and patient via advanced audiovisual communication and computer systems. The ICU environment is characterized by numerous distractions and interruptions; while addressing the needs of one patient, the nurse or physician may not be aware of a second patient’s change in status that may call for immediate attention. Tele-ICU provides a backup system that can avoid these problems. It operates with the goal of providing additional surveillance and support to hospital-based critical care staff, and ultimately enhancing outcomes for critically ill patients (Goran, 2010).

▶ Innovation, Diffusion, and Utilization of Medical Technology

In the context of medical technology, innovation is the creation of a product, technique, or service perceived to be new by members of a society. The spread of technology into society once it is developed is referred to as technology diffusion (Luce, 1993). Rapid diffusion of a technology occurs when the innovation is perceived to be of benefit that can be evaluated or measured, is compatible with the adopter’s values and needs, and is covered through third-party payment. Once technology is acquired, its use is almost ensured. Hence, the diffusion and utilization of technology are closely intertwined. The desire to have state-of-the-art technology available and to use it despite its cost or established health benefit is called the technological imperative.

High-tech procedures are more readily available in the United States than in most other countries, and little is done to limit the expansion of new medical technology. Compared to most European hospitals, U.S. hospitals perform a far greater number of catheterizations, angioplasties, and bypass heart surgeries. In 2013, the rate of knee replacement in the United States was 87% greater than the median rate in countries belonging to the Organization for Economic Cooperation and Development (OECD, 2015).

The United States also has more high-tech equipment, such as magnetic resonance imaging (MRI) scanners, available to its population than most other countries (TABLE 5-2).

TABLE 5-2 MRI Units Available per 1,000,000 Population in Selected Countries, 2014

Japan 51.7

United States 38.1

Germany 30.5

Australia 15.2

France 10.9

United Kingdom 6.1

Data from Organization for Economic Cooperation and Development (OECD). 2016. Magnetic resonance imaging (MRI) units, 2014. Available at: units.htm#indicator-chart. Accessed April 2017.

Other nations have tried to limit—mainly through central planning— the diffusion and utilization of high-tech procedures to control medical costs. The U.K. government, for instance, established the National Institute for Health and Clinical Excellence (NICE) in 1999 to decide whether the National Health Service should make select health technologies available (Milewa, 2006). Hence, MRI and computed tomography (CT) scanners are less widely available in the United Kingdom than in most OECD nations. Conversely, in many other European countries, technology diffusion has grown at a rapid pace.

Factors That Drive Innovation and Diffusion The rate and pattern by which a technology diffuses is often governed by multiple forces (Cohen, 2004b). For example, public and private financing of research and development (R&D) can promote or inhibit innovation. Government regulations, such as the U.S. Food and Drug Administration (FDA) approval process for pharmaceuticals, biological agents, and biomedical devices, can

promote or hinder the availability of new drugs and devices. In addition, marketing and promotion by the manufacturers can have an impact on the decisions of both providers and consumers about the adoption and use of technology.

Some of the main forces that have shaped the innovation, diffusion, and utilization of technology in the United States are addressed in the following subsections:

Anthro-cultural beliefs and values Medical specialization Financing and payment Technology-driven competition Expenditures on research and development Supply-side controls Government policy

Anthro-Cultural Beliefs and Values Based on their beliefs and values, Americans have much higher expectations of what medical technology can do to cure illness than, for instance, Canadians and Germans. In an opinion survey, a significantly larger number of Americans (35%) than Germans (21%) indicated that it was absolutely essential for them to be able to get the most advanced tests, drugs, medical procedures, and equipment (Kim et al., 2001). In another survey, 91% of Americans indicated that their ability to get the most advanced tests, drugs, medical equipment, and procedures was very important to improving the quality of health care (Schur and Berk, 2008).

As a case in point, in 2007, the Centers for Medicare and Medicaid Services (CMS) proposed to sharply restrict payments for CT angiography for Medicare-insured patients. Even though this newer imaging technology had not been shown to offer any remarkable improvements in diagnosing heart disease, the CMS faced a barrage of criticism over the proposal from radiologists and cardiologists, technology development firms such as General Electric, and 79 members of the U.S. House of Representatives.

Ultimately, the CMS announced that it would not impose its proposed determination despite continued uncertainty about the test’s usefulness (Appleby, 2008).

The primacy of technology can also be traced to U.S. reliance on the medical model, which is reinforced by American beliefs and values. The emphasis on specialty care in this model, rather than primary care and preventive services, raises the expectations of both physicians and patients that all available technology will be used in every case.

Medical Specialization Evidence of the technological imperative is most apparent in acute care hospitals, especially those affiliated with medical schools, because they are the main centers for specialty residency training programs in which physicians are trained to use the latest medical advances. Broad exposure to technology early in training affects not only clinical preferences, but also future professional behavior and practice patterns (Cohen, 2004c). Both patients and practitioners also equate high-quality care with high-intensity care.

Financing and Payment Evidence from several countries suggests that fixed provider payments, such as salaries paid to physicians (rather than fee-for- service arrangements), and strong limits on payments to hospitals, such as stringent use of global budgets, curtail the incentive to use high-tech procedures. Hence, payment incentives can place limitations on how quickly and widely new treatments diffuse into medical practice (McClellan and Kessler, 1999).

Traditionally, the U.S. health care delivery system has lacked internal checks and balances to determine when high-cost services are appropriate. Health insurance promotes the phenomenon referred to as moral hazard and provider-induced demand in the absence of mechanisms to limit utilization of high-cost services. Insurance insulates both patients and providers from any personal

accountability for the utilization of high-cost services. Generally, both patients and physicians want to use everything that medical science has to offer as long as out-of-pocket costs are of little concern.

There is likely a two-way relationship between technology diffusion and insurance coverage. Increasingly generous insurance coverage causes increases in spending for new products. Conversely, the development of beneficial but costly new technology puts pressure on insurers to cover those technologies (Danzon and Pauly, 2001). In making their coverage decisions, private insurance companies tend to follow Medicare’s lead—Medicare is, by far, the largest and most influential payer in the United States. The current direction in reimbursement decisions is to seek value—that is, the most benefits possible for the price paid.

In Europe, research has suggested that higher levels of reimbursement do not always promote technology diffusion there (Cappellaro et al., 2011). This discrepancy with the U.S. experience arises mainly because European national health care programs have the means to suppress unintended diffusion of technology through central planning.

Technology-Driven Competition Hospitals, as well as outpatient centers, compete to attract insured patients. Well-insured patients look for quality, and institutions create perceptions of higher quality by acquiring and advertising state-of-the-art technology. Specialists have also been responsible for stimulating competition. Many physicians, for example, have opened their own specialty hospitals, diagnostic imaging facilities equipped with next-generation scanners, and same-day surgery centers that offer hotel-like facilities—and these developments have fueled a de facto “medical arms race.” In response, hospitals have added new service lines—such as cancer, heart, and brain centers —and acquired costly CT scanners and high-field MRI machines (Kher, 2006), fueling more technology-based competition. To

recruit specialists, medical centers often have to obtain new technology and offer high-tech procedures. When hospitals develop new services and invest heavily in modernization programs, other hospitals in the area are often forced to do the same to remain competitive. Such practices result in a tremendous amount of duplication of services and equipment.

Self-Referral and Stark Laws. Investment interests by physicians in various types of facilities prompted Congress to pass regulations against the practice of physician self-referral. These laws prohibit physicians from sending patients to facilities in which the referring physician or a family member has an ownership interest or some kind of compensation arrangement. Prohibition of self-referrals is based on the theory of provider-induced demand, which could create overutilization and result in increased health care costs.

The Ethics in Patient Referrals Act of 1989 (commonly known as Stark I after Representative Pete Stark, author of the original bill) prohibited the referral of Medicare patients to laboratories in which the referring physician had an ownership interest. Provisions of this law expanded under the Omnibus Budget Reconciliation Act (OBRA) of 1993. Commonly referred to as Stark II, the statute covers both Medicare and Medicaid referrals. It also expanded the categories of services to include clinical laboratory services; rehabilitation services; radiology services, including MRI, CT scans, and ultrasound; radiation therapy services and supplies; durable medical equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospitalization services. Nearly half the states also have self-referral prohibitions that apply to privately insured patients (Mitchell, 2007).

There are some exceptions to the laws, however, such as in-office ancillary services (Wachler and Avery, 2011), which allow physicians to own or lease imaging equipment for their office-based practices. Hence, a significant amount of self-referral still exists

(Mitchell, 2007). This is an important exception: Without it, patients would have to seek certain services from a different provider, which would burden them with making additional appointments and having to travel to those facilities to receive recommended services.

Stark Laws have come under heavy criticism from hospital executives, physicians, and some members of Congress. According to these critics, the laws interfere with collaboration and coordination of care between providers (“Hospital Leaders Take Aim at ‘Stark’ Law,” 2016).

Expenditures on Research and Development Innovation is driven by R&D spending. The ARRA of 2009 allocated $10.4 billion in new funding to the National Institutes of Health (NIH), mainly to support research (Steinbrook, 2009). This funding ended in 2011, with the passage of the Budget Control Act.

Global comparisons of R&D spending on biomedical research are shown in TABLE 5-3. Although the United States still leads the world in R&D spending, over a 5-year period, spending on biomedical R&D has declined in the country. Of particular note are the funding cuts within private industry. The same trend is also evident in Europe. The overall spending in the Asia‒Oceania region, although still small compared to biomedical R&D spending in the United States, has accelerated at a fast pace from both public and private sources.

TABLE 5-3 Global Biomedical R&D Expenditures in Selected Regions, 2007 and 2012

2007 2012 Percentage Change

United States Public Industry

131.3 48.0 83.3

119.3 48.9 70.4

–9.1% +1.9% –15.5%

Europe Public Industry

83.6 27.7 55.9

81.8 28.1 53.6

–2.2% +1.4% –4.1%


Asia-Oceania Public Industry

41.1 13.5 27.6

62.0 19.3 42.7

+50.9% +43.0% +54.7%

Expenditures are in billions of dollars. 2007 data are adjusted for inflation to 2012.

The main countries in Asia-Oceania are China, Japan, South Korea, India, and Australia.

Data from Chakma, J., et al. 2014. Asia’s ascent—global trends in biomedical R&D expenditures. New England Journal of Medicine 370, no. 1: 3–6.

Supply-Side Controls In the United States, supply-side controls, or explicit rationing, have met with stiff resistance, even though such rationing may be based on certain well-defined criteria. In contrast, other countries have used government policy to control the diffusion of medical technology (see Table 5-2 for an example), which is one way to ration health care. To some extent, the United States also engages in technology rationing through the drug and device approval system of the Food and Drug Administration—discussed later in this chapter.

Rationing curtails costs, but it also restricts access to critically needed care. Canada, which restricts specialist services and limits expensive medical equipment to control health care spending, is a case in point. For several years, the Fraser Institute has researched issues related to access to care in Canada. According to its research, in 2014, patients in that country could expect to wait 9.8 weeks for medically necessary treatment after seeing a specialist— more than 3 weeks longer than the time physicians considered to be clinically reasonable, which is 6.5 weeks (Barua and Ren, 2015). Several studies have reported deaths resulting from delayed heart surgery due to waiting times in Canada, even in cases classified as nonurgent (Sobolev et al., 2013).




Although a full discussion of rationing is beyond the scope of this text, Alexander Friedman (2011) has observed that as we devote more resources to health care, something else of value always emerges. Nevertheless, in the United States, politicians, medical professionals, other experts, and the public have not come to grips with the notion of rationing. Our resources are limited, however, and health care is not the only vital public endeavor. Hence, many experts think that rationing is inevitable, because no modern society has found a way to deliver all the health care that people may desire (see, for example, Churchill, 2011). Rationing inevitably requires controls over the diffusion and utilization of medical technology.

Government Policy Government policy in the United States plays a significant role in deciding which drugs, devices, and biologics are made available to Americans. The U.S. government is also one of the largest sources of funding for biomedical research. By controlling the amount of funding, public policy indirectly influences medical innovation.

▶ The Government’s Role in Technology Diffusion

The growth of technology has been accompanied by issues of cost, safety, benefits, and risks. Federal legislation has been aimed primarily at addressing the concerns related to safety. The government plays a minor role in health care organizations’ decisions to acquire new technology. As previously indicated, though, the government is an important source of funding for biomedical research.

Regulation of Drugs, Devices, and Biologics The FDA is an agency under the DHHS that is responsible for ensuring that drugs and medical devices are safe and effective for their intended use. It also controls access to drugs by deciding whether a certain drug will be available by prescription only or as an over-the-counter purchase. In addition, the FDA may stipulate how certain over-the-counter products may be purchased and sold. For example, under the Combat Methamphetamine Epidemic Act of 2005 (incorporated into the USA PATRIOT Act and signed by President George W. Bush in March 2006), certain cold and allergy medicines containing pseudoephedrine are required to be kept behind pharmacy counters and sold in only limited quantities to consumers, who must present photo identification and sign a logbook. This action was taken because pseudoephedrine is used in making methamphetamine—a highly addictive drug—in home laboratories.

Regulation of Drugs and Evolution of the Approval Processes

The FDA’s regulatory functions have evolved over time (TABLE 5- 4). The first piece of drug legislation in the United States was the Food and Drugs Act of 1906. The purpose of this law was to prevent the manufacture, sale, or transportation of adulterated, misbranded, poisonous, or deleterious foods, drugs, medicines, and liquors (FDA, 2009a). It authorized the Bureau of Chemistry (the predecessor of the FDA) to take action only after drugs had been marketed to consumers. It was assumed that the manufacturer would conduct safety tests before marketing the product. If innocent consumers were harmed, however, the Bureau of Chemistry could act only after such harm had been done (Bronzino et al., 1990).

TABLE 5-4 Summary of FDA Legislation

1906 Food and Drugs Act The FDA was authorized to take action only after drugs sold to consumers caused harm.

1938 Food, Drug, and Cosmetic Act Required premarket notification to the FDA so the agency could assess the safety of a new drug or device.

1962 Kefauver-Harris Amendments Premarket notification was inadequate. The FDA took charge of reviewing the efficacy and safety of new drugs, which could be marketed only once approval was granted.

1976 Medical Devices Amendments Authorized premarket review of medical devices and classified devices into three classes.

1983 Orphan Drug Act Drug manufacturers were given incentives to produce new drugs for rare diseases.

1990 Safe Medical Devices Act Health care facilities must report serious or potentially serious device-related injuries, illness, or death of patients and employees.

1992 Prescription Drug User Fee Act The FDA received authority to collect application fees from drug companies to provide additional resources to shorten the drug-approval process.

1997 Food and Drug Administration Modernization Act Provides for fast-track approvals for life-saving drugs when their expected benefits exceed those of current therapies.

2012 Food and Drug Administration Safety and Innovation Act Allows the FDA to use markers that are thought to predict or that are reasonably likely to predict clinical benefit to qualify a drug for accelerated approval if the drug is indicated for a serious condition and fills an unmet medical need.

2013 Drug Quality and Security Act (renamed as Drug Supply Chain Security Act) Aimed at the verification, detection, and recall of drugs using an electronic system. A primary goal is to identify counterfeit, unapproved, and potentially dangerous products and to prevent their use.

2016 21st Century Cures Act Provides funds to the FDA to shorten the approval time for new drugs and devices.

Federal law governing drugs was subsequently strengthened by the passage of the Federal Food, Drug, and Cosmetic Act (FD&C Act) of 1938. This legislation was enacted in response to the infamous Elixir Sulfanilamide disaster, in which almost 100 people died in Tennessee due to poisoning from a toxic solvent used in this liquid’s preparation (Flannery, 1986). According to the revised law, a new drug could not be marketed without first notifying the FDA and allowing the agency time to assess the drug’s safety (Merrill, 1994).

The drug approval system was further transformed by the drug amendments of 1962, after thalidomide (a sleeping pill that was distributed in the United States as an experimental drug but had been widely marketed in Europe) was shown to cause birth defects (Flannery, 1986). The 1962 amendments (Kefauver-Harris Drug Amendments) essentially stated that premarket notification of drug- related risks was inadequate. The amendments put a premarket approval system in force, giving the FDA authority to review the effectiveness and safety of a new drug before it could be marketed. Its consumer protection role enabled the FDA to prevent harm before it occurred. However, the drug approval process was

criticized for slowing down the introduction of new drugs and, consequently, denying patients early benefits from the latest treatments. Drug manufacturers essentially “became prisoners of the agency’s [FDA’s] indecision, its preoccupation with other issues, or its lack of resources” (Merrill, 1994).

The Orphan Drug Act of 1983 and subsequent amendments were passed to provide incentives for pharmaceutical firms to develop new drugs for rare diseases and conditions. Incentives, such as grant funding to defray the expenses of clinical testing and exclusive marketing rights for 7 years, were necessary because a relatively small number of people are afflicted by rare conditions, creating a relatively small market for drugs treating those conditions. As a result of the Orphan Drug Act, certain new drug therapies, called orphan drugs, have become available for conditions that affect fewer than 200,000 people in the United States.

In the late 1980s, pressure on the FDA from those wanting rapid access to new drugs for the treatment of human immunodeficiency virus (HIV) infection called for a reconsideration of the drug review process (Rakich et al., 1992). For example, saquinavir—a protease inhibitor indicated for patients with advanced HIV infection— received accelerated approval in late 1995; however, its manufacturer, Roche Laboratories, was subsequently required to show that the drug prolonged survival or slowed clinical progression of HIV.

In 1992, Congress passed the Prescription Drug User Fee Act, which authorized the FDA to collect fees from biotechnology and pharmaceutical companies to review their drug applications. The additional funds provided needed resources, and, according to the General Accounting Office (GAO), allowed the FDA to approve new drugs more quickly, thereby enabling them to reach the market in less time. From 1993 to 2001, the median approval time for standard new drugs dropped from 21 months to approximately 14

months. In 2004, the approval time dropped even further to 12.9 months.

In 1997, Congress passed the Food and Drug Administration Modernization Act. This law provides for increased patient access to experimental drugs and medical devices. “Fast-track” approvals are permitted when the potential benefits of new drugs for serious or life-threatening conditions are considered significantly greater than the benefits of current therapies. In addition, the law provides for an expanded database on clinical trials, which is accessible to the public. Under a separate provision, when a manufacturer plans to discontinue a drug, patients who are heavily dependent on the drug receive advance notice.

The Food and Drug Administration Safety and Innovation Act of 2012 allows the FDA to either use a marker that is thought to predict clinical benefit (surrogate endpoint) or use a marker that is considered reasonably likely to predict clinical benefit (intermediate clinical endpoint). These markers allow for faster approval of drugs. For example, the FDA may approve a drug based on evidence that the drug shrinks tumors, because tumor shrinkage is considered reasonably likely to predict a real clinical benefit (FDA, 2013).

Since 1992, when the Prescription Drug User Fee Act was passed, the regulatory focus has been on faster review of new drugs by the FDA. There is no doubt that faster reviews have allowed new drugs to become available more quickly than before this legislation was enacted. Nevertheless, there have been lingering safety concerns, mainly because several years of public use of a drug may elapse before safety problems may emerge. When safety issues do arise, the FDA may issue a “black box warning” that must appear on a prescription drug’s label alerting the user to serious or life- threatening risks. In rare cases, the FDA may rescind its approval decision and order that a drug must be withdrawn from the U.S. market. Recent studies have shown that safety risks are often recognized only after the FDA has given approval to market certain

drugs. For example, Frank and colleagues (2014) demonstrated that half of all new black box warnings appeared after a drug had been on the market for 12 years; drugs that were withdrawn from the market had been sold for 5 years or longer.

Despite such concerns, the push for faster approvals for drugs and devices does not seem to have changed. The 21st Century Cures Act of 2016 provides funds for the FDA to change its drug and device approval processes with the aim of shortening the period for approving new drugs and devices, especially for life-threatening diseases. Clearly, providing for faster approval of new medical technology while simultaneously ensuring its safety will remain a delicate balancing act.

Drugs from Overseas The use of foreign-made drug products in the United States has been rapidly increasing. As a safeguard, all drugs approved in the United States must comply with the FD&C Act, regardless of where they are manufactured. To ensure that foreign-made drugs meet this standard, the FDA performs two types of investigations. First, the FDA routinely inspects domestic and foreign drug manufacturing plants. Second, the FDA tests samples of drugs, and bases its surveillance activities on complaints from consumers and health professionals (FDA, 2016a).

Securing the Supply Chain The U.S. government has taken steps to secure the integrity of the pharmaceutical supply chain, which can be threatened by medication counterfeiting, importation of unapproved and substandard drugs, and grey markets. Such illegal operations often distribute drug products with the potential for serious harm (Brechtelsbauer et al., 2016). The Drug Quality and Security Act of 2013 (renamed as Drug Supply Chain Security Act) was passed to curtail the distribution of unauthorized drug products.

Regulation of Medical Devices and Equipment

The FDA first received jurisdiction over medical devices under the FD&C Act of 1938. However, such jurisdiction was confined to the sale of products believed to be unsafe or that made misleading claims of effectiveness (Merrill, 1994).

In the 1970s, several deaths and miscarriages were attributed to the Dalkon Shield, which had been marketed as a safe and effective contraceptive device (Flannery, 1986). In 1976, the Medical Device Amendments extended the FDA’s authority to include premarket review of medical devices divided into three classes. Devices in Class I pose the lowest risk (such as enema kits and elastic bandages). They are subject to general controls regarding misbranding—that is, fraudulent claims regarding their therapeutic effects. Class II devices (such as powered wheelchairs and pregnancy test kits) are subject to special requirements for labeling, performance standards, and postmarket surveillance. The most stringent requirements of premarket approval regarding safety and effectiveness apply to Class III devices, which support life, prevent health impairment, or present an unreasonable risk of illness or injury. For most Class III devices (such as implantable pacemakers and breast implants), premarket approval is required to ensure their safety and effectiveness.

The Safe Medical Devices Act of 1990 strengthened the FDA’s hand in controlling the entry of new biomedical devices into the market and in monitoring use of marketed products (Merrill, 1994). Under the Safe Medical Devices Act, health care facilities must report serious or potentially serious device-related injuries or illness of patients and employees to the manufacturer of the device and, if death is involved, to the FDA as well. In essence, this law is intended to serve as an “early warning” system through which the FDA can obtain important information on device problems.

The United States has stricter standards for evaluating the safety and effectiveness of medical devices than are imposed by other countries. Some concern has been expressed that the stricter

standards create disincentives for manufacturers to make important medical devices available in the United States (Shuren and Califf, 2016). Ensuring timely access to the new technology while still verifying its safe and appropriate use presents a dilemma. To overcome some of the obstacles, the FDA is building the foundation for a National Evaluation System for health Technology (NEST), which would more efficiently generate better evidence for medical device evaluation and regulatory decision making. The collaborative national evaluation system will link and synthesize data from different sources across the medical device landscape, including clinical registries, EHRs, and medical billing claims (FDA, 2016b).

Regulation of Biologics Biologics, or biological products, include a wide range of products such as vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins, particularly when they are used for prevention or treatment of a disease or health condition. Biologics are isolated from a variety of natural sources—human, animal, or microorganism. In contrast to most drugs that are chemically synthesized and have a known chemical structure, most biologics are complex mixtures that are not easily identified or characterized (FDA, 2009b).

The FDA regulates biologics under the Public Health Service Act of 1944; the FD&C Act of 1938; the Biologics Price Competition and Innovation Act of 2009; and the Biosimilar User Fee Act of 2012. The first two acts mainly deal with the safety of biologics by requiring licensing of these products. The last two were part of the ACA and are discussed further in the section “Health Care Reform and Medical Technology.”

Certificate of Need The national Health Planning and Resources Development Act of 1974 required states to enact certificate of need (CON) laws to obtain federal funds to carry out planning functions that would

restrict the diffusion of technology. CON laws required hospitals to seek state approval before acquiring major equipment or embarking on new construction or modernization projects (Iglehart, 1982). Effective January 1, 1987, the federal law was repealed, but most states still retain some control over the construction of new health care facilities and acquisition of costly equipment.

States that have retained CON laws have faced controversies and legal challenges (Carlson, 2012). Critics have argued that the CON laws stifle competition. Some evidence also suggests that CON laws may not have been effective in reducing costs, at least for some medical technologies (Ho et al., 2013), nor have they had a direct effect on reducing per-capita health care expenditures (Hellinger, 2009).

Some states are now ready to abandon the CON laws. The Obama administration weighed in by asserting that CON laws do not conform to the ACA, because they create barriers to entry and expansion, and limit competition and consumer choice (Kirkner, 2016).

Research on Technology The AHRQ was established in 1989 under the OBRA of 1989 and was originally the Agency for Health Care Policy and Research. AHRQ, a division of the DHHS, is the lead federal agency charged with supporting research that focuses on improving the quality of health care, reducing health care costs, and improving access to essential services. For instance, the agency’s Center for Outcomes and Evidence (formerly the Center for Outcomes and Effectiveness Research) conducts and supports studies of the outcomes and effectiveness of diagnostic, therapeutic, and preventive health services and procedures. AHRQ technology assessments are available to medical practitioners, consumers, and others.

Funding for Research The National Institutes of Health—a division of the DHHS—is the primary agency that both conducts and supports basic and applied biomedical research in the United States. The NIH encompasses 27 different institutes or centers; each has its own research agenda. A large portion of its budget (more than $32 billion in fiscal year 2016) is used for funding extramural research.

NIH’s National Institute of General Medical Sciences (NIGMS) is the principal medical research agency. In fiscal year 2016, NIGMS’s budget was $2.5 billion. The vast majority of this money funded grants to scientists at universities, medical schools, hospitals, and research institutions throughout the United States (NIGMS, 2016).

The 21st Century Cures Act of 2016 significantly increased funding for the NIH. Approximately $4.8 billion over 10 years has been authorized, part of which is designated for the Cancer Moonshot program championed by former Vice President Joe Biden, which is seeking to find new cures for cancer.

▶ The Impact of Medical Technology

Health care technology involves the practical application of scientific discoveries in many disciplines. The deployment of scientific knowledge has had far-reaching and pervasive effects, as the examples in Table 5-1 suggest. The effects of technology often overlap, making it difficult to pinpoint technology’s impact in a single area of health care delivery.

Impact on Quality of Care When advanced techniques can provide more precise medical diagnoses than before, offer quicker and more complete cures than previously available, or reduce risks in a cost-effective manner, the result is improved quality. Technology can also provide new remedies where none existed before. More effective, less invasive, and safer therapeutic and preventive remedies can increase longevity and decrease morbidity.

Numerous examples illustrate the role of technology in enhancing the quality of care. Today, coronary angioplasty is commonly performed to open blocked or narrowed coronary arteries. Before this treatment became available, however, patients suffering a heart attack were prescribed prolonged bed rest and treated with morphine and nitroglycerin (Congressional Budget Office [CBO], 2008). Angioplasty has reduced the need for open-heart bypass surgery. The total artificial heart (TAH), approved by the FDA in 2005 for implantation in patients with end-stage heart failure, can be a life-saving medical device for those awaiting heart transplantation. Implantable cardioverter‒defibrillators prolong the lives of people who have life-threatening irregular heartbeats.

Laser technology reduces trauma in patients undergoing surgery and shortens the period for postsurgical recovery. These devices are also widely used in medical specialties for both medical and cosmetic procedures. For example, advanced laser procedures are available for high-precision eye surgery.

Robot-assisted surgery has gained significant momentum in several surgical applications. For example, robot-assisted surgery enables minimally invasive techniques to be used for the surgical removal of the prostate, and to surgically treat cancers of the kidney, lung, and thyroid. The robotic approach allows for improved dexterity and precision of the instruments.

Advanced bioimaging methods have created new ways to see the body’s inner workings, while minimizing invasive procedures. Modern imaging technologies include MRI, positron emission tomography (PET), single-photon emission computed tomography (SPECT), CT scan, and 3-D fluorescence imaging. PET has important applications in cardiology, neurology, and oncology. For example, it can spot tumors and other problems that may not be detectable with traditional MRI or CT scans. SPECT is of great value in imaging the brain. This type of imaging could also reduce inappropriate use of invasive procedures through a more accurate diagnosis of coronary artery disease (Shaw et al., 2000). Echocardiography and Doppler ultrasound are advanced imaging techniques to study heart function and detect problems. These and other advanced imaging technologies also allow surgeons to perform minimally invasive procedures more precisely (Comaniciu et al., 2016).

Molecular and cell biology has opened a new era in clinical medicine. Screening for genetic disorders, gene therapy, and the introduction of powerful new drugs for cancer and heart disease promise to radically improve the quality of medical care. Genetic research might even help overcome the critical shortage of transplantable organs. On a parallel track, regenerative medicine

and tissue engineering hold the promise of creating other biological and bioartificial substitutes that will restore and maintain normal function in a variety of diseased and injured tissues. Products such as bioartificial kidneys, artificial implantable livers, and insulin- producing cells to replace damaged pancreatic cells are examples of what biomedical science might be able to accomplish. Treatment of disease using stem cells that can be derived from discarded human embryos (human embryonic stem cells), fetal tissue, or adult sources (bone marrow, fat, or skin) is another example of regenerative medicine.

Amid all the enthusiasm that these emerging technologies might generate, some degree of caution must prevail. Experience shows that greater proliferation of technology may not always equate to higher quality. Unless the effect of each individual technology is appropriately assessed, some innovations may be wasteful and others may be harmful.

Impact on Quality of Life Thanks to new scientific developments, thousands of people are able to live normal lives, which otherwise would not be possible. People with disabling conditions have been able to overcome their limitations in speech, hearing, vision, and movement through prosthetic devices and therapies. Long-term maintenance therapies have enabled people with conditions such as diabetes and end- stage renal disease (ESRD) to engage in activities that they otherwise would not be able to do. Major pharmaceutical breakthroughs have given people with heart disease, cancer, HIV/AIDS, and preterm birth a much longer life expectancy and improved health (Kleinke, 2001). HIV/AIDS is no longer viewed as a killer, but rather as a manageable chronic disease, thanks to new drugs and modern treatments.

Modern technology has also been instrumental in relieving pain and suffering; in fact, pain management has been recognized as a new

subspecialty in medicine. For example, in cancer pain management, new opioids have been developed for transdermal, nasal, and nebulized administration, which allow needleless means of controlling pain (Davis, 2006). The technology underlying patient- controlled analgesia allows patients to determine when and how much medication they receive, which gives patients more independence and control.

Development of a substitute for injectable insulin could greatly enhance the quality of life for patients with diabetes—particularly elderly patients, who often require assistance with insulin injections. Uncontrolled diabetes can lead to complications such as heart disease, stroke, kidney failure, and blindness. An inhaled insulin powder product, Afrezza, is now available on the U.S. market, but its long-term acceptance is unknown (Wong et al., 2016). Oral administration of insulin in tablet form is considered more convenient than other methods of delivery, but several barriers still remain to be overcome. Ongoing research in this area appears promising, however.

Impact on Health Care Costs Technological innovations have been the single most important factor in medical cost inflation. Specifically, during the past several decades, they have accounted for roughly half of the total rise in real (after eliminating the effects of general inflation) health care spending (CBO, 2008; Sorenson et al., 2013). Nevertheless, the impact of technology on costs differs across technologies: Some— such as cancer drugs and invasive medical devices—have significant cost implications, whereas others are cost-neutral or cost-saving (Sorenson et al., 2013).

Three main cost drivers are associated with the adoption of medical technology:

The cost of acquiring the new technology and equipment

The need for specially trained physicians and technicians to operate the equipment and to analyze the results, which often leads to increases in labor costs Any special housing and setting requirements for the technology, which result in facility costs (McGregor, 1989)

Hence, widespread adoption of technology has a multiplier effect, as costs increase in these three main areas.

A second set of cost drivers is associated with utilization. As discussed previously, perceptions of quality and expectations of better cure, along with insurance coverage, fuel demand for utilization. On the supply side, once technology is adopted by hospitals and physicians, a certain volume of use must be maintained if the organization is to recover its investment. Ultimately, the technology’s purchase price has a minimal effect on system-wide health care costs (Littell and Strongin, 1996); instead, the costs associated with utilization of the technology, once it becomes available, become more important. For example, the addition of an MRI unit in a facility leads to approximately 733 more MRI procedures (Baker et al., 2008). Also, many of the most notable medical advances in recent decades involve ongoing treatments for the management of chronic conditions, such as diabetes and coronary artery disease (CBO, 2008), where costs continue to aggregate over time.

Although many new technologies do increase costs, others have been found to actually reduce costs. For example, antiretroviral therapies have been largely credited with the dramatic reductions in hospital stays for patients with AIDS (CDC, 1999). Technology is also credited with driving the overall reduction in the average length of inpatient hospital stays in the United States. Minimally invasive procedures using ultrasound, radio waves, or lasers can be performed in outpatient clinics, thereby reducing the need for hospitalizations.

Moreover, whereas many new technologies may increase labor costs, some actually produce labor cost savings. For example, when Northwestern University Medical Center in Chicago automated its lab, the number of human handling steps decreased from 14 to 1.5, and the turnaround time declined from 8 hours to 90 minutes. Largely because of a significant drop in labor costs, 30% cost savings were realized through the lab automation. Not only that, but the error rate dropped to zero after the system was installed (Flower, 2006).

Instead of focusing solely on the excessive costs that new technologies may produce, attention is now being given to the value or worth of the advances in medical care. In a groundbreaking study, Cutler and colleagues (2006) addressed this issue by examining how medical spending has translated into additional years of life saved, based on the assumption that 50% of the improvements in life expectancy have resulted from medical care. These researchers concluded that the increases in medical spending over the 1960 to 2000 period, in terms of increased life expectancy, have rendered reasonable value for the money spent. For example, for a 45-year-old American who has a remaining life expectancy of 30 years, the value of remaining life is more than $200,000 per year (Murphy and Topel, 2003). For this 45-year-old person, the average annual spending in health care for each year of life gained was $53,700 (Cutler et al., 2006).

More recently, Chambers and colleagues (2014) evaluated the value offered by the specialty drugs that are produced with advanced biotechnology. These drugs offer treatments for a range of conditions, such as cancer, hepatitis C, and multiple sclerosis, but come at a high cost. The researchers concluded that despite their higher price tags relative to traditional drugs, the specialty drugs confer greater benefits and hence may offer reasonable value for money.

Impact on Access Geography is an important factor in access to technology. If a technology is not physically available to a patient population living in remote areas, access is limited. Geographic access to many technologies can be improved by providing mobile equipment or by employing new communications technologies to allow remote access to centralized equipment and specialized personnel. For example, GPS (global positioning system) technology significantly improves emergency medical services response time to the scene of motor vehicle crashes and other emergencies (Gonzalez et al., 2009).

Mobile equipment can be transported to rural and remote sites, making it accessible to those populations. Mobile cardiac catheterization laboratories, for example, can provide high technology in rural settings. Cardiac catheterizations can be performed safely in a mobile laboratory at rural hospitals, provided immediate transfer is available for those in need of urgent intervention or revascularization (Peterson and Peterson, 2004). As discussed earlier, access to specialized medical care for rural and other hard-to-reach populations has been transformed through innovations in telemedicine.

Impact on the Structure and Processes of Health Care Delivery Medical technology has transformed large urban hospitals into medical centers, where the latest diagnostic and therapeutic remedies are offered. Growth in alternative settings (home health and outpatient surgery centers) has also been made possible primarily by technology. For example, numerous surgical procedures are now performed in same-day outpatient settings. In earlier times, many of these patients would have required hospital stays. Extensive home health services have brought many hospital

and nursing home services to the patient’s home, reducing the need for institutionalization. Apart from telehealth, home care technology includes kidney dialyzers, feeding pumps, ultrasound, ventilators, and pulse oximeters.

The growth of managed care, integrated delivery systems, and emerging accountable care organizations all require robust IT systems and information exchange capabilities. Certain technologies adopted from other industries have improved health care delivery. For example, the ubiquitous bar-coding system has found several new applications in hospitals, including automation of drug dispensing, which drastically reduces medication errors. Scanning of information on nurses’ badges, patients’ wristbands, and drugs administered ensures that the right drug is given in the right dose to the right patient (Nicol and Huminski, 2006). In some applications, radio-frequency identification (RFID) has started to replace bar-coding technology in the areas of patient identification, equipment management, inventory control, and automatic supply and equipment billing (Roark and Miguel, 2006).

Telecommunications technology used in telemedicine is also used for administrative teleconferencing and continuing medical education. For example, interactive compressed videoconferencing allows for an almost face-to-face meeting in which vendors can demonstrate new products or services and discuss their utilization, costs, and delivery schedules. Eliminating airfares, hotel expenses, and other travel-related costs can achieve significant savings. Interactive videoconferencing is also used for continuing education in the United States and abroad, with participants reporting a high degree of satisfaction with this mode of delivery. Recently, videoconferencing applications have been introduced to provide language interpretation—that is, to translate physician orders and medication regimens for patients who have limited English proficiency (Hamblen, 2006).

Impact on Global Medical Practice Technology developed in the United States has significantly impacted the practice of medicine worldwide. More than half of the world’s leading medical device companies, for example, are based in the United States. In fact, the medical device industry is one of the few American manufacturing industries that consistently exports more than it imports (Holtzman, 2012). Many nations wait for the United States to develop new technologies, which can then be introduced into their systems in a more controlled and manageable fashion. This process gives them access to high-technology medical care with less national investment. Although the United States is expected to continue to maintain its lead in technological innovation, Europe, Japan, and, more recently, developing nations are also focusing their attention and resources on advances in medical technology (Tripp et al., 2012).

Impact on Bioethics Increasingly, technological change is raising serious ethical and moral issues. For example, how can medical technology benefit everyone in society? Who should have access to costly new technology? Gene mapping of humans, genetic cloning, stem cell research, and other areas of growing interest to scientists may hold potential benefits, but they also present serious ethical dilemmas. Life support technology raises serious ethical issues, especially in medical decisions regarding continuation or cessation of mechanical support, particularly when a patient exists in a permanent vegetative state. Attention to ethical issues is also critical in medical research involving human subjects and in the evaluation of experimental technologies, such as nanomedicine.

▶ The Assessment of Medical Technology

Technology assessment, or more specifically, health technology assessment (HTA), refers to “any process of examining and reporting properties of a medical technology used in health care, such as safety, effectiveness, feasibility, and indications for use, cost, and cost-effectiveness, as well as social, economic, and ethical consequences, whether intended or unintended” (Institute of Medicine, 1985). HTA seeks to contribute to clinical decision making by providing evidence about the efficacy, safety, and cost- effectiveness of medical technologies. It also informs decision makers, clinicians, patients, and the public about the ethical, legal, and social implications of medical technologies (Lehoux et al., 2009).

Technology assessment can play a critical role in distinguishing between services that are appropriate and those that are not. Unfortunately, the delivery of medical care remains inefficient in many ways. Notably, the U.S. health care system provides incentives for the delivery of care that does not improve health outcomes (Korobkin, 2014). Although HTA presents a tremendous opportunity to reduce waste and improve health outcomes, in the United States it has played only a relatively minor role in coverage and payment decisions, because the resulting decisions would have rationing overtones. The FDA, however, incorporates assessments for efficacy and safety in its decisions to approve or not approve drugs, devices, and medical procedures. Decisions based on HTA have been more commonly adopted in Europe, Canada, and Australia (Sampat and Drummond, 2011).

Efficacy and safety are the basic starting points in evaluating the overall utility of medical technology. Cost-effectiveness and cost-

benefit go a step further in evaluating the safety and efficacy in relation to the cost of using the technology. Efficacy and safety are evaluated through clinical trials. A clinical trial is a carefully designed research study in which human subjects participate under controlled observations. Clinical trials are carried out over three or four phases, starting with a small number of subjects to evaluate the safety, dosage range, and side effects of new treatments. Subsequent studies using larger groups of people are carried out to confirm effectiveness and further evaluate safety. Compliance with rigid standards is required under HIPAA to protect the rights of study participants and to ensure that the experimentation protocols are ethical. Every institution that conducts or supports biomedical or behavioral research involving human subjects must establish an institutional review board (IRB), which initially approves and periodically reviews the research.

Efficacy Efficacy or effectiveness is defined simply as the health benefit derived from the use of technology. If a product or service actually produces some health benefit, it can be considered efficacious or effective. Decisions about efficacy require that one ask the right questions. For example, are the current diagnostic capabilities satisfactory? What is the likelihood that the new procedure would result in a better diagnosis? If the problem is more accurately diagnosed, what is the likelihood of a better cure?

The question of evaluating health benefits is not as simple as it may seem. Significant challenges arise in defining and measuring health outcomes. Standardization of the selection of outcomes and outcome measurement instruments is still needed, without which it is difficult to compare the effectiveness of a new technology against an existing one.

It is also recommended that clinical trials include some measure of health-related quality of life (HRQL). HRQL is patients’ own

subjective perception of the effects of illness and medical intervention on their physical, mental, social, and emotional functioning. For some diseases, such as asthma and psoriasis, survival is not the main issue, but improvement in HRQL is very important. The difficult question is, however, how to measure HRQL (Cleemput and Neyt, 2015). People are also likely to have different opinions about which is better—longer survival time or higher quality of life.

Safety The assessment of safety is designed to protect patients against unnecessary harm from technology. As a primary benchmark, benefits must outweigh any negative consequences; however, negative consequences cannot always be foreseen. Hence, clinical trials involving patients who may stand to gain the most from a technology are employed to obtain a reasonable consensus on safety. Subsequently, outcomes from wider use of technology are closely monitored to identify any problems related to safety.

Cost-Effectiveness Cost-efficiency (or cost-effectiveness) goes a step beyond the determination of efficacy. Whereas efficacy is concerned only with the benefit derived from the technology, cost-effectiveness evaluates the additional (marginal) benefits derived in relation to the additional (marginal) costs incurred. Thus, cost-efficiency weighs benefits against costs, which is difficult in actual practice. The difficulty arises from the fact that inputs other than medical care, such as lifestyle factors, affect a person’s health. Hence, cost- effectiveness for the vast majority of technologies has not been evaluated.

The traditional view of cost-efficiency is explained by a simplified version of the health production function in which the main input is medical care. Medical treatments and technology utilization are

highly cost-effective when medical interventions are initiated. Additional inputs of medical care, however, tend to decrease the benefits in relation to the costs, which continue to rise. At some point in the production of health benefits that are attributable to medical care, the marginal benefits equal the marginal costs. From this point onward, it is highly unlikely that additional technological interventions would result in benefits equal to or in excess of the additional costs. As costs continue to increase, they eventually far exceed the additional health benefit. Economists have labeled this point the flat of the curve. It has been suggested that a considerable amount of medical interventions in the United States reach the flat of the curve, referring to a level of intensity of treatment that provides no incremental health benefit (Fuchs, 2004). Hence, high-intensity care is considered wasteful.

More recently, some have argued that flat-of-the-curve medicine is not necessarily wasteful, at least at the aggregate level. For example, increased pharmaceutical consumption in developed countries has helped improve mortality outcomes, especially for people at middle age and older (Miller and Frech, 2000). In other areas, flat-of-the-curve medicine may not be improving physical health outcomes, but it may bring improved mental health (by reducing anxiety and depression, for example), better health maintenance, improved HRQL, or stability in health status, such as reduced variability of age at death (Schoder and Zweifel, 2011).

A cost-effectiveness analysis incorporates the elements of both costs and benefits, especially when the costs and benefits are not expressed in terms of dollars (Wan, 1995). If costs cannot be monetarily measured, they may be evaluated in terms of resource inputs, such as staff time, number of service units, space requirements, and degree of specialization needed (specialist versus generalist, physician versus allied health professional). Benefits, which are evaluated in terms of health outcomes, include elements such as efficacy of treatment, prognosis or expected outcomes, number of cases of a certain disease averted, years of

life saved, increase in life expectancy, hospitalization and sick days avoided, early return to work, patient satisfaction, and HRQL. Benefits are then evaluated in relation to resource inputs.

Risk is another type of nonmonetary cost. Most medical procedures are not totally safe, and are accompanied by certain levels of risk. Medical care can also result in undesired side effects, iatrogenic illnesses, medical complications, injuries, or death, all of which carry a cost that is often difficult to measure. Hence, the effectiveness of medical interventions should be evaluated not only in terms of costs but also in terms of risks.

Cost-Benefit In contrast to cost-effectiveness analysis, cost-benefit analysis evaluates benefits in relation to costs, when both are expressed in dollar terms (Seidel et al., 1995; Wan, 1995). Hence, cost-benefit analysis is subject to a more rigorous quantitative analysis compared to cost-effectiveness analysis. Cost-benefit analysis is based on four main assumptions: (1) the problem or health condition can be identified or diagnosed; (2) the problem can be controlled or eradicated using an appropriate intervention; (3) the benefit or outcome can be assigned a dollar value; and (4) the cost of the intervention can be determined in dollars.

The same principles that apply to cost-effectiveness are also used for assessing cost-benefit. If the estimated benefits exceed the costs, the additional spending on medical care is worth the extra costs. As a measure of health benefit, the quality-adjusted life year (QALY) is commonly used in the United States, Canada, Europe, and Australia; an analysis that includes the use of QALYs is referred to as cost-utility analysis (Neumann and Weinstein, 2010). QALY is defined as the value of 1 year of high-quality life. Cutler and McClellan (2001) assigned a value of $100,000 per QALY and demonstrated that, at least in the case of four conditions (i.e., heart attacks, low-birth-weight infants, depression, and cataracts),

the estimated benefit of technology was much greater than the cost. For breast cancer treatment, the costs and benefits were found to be equal in magnitude. The value of $100,000 per QALY is debatable, however, and there is no standard method for the calculation of QALY.

In the United States, the use of QALYs remains a theoretical exercise, because it raises both social and ethical concerns. It does not appear that QALY-based cost-effectiveness analyses will be used for making resource allocation, coverage, and payment decisions for some time to come.

▶ Directions and Issues in Health Technology Assessment

Private-Sector Initiatives In the United States, HTA is conducted predominantly in the private sector, unlike in many European nations that have centralized technology assessment agencies. In the public sector, the Department of Veterans Affairs and the AHRQ mainly conduct clinical trials and other evaluations of technology. Hence, much of the talent needed to assess medical technology is also located, organized, and financed in the private sector. Numerous private agencies, including the Blue Cross and Blue Shield Association, Kaiser Permanente, the American Medical Association, and other professional societies, have undertaken technology assessments.

Need for Coordinated Effort At present, efforts in HTA remain fragmented and poorly funded, with little or no coordination between public- and private-sector groups to deliberately address the assessment and diffusion of technologies. Also, information garnered from HTA studies is not efficiently shared among medical organizations, health care systems, and policymakers. Consequently, a demand has arisen for broad regional and national HTA programs that would study the effects of health care technology more systematically and involve providers, policymakers, patient advocacy groups, and government representatives (Bozic et al., 2004).

Need for Standardization HTA methods used by the various organizations still lack standardization, which makes it difficult to compare efficacy and cost-effectiveness results. Once methods are standardized, there will be a need for benchmarking HTA organizations to ensure adherence to the standards (Drummond et al., 2012).

Balance Between Clinical Efficacy and Economic Worth Achieving a balance between efficacy and cost-effectiveness will require a change in the American mindset, which will not be forthcoming in the near future. Even the CMS does not allow cost- effectiveness to be used in making decisions about care rendered to Medicare- and Medicaid-covered patients. In contrast, European countries, Canada, and Australia use cost-effectiveness openly and explicitly in their centralized health planning decisions (Neumann and Sullivan, 2006). In the United States, the predominant fear is that an organization risks being sued if it denies access to treatments that are known to be medically effective even when their cost-effectiveness is questionable (Bryan et al., 2009). Without malpractice reform, overuse of technology will continue to drive up health care costs. Regardless of how that discussion is brought about, almost all observers realize that the United States will ultimately have to deal with the parameters of cost and value in an explicit way (Luce and Cohen, 2009).

Ethical Issues With the rapid pace of innovation, concerns in HTA transcend the traditional questions about safety, effectiveness, and economic value. New technologies also raise social, ethical, and legal concerns. These issues raise complex questions but provide few answers.

How to provide the latest and best in health care within limited resource parameters has become a major concern for all developed countries. In the United States, insurers, pharmaceutical companies, medical device manufacturers, MCOs, and physician advocacy institutions often act and advocate out of their own self- interests. For example, physicians’ representatives, such as medical associations, and the medical device and pharmaceutical industries frequently argue in favor of increasing resource inputs in delivering health care (Wild, 2005). They often claim that quality would deteriorate or harm would ensue unless new innovations are funded. When these same groups assume major roles in HTA, a conflict of interest is likely to occur. Biases might also arise in studies funded by sources that have a financial stake in the results. Such concerns have stimulated interest in developing standards for assessments, perhaps under the aegis of a governmental body.

Within social, ethical, and legal constraints, public and private insurers face the problem of deciding whether to cover novel treatments. Recent challenges include, for example, decisions about new reproductive techniques, such as intracytoplasmic sperm injection in vitro fertilization (ICSI IVF); new molecular genetic predictive tests for hereditary breast cancer; and new drugs such as sildenafil (Viagra) for erectile dysfunction (Giacomini, 2005). The introduction of these technologies raises questions about whether society should bear the cost of infertility treatments, genetic tests, and lifestyle remedies that do not affect people’s health and longevity—complicated issues that have no easy answers.

Therapies classified as experimental are, in general, not covered by insurance. When new treatments promise previously unattainable health benefits, decisions about assessment of such treatments are often surrounded by controversy. Critical to the debate, but also defying easy answers, is the availability of and payment for treatments considered experimental that may be needed by critically ill patients who could possibly benefit from them (Reiser, 1994). Concerns about withholding treatment from patients are not

easily juxtaposed against equally valid concerns about exposing these same patients to unjustified risk.

Ethical issues also surround the conduct of clinical research. Emanuel and colleagues (2000) contended that ethical clinical research must fulfill seven requirements:

1. The research must have social or scientific value for improving health or enhancing knowledge.

2. The study must be scientifically valid and methodologically rigorous. 3. The selection of subjects in clinical trials must be fair. 4. The potential benefits to patients and the knowledge gained for

further scientific work must outweigh the risks. 5. Independent review of the research methods and findings must be

conducted by unaffiliated individuals. 6. Informed, voluntary consent must be obtained from subjects. 7. The privacy of enrolled subjects must be protected, they must be

offered the opportunity to withdraw, and their well-being must be maintained throughout the trial.

▶ Health Care Reform and Medical Technology

Within a relatively short time frame, the United States has experienced the effects of President Barack Obama’s Affordable Care Act (ACA) and President Donald Trump’s pledge to repeal and replace it. The effects of this transition, if and when it occurs, are not likely to disrupt, in any material way, the innovation, diffusion, and utilization of medical technology. The ACA imposed a 2.3% excise tax on the sale of certain medical devices by manufacturers and importers of these devices. This tax has been passed on to the purchasers of devices, mainly hospitals and physicians, and has filtered down to the consumers through higher health insurance premiums. Trump’s executive order signed on January 20, 2017, authorized the Secretary of the DHHS to repeal this tax at his discretion.

When the ACA was passed, it incorporated the provisions of the Price Competition and Innovation Act of 2009. In a nutshell, this law allowed the FDA to approve “biosimilars” under a process similar to the approval of generic drugs. Because of their complexity, the term “generic” cannot apply to biologics; hence, the term “biosimilar” was created to apply to products that are highly similar to, or are interchangeable with, an already approved biological product (referred to as the reference product). Moreover, the Biosimilar User Fee Act of 2012 authorized the FDA to charge biopharmaceutical firms a user fee to pay for the FDA’s review of applications for biosimilar products before these products could be marketed. Consumers and policymakers view the introduction of biosimilars as a high priority because they are likely to result in reduced costs (Epstein et al., 2014). Ultimately, the Price Competition and Innovation Act and the Biosimilar User Fee Act may be retained even if the ACA is fully repealed.

Under current law, developers of an original reference product are protected by law, in the sense that no biosimilar license can be granted until the reference product has been licensed for at least 12 years. Also, a biosimilar applicant must disclose to the reference product license holder its application, a description of its manufacturing process, and any other requested information so that the license holder can engage in an efficient process of patent assertion against the biosimilar applicant, if necessary (Johnson, 2010). It is not clear what may transpire in regard to this process under the health care reform efforts.

▶ Summary Medical technology has produced many benefits by making positive changes in the quality of medical care delivered to patients, who often end up enjoying a better quality of life owing to improved care. Medical technology can be credited with bringing increased longevity and decreased mortality to people around the world. Much of this technology has been developed through the application of scientific knowledge that was discovered in fields other than medicine. For example, applications of computer science and telecommunications have been adapted for use in the delivery of medical services. The application of information technology and informatics is becoming indispensable in efficient delivery of care and in the effective management of modern health care organizations. The fields of e-health, m-health, e-therapy, telemedicine, and telehealth will continue to expand. Nanotechnology is a cutting-edge advancement within the science and engineering fields that is beginning to find applications in health care on an experimental basis.

On the downside, the development and diffusion of technology are closely intertwined with its utilization. Although cost-saving technology is also widely used, the uncontrolled use of most medical technology has prompted deep concerns about rising costs. Unlike other countries, the United States has not found a way to limit the use of high-cost medical technology. However, health policy in the United States does play a role in managing these costs—specifically, through the FDA’s drug and device approval process and government funding for biomedical research. Uncontrolled use of technology also raises bioethical concerns because human lives are involved.

Given the costs and risks associated with the use of technology, its assessment has become an area of growing interest. In the United

States, the focus of health technology assessment has traditionally been on safety and efficacy. By comparison, cost-effectiveness is widely used in other countries as a criterion for making coverage decisions. Decisions based on economic worth have not received the same level of support in the United States. As escalating health care expenditures approach a critical point, the appropriateness of medical treatments may be determined based on their incremental health value at a given cost.

New health care reform efforts are likely to change some of the taxation policies established under the ACA. Otherwise, little material change affecting medical technology is expected.

▶ Test Your Understanding

Terminology administrative information systems

asynchronous technology


clinical information systems

clinical trial

cost-benefit analysis

cost-effectiveness analysis


cost-utility analysis

decision support systems





electronic health records (EHRs)

flat of the curve

health informatics

health information organization (HIO)

health technology assessment (HTA)

information technology (IT)


medical technology


orphan drugs

quality-adjusted life year (QALY)


smart card

synchronous technology

technological imperative

technology diffusion




virtual physician visits

Review Questions 1. Medical technology encompasses more than just sophisticated

equipment. Discuss. 2. What role does an IT department play in a modern health care

organization? 3. Provide brief descriptions of clinical information systems,

administrative information systems, and decision support systems in health care delivery.

4. Distinguish between information technology (IT) and health informatics.

5. According to the Institute of Medicine, what are the four main components of a fully developed electronic health record (EHR) system?

6. What are the main provisions of HIPAA with regard to the protection of personal health information? Which provisions were added to HIPAA under the HITECH Act?

7. What is telemedicine? How do the synchronous and asynchronous forms of telemedicine differ in their applications?

8. Which factors have been responsible for the low diffusion and low use of telemedicine?

9. Generally speaking, why is medical technology more readily available and used in the United States than in other countries?

10. How does technology-driven competition lead to greater levels of technology diffusion? How does technological diffusion, in turn, lead to greater competition? How does technology-driven competition lead to duplication of services?

11. Summarize the government’s role in technology diffusion. 12. Provide a brief overview of how technology influences the quality of

medical care and quality of life. 13. Discuss the relationship between technological innovation and

health care expenditures. 14. How has technology affected access to medical care? 15. Discuss the roles of efficacy, safety, and cost-effectiveness in the

context of health technology assessment. 16. Why is it important to achieve a balance between clinical efficacy

and economic worth (cost-effectiveness) of medical treatments? 17. What are some of the ethical issues surrounding the development

and use of medical technology?

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Chapter opener photo: © f11photo/Shutterstock

CHAPTER 6 Health Services Financing


■ Study the role of health care financing and its impact on the delivery of health care. ■ Understand the basic concept of insurance and how general insurance terminology applies to

health insurance. ■ Differentiate among group insurance, self-insurance, individual health insurance, managed care,

high-deductible plans, and Medigap plans. ■ Explore trends in employer-based health insurance. ■ Examine the distinctive features of public insurance programs, such as Medicare, Medicaid, the

Children’s Health Insurance Program, the Department of Defense’s programs, the Veterans Health Administration, and the Indian Health Service.

■ Understand the various methods of reimbursement and developing trends in reimbursement. ■ Discuss national health care and personal health care expenditures and trends in private and

public financing. ■ Explore the effects of the Affordable Care Act on financing and insurance. ■ Assess current directions and issues in health care financing.

“I have comprehensive insurance.”

▶ Introduction Complexity of financing is one of the primary characteristics of medical care delivery in the United States. Single-payer systems in countries such as Australia, Canada, and the United Kingdom simplify health care financing: Taxes are raised by the government to provide health insurance to the citizens, and private financing plays a minor role for those who want more extensive coverage than what the government offers. In the United States, both public and private financing play substantial roles. In the public sector, the government has created a multitude of tax-financed programs; each program serves a defined category of citizens provided they meet the established qualifications. Insurance overlap is also relatively common. For example, a significant number of Medicare beneficiaries either qualify for Medicaid or have purchased private supplementary insurance to pay for expenses not covered by Medicare. In the private sector, financing for health insurance is shared between the employer and the employee; the employer provides the bulk of financing. Self-employed people purchase health insurance in the open market. For the unemployed, the underemployed (those working part-time who do not qualify for employer-sponsored health insurance), and those who had lost their private insurance due to the original formulation of the Affordable Care Act (ACA), the government attempted to facilitate the purchase of health insurance starting in 2014.

The actual payments to providers of care are handled in numerous ways. Patients generally pay a portion of the costs directly, but the bulk of these costs are paid through a variety of insurance plans and government programs. The government and some large employers use the services of third-party administrators to process payment claims from providers.

In this chapter, financing is discussed in broad terms that include the concepts of financing, insurance, and payment. This does not mean, however, that the three functions are structurally integrated. For example, government-financed programs, such as Medicare and Medicaid, integrate the functions of financing and insurance, but contracted third-party administrators make the actual payments to the providers after services have been delivered. Traditional insurance plans integrate the functions of insurance and payment, whereas both employers and employees provide the financing. Managed care has gone one step further in integrating all four functions of health care delivery—financing, insurance, delivery, and payment.

This chapter focuses on financing for both private and public health insurance, points out trends, discusses health care expenditures, explains various payment methods to reimburse providers, and provides glimpses into what the ACA was able to achieve and where it fell short. The chapter concludes with current directions and issues in health insurance and financing.

▶ The Role and Scope of Health Services Financing

As its central role, health services financing pays for health insurance premiums. Providers generally rely on the patients’ insurance to get paid for the services they deliver. The various methods used to determine how much providers should be paid (i.e., reimbursement) for their services are also closely intertwined with the broad financing function.

To a large extent, financing determines who has access to health care and who does not, although many uninsured people have access to charitable care, and charity will continue to play a noteworthy role for a sector of the population in the United States. Regardless of which health care reform initiatives are eventually passed in President Donald Trump’s administration, there always will be uninsured people in America—such as illegal immigrants, young healthy individuals who choose not to buy insurance, and those who do not qualify for Medicaid based on income—just as there were still a sizable number of uninsured people under the ACA.

The demand for health care greatly influences its financing. Health insurance increases the demand for covered services; the demand would be less if those same services were paid out of pocket. Increased demand means greater utilization of health services, given adequate supply. According to economic theory, insurance lowers the out-of-pocket cost of medical care to consumers; hence, they will consume more medical services than if they had to pay the entire price out of their own pockets. Consumer behavior that leads to a higher utilization of health care services when the services are covered by insurance is referred to as moral hazard (Feldstein, 1993).

Financing also exerts powerful influences on supply-side factors, such as how much health care is produced in the private sector. Health care services and technology proliferate when services are covered by insurance. Even new services and technologies may start emerging, and new models of organization may form. Conversely, when reimbursement is cut, supply of health care services can also be curtailed.

Issues pertaining to reimbursement for services are critical in health services management decision making. Demand-side factors, including reimbursement, typically guide health services managers in evaluating the type and extent of services to offer. The amount of reimbursement needed to recoup capital costs over time also heavily influences decisions such as acquisition of new equipment, renovation or expansion of facilities, and launching of new services.

Similarly, financing can influence the supply and distribution of health care professionals. As an example, employer financing for dental insurance spawned the growth of dentists and dental hygienists. Mechanisms for reimbursing physicians, such as the resource-based relative value scale (RBRVS) used by Medicare, directly affect physicians’ incomes. One of the main goals of RBRVS, implemented in 1992, was to entice more medical residents into general practice by increasing the reimbursement for services provided by generalists. Due to other factors, however, the imbalance between generalists and specialists has persisted.

Financing eventually affects—both directly and indirectly—the total health care expenditures incurred by a health care delivery system. The next section discusses the relationship between financing and health care expenditures and provides a general framework for controlling health care costs.

▶ Financing and Cost Control Health care financing and cost control are closely intertwined. FIGURE 6-1 presents a conceptual model of cost control. In the U.S. health care delivery system, insurance is the main factor that determines the level of demand for medical services. Restricting financing for health insurance—as occurs with demand-side rationing—eventually controls total health care expenditures. Conversely, extension of health insurance to the uninsured, without supply-side rationing, increases total health care expenditures (E). Apart from the extent of insurance coverage, the cost of health insurance also affects system-wide health care expenditures.

FIGURE 6-1 Influence of financing on the delivery of health services.

Insurance, along with payment (price = P), influences the supply or availability of health services. Reducing reimbursement for providers has a direct influence on E, as well as an indirect influence through shrinkage in supply. Cuts in reimbursement have been used in the United States, as well as in other countries, as a primary strategy to contain the growth of health care expenditures.

Diffusion of technology and other types of services can be directly restricted through health planning, which is commonly used in countries that have national health insurance. When supply of technology is rationed, people may be insured but do not have free access to those services. Reduced utilization of expensive technology results in direct savings. Countries that have national health care also achieve indirect savings by having fewer specialist physicians and specialized technicians and by spending less on research and development (R&D).

Insurance and supply of health care services together determine access and, ultimately, the utilization of services (quantity of services consumed = Q). Utilization can also be directly controlled. For example, private health insurance, as well as Medicare and Medicaid, try to exert some limits on utilization by specifying which services are not covered.

Because E = P × Q, rising health care costs can be controlled by managing the numerous factors that influence P and Q. Many of these factors are external to the health care delivery system. The P component, for example, includes general economy-wide inflation, as well as medical inflation that exceeds general inflation. In addition to being influenced by the intrinsic factors discussed in this section, the Q component is a function of changes in the size and demographic composition (i.e., age, sex, and racial mix) of the population (Levitt et al., 1994).

▶ The Insurance Function Insurance is a mechanism for protection against risk; that is its primary purpose. In this context, risk refers to the possibility of a substantial financial loss from an event of which the probability of occurrence is relatively small (at least in a given individual’s case). For example, even though auto accidents are common in the United States, the likelihood is quite small that a specific individual will have an auto accident in a given year. Even when the risk is small, people buy insurance to protect their assets against catastrophic loss.

The insuring agency that assumes risk is called the insurer, or underwriter. Underwriting is a systematic technique for evaluating, selecting (or rejecting), classifying, and rating risks. Medical underwriting, for example, takes into account the health status of people to be insured. Four fundamental principles underlie the concept of insurance (Health Insurance Institute, 1969; Vaughn and Elliott, 1987):

Risk is unpredictable for the individual insured. Risk can be predicted with a reasonable degree of accuracy for a large group or a population. Insurance provides a mechanism for transferring or shifting risk from the individual to the group through the pooling of resources. All members of the insured group share actual losses on some equitable basis.

Technically, health care services for all Americans 65 and older (the elderly population) are provided through Medicare. For those younger than age 65, private insurance—either employment based or self-financed—is the predominant avenue for receiving health care. Medicaid and the Children’s Health Insurance Program (CHIP) cover many of the poor, including children in low-income

households. Other public programs cover defined groups of people, such as the insurance program offered by the Department of Veterans Affairs (VA) and the military health system. The remainder of the population, without any coverage, are the uninsured.

Because of some overlap in coverage, it is almost impossible to neatly fit people into categories based on specific types of health insurance. FIGURE 6-2 provides broad approximations of the proportion of the U.S. population covered through private and public sources of health insurance. Under the ACA, coverage under both private and public sources increased between 2013 and 2015, and the proportion of uninsured dropped from 13.3% to 9.1% (Barnett and Vornovitsky, 2016).

FIGURE 6-2 Health insurance status of the total U.S. population, 2015.

Note: Numbers may not add to 100 because of rounding.

Data from Kaiser Family Foundation. 2017. Health insurance coverage of the total population.

Timeframe: 2015. Available at:

currentTimeframe=0. Accessed January 2017.

Health insurance, particularly private health insurance, comes in the form of a plan, which specifies, among other details, information pertaining to costs, covered services, and ways to obtain health care when needed. Numerous plans are available. Anyone covered by health insurance is called the insured or a beneficiary. Two types of employer-sponsored plans are single coverage plans and family coverage plans; the latter cover the spouse and dependent children of the working employee. Medicare and Medicaid plans recognize only individual beneficiaries. In the case of married couples, for instance, Medicare and Medicaid recognize each spouse as an independent beneficiary.

▶ Private Health Insurance Private health insurance has also been called “voluntary health insurance.” Most private health insurance is employment based, but workers are not mandated to buy it. Private insurance includes many different types of health plan providers, such as commercial insurance companies (e.g., United Health Group, Well Point, Cigna, and Aetna), Blue Cross/Blue Shield, and managed care organizations (MCOs). The nonprofit Blue Cross and Blue Shield Associations are similar to private health insurance companies, and the companies named here operate their own MCOs. Many businesses are self-insured, using insurance companies for stop- loss coverage.

Basic Health Insurance Terminology Premiums A premium is the amount charged by the insurer to insure against specified risks. An employer may offer more than one health insurance plan, in which case premiums can vary depending on the plan selected by the employee. Employment-based health insurance is heavily subsidized by the employer, and the employee is asked to share in the cost of premiums. Cost trends are discussed later in this chapter.

Risk Rating Premiums are determined by the actuarial assessment of risk, or risk rating, that adjusts premiums to reflect health status. Three different methods have been used to determine premiums: experience rating, community rating, and adjusted community rating.

Experience rating is based on a group’s own medical claims experience. Under this method, premiums differ from group to group because different groups have different risks. For example, people working in various industries are exposed to various levels and types of hazards, people in certain occupations are more susceptible to certain illnesses or injuries, and older groups represent higher risks than younger groups. High-risk groups are expected to incur high utilization of medical care services, so these groups are charged higher premiums compared to preferred or favorable risk groups. The main issue with experience rating is that it makes premiums unaffordable for high-risk groups.

Community rating spreads the risk among members of a larger population. Premiums are based on the utilization experience of the entire population covered by the same type of health insurance. Under pure community rating, the same rate applies to everyone regardless of age, gender, occupation, or any other indicator of health risk (Goodman and Musgrave, 1992). For example, a person who is employed in a hazardous occupation would pay the same premium as someone who does not. When premiums are based on community rating, the good risks—that is, healthy people —actually subsidize the insurance cost for the poor risks (Somers and Somers, 1977). In other words, costs shift from people in poor health to people in good health and make health insurance less affordable for those who are healthy.

Adjusted community rating, also known as modified community rating, is a middle-of-the road approach that overcomes the main drawbacks of experience rating and pure community rating. Under this method, price differences take into account demographic factors such as age, gender, geography, and family composition, while ignoring other risk factors. The ACA required the use of adjusted community rating to determine premiums for individuals and small groups.

Cost Sharing

In addition to paying a share of the cost of premiums through payroll deductions, insured individuals pay a portion of the actual cost of medical services out of their own pockets. These out-of- pocket expenses take the form of deductibles and copayments and are incurred only if and when medical services are used. A deductible is the amount the insured must first pay each year before any benefits are payable by the plan. For example, suppose a plan requires the insured to pay a $1,000 deductible. When the insured receives medical care, the plan starts paying only after the cost of medical services received by the insured has exceeded $1,000 in a given year. Many plans now allow the insured to use primary care and wellness services without having to pay a deductible.

The second type of cost sharing is a copayment, which is a flat amount the insured must pay each time health services are received. Health plans may also use coinsurance, which is a set proportion of the medical costs that the insured must pay out of pocket. As an example, for a certain health care product or service covered by a health plan, a copayment of $30 or an 80/20 coinsurance may be required. In the latter case, once the deductible has been met, the plan pays 80% of the costs; the insured pays the remaining 20%.

In case of a catastrophic illness or injury, the deductible and copayment/coinsurance amounts can add up to a substantial sum. Hence, health plans generally have an annual maximum limit on out-of-pocket cost sharing. Once the maximum cost sharing amount has been reached, the plan pays 100% of any additional expenses.

The rationale for cost sharing is to control utilization of health care services. Since insurance creates moral hazard by insulating the insured against the cost of health care, making the insured share in the cost promotes more responsible behavior in health care utilization. A comprehensive study employing a controlled

experimental design conducted in the 1970s, commonly referred to as the Rand Health Insurance Experiment, demonstrated that cost sharing had a material impact on lowering utilization, without any significant negative health consequences. Experts now generally agree that cost sharing reduces utilization. It should be noted, however, that even though moral hazard does exist, and it results in frivolous and inefficient services, expensive health care procedures in case of serious illness become affordable only with insurance (Nyman and Trenz, 2016).

Covered Services Services covered by an insurance plan are referred to as benefits. Each health insurance plan spells out in a contract both the type of medical services it covers and the services it does not cover. A typical disclaimer included in most contracts states that only “medically necessary” services are covered, regardless of whether such services are provided by a physician. Almost all plans include medical and surgical services, hospitalizations, emergency services, prescriptions, maternity care, and delivery of a baby. Within specified limits, most plans also provide mental health services, substance abuse services, home health care, skilled nursing care, rehabilitation, supplies, and equipment. Services such as eyeglasses and dental care are generally not covered by health insurance; vision and dental insurance plans can be purchased separately. Services most commonly excluded are those not ordered by a physician, such as self-care and over-the-counter products. Other services commonly excluded from health insurance coverage are cosmetic and reconstructive surgery, work-related illness and injury (covered under workers’ compensation), rest cures, genetic counseling, and the like.

Types of Private Insurance Group Insurance

Group insurance can be obtained through an employer, a union, or a professional organization. A group insurance program anticipates that a substantial number of people in the group will purchase insurance through its sponsor. Because risk is spread out among the many insured, group insurance provides the advantage of lower costs than if the same type of coverage was purchased in the individual insurance market.

Unlike monetary wages, health insurance benefits provided through an employer are not subject to income tax. Consequently, a dollar of health insurance received from the employer is worth more than the same amount received in taxable wages or an after-tax dollar spent out of pocket for medical care. The tax policy provides an incentive to obtain health insurance as a benefit that is largely paid by the employer.

Starting in the 1950s, major medical insurance became widely available. This type of insurance was designed to cover catastrophic situations that could subject families to substantial financial hardships, such as hospitalization, extended illness, and expensive surgery. Since the 1970s, health insurance plans have become comprehensive in coverage, and include basic and routine physician office visits and diagnostic services. Hence, health insurance today is an anomaly to the fundamental concept behind insurance. Comprehensive coverage has also increased the cost of health insurance.

Self-Insurance In a self-insured plan, the employer acts as its own insurer instead of obtaining insurance through an insurance company. Rather than pay insurers a dividend to bear the risk, many employers simply assume the risk by budgeting a certain amount to pay medical claims incurred by their employees. In 2016, 61% of all covered workers in private and public organizations were enrolled in self- insured plans; 94% of workers employed in businesses with 5,000 or more employees were in self-insured plans (Kaiser Family

Foundation, and Health Research and Educational Trust [Kaiser/HRET], 2016, p. 188).

Both large and small employers can self-insure, but most that choose this route are large businesses. Self-insured employers can protect themselves against any potential risk of high losses by purchasing reinsurance, also called stop-loss coverage, from a private insurance company. Being self-insured gives employers a greater degree of control, and costs are contained through a slower rise in premiums during periods of rapid inflation (Gabel et al., 2003).

The movement toward self-insurance by large employers was spurred by government policies. Self-insured employers are exempt from a premium tax that insurance companies must pay, the cost of which is passed on to customers through higher premiums. Further, the Employee Retirement Income Security Act (ERISA) of 1974 exempts self-insured plans from certain mandatory benefits that regular health insurance plans are required to provide in many states. Self-insured plans also avoid other types of state insurance regulations, such as reserve requirements and consumer protection requirements. Because of these plans’ many advantages, employers that are large enough to make it feasible for themselves have viewed self-insurance as a better economic alternative. Notably, the ACA did not affect self-insured plans, so they have remained immune from certain ACA mandates, such as the one requiring health plans to include “essential health benefits” (Noble and Chirba, 2013).

Individual Private Health Insurance Individually purchased private health insurance (nongroup plans) has been a relatively small, but important source of coverage for some Americans. In 2015, approximately 7% of the U.S. population had nongroup private insurance (Kaiser, 2017). The family farmer, the early retiree, the self-employed person, and the employee of a business that does not offer health insurance—all of these people

tend to rely on individual health insurance. For underwriting purposes, the risk indicated by each individual’s health status and demographics are taken into account. Consequently, high-risk individuals are often unable to obtain privately purchased health insurance. This barrier was eliminated by provisions in the ACA that required health insurers to cover anyone regardless of preexisting medical conditions.

Managed Care Plans MCOs, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs), emerged in the 1980s in response to the rapid escalation of health care costs. At first, managed care plans differed from and were less expensive than the plans offered by traditional insurance companies. However, several factors over time converged on MCOs, and traditional insurance companies eventually began offering managed care plans. Today, the vast majority of health insurance takes the form of managed care plans.

High-Deductible Health Plans and Savings Options High-deductible health plans (HDHPs) combine a savings option with a health insurance plan that carries a high deductible. HDHPs have shown significant growth in recent years. In 2016, HDHPs covered 29% of all workers in employment-based plans, up from just 4% in 2006 (Kaiser/HRET, 2016, p. 3). Because of their high deductibles, premiums for HDHPs are generally lower than those for other types of health plans.

Savings options give consumers greater control over how to use the funds. Hence, these plans are also referred to as consumer- directed health plans. There are two main types of HDHPs/savings options, which are subject to different guidelines under U.S. tax law (EXHIBIT 6-1).

EXHIBIT 6-1 Key Differences Between a Health Reimbursement Arrangement and a Health Savings Account1

Health Reimbursement Arrangement (HRA)

Health Savings Account (HSA)

Established solely by the employer. Self- employed individuals cannot establish an HRA. The account is owned by the employer.

Established by the individual. The employer can assist in establishing an HSA. The account is owned by the employee.

Having an HDHP is not mandatory. Employers may offer HRAs in addition to or in place of health insurance, which may include an HDHP. Funds are used for deductibles, copayments, insurance premiums, and other medical and related expenses authorized by the Internal Revenue Service.

The individual must have a “qualified health plan” that meets federal standards and is an HDHP. The minimum annual deductible for 2017 was $1,300 for a single plan ($2,600 for a family plan). In 2017, the maximum annual out-of-pocket expenses for deductibles and copayments were capped at $6,550 for a single plan ($13,100 for a family plan). Funds cannot be used for HDHP premiums.

Funded solely by the employer; employees are not allowed to contribute. There is no limit on the amount of contribution. Contributions are tax free.

The individual must fund the HSA. Employers may contribute, but are not required to do so. The maximum contribution for 2017, which is fully tax deductible, was $3,400 for a single plan ($6,750 for a family plan). Enrollees who are 55 years and older can contribute an extra $1,000 to either plan.

An employer may offer an HRA to a retiree even after age 65, or allow a retiree or terminated employee to keep an existing HRA. Conversely, an employer may terminate the account.

The individual must be younger than age 65 and not have any other health insurance (dental, vision, and long-term care insurance do not count). When a person becomes eligible for Medicare at age 65, the remaining balance in an HSA can be used, but no funds can be added.

An employer may offer an HRA and an HSA. In this case, funds from the HRA can be used to pay the premiums for an HDHP, which is required with the HSA.

Short-Term Stop-Gap Coverage People often leave an employer for various reasons. Leaving an employer means loss of health insurance coverage, at least temporarily. For example, when people move to a different employer, they may encounter a waiting period before their new health insurance starts. The waiting period was limited to 90 days or less under the ACA. Other individuals may face temporary unemployment after separating from a job. Some people leave the workforce before age 65, so they do not qualify for Medicare. To address short-term coverage gaps, Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, which allows workers to keep their employer’s group coverage for 18 months after leaving a job. The individuals are required to pay 102% of the group rate to continue health benefits, but because the employer subsidy is no longer available, the high


cost of premiums prevents many from keeping their health insurance during periods of insurance gap.

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 provided for continued coverage beyond the original COBRA provisions. Extended coverage of up to 29 months is available if the insured or a family member is determined by the Social Security Administration to be disabled at any time during the first 60 days of COBRA coverage. Extended coverage of up to 36 months is available to the spouse and dependent children if the former employee dies, enrolls in Medicare, or gets divorced or legally separated.

Medigap Medigap, also called Medicare Supplement Insurance, is private health insurance that can be purchased only by those enrolled in the original Medicare program—a program that has high out-of- pocket costs (discussed later in the “Medicare” section). It is illegal for an insurance company to sell a Medigap plan to someone who is covered by Medicaid or Medicare Advantage. Medigap plans cover all or a portion of Medicare deductibles and copayments/coinsurance.

Federal law requires the sale of only standardized plans, each containing uniform benefits to help consumers decide which plan would best suit their needs. There are 10 federally approved standard plans, but not all states have all the plans available. These plans are labeled A through D, F, G, and K through N. The out-of- pocket costs most commonly covered by the plans include hospital deductibles and copayments, skilled nursing facility copayments, and Part B deductibles and copayments/coinsurance. Medigap plans do not cover extended long-term care, vision care, dental care, hearing aids, or private-duty nursing. Premiums vary according to the plan selected and the insurance company selling the plan.

Trends in Private Health Insurance Until recently, private health insurance coverage (both employer based and individually purchased) among Americans had been steadily declining for several years. For example, in 2000, 75.1% of the U.S. population younger than age 65 (those older than age 65 are covered by Medicare) was covered by private health insurance. By 2010, that proportion had dropped to 61.7%. A small uptick in coverage occurred between 2013 and 2014, from 61.8% to 63.7% covered (National Center for Health Statistics [NCHS], 2016, p. 313). It is very likely that this increase reflects some of the effects of the ACA. Although the ACA may have increased privately purchased health insurance, it has not really had a positive effect on overall employment-based coverage, as pointed out in the next section.

Trends in Employment-Based Health Insurance The ACA’s employer mandate for providing job-based health insurance went into effect in 2015. This mandate applied to employers with 50 or more full-time equivalent (FTE) workers. Often referred to as a play-or-pay mandate, it required employers to either provide their employees with health insurance (play) or pay a penalty for not doing so.

Almost 93% of all employers in the United States, however, employ fewer than 50 FTE employees. Only 1.6% of employers had 200 or more workers in 2016—yet those large employers employed 62% of the workforce (Kaiser/HRET, 2016, p. 19).

TABLE 6-1 shows, by employer size, the percentage of employers that offer health insurance and the percentage of workers covered by health benefits. There was clearly an upward trend in both the offer and coverage rates among small employers (3–49 workers)

between 2005 and 2010. Surprisingly, after 2010, when the ACA was passed, both offer and coverage rates declined. The rates dropped even further in 2016, after the employer mandate took effect in 2015. Clearly, the ACA had a negative effect on workers employed by small businesses.

TABLE 6-1 Trends in Employment-Based Health Insurance, Selected Years

Workforce Size

2005 2010 2015 2016

Percentage of employers offering health insurance

3–9 workers 47 59 47 46

10–24 workers

72 76 63 61

25–49 workers

87 92 82 80

≥ 200 workers

97 99 98 98

Percentage of covered workers 3–24 workers 41 44 35 32

25–49 workers

55 59 49 47

≥ 200 workers

66 63 63 61

Data from Kaiser Family Foundation, and Health Research and Educational Trust (Kaiser/HRET). 2016. Employer health benefits: 2016 annual survey. Menlo Park, CA: Author.

Among large employers (200 or more workers), even though the offer rates have remained relatively stable over time, worker coverage has slowly declined, reaching its lowest point of 61% in 2016. Whether these effects are attributable to the ACA is not clear. In fact, the downward trend has been occurring for several years. For example, among large employers, 69% of the workers were covered under their employer’s health plan in 2001. The offer rates

since then have not changed—so we must look to structural changes within the American industry for possible answers as to why the worker coverage rates have decreased.

In recent years, many large corporations have folded their manufacturing operations in the United States and moved those operations overseas. Consequently, employment in the United States has shifted toward lower-paying jobs in the service industries. For example, among businesses that offer health insurance, 77% of the employees in the manufacturing sector obtained coverage, compared to only 37% in the retail sector (Kaiser/HRET, 2016, p. 61). Even though their employers might offer health insurance benefits, the premiums are too expensive for many of these workers. In addition, more workers have moved (willingly or unwillingly) into part-time jobs. Those who decide not to be covered under their employer’s plans may have either paid the penalty under the ACA’s individual mandate or purchased insurance through government-sponsored exchanges, especially if they qualified for tax subsidies.

Premium Costs in Employment-Based Plans Businesses, mainly the smaller ones, that do not offer health insurance to their employees continue to cite cost as the most important reason for not doing so (Kaiser/HRET, 2016, p. 42). During the 5-year period of 2011 to 2016, the average premium costs for employers rose 18.5% for an individual plan, from $5,429 to $6,435 per year, and the average premium costs rose a little more than 20% for a family plan, from $15,073 to $18,142 per year (Kaiser/HRET, 2011; 2016). During this same period, the employee share of the premiums rose by 22% for single coverage and by 28% for family coverage, while the overall inflation rate rose by 6% and workers’ earnings rose by 11% (Kaiser/HRET, 2016, pp. 38, 88). Employers have increasingly shifted the burden of health insurance costs to their workers, and workers have spent more of their earnings on health insurance because their wages have not increased at the same rate as the cost of insurance. Before the ACA

was implemented, rising cost of health insurance was the most cited reason by workers who did not purchase employment-based health insurance (Employee Benefit Research Institute [EBRI], 2013). In 2014, they were mandated to purchase health insurance either from their employers or through the government exchanges. The ACA, however, was not effective in making health insurance more affordable.

Trends in Utilization Costs: Cost Sharing Between 2011 and 2016, the average annual deductible rose from $991 to $1,478 for an individual plan, an increase of almost 50%. The lowest deductible in PPO plans ($1,028 in 2016) rose by 52%. PPO plan deductibles for family coverage ($2,147 in 2016) rose by 41% during the same period (Kaiser/HRET, 2016, pp. 128, 140).

As for copayments/coinsurance, only 7% of employer-sponsored plans did not require these employee payments for primary care visits in 2016. The average copayment was $24 for primary care and $38 for specialty care office visits (Kaiser/HRET, 2016, p. 147). The ACA placed limits on total out-of-pocket cost sharing for deductibles and copayments/coinsurance. In 2017, these limits were $7,150 and $14,300 for single and family plans, respectively.

▶ Private Coverage and Cost Under the Affordable Care Act

The ACA segmented the individual health insurance market into two groups: those who bought coverage through the government- established exchanges (also called “marketplaces”) to benefit from federal premium subsidies, and those who did not qualify for premium subsidies and bought health insurance outside the exchanges. To help them purchase health insurance through the exchanges, premium subsidies were made available to people with incomes between 100% and 400% of the federal poverty level (FPL), provided these people did not qualify for Medicaid or employment-based coverage.

The number of Americans who gained health insurance under the various provisions of the ACA has been estimated to be approximately 20 million (Jost and Pollack, 2016), or an estimated 7.3% of the nonelderly U.S. population. Of these people, almost 44% were enrolled in Medicaid, 23% in exchange-based plans (with premium subsidies), and 8.8% in other privately purchased health plans (without premium subsidies). Approximately 28.2 million people remained uninsured (Blumberg and Holahan, 2016).

In the context of coverage and cost, six main provisions of the ACA are noteworthy. First, effective September 2010, insurers were mandated to enroll young adults until the age of 26 under their parents’ plans. Prior to this law, coverage for young adults typically ended at age 19, or at age 23 in case of full-time students (Shane et al., 2016). Between the pre-ACA period of 2007–2009 and the post-ACA period of 2011–2013, uninsurance among young adults


declined by 5 percentage points (Berger, 2015). The law helped mainly nonpoor young adults in gaining insurance coverage (Berger, 2015; Han et al., 2016). The pool of young adults covered as a result of the mandate increased by 2.1% and, as expected, the mandate resulted in an increase in insurance premiums. Instead of passing the higher costs to the employees through higher employee contributions, it is likely that employers may have increased the amount of cost sharing in family plans (Depew and Bailey, 2015), as detailed in the previous section. Despite the additional cost, the mandate did not lead to any significant increase in preventive care utilization (Barbaresco et al., 2015), or use of other key services such as doctor visits and prescription drug fills (Shane et al., 2016). This outcome is not surprising given that this age group is generally healthy. Most of them very likely would not have purchased insurance on their own.

Second, in 2014, the ACA made it illegal to charge more or to refuse coverage for people who had preexisting conditions, such as diabetes, cancer, heart disease, and HIV/AIDS. Even though charging more or refusing insurance to people with poor health status can be criticized on equity grounds, a disregard of insurance underwriting principles makes premiums increase for everyone, and healthy people end up subsidizing health insurance for the unhealthy. As would be expected, the ACA improved access to health care for high-cost individuals who had preexisting conditions (Jost and Pollack, 2016).

Third, all health plans had to include certain “essential health benefits” and meet certain requirements. Only “qualified health plans” could be sold through the exchanges. Among other benefits, health plans were required to include preventive and wellness care. Of special note was coverage for contraceptives with no cost sharing—a benefit designed to help, in particular, low-income women. Coverage for abortion remained tied to complex rules, and states were given the authority to ban such coverage (Sonfield and Pollack, 2013).

Fourth, a fee was imposed on insurers for the privilege of selling plans through the exchanges. Such costs would normally be passed on to the consumers in the form of higher premiums (Mulvany, 2013).

Fifth, the ACA required a minimum medical loss ratio of 85% for large-group insurance plans and 80% for individual or small-group plans to pay medical claims. The percentage of premium revenue spent on medical expenses is termed the medical loss ratio (MLR). Insurers use the remainder of the money obtained through premiums for administration, marketing, and profits. Health plans that did not meet the mandates were required to give rebates to the enrollees. These rebates amounted to less than 1% of the premiums in 2011 (Hall and McCue, 2013), and, therefore, had a miniscule effect on savings by consumers.

Sixth, an individual mandate went into effect in 2014; it required all legal residents of the United States to have health insurance, or else pay a penalty tax. Those without coverage under an employer’s plan had the option to buy insurance through the exchanges. Many did forego the purchase of health insurance because the penalties were not regarded as severe enough.

The ACA provisions made health coverage more secure and effective for people who actually became sick or injured. These same provisions increased premiums, particularly for those in the individual and small-group markets who did not qualify for ACA’s tax subsidies. Based on data from the early implementation of the ACA in 2014, Kowalski (2014) estimated that premiums in the individual health insurance market increased by 24.4% beyond what they would have if they had simply followed previous trends. In 2017, premiums for people who bought insurance on their own increased by an average of 25% from what they were in 2016 (Herron, 2016). In many states, these increases were much higher —for example, 43% in Mississippi and 62% in Tennessee (Radnofsky and Armour, 2016). Most of the premium hikes were

offset by more generous government subsidies for marketplace plans, but ultimately these increases were paid by taxpayers and by those who did not qualify for subsidies.

Deductibles also reached often- unaffordable levels in 2017. For the mid-level plan (“silver” plan), the annual deductible reached $3,572 for individuals and $7,474 for families, meaning that these amounts had to be first paid out of pocket before insurance would pay anything. The deductibles were substantially higher than what they were in employment-based plans (see the “Trends in Utilization Costs: Cost Sharing” section).

On top of the vastly increased costs of health insurance in the nonemployer market, some of the largest insurers, such as United Health and Aetna, pulled out of the ACA exchanges, citing huge losses for their decision to pull out. Consequently, many parts of the country were left with only one insurer for purchasing health insurance through the exchanges, with roughly 19% of exchange- based enrollment being affected by these changes (Cox and Semanskee, 2016). Many people had to switch insurers.

President Trump has promised health insurance for all Americans. It remains to be seen how the “new” system would cover the large number of Americans left uninsured despite the ACA, and how cost of health insurance and other inequities within the system would be addressed.

▶ Public Health Insurance Since 1965, government financing has played a significant role in expanding health care services, mainly to those who otherwise would not be able to afford them. Today, a significant proportion of health care services in the United States are supported through public programs. More than one-third of the U.S. population is covered under various public insurance programs (see FIGURE 6- 2), an increase from previous years. This section discusses the financing, eligibility requirements, and services covered under the various public health insurance programs and the effects of the ACA on these services.

Public financing supports categorical programs, each of which is designed to benefit a certain category of people. Examples are Medicare for the elderly and certain disabled individuals, Medicaid for the indigent, Department of Defense programs for active service members and their families, and Department of Veterans Affairs (VA) health care for war veterans. Even though the government finances public insurance, for the most part, health care services are obtained through the private sector. An exception is the VA program, in which the financing, insurance, delivery, and payment functions are largely integrated.

Medicare The Medicare program, also referred to as Title 18 of the Social Security Act, finances medical care for three groups of people: (1) persons 65 years and older, (2) disabled individuals who are entitled to Social Security benefits, and (3) people who have end-stage renal disease (ESRD— permanent kidney failure, requiring dialysis or a kidney transplant). People in these three categories can enroll regardless of their income status.

Shortly after its creation in 1967, the Medicare program had 19.5 million beneficiaries (NCHS, 1996, p. 263). In 2015, Medicare covered 55.3 million beneficiaries. The number of beneficiaries has continued to increase because of the aging of the U.S. population. Although the vast majority of Medicare beneficiaries are 65 years and older, 16% were younger disabled individuals in 2015 (Centers for Medicare and Medicaid Services [CMS], 2016a).

Medicare is a federal program operated under the administrative oversight of the Centers for Medicare and Medicaid Services, a branch of the Department of Health and Human Services (DHHS). Because it is a federal program, eligibility criteria and benefits are consistent throughout the United States.

The Balanced Budget Act (BBA) of 1997 established an independent federal agency, the Medicare Payment Advisory Commission (MedPAC), to advise the U.S. Congress on various issues affecting the Medicare program. MedPAC’s statutory mandate includes analysis of payments to health care providers participating in Medicare, access to care, and quality of care.

For almost 30 years after its inception, Medicare had a dual structure comprising two separate insurance programs referred to as Part A and Part B. It has since become a four-part program.

Part A: Hospital Insurance Part A, the Hospital Insurance (HI) portion of Medicare, is a true entitlement program. Throughout their working lives, people contribute to Medicare through special payroll taxes; hence, they are entitled to Part A benefits regardless of the amount of income and assets they may have. The employer and the employee share equally in financing the HI trust fund. All working individuals, including those who are self-employed, pay the mandatory taxes. Since 1994, all earnings have been subject to Medicare tax.

To qualify for Part A, a person or the person’s spouse must have worked, earned a minimum specified amount, and paid Medicare taxes for at least 40 quarters (10 years) to earn at least 40 credits. People who have earned less than 40 credits can get Part A by paying a monthly premium.

Part A covers inpatient services for acute-care hospitals, psychiatric hospitals, inpatient rehabilitation facilities, skilled nursing facility (SNF) services, home health visits, and hospice care. Following is an overview of the type of benefits provided under Part A:

1. A maximum of 90 days of inpatient hospital care is allowed per benefit period. Once the 90 days are exhausted, a lifetime reserve of 60 additional hospital inpatient days remains. A benefit period is a spell of illness beginning with hospitalization and ending when a beneficiary has not been an inpatient in a hospital or an SNF for 60 consecutive days. The number of benefit periods is unlimited. These rules apply to acute-care hospitals and inpatient rehabilitation facilities.

2. A total of 90 days of care per spell of illness is allowed for treatment in a psychiatric inpatient facility, with a 60-day lifetime reserve. Lifetime use is limited to 190 days of treatment.

3. Medicare pays for up to 100 days of care in a Medicare-certified SNF, subsequent to inpatient hospitalization for at least 3 consecutive days, not including the day of discharge. Admission to the SNF must occur within 30 days of hospital discharge.

4. Medicare pays for home health care obtained from a Medicare- certified home health agency when a person is homebound and requires intermittent or part-time skilled nursing care or rehabilitation. Payment is made for 60-day episodes of care. A beneficiary can have unlimited episodes.

5. For terminally ill patients, Medicare pays for care provided by a Medicare-certified hospice.

A deductible applies to each benefit period (except to home health and hospice), and copayments are based on the duration of services (except for home health). EXHIBIT 6-2 gives specific details on the Part A program for 2017.

EXHIBIT 6-2 Medicare Part A Financing, Benefits, Deductible, and Copayments for 2017


The Hospital Insurance trust fund is financed by a payroll tax of 1.45% from the employee and 1.45% from the employer on all income. Self-employed individuals must pay the full 2.9%. As of 2013, single taxpayers earning $200,000 or more and married couples earning $250,000 or more were required to pay an additional 0.9%, as mandated by the ACA.

Premiums None (Those who do not qualify for premium-free coverage can buy coverage at a monthly premium of up to $413.)

Deductible $1,316 per benefit period

Benefits Copayments

Inpatient hospital (room, meals, nursing care, operating room services, blood transfusions, special care units, drugs and medical supplies, laboratory tests, rehabilitation therapies, and medical social services)

None for the first 60 days [benefit period]$329 per day for days 61–90 [benefit period or spell of illness in psychiatric facilities]$658 per day for days 91– 150 [nonrenewable lifetime reserve days]100% of costs after 150 days

Skilled nursing facility (after a 3-day hospital stay)

None for the first 20 days in a benefit period$164.50 per day for days 21–100 in a benefit period

Home health services (part-time skilled nursing care, home health aide, rehabilitation therapies, medical equipment, social services, and medical supplies)

None for home health visits20% of approved amount for medical equipment

Hospice care A small copayment for drugs

Inpatient psychiatric care (190-day lifetime limit) Same as for inpatient hospital

Noncovered Services Long-term care Custodial services

Personal convenience services (televisions, telephones, private-duty nurses, private rooms when not medically necessary)

Data from Centers for Medicare and Medicaid Services and Social Security Administration.

Part B: Supplementary Medical Insurance Part B, the supplementary medical insurance (SMI) portion of Medicare, is a voluntary program financed partly by general tax revenues and partly by required premium contributions. It is estimated that the beneficiaries bear approximately 25% of the cost of premiums. Since 2007, Part B premiums have been income based, as required by the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. Those beneficiaries whose incomes exceed a threshold amount pay a higher premium—known as the Income-Related Monthly Adjustment Amount (IRMAA). For 2017, the income threshold that triggered IRMAA was $85,000 per year ($170,000 per couple). The intent of the MMA legislation was to reduce tax-financed premium subsidies for higher-income individuals. Hence, for example, an individual earning more than $214,000 in 2017 paid $428.60 in monthly premiums, whereas someone earning less than or equal to $85,000 paid $134.

Almost all persons entitled to HI also choose to enroll in SMI because they cannot get similar coverage at the same price from private insurers. The main services covered by SMI in 2017 are listed in EXHIBIT 6-3. Part B also covers limited home health services under certain conditions.

EXHIBIT 6-3 Medicare Part B Financing, Benefits, Deductible, and Coinsurance for 2017


The general tax revenues of the federal government support approximately 75% of the program costs. The remaining 25% is financed through monthly premiums paid by persons enrolled in Part B.

Standard premium $134 per month (less for people receiving Social Security)

Income-adjusted premium $187.50 to $428.60 per month

Deductible $183 annually

Coinsurance 80/20

Main Benefits


Physician services Emergency department services Outpatient surgery Diagnostic tests and laboratory services Outpatient physical therapy, occupational therapy, and speech therapy Outpatient mental health services Limited home health care under certain conditions Ambulance Renal dialysis Artificial limbs and braces Blood transfusions and blood components Organ transplants Medical equipment and supplies Rural health clinic services Annual physical exam

Wellness exam Preventive services (as medically needed): alcohol misuse screening and counseling, bone mass measurement, mammography, cardiovascular screening, Pap smears, colorectal cancer screening, depression screening, diabetes screening, glaucoma tests, HIV screening, nutritional counseling for diabetes and renal disease, obesity screening and counseling, prostate cancer screening, sexually transmitted infections screening, shots (flu, pneumococcal, hepatitis B), and tobacco use cessation counseling

Noncovered Services

Dental services Hearing aids Eyeglasses (except after cataract surgery) Services not related to treatment or injury

For single beneficiaries whose annual incomes exceed $85,000.

Data from Centers for Medicare and Medicaid Services.

Effective January 2011, the ACA provided for an annual physical exam (called a wellness exam) for all Part B enrollees, without any cost sharing. The main purpose of the wellness exam is to do a risk assessment and develop an individualized prevention plan.

Part C: Medicare Advantage Part C is, in reality, not a new benefit program because it does not add specifically defined new services. Instead, it provides some additional choices of health plans, with the objective of channeling a greater number of beneficiaries into managed care plans. The BBA of 1997 authorized the Medicare+Choice program, which took effect on January 1, 1998. Medicare+Choice was renamed Medicare Advantage (MA) under the MMA of 2003. Beneficiaries


have the option to remain in the original Medicare fee-for-service program, and if the CMS has contracted with an MCO that serves a beneficiary’s geographic area, the beneficiary has the option to join the Medicare Advantage plan. If they join the plan, the beneficiaries receive both Part A and Part B services through the MCO. Prescription drugs under Part D are also included if offered by the MCO.

Enrollment in Medicare Advantage plans has steadily increased since 2004, when only 5.3 million beneficiaries used this option (Gold et al., 2013). More recently, enrollment has climbed from 11.1 million (24% of all Medicare beneficiaries) in 2010 to 17.6 million (31% of beneficiaries) in 2016 (Jacobson et al., 2016).

Premiums for Medicare Advantage are in addition to those paid to Medicare for Part B coverage. As a trade-off, the beneficiary gets additional benefits that are not available in the original Medicare plan, and there is no need to purchase Medigap coverage. Part C enrollees also have lower out-of-pocket costs. Hence, Part C is a cost-effective option for many beneficiaries. Research suggests that, on average, MA plans offer care of equal or higher quality and for less cost than traditional Medicare. Thus, MA plans may be offering better value than traditional Medicare (Newhouse and McGuire, 2014).

The MMA of 2003 required that Medicare Advantage include special needs plans. These plans were first offered in 2005 to meet the special needs of people who were institutionalized, enrolled in both Medicare and Medicaid, or had chronic or disabling conditions. Medicare Advantage Special Needs Plans (MA-SNP) are available in limited areas, and not all plans cover all special needs situations.

The ACA aimed to reduce payments to MA plans, with the goal of achieving some level of parity between the expenditures for Part C and the expenditures under the original Medicare program, in which

spending per beneficiary had been less. Payments have also been risk adjusted and include incentives for quality. MA plans have responded by raising premiums and out-of-pocket costs for the enrollees. However, at least through 2016, enrollments in MA plans have continued to rise.

Part D: Prescription Drug Coverage Part D was added to the existing Medicare program under the MMA of 2003 and was fully implemented in January 2006. Part D is available to anyone who has coverage under Part A or Part B. The prescription drug program requires payment of a monthly premium to Medicare, which is in addition to the premium for Part B. Certain low-income beneficiaries are automatically enrolled without having to pay a premium. As of January 2011, the ACA imposed an IRMAA, such that people in certain income categories pay higher premiums.

Coverage is offered through two types of private plans approved by Medicare. Stand-alone prescription drug plans (PDPs) that offer only drug coverage are used mainly by those who want to stay in the original Medicare fee-for-service program. In contrast, Medicare Advantage Prescription Drug plans (MA-PDs) are available to those persons who are enrolled in Part C if the MCO provides prescription drug coverage—and most do.

The national average for monthly premiums in 2017 was expected to be $42.17, an increase of 9% over the average monthly premium in 2016 (Hoadley et al., 2016). The Part D program also requires payment of a deductible, following which a basic level of coverage becomes available. After that, a coverage gap, or “doughnut hole,” requires the beneficiary to pay the full cost of drugs (at a discount) until a defined level of spending is reached. This gap is then followed by a catastrophic level of coverage (EXHIBIT 6-4). Special provisions in the program are designed to help low-income enrollees by keeping their out-of-pocket costs to a minimum.

EXHIBIT 6-4 Medicare Part D Benefits and Individual Out-of-Pocket Costs for 2017

Premiums $42.17 per month (estimated national average) IRMAA ranging from $13.30 to $76.20

Deductible $400 annually

Three levels of benefits and out-of-pocket costs beyond the $400 deductible:

Initial coverage

Medicare pays 75% of the cost of drugs until the combined total payments by the plan and the beneficiary reach $3,700.

Coverage gap

Beneficiary pays 40% of the cost for brand-name drugs, and 51% of the cost for generic drugs.Coverage gap ends when the beneficiary has spent $4,950 out of pocket (for brand-name drugs, the manufacturer’s discount also counts toward out- of-pocket spending).

Catastrophic level

Beneficiary pays a small coinsurance (about 5%) or copayment.

The Extra Help Program

A special part of the Medicare drug coverage program called Extra Help is designed to serve people who have low incomes and savings. This group of beneficiaries includes those who receive Medicaid or Supplemental Security Income. For those who qualify, the out-of-pocket costs are minimal.

Actual premium varies according to income and the plan selected by the beneficiary.

Data from Centers for Medicare and Medicaid Services (CMS). 2017. Costs for Medicare drug coverage. Available at: Accessed May 2017.

Under the ACA, all Part D drugs must be covered under a manufacturer discount agreement with the CMS. The beneficiaries receive discounts on drugs while in the coverage gap.

Medicare Out-of-Pocket Costs Medicare carries relatively high deductibles, copayments, and premiums (see Exhibits 6-2, 6-3, and 6-4). Eyeglasses, dental care, and many long-term care services are not covered, and there is no limit on out-of-pocket expenses, except that all Medicare Advantage plans have cost sharing limits ($6,700 when in-network providers are used). The traditional Medicare program has no out- of-pocket maximums. Hence, most Medicare beneficiaries are left with high out-of-pocket costs, which represent an important share of their incomes. Medicaid (provided the beneficiary qualifies),



employer retirement benefits, and purchase of private supplement insurance plans (Medigap) are some of the ways to pay for most of these out-of-pocket costs.

Medicare Enrolled Population and Total Expenditures Medicare consumes more than one-fifth of the United States’ national health expenditures. Data on enrolled population and expenditures appear in TABLE 6-2. Compared to previous years, Medicare spending growth was remarkably slow during the 2010 to 2015 period. While the Medicare population grew by 3%, expenditures grew by 4.4%—a vast improvement over the 9% growth rate during the decade of 2000 to 2010. Policies driven by the ACA have been largely credited with this improvement.

TABLE 6-2 Medicare: Enrolled Population and Expenditures in Selected Years

1970 1980 1990 2000 2010 2015

Population Covered (in Millions)

20.4 28.4 34.3 39.7 47.7 55.3

Expenditures (in Billions)

$7.5 $36.8 $111.00 $221.8 $522.9 $647.6

Proportion of Total U.S. Health Care Expenditures

10.0% 14.5% 15.5% 16.4% 20.2% 20.2%

Average Annual Increase in Expenditures from the Previous Year Shown

17% 12% 7% 9% 4.4%

Data from National Center for Health Statistics (NCHS). 2012. Health, United States, 2012 . Hyattsville, MD: U.S. Department of Health and Human Services. pp. 323, 356; Centers for Medicare and Medicaid Services (CMS). 2016a. 2016 Annual report of the boards of trustees of the federal hospital insurance and federal supplementary medical insurance trust funds. Available at:

Trends-and-Reports/ReportsTrustFunds/downloads/tr2016.pdf. Accessed January 2017.

Medicare Financing and Spending for Services Data on financing and spending appear in FIGURE 6-3 and FIGURE 6-4. General taxes fund most of the Medicare expenditures, followed by payroll taxes. Most benefit payments go to hospitals, with private Medicare Advantage plans being the next largest funding recipients.

FIGURE 6-3 Sources of Medicare financing, 2015.

Data from Centers for Medicare and Medicaid Services (CMS). 2016a. 2016 Annual report of the

boards of trustees of the federal hospital insurance and federal supplementary medical insurance

trust funds. Available at:


Accessed January 2017.

FIGURE 6-4 Medicare spending for services, 2015.

Data from Centers for Medicare and Medicaid Services (CMS). 2016a. 2016 Annual report of the

boards of trustees of the federal hospital insurance and federal supplementary medical insurance

trust funds. Available at:


Accessed January 2017.

Medicare Trust Funds Medicare has established two main trust funds: The HI trust fund provides the money pool for Part A services, and the SMI trust fund provides the money pool for Parts B and D. Each trust fund accounts for its own incomes and expenditures. Taxes, premiums, and other revenues are credited to the respective trust funds, and

benefit payments and administrative costs are the only purposes for which disbursements from the funds can be made.

TABLE 6-3 compares the trust fund results for 2012 and 2015. Deficit spending (expenditures exceeding revenues) by the trust funds greatly decreased between 2012 and 2015. This positive change is very likely attributable to the many provisions contained in the ACA to reduce Medicare costs and increase revenues. Despite these gains, however, the Medicare trustees project that deficit financing will return: By 2028, HI revenues are anticipated to cover only 87% of program costs, compared to almost 99% of program costs in 2015. The trustees project depletion of HI funds by 2028, and recommend further legislation to address this issue; such legislation must be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers (CMS, 2016a).

TABLE 6-3 Status of HI and SMI Trust Funds (Billions of Dollars), 2012–2015


2012 2015 2012 2015

Assets at the beginning of year $244.2 $197.3 $80.7 $69.2

Revenues 243.0 275.4 293.9 369.0

Expenditures 266.8 278.9 307.4 368.8

Difference between revenues and expenditures –23.8 –3.5 –13.5 0.2

Assets at the end of year 220.4 193.8 67.2 69.5

Data from Centers for Medicare and Medicaid Services (CMS). 2013. 2013 Annual report of the boards of trustees of the federal hospital insurance and federal supplementary medical insurance trust funds. Available at: Accessed April 2017; Centers for Medicare and Medicaid Services (CMS). 2016a. 2016 Annual report of the boards of trustees of the federal hospital insurance and federal supplementary medical insurance trust funds. Available at:

Data-and-Systems/Statistics-Trends-and- Reports/ReportsTrustFunds/downloads/tr2016.pdf. Accessed January 2017.

The SMI trust fund is adequately financed through 2026 because premium income and general revenue income for Parts B and D are reset each year to cover expected costs. Such financing, however, would have to increase faster than the general economy to cover expected expenditure growth (CMS, 2016a).

A combination of three main factors raises concerns about the future solvency of Medicare:

The cost of delivering health care continues to grow at a rate faster than the rate of inflation in the general economy. An aging population will consume a greater quantity of health care services. The workforce has been shrinking, and wage increases to support payroll tax revenues have been smaller than the rise in medical inflation.

Medicaid Medicaid, also referred to as Title 19 of the Social Security Act, was originally designed to finance health care services for the indigent. Hence, Medicaid is almost entirely a taxpayer-financed program. Since its inception, Medicaid has been a means-tested program in which eligibility depends on people’s financial resources. Each state administers its own Medicaid program under federal guidelines.

Medicaid is jointly financed by the federal and state governments. The federal government provides matching funds to the states based on the per capita income in each state. By law, federal matching—known as the Federal Medical Assistance Percentage (FMAP)—cannot be less than 50% or more than 83% of total state

Medicaid program costs. Wealthier states have a smaller share of their costs reimbursed by the federal government.

Rules for Medicaid Eligibility Three main categories of people are automatically eligible for Medicaid: (1) families with children receiving support under the Temporary Assistance for Needy Families (TANF) program; (2) people receiving Supplemental Security Income (SSI), which includes many of the elderly, the blind, and the disabled with low incomes; and (3) children and pregnant women whose family income is at or below 133% of the FPL. States, at their discretion, have defined other “medically needy” categories based on people’s income and assets. The most important of these are individuals who are institutionalized in nursing or psychiatric facilities and individuals who are receiving community-based services but would otherwise be eligible for Medicaid if institutionalized. All of these people have to qualify based on income and assets, which must be below the threshold levels established by each state.

Dual-Eligible Beneficiaries Approximately 9 million people are dual- eligible beneficiaries—that is, low- income elderly and disabled young adults who are entitled to Medicare, but also become eligible for some level of assistance under Medicaid. The “full duals” qualify for all benefits under both Medicare and Medicaid. For “partial duals,” Medicaid pays some of the costs such as Medicare premiums, deductibles, and copayments. Dual-eligible beneficiaries generally have extensive health care needs because of chronic conditions, disability, or need for long-term care services.

Medicaid Experiences Under the ACA Under financial penalties, the ACA had mandated all states to cover any legal U.S. resident younger than age 65 with income up to 138% of the FPL (after an adjustment of 5 percentage points applied to 133% of FPL based on modified adjusted gross income), starting January 2014. Federal matching funds at 100% for newly

eligible individuals were authorized for 3 years (2014–2016), with a gradual reduction of this rate each year to 90% in 2020. The U.S. Supreme Court then struck down the mandate, giving states the option to either expand or not expand their Medicaid programs without any penalty from the federal government. As of 2016, 31 states and the District of Columbia had expanded their Medicaid programs, and 19 states had not.

Medicaid expansion has helped a significant number of low-income people gain health coverage. Under federal law, access to emergency departments (EDs) does not require insurance coverage. Yet, in the post-ACA era, Medicaid-paid use of hospital EDs increased by 27% (Pines et al., 2016). This is not surprising given the shortage of primary care physicians in the United States, combined with the low participation rates in Medicaid by many physicians. Indeed, research shows—based on the experience in Oregon, where Medicaid expansion began in the late 1980s—that Medicaid expansion results in increased use of EDs, even over time after the new enrollees have had the opportunity to seek alternative sources of care (Finkelstein et al., 2016). The main beneficiaries of higher ED use are the hospitals, which get at least some payment for Medicaid-insured patients. Previously, a large portion of such care would have been written off as uncompensated. Given the enormous expansion of Medicaid managed care, one might expect that MCOs would provide better access to services for the enrollees. Medicaid managed care penetration in a geographic market, however, is associated with increased probability of ED use, difficulty seeing a specialist, and unmet need for prescription drugs, without a reduction in expenditures (Caswell and Long, 2015).

Based on their research, Roberts and Gaskin (2015) concluded that Medicaid expansion under the ACA would require more than 2,000 additional primary care providers. Nevertheless, a comprehensive literature review suggests that, overall, the ACA-linked Medicaid expansion resulted in better access to care and utilization

(Antonisse et al., 2016). Still other studies have pointed to challenges that may make it difficult to meet the increased demand for care among the newly eligible Medicaid population.

Although Medicaid beneficiaries express a relatively high level of satisfaction with their access to care, on closer examination it appears that this access comes from visiting hospital EDs and community health centers (Goozner, 2015). Unfortunately, community health centers are not available everywhere in the United States.

Issues with Medicaid The main problem with Medicaid is lack of reimbursement for providers. Hence, many physicians and some other providers do not serve Medicaid-covered patients. Medicaid reimbursement is a fraction of what is paid by Medicare and private insurers. Despite this discrepancy, the U.S. Supreme Court ruled in Armstrong v. Exceptional Child Center, Inc. that Medicaid providers do not have the right to seek relief in federal courts to force states to pay higher reimbursement (Huberfeld, 2015). Under the ACA, payments were brought up to Medicare levels only temporarily. Hence, the issue of physician participation is an ongoing one.

Another critical issue with Medicaid is churning—that is, the constant exit and reentry of beneficiaries in this system as their eligibility changes. Churning occurs because many beneficiaries have incomes that may fluctuate from one month to another. Data suggest that 30% of Medicaid beneficiaries lose their eligibility within 6 months of enrollment (Sommers and Rosenbaum, 2011), and approximately half lose it within 12 months (Sommers et al., 2014). Churning often disrupts access and continuity of care. Moreover, under the ACA mandate that all persons have health insurance, those bumped from Medicaid must find new coverage— typically through the government-sponsored exchanges.

Given the issues discussed here and in the previous section, most Americans would not be satisfied with Medicaid as their source of health insurance. Indeed, since its inception, the presence of Medicaid has resulted in a two-tier health care system in the United States, with one branch serving the poor and the other branch reserved for the nonpoor.

Medicaid Enrollment and Spending Just before 2014, Medicaid enrollment stood at approximately 60 million. During the first half of 2014, after the ACA was implemented, 6 million people gained coverage through Medicaid (Haislmaier and Gonshorowski, 2014). Federal spending on Medicaid, attributed to the ACA, increased by $36 billion in 2014 (Medicaid and CHIP Payment and Access Commission [MACPAC], 2016).

Because of the churning phenomenon discussed in the previous section, the enrollment figures do not remain stable. Hence, the CMS furnishes quarterly reports on enrollments. As of February 2016, Medicaid enrollment had grown to a little more than 74 million (CMS, 2016b), a 23% growth since late 2013, much of which may be attributable to the ACA. Hence, Medicaid has become the second largest source of insurance coverage, second only to employer-based coverage (see FIGURE 6-2).

In 2014, Medicaid spending amounted to approximately 16% of total U.S. health care expenditures, or $498 billion (MACPAC, 2016). By comparison, Medicare accounts for 20% of total expenditures. Over the next several years, Medicaid is projected to grow at a rate that is comparable to or slower than Medicare. FIGURE 6-5 summarizes the spending on the various Medicaid- covered services.

FIGURE 6-5 Medicaid spending for services, 2014.

Data from Medicaid and CHIP Payment and Access Commission (MACPAC). 2016. Report to

Congress on Medicaid and CHIP, June 2016. Washington, DC: Author.

Children’s Health Insurance Program The Children’s Health Insurance Program (CHIP), codified as Title 21 of the Social Security Act, was initiated under the BBA of 1997 in response to the plight of uninsured children whose families’ incomes exceeded the Medicaid threshold levels, which made them ineligible for Medicaid coverage. These children were estimated to number 10.1 million—nearly one-fourth of all uninsured persons—in 1996.

The program offers federal funds in the form of set block grants to states. To cover children up to 19 years of age, a state can expand its existing Medicaid program, establish a separate program for children, or use a combined approach. Federal law requires that ineligibility for Medicaid be established before approval for CHIP coverage. Each state establishes its own eligibility criteria for CHIP, which must comply with the federal guidelines. There is no federal income threshold, but many states cover children in families with incomes up to 200% of the FPL, provided the children are not covered under another private or public health insurance program. Several states have established income criteria above 200% of FPL. CHIP does not cover parents or adults.

Similar to the case with Medicaid, CHIP financing is shared between the federal and state governments. In an effort to strengthen CHIP, federal matching funds are 15 percentage points higher than what they are for Medicaid.

Research has shown that CHIP has had a significant impact in reducing the number of uninsured children (Hudson, 2005). CHIP has also been credited with improving access, continuity of care, and quality of care for children in all racial/ethnic groups, as well as reducing racial/ethnic disparities in access, unmet need, and continuity of care (Shone et al., 2005).

Health Care for the Military The U.S. Department of Defense (DOD) operates a large and complex health care program, known as the Military Health System, that provides medical services to active duty and retired members of the armed forces, their dependents, survivors, and former spouses. This program has also been extended to National Guard/Reserve members. The Military Health System has a global scope. Approximately 150,000 military, civilian, and contract personnel are employed in hospitals and clinics operated by the military. Each of the military departments—Army, Navy, and Air

Force—operates its own medical facilities. DOD’s health care budget exceeds $50 billion, and it provides services to 9.6 million beneficiaries (DOD, 2014).

TRICARE is the insurance arm of the military health care system. Beneficiaries may obtain health care either through DOD’s medical facilities or through services purchased from civilian providers.

TRICARE offers several different health insurance plans, including managed care and fee-for-service options, and different options depending on whether the eligible beneficiaries live in the United States or overseas. For retirees age 65 and older, TRICARE offers a plan that works in conjunction with Medicare—the enrollee must enroll in Parts A and B. Service members who separate from service due to a service-connected injury or illness may be eligible for VA benefits and certain TRICARE benefits. TRICARE- and VA- eligible beneficiaries can choose to use either their TRICARE or VA benefits for each separate episode of care.

Veterans Health Administration The Veterans Health Administration (VHA), the health services branch of the U.S. Department of Veterans Affairs (VA), operates the largest integrated health services system in the United States. The system encompasses more than 1,700 sites of care that include hospitals, outpatient clinics, community living centers (nursing homes), and various other facilities. Each year, VHA provides medical services to 8.76 million veterans (VHA, 2017). Its Office of Research and Development focuses its research activities on health issues that affect veterans. The system actively engages in medical education through affiliations with academic health systems.

VHA was originally established to treat veterans with war-related injuries and to help rehabilitate past service members with war- related disabilities. This original mission was later expanded. Today,

non-service-related conditions account for the bulk of the care provided, as poor veterans with medical conditions unrelated to military combat increasingly use the system. More than half of the veterans served by VHA have no service-connected disabilities (NCHS, 2012). Congress requires VHA to provide services on a priority basis to veterans with service-connected illnesses and disabilities, low incomes, or special health care needs.

Funding for the VHA program is appropriated in the annual national budget approved by Congress. The structure of VHA funding is patterned after the global budget model, in which budget appropriations are determined in advance for the entire system. The VHA then distributes these funds to its organizational units having oversight for the delivery of health care.

The organizational units comprise 23 geographically distributed Veterans Integrated Service Networks (VISNs). Each VISN is responsible for coordinating the activities of the hospitals, outpatient clinics, nursing homes, and other facilities located within its jurisdiction.

The VHA also operates the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA), which covers dependents of permanently and totally disabled veterans. The VHA shares the cost of covered health care services and supplies with eligible beneficiaries.

Despite its many successes, the VHA system suffers from capacity and financing constraints, which result in lack of access and timely care for many veterans. In 2014, highly publicized reports described lack of access to care, preventable deaths that occurred while veterans were waiting for care, and falsification of lists to make waiting times appear shorter (Giroir and Wilensky, 2015). In response, Congress passed the Veterans Access, Choice, and Accountability Act of 2014. A Veterans Choice Program was created to allow certain veterans who experience lengthy wait times

and live 40 or more miles away from a VA facility to be able to obtain care from community-based providers. President Trump has promised to further bolster the health care system for the nation’s veterans.

Indian Health Service The federal program administered by the Indian Health Service (IHS), a division of the DHHS, provides comprehensive health care services directly to members of federally recognized American Indian and Alaska Native (AIAN) tribes and their descendants. AIANs, as citizens of the United States, are eligible to participate in all public, private, and state health programs available to the general population. However, for many Indians, IHS-supported programs are the only source of health care because no alternative sources of medical care are available, especially in isolated areas. IHS programs serve almost 2.2 million AIANs residing on or near reservations and in rural communities. Services are provided in more than 883 IHS-owned or -leased and tribal health care facilities. These facilities include hospitals, health centers, school centers, health stations, and Alaska village clinics. Delivery of services is organized through 12 area offices.

▶ The Payment Function Insurance companies, MCOs, Blue Cross/Blue Shield, and the government (for Medicare and Medicaid) are referred to as third- party payers, with the other two parties being the patient and the provider. The payment function has two main facets: (1) the determination of the methods and amounts of reimbursement for the delivery of services and (2) the actual payment after services have been rendered. The set fee for each type of service is commonly referred to as a charge or rate. Technically, a charge is a fee set by the provider, which is akin to price in general commerce. A rate is a price set by a third-party payer. An index of charges listing individual fees for each type of service is referred to as a fee schedule. In general, to receive payment for services rendered, the provider must file a claim with the third-party payer. For the sake of simplicity, in this section, we refer to the determination of rates as “reimbursement” and to the payment of claims as “disbursement.”

Historically, providers have preferred the fee-for-service method, but it has now largely fallen out of favor with payers because it leads to cost escalations. The Medicare program, in particular, has been at the forefront of devising innovative reimbursement methods; private payers often follow suit. Today, numerous reimbursement methods exist and are used for different types of services. Physicians, dentists, optometrists, therapists, hospitals, nursing facilities, and so on may be paid according to different reimbursement mechanisms.

Fee for Service Fee for service is the oldest method of reimbursement and is still in existence, although its use has been greatly reduced. Fee for service is based on the assumption that health care is provided in a

set of identifiable and individually distinct units of services, such as examination, x-ray, urinalysis, and a tetanus shot, in the case of physician services. For surgery, such individual services may include an admission kit, numerous medical supplies (each accounted for separately), surgeon’s fees, anesthesia, anesthesiologist’s fees, recovery room charges, and so forth. Each of these services is separately itemized on one bill, and there can be more than one bill. For example, the hospital, the surgeon, the pathologist, and the anesthesiologist bill for their services separately.

Initially, providers established their own fee-for-service charges and insurers passively paid the claims. Later, insurers started to limit reimbursement to a usual, customary, and reasonable (UCR) amount. Each insurer determined on its own what the UCR charge should be, through community or statewide surveys of what providers were charging. If the actual charges exceeded the UCR amount, then reimbursement from insurers was limited to the UCR amount. Providers would then balance bill—that is, ask the patients to pay the difference between the actual charges and the payments received from third-party payers.

The main problem under fee-for-service arrangements is that providers have an incentive to deliver additional services that are not always essential. Providers can increase their incomes by increasing the volume of services. However, dentists, therapists, and some physicians continue to receive payment according to the fee-for-service model.

Bundled Payments Fee for service essentially pays for unbundled services. A bundled fee, also referred to as package pricing, includes a number of related services in one price. For example, optometrists sometimes advertise package prices that include the charges for eye exams, frames for eyeglasses, and corrective lenses. The various

prospective payment methods of reimbursement are also examples of payments for bundled services. Package pricing reduces the incentive for providing nonessential services. Some evidence indicates that bundled payment methods, especially when they are prospectively set, are effective in reducing health care spending without significantly affecting quality of care (Hussey et al., 2012).

Medicare has pioneered a bundled payment mechanism that pays providers a single sum for a given episode. Some episodic models are still being explored, but the most extensive one includes all services during hospitalization and subsequent delivery of post- acute services, such as rehabilitation and nursing home care. Incentives to share cost savings with Medicare are also incorporated (Tanenbaum, 2017). The theory behind episodic payments is that various providers collaborating to deliver services to a patient through an entire episode will result in coordinated care, improved quality, and lesser cost.

Resource-Based Relative Value Scale Under the Omnibus Budget Reconciliation Act (OBRA) of 1989, Medicare developed a reimbursement mechanism to pay physicians according to a “relative value” assigned to each physician service. The resource-based relative value scale (RBRVS) was implemented in 1992. Subsequently, third-party payers adopted the RBRVS system.

RBRVS incorporates relative value units (RVUs) based on the time, skill, and intensity (physician work) it takes to provide a service. Hence, RVUs reflect resource inputs—time, effort, and expertise—to deliver a service. RVUs are established for different types of services that are identified by codes. The Healthcare Common Procedures Coding System (HCPCS) includes the Current Procedural Terminology (CPT) codes (Level I) and Level II codes for services, such as supplies, equipment, and devices.

In addition to RVUs associated with physician work, separate RVUs are included for the cost of practice (overhead costs), malpractice insurance, and geographic cost variations. Then, a standard dollar amount, called a conversion factor (CF), is used and a sustainable growth rate (SGR) factor is applied to establish a Medicare Physician Fee Schedule (MPFS)—a price list for physician services, based on which individual payments are made when physicians file their claims. Other factors, such as involvement of nonphysician practitioners and reporting of quality measures, can also come into play (MedPAC, 2016a).

In essence, RBRVS is a variation of fee for service, so it has not addressed the issue of volume-driven payment. The number of RVUs can be increased by increasing the volume of services delivered, thereby increasing practice throughput and boosting the number of billable services per patient (Jessee, 2011). The controversial SGR formula has gone through several “doc fixes” in Congress, with the goal of averting severe payment cuts for physicians. These “fixes” have resulted in increased overall expenditures for physician services.

Value-Based Reimbursement Medicare has continued to innovate in regard to its reimbursement methodologies so as to give more emphasis to improved quality and reduced cost. Under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, Medicare implemented a quality payment program. For physician services, the new law repealed the SGR formula and some of the other adjustments to the MPFS. The quality payment program will start payment adjustments in January 2019 based on performance. These adjustments will reflect performance data collected as of January 2017. MACRA streamlines the reporting of previously used quality measures into one composite performance score.

MACRA makes available two different tracks in which clinicians can opt to participate. The first option, known as the Merit-based Incentive Payment System (MIPS), ties payment bonuses or penalties to quality measures, resource use (input costs) compared to similar care episodes and clinical conditions, care coordination and shared decision making, and use of electronic health records. The second option, known as Advanced Alternative Payment Models (APMs), applies to clinicians who participate in accountable care organizations (ACOs) and patient-centered medical homes.

ACOs—groups of providers, such as physicians and hospitals, that have agreed to be held accountable for the cost and quality for a group of beneficiaries—are paid mainly through the Medicare Shared Savings Program (MSSP). Under the ACA, any cost savings achieved through these arrangements are shared in the form of bonuses between participating ACOs and Medicare. Beneficiaries do not enroll in ACOs, but are assigned to ACOs by Medicare. The beneficiaries are free to obtain services outside the ACO; if they choose to go outside the ACO, the ACO remains responsible for the spending. This provides an incentive to the ACO providers to keep their enrollees satisfied so they will stay with the ACO providers (MedPAC, 2016b).

Medicare has also enforced a quality reporting program for certain types of facilities, such as ambulatory surgical centers, home health agencies, and hospices. Facilities that do not submit quality data to the CMS are assessed a penalty in the form of reduced reimbursement.

Managed Care Approaches MCOs have concentrated on three main approaches to payment. The first is the preferred-provider approach, which may be regarded as a variation of fee for service. The main distinction is that an MCO contracts with certain “preferred providers” and negotiates discounts off the charges to establish fee schedules.

In the second approach, which is called capitation, the provider is paid a set monthly fee per enrollee, which is sometimes referred to as a per member per month (PMPM) rate. The fixed monthly fee (PMPM rate × number of enrollees) is paid to the provider regardless of how often the enrollees receive medical services from the provider. Capitation removes the incentive for providers to increase the volume of services to generate additional revenues. It also makes providers prudent in providing only necessary services.

Salary, combined with productivity- related bonuses, is the third payment method used by some MCOs that employ their own physicians.

Cost-Plus Reimbursement Cost-plus reimbursement was the traditional method used by Medicare and Medicaid to establish per diem (daily) rates for inpatient stays in hospitals, nursing homes, and other institutions. Under the cost-plus method, reimbursement rates for institutions are based on the total costs incurred in operating the institution. The institution is required to submit a cost report to the third-party payer. Complex formulas are developed, designating certain costs as “nonallowable” and placing cost ceilings in other areas. The formulas are used to calculate the per diem reimbursement rate, also referred to as a per patient-day (PPD) rate. The method is called cost-plus because, in addition to the total operating costs, the reimbursement formula takes a portion of the capital costs into account in arriving at the PPD rate. Because the reimbursement methodology sets rates after evaluating the costs retrospectively (by looking back), this mechanism is broadly referred to as retrospective reimbursement.

Under the cost-plus system, total reimbursement is directly related to length of stay, services rendered, and cost of providing the services. Providers have an incentive to provide services indiscriminately, which in turn drives up costs. There is little

motivation for efficiency and cost-containment in the delivery of services. Paradoxically, health care institutions can increase their profits by increasing costs under such a system.

Because of the perverse financial incentives inherent in retrospective cost-based reimbursement, this approach has been largely replaced by various prospective reimbursement methods. An exception is the federal critical access hospital program, which continues to allow certain rural hospitals to be paid under the cost- plus reimbursement system. Medicare-certified hospices are also reimbursed based on per diem rates that are intended to cover the costs of services.

Prospective Reimbursement In contrast to retrospective reimbursement, in which historical costs are used to determine the amount to be paid, prospective reimbursement is forward-looking, and uses certain established criteria to determine the amount of reimbursement in advance, before services are delivered. Prospective reimbursement not only minimizes some of the abuses inherent in cost-plus approaches, but also enables providers, such as Medicare, to better predict future health care spending. In addition, it provides strong incentives to health care organizations to reduce costs. The organization makes a profit only if it can keep its costs below the prospective reimbursement amount. Inability to control costs jeopardizes the organization’s financial health.

Medicare has been using the prospective payment system (PPS) to reimburse inpatient hospital acute care services under Medicare Part A since 1983. Subsequently, the BBA of 1997 mandated implementation of a PPS for hospital outpatient services and post- acute-care providers, such as SNFs, home health agencies, and inpatient rehabilitation facilities.

Depending on the type of service setting, the prospective reimbursement methods discussed in the subsequent sections are based on diagnosis-related groups (DRGs), ambulatory payment classification (APC), case-mix methods, and home health resource groups (HHRGs).

Diagnosis-Related Groups Overview of DRG-Based Reimbursement. The PPS for acute- care hospital inpatient reimbursement was enacted under the Social Security Amendments of 1983. The predetermined reimbursement amount is set according to DRGs. Each DRG groups together principal diagnoses that are expected to require similar amounts of hospital resources in the delivery of care.

The primary factor governing the amount of reimbursement is the type of case (a DRG classification), but additional factors can create differences in reimbursement for the same DRG. DRG-based rates are adjusted for geographic differences (wage levels in various areas and location of the hospital in an urban versus rural area); whether the institution is a teaching hospital (i.e., has residency programs for medical graduates); and whether a hospital treats a disproportionate share of low-income patients. The last provision was authorized by Congress to give extra financial support to “safety net” hospitals (called disproportionate share hospitals), which are mainly located in inner cities and rural areas, and serve a large number of poor people. Additional payments are also made for cases that involve extremely long hospital stays or are extremely expensive, which are referred to as outliers.

The hospital receives a predetermined fixed rate per discharge (i.e., per case) based on the patient’s DRG classification and adjustment factors just pointed out. The bundle of services consists of whatever medical care the patient requires for a given principal diagnosis. The fixed payment rates give providers financial incentives to reduce costs.

Refined Medicare Severity DRGs. In 2007, the CMS adopted a refined DRG-based PPS method that includes patient severity to better reflect hospital resource use. The new system has 335 base DRGs, most of which are further split into two or three Medicare severity diagnosis-related groups (MS-DRGs) based on comorbidities (secondary conditions) or complications (developed during hospital stay). This new payment system had 756 MS-DRGs in use in 2016. Each MS-DRG carries a relative weight that reflects how costly it would be to take care of a patient in a given MS-DRG category relative to other categories. A new type of adjustment to the reimbursement method is for the use of certain technologies. Also added to the reimbursement is 65% of bad debts resulting from nonpayment of deductibles and copayments.

Because DRG-based payments have a financial incentive for hospitals to keep the length of stay as short as possible, the ACA required reduction in payments to hospitals that incurred excessive Medicare readmissions for selected conditions. The objective is to prevent discharging a patient too soon, and there is a penalty for patients who develop hospital-acquired preventable medical conditions (MedPAC, 2016c).

Psychiatric DRG-Based Payment On average, Medicare beneficiaries account for approximately one- fourth of discharges in inpatient psychiatric facilities. These facilities are paid a per diem rate rather than a case-specific rate, based on psychiatric MS-DRGs. Base rates are established by using national average daily costs for routine, ancillary, and capital costs, updated for inflation. The base rates are adjusted for certain factors, similar to the adjustments for acute-care hospitals. (MedPAC, 2016d).

Long-Term Care Hospital Payment System Long-term care hospitals (LTCHs) are paid in three different ways. For post-acute care following stay in an intensive care unit (ICU) and for ventilator-dependent patients, Medicare uses a PPS system. Per-discharge payment rates are set according to

Medicare severity long-term care diagnosis-related groups (MS- LTC-DRGs). For patients who do not meet the preceding criteria, the reimbursement is the lower of the acute-care rate under hospital PPS or the cost of caring for the patient. The MS-LTC- DRGs use the same groups as for acute-care PPS, but have specific weights applicable to patients receiving care in LTCHs (MedPAC, 2016e).

Outpatient Prospective Payment System In August 2000, Medicare’s Outpatient Prospective Payment System (OPPS) was implemented to pay for services provided by hospital outpatient departments. The ambulatory payment classification (APC) divides all outpatient services into groups based on clinical and cost similarity. With few exceptions, all services within an APC have the same payment rate. In addition, the CMS has created new technology APCs that cover these technologies until enough data become available to establish payment rates for them. Expensive drugs and biologicals also have separate APCs. The reimbursement rates are adjusted for factors such as geographic variations in wages. Adjustments are also made for outpatient services delivered by certain cancer centers and children’s hospitals. APC reimbursement is in the form of a bundled rate that includes services such as anesthesia, certain drugs, supplies, and recovery room charges in a packaged price established by Medicare.

In January 2008, Medicare implemented an OPPS to pay for facility services, such as nursing, recovery care, anesthetics, drugs, and other supplies, in ambulatory surgery centers (freestanding or hospital based). The most common procedures performed in these centers include cataract removal and lens replacement, upper gastrointestinal endoscopy, and colonoscopy. Physician services are reimbursed separately under the physician fee schedule based on RBRVS (MedPAC, 2009).

Case-Mix Methods

Case mix is an aggregate of the severity of conditions requiring clinical intervention. Case-mix categories are mutually exclusive and differentiate patients according to the extent of resource use. On a case-mix index, higher score categories include patients who have more severe conditions than those in lower score categories. A comprehensive assessment of each patient’s condition determines the case mix for an inpatient facility. Patients who require similar levels of services are then categorized into groups that are relatively uniform according to resource consumption.

Resource Utilization Groups. The case-mix method is used for paying SNFs. Implemented in 1998, the PPS provides for a per diem prospective rate based on the intensity of care needed by patients in an SNF. The Minimum Data Set (MDS) is the instrument used for a comprehensive assessment of each patient. It consists of a core set of screening elements used to assess the clinical, functional, and psychosocial needs of each patient admitted to an SNF. A patient’s day of care is assigned to one of 66 resource utilization groups (RUGs). The RUG categories differentiate between patients according to expected resource use. Among the variables used to identify resource utilization are patient characteristics, such as principal diagnosis, functional limitations, cognitive patterns, psychological condition, skin problems, bladder and bowel function, nutritional status, and special treatments and procedures needed.

The aim of RUG-based PPS is to ensure that Medicare payments are related to the care requirements of the patient and are made equitably to SNFs with different patient caseloads. The per diem rate is all-inclusive, meaning it includes payment for all covered SNF services, such as nursing care and rehabilitation. Adjustments to the PPS rate are made for differences in wages prevailing in various geographic areas and for facility location in an urban versus rural area.

Case-Mix Groups. Since 2002, inpatient rehabilitation facilities (rehabilitation hospitals and distinctly certified rehabilitation units in general hospitals) have been reimbursed according to case-mix groups (CMGs). Each patient must undergo a patient assessment at admission and discharge. Based on information from the assessment, the patient is assigned to one of the intensive rehabilitation categories, based on the primary reason for rehabilitation, such as stroke or hip fracture, age, functional level, or cognitive impairment. Patients are further categorized into one of four tiers, based on any comorbidities; each tier adjusts the base payment either up or down.

The primary function of inpatient rehabilitation is to provide intensive rehabilitation therapy. Hence, Medicare rules require that no less than 60% of the total patient population in such units have one of 13 specified conditions that require intensive rehabilitation (MedPAC, 2016f).

Home Health Resource Groups Implemented in 2000, the PPS for home health pays a fixed, predetermined rate for each 60-day episode of care regardless of the specific services delivered, which can be skilled nursing care, rehabilitation, medical social work, and/or home health aide services. All services provided by a home health agency are bundled under one payment made on a per-patient basis, except that the costs of any durable medical equipment (DME) are not included in the bundled rate. To capture the expected resource use, patients are assigned to one of the 153 HHRGs, based on clinical and functional status and service use, which is measured by the Outcome and Assessment Information Set (OASIS). The HHRGs range from groups of relatively uncomplicated patients to those who have severe medical conditions, have severe functional limitations, or need extensive therapy. If a patient received fewer than five visits during a 60-day episode, the home health agency is paid per visit based on the type of visit (MedPAC, 2016g).

Disbursement of Funds After services have been delivered, some agency must perform the administrative task of verifying and paying the claims received from the providers. Disbursement of funds (claims processing) is carried out in accordance with the reimbursement policy adopted by the particular program. Commercial insurance companies and MCOs may either have their own claims departments to process payments to providers or outsource this function. Self-insured employers typically contract with a third-party administrator (TPA) to process and pay claims. The TPA may also monitor utilization and perform other oversight functions. The government contracts with third parties in the private sector to process Medicare claims. These so-called Medicare Administrative Contractors are private insurers. For Medicaid, each state has established billing codes and claim submission procedures.

▶ National Health Care Expenditures

In 2015, national health expenditures (NHE)—also referred to as health care spending—in the United States amounted to a little more than $3.2 trillion, or an average per-capita spending of $9,990 for each American. TABLE 6-4 provides NHE data for selected years. NHE represented 17.8% of the U.S. gross domestic product (GDP), where the GDP is the total value of goods and services produced in the United States and is an indicator of total economic production, or total consumption (CMS, 2016c). Hence, 17.8% of GDP refers to the share of the total economic output consumed by health care products and services in 2015. Because of the 2007–2009 recession and a slow economic growth since then, the share of GDP is somewhat higher than would otherwise be expected. Nevertheless, the data leave little doubt that health care continues to consume an ever-rising share of the United States’ total economic production.

TABLE 6-4 U.S. National Health Expenditures in Selected Years

Year Amount (in Billions)

Percentage of GDP

Amount per Capita

1960 $27.2 5.0 $146

1970 74.6 6.9 355

1980 255.3 8.9 1,108

1990 721.4 12.1 2,843

2000 1,369.7 13.3 4,857

2010 2,596.4 17.4 8,404

2015 3,205.6 17.8 9,990

2020 (projected)

4,198.3 18.7 12,490

Data from Centers for Medicare and Medicaid Services (CMS). 2016c. National health expenditure data: Historical. Available at: statistics-data-and-systems/statistics-trends-and- reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html. Accessed January 2017.

Total spending grew at an average annual rate of 6.7% from 1990 to 2000, at 7.3% from 2000 to 2010, and at 4.3% from 2010 to 2015. However, in 2015 alone, NHE grew by 5.8%. Nevertheless, the slower growth of NHE in recent years compared to previous decades no doubt reflects cost-containment efforts undertaken by various payers, notably the federal government for Medicare spending.

According to projections made by CMS’s Office of the Actuary, the annual rate of NHE increase from 2015 to 2020 is expected to be 5.6%. NHE is expected to surpass $4 trillion by 2020, when it will consume 18.7% of GDP. This prediction reflects the expectation that the NHE rate of increase will be faster than the GDP rate of increase.

Differences Between National and Personal Health Expenditures National health expenditures are an aggregate of the amount a nation spends for all health services and supplies, public health services, health-related research, administrative costs, and investment in structures and equipment during a calendar year. The proportional distribution of NHE into the various categories of health services in the United States appears in TABLE 6-5.

TABLE 6-5 Percentage Distribution of U.S. National Health Expenditures, 2010 and 2015

2010 2015

NHE 100.0 100.0

Personal health care 84.5 84.8

Hospital care 31.7 32.3

Physician and clinical services 19.8 19.8

Dental services 4.0 3.7

Nursing home care 5.4 4.9

Other professional services 2.7 2.7

Home health 2.7 2.8

Prescription drugs 9.7 10.1

Other personal health care 5.0 5.1

Other medical products 3.5 3.4

Government administration and net cost of private health insurance

7.1 7.9

Government public health activities 2.9 2.5

Investment 5.5 4.8

Noncommercial research 1.9 1.5

Structures and equipment 3.6 3.4

Total NHE (billions) $2,596.4 $3,205.6

Personal health expenditures (billions) $2,194.6 $2,717.2

Data from Centers for Medicare and Medicaid Services (CMS). 2016c. National health expenditure data: Historical. Available at: statistics-data-and-systems/statistics-trends-and- reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html. Accessed January 2017.

Personal health expenditures, which are a component of national health expenditures, comprise the total spending for services and goods related directly to patient care. Personal health expenditures constitute the amount remaining after subtracting from NHE all of the spending for research, structures (e.g., construction, additions, alterations) and equipment, administrative expenses incurred in private and public health insurance programs, and costs of government public health activities. In 2015, 84.8% of U.S. NHE was attributed to the various services classified under personal health expenditures. As a share of NHE in percentage terms, the biggest rise between 2010 and 2015 was experienced by the government administration and net cost of private health insurance category, which reflects the administrative costs of health insurance under the ACA. Other areas with notable increases included prescription drugs and hospital services (see TABLE 6-5).

Trends in Private and Public Expenditures Since 1987, CMS’s Office of the Actuary has used a standard format to compile data separated between private and public health care expenditures. Results for selected years are shown in FIGURE 6-6. Notice the gradual decline in private expenditures and proportional increases in public expenditures over time. Clearly, proportional increases in Medicare, Medicaid, and CHIP programs continue to outpace expenditure from private sources of health care.

FIGURE 6-6 Proportional distribution of U.S. private and public shares of national health expenditures.

Data from National Center for Health Statistics (NCHS). 2016. Health, United States, 2015.

Hyattsville, MD: U.S. Department of Health and Human Services. pp. 310–311.

The Nation’s Health Care Dollar FIGURE 6-7 provides a comprehensive picture of where U.S. national health care dollars come from (revenues), including both private and public sources, and how they are spent (expenditures). Between 2011 and 2015, the most notable changes were an increase in federal funding of Medicaid (up from 9% in 2011) and a slight drop in Medicare funding (down from 21% in 2011). A difference of one percentage point may appear small, but it

amounts to $27 billion in terms of NHE for 2011. Both changes in public financing could be attributed to the ACA, which authorized federal dollars for Medicaid expansion and cuts to private insurers participating in the Medicare Advantage program. As discussed previously, private health insurance revenues did not have a notable effect on NHE.

FIGURE 6-7 The U.S. health dollar, 2015.

Includes work-site health care, other private revenues, Indian Health Service, workers’

compensation, general assistance, maternal and child health, vocational rehabilitation, Substance

Abuse and Mental Health Services Administration, school health, and other federal and state local


Includes copayments, deductibles, and any amounts not covered by health insurance.

Includes research and structures and equipment.




Includes durable and nondurable goods.

Includes expenditures for residential care facilities, ambulance providers, medical care delivered in

nontraditional settings (such as community centers, senior citizens centers, schools, and military field

stations), and expenditures for Home and Community Waiver programs under Medicaid.

Note: Numbers may not add to 100 because of rounding.

Data from Centers for Medicare and Medicaid Services (CMS). 2016c. National health expenditure

data: Historical. Available at:


reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html. Accessed January

2017. See NHE Tables.

On the expenditures side, the main changes were increases in the administration of private and public health insurance (up from 7% in 2011) and hospital care (up from 31% in 2011). There were slight drops in investments in research, structures, and equipment, as well as in payments to nursing care facilities.



▶ Current Directions and Issues

On the issue of health insurance and access to health care, significant ambiguity existed when this manuscript was prepared. As a broad undertaking to transform U.S. health care, the ACA had made major changes that spanned almost the full spectrum of health care, not just insurance. Undoing some of the changes will be a complex task, especially to avoid disruptions in coverage and to keep costs under control. In the meantime, President Trump signed an executive order on his first day in office that provides remedies for the collection of various penalties under the ACA. Subsequently, on May 5, 2017, the congressional House of Representatives passed the American Health Care Act (AHCA). This bill will undergo changes and be passed by the Senate before it reaches the President for his signature.

Value and Affordability Whether the ACA has been a good value for consumers can be disputed. The answer actually depends on how the question is phrased—that is, for whom it has been a good value.

Certainly, those persons covered under Medicaid, those who received tax subsidies to buy health insurance, and those with preexisting health conditions and poor health status would have found the cost of health insurance to be a good value. The purpose of health insurance, however, is to ensure that the insured can gain access to health care services as and when needed. As discussed previously, conclusions about how access has been affected will remain rather sketchy until more data become available. It seems that the use of EDs for routine care has not abated, especially for Medicaid enrollees.

Under the ACA, those who did not qualify for subsidies did not get a good value if their premiums increased substantially or if they could not use their insurance to obtain routine health care services because of high deductibles. Likewise, for taxpayers, the ACA has not been a good value because of the higher taxes needed to support Medicaid expansion and subsidies. The cost of these subsidies is likely hidden under the spending category “other third- party payers and programs” (see FIGURE 6-7), which increased from 7% to 8% between 2011 and 2015. The cost of net subsidies, after taking into account the penalties paid by the uninsured, was estimated to be $660 billion, or 3.6% of GDP (Congressional Budget Office, 2016). For any future health reform under the Trump administration, affordability of health care for the consumers will be the most pressing issue (Jost and Pollack, 2016).

Adverse Selection Adverse selection occurs when high-risk individuals—that is, people who are likely to use more health care services than others because of their poor health status—enroll in health insurance plans in greater numbers, compared to people who are healthy. Conversely, a health plan may face lower enrollments of young and healthy people, whose utilization of services would be much lower than the rate for people in poor health. When adverse selection occurs, premiums must be raised for everyone, which makes health insurance less affordable for those in good health.

Experience under the ACA demonstrated that adverse selection occurred in the individual health insurance market. Overall enrollments through the exchanges have fallen short of the initial projections, leaving more high-risk people in the individual insurance market. The tax penalties were apparently not harsh enough to push healthy people into buying insurance. Previously, high-risk individuals got their insurance through state-based high- risk pools. The ACA, in effect, abolished the high-risk pools and mandated that insurers cover all individuals regardless of health

status. Because enough healthy individuals did not sign up, premium costs became unaffordable for many insureds.

Cost Shifting When the amount of reimbursement from some payer becomes inadequate or when uncompensated services are rendered without payment from some source, cost shifting is a mechanism used to make up for revenue shortfalls. In cost shifting, providers charge extra to payers who do not exercise strict cost controls. A study on cost shifting by hospitals reported that hospitals in less competitive markets raised prices to private insurers when faced with shortfalls between Medicare payments and their projected costs (Robinson, 2011). Conversely, in competitive markets, hospitals focus on cutting costs when faced with reimbursement shortfalls from public payers.

The expansion of coverage under the ACA will be paid for in part by reducing payments to hospitals and other providers. In response, hospitals and other providers have consolidated, eroding competition. For example, the number of hospitals in highly integrated health systems grew at twice the rate from 2014 to 2015 compared to the rate of growth from 2013 to 2014 (Sanofi-Aventis, 2016). These large providers have been able to devise new ways to shift costs.

Fraud and Abuse Health care fraud and program abuse are troubling aspects of health care financing. The Government Accountability Office (GAO) has designated Medicare and Medicaid as high-risk programs that are particularly vulnerable to fraud and abuse. Although some people have been convicted of engaging in multimillion-dollar schemes that defrauded health care programs, the full extent of the

problem remains unknown (GAO, 2016) because health care fraud is almost impossible to measure.

Fraud can take several forms, and a single case can involve more than one fraud scheme. Examples of fraud include billing for services not provided, delivery of unnecessary services, providing compensation to others or receiving kickbacks for participating in a fraud scheme, and misrepresentation of services to receive higher reimbursement (GAO, 2016).

Several different laws—such as the False Claims Act, Social Security Act, and the Anti-Kickback statute—apply to health care fraud and abuse. Under the HIPAA legislation, a national Health Care Fraud and Abuse Control Program was established to coordinate federal, state, and local law enforcement activities with respect to health care fraud and abuse. This collaborative approach resulted in identifying and prosecuting the most egregious instances of health care fraud. During fiscal year 2014, the federal government recovered approximately $3.3 billion in health care fraud judgments and settlements (GAO, 2016).

▶ Summary Financing is the lifeblood of any health care delivery system. At its most fundamental level, it determines who pays for health care services and for whom. At a secondary level, financing determines who produces which types of health care services. Hence, financing affects both the demand and supply sides of the health care equation.

A significant amount of financing is attributed to the government, mainly to provide health insurance or direct services to defined categories of people. Because most publicly financed services are obtained in the private sector, the government has a sizable interest in setting the amount of reimbursement to providers.

The ACA significantly reduced the number of uninsured Americans, mainly through the expansion of Medicaid (even though some states did not implement it) and, to a lesser extent, by facilitating the creation of health insurance marketplaces, known as exchanges, for the private purchase of health insurance. Federal subsidies were made available to people with incomes between 100% and 400% of the FPL. Even so, the largest source of health insurance in the United States remains employer-based programs, which did not show any growth in coverage. Job-based coverage had been declining for several years before the ACA was enacted, but the ACA did not seem to help this situation.

The financial stability of Medicare trust funds has improved somewhat, but they are still headed toward insolvency unless the trend can be reversed. To reduce costs and improve quality, the ACA implemented cuts to insurers participating in Medicare Advantage and established value-based reimbursement programs.

On a national level, U.S. health care expenditures have continued to shift from the private sector to the public sector. Current issues affecting financing include affordability of health care, adverse selection (which has raised premiums in the individual insurance market), cost shifting (promoted by reduced competition), and fraud and abuse (which principally affects public programs).

▶ Test Your Understanding

Terminology adjusted community rating

adverse selection

balance bill


benefit period



case mix

categorical programs





community rating

consumer-directed health plans


cost shifting

cost-plus reimbursement



experience rating

fee schedule

gross domestic product (GDP)

group insurance

high-deductible health plans (HDHPs)




means-tested program

medical loss ratio (MLR)

Medicare Physician Fee Schedule (MPFS)


moral hazard

national health expenditures


personal health expenditures



preexisting conditions


prospective reimbursement



relative value units (RVUs)

retrospective reimbursement


risk rating

self-insured plan

third-party administrator (TPA)

third-party payers


Review Questions 1. What is meant by health care financing in its broad sense? How

does financing affect the health care delivery system? 2. Discuss the general concept of insurance and its general principles.

Describe the various types of private health insurance options, pointing out the differences among them.

3. Discuss how the concepts of premium, covered services, and cost sharing apply to health insurance.

4. What is the difference between experience rating and community rating?

5. What is Medicare Part A? Discuss the financing and cost-sharing features of Medicare Part A. Which benefits does Part A cover? Which benefits are not covered?

6. What is Medicare Part B? Discuss the financing and cost-sharing features of Medicare Part B. Which main benefits are covered under Part B? Which services are not covered?

7. Briefly describe the Medicare Advantage program. 8. Briefly explain the prescription drug program under Medicare Part

D. 9. What are Medicare trust funds? Discuss the current state and the

future challenges faced by the Medicare trust funds. Which main factors pose these challenges?

10. How did the Supreme Court’s ruling on the ACA affect Medicaid? How did the ACA affect the Medicaid program in terms of coverage and cost?

11. What provisions has the federal government made for providing health care to military personnel and to veterans of the U.S. armed forces?

12. What are the major methods of reimbursement for outpatient services?

13. What are the differences between the retrospective and prospective methods of reimbursement?

14. Discuss the concept of value-based purchasing, as required by the ACA.

15. Discuss the prospective payment system under DRGs. 16. Distinguish between national health expenditures and personal

health expenditures. 17. What is adverse selection? What are its consequences? 18. What is the relationship between reimbursement cuts and cost

shifting? How do hospitals react in different markets to cuts in reimbursement?

19. Which type of illegal activities constitute health care fraud and abuse?

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© f11photo/Shutterstock

PART III System Processes CHAPTER 7 Outpatient and Primary Care Services

CHAPTER 8 Inpatient Facilities and Services

CHAPTER 9 Managed Care and Integrated Organizations

CHAPTER 10 Long-Term Care

CHAPTER 11 Health Services for Special Populations

Chapter opener photo: © f11photo/Shutterstock

CHAPTER 7 Outpatient and Primary Care Services


■ Understand the meanings of outpatient, ambulatory, and primary care. ■ Explore the main principles behind patient-centered medical homes and community-based

primary care. ■ Identify the reasons for the dramatic growth in outpatient services. ■ Survey the various types of outpatient settings and services. ■ Describe the role of complementary and alternative medicine in health care. ■ Describe primary care delivery in other countries. ■ Assess the impact of the Affordable Care Act on primary care.

“I suppose a system based on primary care is more robust.”

▶ Introduction The terms “outpatient” and “ambulatory” have often been used interchangeably. Historically, outpatient care has been independent from services provided in health care institutions. In earlier days, physicians saw patients in their clinics, and most physicians also made home visits to treat patients within the limitations of medical science prevalent in those days. Institutions for inpatient care, such as hospitals and nursing homes, developed later. With advances in medical science, the locus of health care delivery coalesced around the institutional setting of community hospitals. As the range of services that could be provided on an outpatient basis continued to expand, hospitals gradually became the dominant players in providing the vast majority of outpatient care, with the exception of basic diagnostic care provided in physicians’ offices (Barr and Breindel, 2004). Hospitals were better equipped to provide outpatient services because they had the resources necessary to capitalize on technological innovation. For example, hospital laboratories and diagnostic units were better equipped to perform most tests and diagnostic procedures than independent providers. In comparison, independent providers faced greater capital constraints and competitive pressures in the health care marketplace.

Later, health care delivery increasingly grew beyond expensive acute care hospitals to various alternative outpatient settings. Although basic primary care has traditionally been the foundation of outpatient services, some intensive procedures are also increasingly being performed on an outpatient basis. Additionally, consumer demand has fueled the growth of complementary and alternative medicine.

Today, a large variety of outpatient services are available in the United States, yet many Americans do not have adequate access to

health care because of maldistribution or shortages of providers and services. Hospital emergency care and community health centers constitute the main safety net for primary care services, particularly for uninsured individuals. Delivery of outpatient care by public agencies has been limited in scope and detached from the dominant private system of health services delivery. State and local government agencies sponsor limited outpatient services such as child immunizations, maternal and infant care, health screenings in public schools, monitoring of certain contagious diseases (e.g., tuberculosis), family planning, and prevention of sexually transmitted diseases. The Affordable Care Act includes provisions to address some of the issues of access for poor and vulnerable populations.

▶ What Is Outpatient Care? Outpatient services do not require an overnight inpatient stay in an institution of health care delivery, such as a hospital or long-term care facility. Many hospitals, in addition to admitting patients for overnight or longer stays, have emergency departments (EDs) and other outpatient service centers, such as outpatient surgery, rehabilitation, and specialized clinics.

Outpatient services are also referred to as ambulatory care. Strictly speaking, ambulatory care constitutes diagnostic and therapeutic services and treatments provided to the “walking” (ambulatory) patient. Hence, in a restricted sense, the term “ambulatory care” refers to care rendered to patients who come to physicians’ offices, hospital outpatient departments, and health centers to receive care. This term is also used synonymously with “community medicine” (Wilson and Neuhauser, 1985) because the geographic location of ambulatory services is intended to serve the surrounding community, providing convenience and easy accessibility to health care services for the members of that community.

However, patients do not always walk or drive their personal vehicles to the service centers to receive ambulatory care. For example, in a hospital ED, patients may arrive by land or air ambulance. EDs, in most cases, are equipped to provide secondary and tertiary care services rather than primary care. In other instances, such as with mobile diagnostic units and home health care, services are transported to the patient, instead of the patient coming to receive the services. Hence, the terms “outpatient” and “inpatient” are more precise, with the term outpatient services referring to any health care services that are not provided on the basis of an overnight stay in which room and board are incurred.

▶ The Scope of Outpatient Services

Since the 1980s, extraordinary growth has occurred in the volume and variety of outpatient services, and new settings have emerged for delivering outpatient services. TABLE 7-1 provides some examples. Hospital-based medical systems and integrated delivery organizations now offer a range of health care services that include a variety of outpatient services. In some areas, the growth of non- hospital-based ambulatory services has intensified the competition between hospitals and community-based providers over patients seeking outpatient care. Examples of such competitors in the outpatient services market include home health care, freestanding clinics for routine and urgent care, retail clinics, outpatient rehabilitation, and freestanding imaging centers. Other services, such as dental care and optometric services, remain independent of other types of health care services. Financing is the main reason for their independent nature: Medical insurance plans are generally separate from dental and vision care plans. Philosophical and technical differences account for other variations. Chiropractic care, for instance, is generally covered by most health plans but remains isolated from the mainstream practice of medicine. Complementary and alternative therapies as well as self-care are not covered by insurance, yet the products and services in these categories continue to experience remarkable growth.

TABLE 7-1 Owners, Providers, and Settings for Ambulatory Care Services

Past Present


Independent physician practitioners

Independent physician practitioners

Hospitals Community health agencies Home health agencies

Hospitals Community health agencies Managed care organizations Insurance companies Corporate employers Group practices National physician chains Home health companies National diversified health care companies

Service Settings

Hospital outpatient departments Physicians’ offices Outpatient surgery centers Hospital emergency departments Home health agencies Neighborhood health centers

Physicians’ offices Walk-in clinics/urgent care centers Retail clinics Outpatient surgery centers Chemotherapy and radiation therapy centers Dialysis centers Community health centers Diagnostic imaging centers Mobile imaging centers Fitness/wellness centers Occupational health centers Psychiatric outpatient centers Rehabilitation centers Sports medicine clinics Hand injury rehabilitation clinics Women’s health clinics Wound care centers

Data from Barr, K. W., and C. L. Breindel. 2004. Ambulatory care. In: Health care administration: Planning, implementing, and managing organized delivery systems. L. F. Wolper, ed. 4th ed. Burlington, MA: Jones & Bartlett Learning. pp. 507–546.

Primary care is the foundation of ambulatory health services, but not all ambulatory care is primary care. For example, hospital ED services are not intended to be primary in nature. Conversely, services other than primary care have now become an integral part

of outpatient services. Thanks to the technological advances in medicine, many advanced treatments are now provided in ambulatory care settings. Examples include conditions requiring urgent treatment, outpatient surgery, renal dialysis, and chemotherapy.

▶ Primary Care Primary care plays a central role in a health care delivery system. Other essential levels of care include secondary and tertiary care (distinct from the primary, secondary, and tertiary prevention discussed in the Beliefs, Values, and Health chapter). Compared to primary care, secondary and tertiary care services are more complex and specialized.

Primary care is distinguished from secondary and tertiary care according to its duration, frequency, and level of intensity. Secondary care is usually short term, involving sporadic consultation from a specialist to provide expert opinion and surgical or other advanced interventions that primary care physicians (PCPs) are not equipped to perform. It includes hospitalization, routine surgery, specialty consultation, and rehabilitation.

Tertiary care is the most complex level of care, which is provided for relatively uncommon conditions. Typically, tertiary care is institution based, highly specialized, and technology driven. Much of tertiary care is rendered in large teaching hospitals, such as university hospitals. Examples include trauma care, burn treatment, neonatal intensive care, tissue transplants, and open heart surgery. In some instances, tertiary treatment may be extended, and the tertiary care physician may assume long-term responsibility for the bulk of the patient’s care.

It has been estimated that 75% to 85% of people in the general population require only primary care services in a given year, 10% to 12% require referrals to short-term secondary care services, and 5% to 10% use tertiary care specialists (Starfield, 1994). These proportions vary in populations with special health care needs.

Definitions of primary care often focus on the type or level of services, such as prevention, diagnostic and therapeutic services, health education and counseling, and minor surgery. Although primary care specifically emphasizes these services, many specialists also provide the same spectrum of services. For example, the practice of most ophthalmologists has a large element of prevention, as well as diagnosis, treatment, follow-up, and minor surgery. Similarly, most cardiologists are engaged in health education and counseling. Hence, primary care should be more appropriately viewed as an approach to providing health care rather than as a set of specific services (Starfield, 1994).

World Health Organization Definition Traditionally, primary care has been the cornerstone of ambulatory care services. The World Health Organization (WHO, 1978) describes primary health care as follows:

Essential health care based on practical, scientifically sound, and socially acceptable methods and technology made universally accessible to individuals and families in the community by means acceptable to them and at a cost that the community and the country can afford to maintain at every stage of their development in a spirit of self-reliance and self-determination. It forms an integral part of both the country’s health system of which it is the central function and the main focus of the overall social and economic development of the community. It is the first level of contact of individuals, the family, and the community with the national health system, bringing health care as close as possible to where people live and work and constitutes the first element of a continuing health care process.

Three elements in this definition are particularly noteworthy for an understanding of primary care: point of entry, coordination of care, and essential care.

Point of Entry


Primary care is the point of entry into the health services system in which health care delivery is organized around primary care (Starfield, 1992). Primary care is the first contact a patient makes with the health care delivery system. This first contact feature is closely associated with the “gatekeeper” role of the primary care practitioner. Gatekeeping implies that patients do not visit specialists and are not admitted to a hospital without first being referred by their PCPs. The interposition of primary care protects patients from undergoing unnecessary procedures and overtreatment (Franks et al., 1992).

The United Kingdom’s National Health Service (NHS) is an example of a health care delivery system founded on the principles of gatekeeping. In the NHS, primary care is the single portal of entry to secondary care and acts as a filter so that 90% of care is provided outside hospitals in ambulatory care settings (Orton, 1994). General practitioners (GPs) are primary care gatekeepers in the U.K. system. In the United States, under certain managed care, such as most Kaiser Health Plans, patients initiate care with their PCPs and obtain authorization when specialized services are needed.

Coordination of Care One of the main functions of primary care is to coordinate the delivery of health services between the patient and the myriad of delivery components of the system. Hence, in addition to providing basic services, primary care professionals serve as patient advisors and advocates. Coordination of an individual’s total health care needs is meant to ensure continuity and comprehensiveness. These desirable goals of primary care are best achieved when the patient and the provider have formed a close mutual relationship over time. Primary care can be regarded as the hub of the health care delivery system wheel. The various components of the health care delivery system are located around the rim of this wheel, and the spokes signify the coordination of continuous and comprehensive care (FIGURE 7-1).

FIGURE 7-1 The coordination role of primary care in health care delivery.

Countries whose health systems are oriented more toward primary care achieve better health levels, higher satisfaction with health services among their citizens, and lower expenditures for the overall delivery of health care (Starfield, 1994, 1998). Even in the United States, better health outcomes are achieved in states with higher ratios of PCPs and better availability of primary care (Shi, 1994; Shi and Starfield, 2000, 2001; Shi et al., 2002). Higher ratios of family and general physicians in the population are associated with lower hospitalization rates for conditions that can be successfully treated with good primary care (Chang et al., 2011; Parchman and Culler, 1994). Having a regular source of primary care also leads to fewer ED visits and inappropriate specialty consults. The primary care

setting is the ideal place to manage chronic conditions so individuals can stay healthier over time (Rubin et al., 2015; Sepulveda et al., 2008). Adults who have PCPs as their regular source of care experience lower mortality (Franks et al., 1998; Jerant et al., 2012). Research has also shown that primary care may play an important role in mitigating the adverse health effects of income inequality (Jones et al., 2013; Shi et al., 1999). A higher proportion of PCPs in a given area has been shown to lead to lower spending on health care (Chernew et al., 2009).

Coordination of health care has definite advantages. Studies have shown that both the appropriateness and the outcomes of health care interventions are better when PCPs refer patients to specialists, as opposed to patients self-referring to specialists (Bakwin, 1945; Roos, 1979).

Essential Care Primary health care is regarded as essential health care. The goal of the health care delivery system is to optimize population health, not just the health of individuals who have the means to access health services. Achieving this goal requires that disparities across population subgroups be minimized to ensure equal access. Because financing of health care is a key element in determining access, universal access to primary care services is better achieved under a national health care program.

Institute of Medicine Definition The Institute of Medicine’s (IOM) Committee on the Future of Primary Care recommends that primary care be the usual and preferred, though not the only, route of entry into the health care system. To emphasize this point, the IOM has defined primary care as “the provision of integrated, accessible health care services by clinicians who are accountable for addressing a large majority of personal health care needs, developing a sustained partnership

with patients, and practicing in the context of family and community” (Vanselow et al., 1995, p. 192).

The term “integrated” in this definition embodies the concepts of comprehensive, coordinated, and continuous services that provide a seamless process of care. Primary care is comprehensive because it addresses any health problem at any given stage of a patient’s life cycle. Coordination ensures the provision of a combination of health services to best meet the patient’s needs. Continuity refers to care administered over time by a single provider or a team of health care professionals.

The IOM definition also emphasizes accessibility and accountability as key characteristics of primary care. Accessibility refers to the ease with which a patient can initiate an interaction with a clinician for any health problem. It includes efforts to eliminate barriers, such as those posed by geography, financing, culture, race, and language. Both clinicians and patients have accountability. The clinical system is accountable for providing quality care, producing patient satisfaction, using resources efficiently, and behaving in an ethical manner. Patients are responsible for their own health to the extent that they can influence it, as well for judicious use of resources when they need health care. The partnership between a patient and a clinician is based on mutual trust, respect, and responsibility.

Various countries have established policies that hold primary care practices accountable for managing chronic conditions and meeting clinical standards. These policies tend to include financial incentives and primary care practice redesign, with an emphasis on information technology (IT) and use of interdisciplinary teams to support effective, safe, patient-centered, coordinated, and efficient care.

The IOM definition of primary care recognizes that primary care clinicians must consider the influence of the family on a patient’s

health status and be aware of the patient’s living conditions, family dynamics, and cultural background. In addition, exemplary primary care requires an understanding of and a responsibility for the community’s health (Vanselow et al., 1995).

▶ Primary Care and the Affordable Care Act

The Affordable Care Act (ACA) included four major provisions related to primary care:

Increased Medicare and Medicaid payments to primary care providers New incentives such as funding for scholarships and loan repayment for primary care providers working in underserved areas Expansion of the health center program and strengthening of health center capacity Creation of additional training programs, such as 11 Teaching Health Centers to train primary care providers

These measures were aimed at enhancing the primary care workforce and strengthening the primary care system, especially in underserved areas (Ku et al., 2011).

On the surface, these measures appear to be steps in the right direction. Unfortunately, given the critical shortages in primary care (see the System Resources chapter), building a workforce cannot be accomplished in a short period of time. Current and prospective physicians will also evaluate factors other than the proposed incentives when determining whether they will become PCPs or specialists. For example, physicians may feel burdened and frustrated by new regulatory demands if they have to spend a large share of their time complying with added regulations instead of seeing patients. In addition, because the increased reimbursement for PCPs under the ACA was temporary, this may not turn out to be a significant factor in providers’ decisions to leave or stay in practice or influencing medical students to enter primary care.

As a result of the ACA, the primary care system in the United States is expected to experience an influx of newly insured patients. However, if PCPs become overburdened, many of the goals of primary care may remain unrealized for a large segment of the U.S. population.

The ACA also eliminated out-of-pocket costs for preventive services such as immunizations, certain cancer screenings, contraception, reproductive counseling, obesity screening, and behavioral assessments for children. This coverage is guaranteed for more than 137 million Americans, including 55 million women. Approximately 39 million Medicare beneficiaries have received preventive services such as cancer screenings, bone-mass measurements, annual physical examinations, and smoking cessation assistance due to the elimination of out-of-pocket costs for this care.

On another front, the ACA allocated $1.5 billion to National Health Service Corps, a training program, which for decades has offered scholarships and loan forgiveness to young primary care clinicians who volunteer to practice in underserved areas. As of September 30, 2015, there were 9,600 Corps clinicians providing primary care services, more than twice the number of these clinicians in 2008 (White House, 2016).

▶ New Directions in Primary Care

Patient-Centered Medical Homes The term “medical home” was first coined in 1967 to describe the team-oriented approaches developed for special-needs children whose health care needs require constant coordination. A medical home consists of an interdisciplinary team of physicians and allied health professionals who partner with patients and their families, taking responsibility for ongoing patient care using a team approach, technology, and evidence-based protocols to deliver and coordinate care. PCPs serve as advocates for patients to help them access services across the wide variety of health care services, ensuring that the patient’s values, wishes, and directives are honored (Caudill et al., 2011).

The patient-centered medical home (PCMH) has emerged as a promising solution to address the significant fragmentation, poor quality, and high costs that afflict the U.S. health care system. With regard to PCMH and service utilization, evaluations of appropriate care have typically focused on greater use of preventive services, immunizations, and well-care visits, whereas evaluations of inappropriate use of services have examined outcomes such as ED visits, rates of hospitalization for preventable ambulatory conditions, and use of high-cost or inefficient procedures. Findings from these evaluations provide considerable support for the value of PCMHs, as they promote appropriate care and reduce inappropriate care (Christensen et al., 2013; Ferrante et al., 2010; Rosenthal et al., 2015; Shi et al., 2015; Shi et al., 2016).

In terms of the impact of a PCMH on the patient’s experience and quality of care, studies suggest that both adult patients and parents of pediatric patients who go to a PCMH-designated primary care practice are satisfied with the care that they and their children receive and likely to perceive these health care interactions as positive experiences (Christensen et al., 2013; Rosenthal et al., 2015); however, evidence for the associations between PCMH and some other quality indicators remains mixed (Christensen et al., 2013; Rosenthal et al., 2015; Stevens et al., 2010). Likewise, findings regarding PCMH and health care costs are inconsistent (Christensen et al., 2013; Gao et al., 2016; Gilfillan et al., 2010; Reid et al., 2009).

In terms of the impact of PCMHs and clinical outcomes, several studies have demonstrated a positive impact of PCMHs on clinical measures at the practice level (Gao et al., 2016; Shi et al., 2015; Shi et al., 2016), but insufficient evidence is available to determine the effect of PCMH implementation at the patient level. More rigorous evaluations and standardization of key outcomes are needed to strengthen the empirical basis for the medical home concept and to assess the viability of implementation (Mulvihill et al., 2007).

A number of tools are used to assess important aspects of the PCMH. For example, the National Committee for Quality Assurance’s (NCQA) Physician Practice Connections—Patient- Centered Medical Home (PPC-PCMH) tool is a practice self-report measure that has become the de facto standard used to judge “medical homeness.” It assesses nine standards: access and communication, patient tracking and registries, care management, patient self-management support, electronic prescribing, test tracking, referral tracking, performance reporting and improvement, and advanced electronic communications. The three-level scoring system implicitly acknowledges that, for most practices, meeting these reporting standards will be a staged process (NCQA, 2008).

Unlike the NCQA, the Accreditation Association for Ambulatory Health Care (AAAHC) conducts mandatory site visits to all applicants for its PCMH recognition program. AAAHC’s recognition program involves the largest number of survey items by far (238 items), and AAAHC is unique in that it allows applicants to apply for either “accreditation” (which involves obtaining the base AAAHC accreditation in addition to meeting AAAHC’s medical home standards) or a less burdensome option called “certification” (which does not require the base AAAHC accreditation). The AAAHC’s Medical Home tool measures a practice’s performance in regard to patient rights and responsibilities; organizational governance and administration; the patient‒care team relationship; comprehensiveness, continuity, and accessibility of care; clinical records and health information; and quality of care (AAAHC, 2009).

Other PCMH assessment tools include the Joint Commission’s Primary Care Medical Home Designation Standards (Joint Commission, 2011), URAC’s Patient-Centered Health Care Home (PCHCH) Program Toolkit, TransforMED’s Medical Home Implementation Quotient, and the Center for Medical Home Improvement’s Medical Home Index. State-level tools are also available, including BlueCross BlueShield of Michigan’s PCMH Designation standards, Minnesota’s statewide multipayer Health Care Home Certification standards, and Oklahoma’s SoonerCare (Medicaid) PCMH standards, among others (Burton et al., 2012).

Most of the PCMH assessment tools cover several key content domains: access to care, comprehensiveness of care, continuity of care, culturally competent communication, patient engagement and self-management, coordination of care, care plan, population management, team-based care, evidence-based care, quality measurement and improvement, community resources, medical records, health IT, standardized care, adherence to current law, and congruence between practice and patient (Burton et al., 2012).

Community-Oriented Primary Care Current thoughts about primary care delivery have extended beyond the traditional biomedical paradigm, which focuses on medical care for the individual in an encounter-based system. The broader biopsychosocial paradigm emphasizes the health of the population, as well as that of the individual. Community-oriented primary care (COPC) emphasizes the relations between the population and community, on the one hand, and personal health care, on the other hand (van Weel et al., 2008). COPC incorporates the elements of good primary care delivery and adds a population- based approach to identifying and addressing community health problems. The main challenge has been bringing together individual health needs in the larger context of community health needs.

COPC incorporates the ideals espoused by both WHO and IOM in the delivery of primary care. The 1978 International Conference on Primary Health Care (held at Alma-Ata in the former Soviet Union, under the auspices of WHO) declared a philosophical vision of an affordable community-based primary health care system (WHO, 1978). More recently, WHO (2010) has offered some additional guidelines that encompass five key elements: (1) reducing exclusion and social disparities in health through universal coverage reforms, (2) organizing health services around people’s needs and expectations, (3) integrating health into all sectors, (4) pursuing collaborative models of policy dialogue, and (5) increasing stakeholder participation. IOM (2012) has endorsed COPC as a dynamic, interdisciplinary model that integrates primary care and public health creating significant improvements in primary care delivery.

The application and adoption of COPC principles in actual practice, however, has not materialized in the United States. One fundamental problem is a lack of consensus on what a “community” is or should be. Assuming that consensus on the definition of a community can be reached, technological advances

have reached a stage of development at which they can adequately reflect a community’s health. Information technology can also assist in prioritizing and developing a course of action. Perhaps the biggest hurdles to COPC in the United States are workforce shortages and financial incentives. COPC requires a major transformation of the current system and faces the same implementation problems as medical homes.

▶ Primary Care Providers Physicians in general family practice are most commonly the providers of primary care in Europe. In the United States, primary care practitioners are not restricted to physicians trained in general and family practice, but also include physicians trained in internal medicine, pediatrics, and obstetrics and gynecology. One cannot assume, however, that these various types of practitioners are equally skilled in rendering primary care services (Starfield, 1994). Unless a medical training program is dedicated to providing instruction in primary care, significant differences are likely to exist between its graduates and other PCPs. In fact, some controversy and competition have arisen among practitioners as to which specialists should be providing primary care. The specialty of family practice, in particular, represents a challenge to internal medicine in providing adult primary care and to pediatrics in providing child primary care.

Nonphysician practitioners (NPPs) are also playing a larger role in the delivery of primary care in the United States. In light of the increasing emphasis on health care cost containment, NPPs—who include nurse practitioners (NPs), physician assistants (PAs), and certified nurse-midwives (CNMs), among others—are in great demand in primary care delivery settings, particularly in medically underserved area (MUAs). Data from Medicaid managed care organizations (MCOs) demonstrate that patients receiving care from NPs at nurse-managed health centers experience significantly fewer emergency room visits, hospital inpatient days, and specialist visits, and female patients are at a significantly lower risk of giving birth to low-birth-weight infants, compared to patients in conventional health care (National Nursing Centers Consortium, 2003).

A recent retrospective cross-sectional analysis of national administrative data from Veterans Health Administration (VHA) primary care encounters showed NPs and PAs attended approximately 30% of all VHA primary care encounters, and NPs, PAs, and physicians fill similar roles in VHA primary care (Morgan et al., 2012). Similar results were also found in a study conducted in community health centers, with NPs and PAs providing 21% and 10%, respectively, of care for vulnerable populations (Morgan et al., 2015). Nevertheless, PCPs continue to fill an expert role that NPPs cannot match.

▶ Growth in Outpatient Services

In the United States, the proportion of total surgeries performed in outpatient departments of community hospitals increased from 16.3% in 1980 to 65.6% in 2013 (FIGURE 7-2). This decline in inpatient procedures has actually been outweighed by the growth of ambulatory procedures. Moreover, for patients older than 65 years, the rate of inpatient surgeries has not decreased (Kozak et al., 1999; National Center for Health Statistics, 2010). In a study performed by Wier et al. (2015), the 10 most common ambulatory surgeries performed in community hospitals in 28 states were lens and cataract procedures (9.3% of all ambulatory surgeries), other therapeutic procedures on muscles and tendons (5.8%), other operating room therapeutic procedures on joints (4.5%), cholecystectomy and common duct exploration (4.0%), excision of semilunar cartilage of the knee (3.6%), inguinal and femoral hernia repair (2.8%), other operating room therapeutic procedures on the skin and breast (2.5%), lumpectomy and quadrantectomy of the breast (2.4%), decompression peripheral nerve (2.4%), and other hernia repair (2.3%).

FIGURE 7-2 Percentage of total surgeries performed in outpatient departments of U.S. community hospitals, 1980–2013.

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville,

MD: U.S. Department of Health and Human Services. p. 281.

Over the years, several noteworthy changes have been instrumental in shifting the delivery of health care from inpatient to outpatient settings. These changes can be broadly classified as reimbursement, technological factors, utilization control factors, physician practice factors, and social factors.

Reimbursement Until the 1980s, health insurance coverage was usually more generous for inpatient services than for outpatient services. For years, many interventions that could have been performed safely and effectively on an outpatient basis remained inpatient procedures because third-party reimbursement for outpatient care was limited. These payment policies began to change during the 1980s. In response, hospitals aggressively developed outpatient services to offset their declining revenues from inpatient care.

In the mid-1980s, Medicare substituted a prospective payment system (PPS) for its traditional cost-plus system to reimburse inpatient hospital services (see the Health Services Financing chapter). PPS reimbursement, which is based on diagnosis-related groups (DRGs), provides fixed case-based payments to hospitals. In contrast, the outpatient sector was not subject to payment restrictions. Therefore, hospitals had a strong incentive to minimize inpatient lengths of stay and to provide continued treatment in outpatient settings—which led to mushrooming costs in the outpatient sector. In 2000, Medicare implemented prospective reimbursement mechanisms in an effort to contain these costs, such as the Medicare Outpatient Prospective Payment System (OPPS) for services provided in hospital outpatient departments

and home health resource groups (HHRGs) for home health care (see the Health Services Financing chapter). Cost-containment strategies adopted by managed care also stress lower inpatient use, with a corresponding emphasis on outpatient services.

Technological Factors The development of new diagnostic and treatment procedures and less invasive surgical methods has made it possible to provide services in outpatient settings that previously required hospital stays. Shorter-acting anesthetics are now available. The diffusion of arthroscopes, laparoscopes, lasers, and other minimally invasive technologies has made many surgical procedures less traumatic. These modern procedures have dramatically curtailed recuperation time, which has made same-day surgical procedures very common. Many office-based physicians have also expanded their capacity to perform outpatient diagnostic, treatment, and surgical services because acquisition of technology has become more feasible and cost-effective.

Utilization Control Factors To discourage lengthy hospital stays, payers have instituted prior authorization policies for inpatient admission as well as close monitoring during hospitalization. The Managed Care and Integrated Organizations chapter discusses the most widely adopted utilization control methods.

Physician Practice Factors The growth of managed care and the consolidation trend associated with large hospital-centered institutions weakened physician autonomy and professional control over the delivery of medical care. Physicians also lost income. To counter these forces, an increasing number of physicians have broken their ties with

hospitals and started their own specialized care centers, such as ambulatory surgery centers and cardiac care centers. In these kinds of specialized ambulatory care centers, physicians often find that they can perform more procedures in less time and earn higher incomes (Jackson, 2002). Higher volumes may also be associated with better quality. Such factors may be behind the growth in specialized centers of excellence for cataract and hernia surgeries and cardiac procedures.

Social Factors Patients have a strong preference for receiving health care in home- and community-based settings. Unless absolutely necessary, most patients do not want to be institutionalized. Staying in their own homes gives people a strong sense of independence and control over their lives—elements considered important for better quality of life.

Large hospitals have traditionally been located in congested urban centers, but increasing numbers of suburbanites now perceive these locations as inconvenient. Hence, many freestanding outpatient centers and satellite clinics operated by inner-city hospitals are now located in the suburbs.

▶ Types of Outpatient Care Settings and Methods of Delivery

The services described in this section are not always operated independently of each other. For example, a hospital may operate physician clinics in addition to some of the freestanding facilities described here. Also, in a constantly evolving system, new settings and methods are likely to emerge. However, in general, the various settings for outpatient service delivery found in the U.S. health care delivery system can be grouped as follows:

Private practice Hospital-based services Freestanding facilities Retail clinics Mobile medical, diagnostic, and screening services Home health care Hospice services Ambulatory long-term care services Public health services Community health centers Free clinics Telephone access Complementary and alternative medicine

Private Practice Physicians, as office-based practitioners, are the backbone of ambulatory care and constitute the vast majority of primary care services. Most visits entail relatively limited examination and testing, and encounters with the physician are generally brief. Office

waiting time is typically longer than the actual time spent with the physician.

In the past, the solo practice of medicine and small partnerships attracted the large numbers of practitioners. Self- employment offered a degree of independence not generally available in large organizational settings. Today, however, most physicians are affiliated with group practices or institutions, such as hospitals and MCOs. Several factors account for this shift: uncertainties created by rapid changes in the health care delivery system, contracting by MCOs with consolidated organizations rather than solo entities, competition from large health care delivery organizations, the high cost of operating a solo practice, complexity of billings and collections in a multiple-payer system, and increased external demands, such as the necessity of having up-to-date IT systems. Group practice and other organizational arrangements offer the benefits of a patient referral network, negotiated leverage with MCOs, sharing of overhead expenses, ease of obtaining coverage from colleagues for personal time off, and attractive starting salaries, with benefits and profit-sharing plans.

Group practice of medicine in the United States has experienced a sharp increase in recent years (FIGURE 7-3). An estimated 59.3% of physicians are now in solo or single-specialty group practices, whereas 24.7% are in multispecialty group practices (American Medical Association, 2015). Most of these groups are small, with 40.9% having no more than 4 physicians. By comparison, 31.9% have 5 to 24 physicians, and only 19.8% have 25 or more physicians.

FIGURE 7-3 Growth in the number of medical group practices in the United States.

Data from Medical Group Management Association. Medical group fast facts. Available at:


SK&A. 2016. Medical group practice list.

practice-list. Accessed January 2016; VHA Inc. and Deloitte & Touche. 1997. Environmental

assessment: Redesigning health care for the millennium. Irving, TX: VHA Inc.; SMG Solutions. 2000.

Report and directory: Medical group practices. Chicago, IL: SMG Solutions.

Group practice clinics also offer important advantages to patients. In many instances, patients can receive up-to-date diagnostic, treatment, pharmaceutical, and certain surgical services in the same location. All but the most advanced secondary and tertiary procedures can be performed within these large clinics. Patients

also often see cross-referrals among partner physicians located near each other as an added convenience.

Apart from physicians, other private practitioners often work in solo or group practice settings. For example, dentists, optometrists, podiatrists, psychologists, and physical, occupational, and speech therapists typically work under this practice model.

FIGURE 7-4 shows the distribution of total ambulatory visits among physicians’ offices, hospital-based outpatient departments, and hospital EDs in the United States. In 2011, approximately 79% of all ambulatory care visits occurred in physicians’ offices. Hospitals have made substantial strides in gaining market share through their outpatient services.

FIGURE 7-4 Ambulatory care visits in the United States.

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD:

U.S. Department of Health and Human Services. p. 265.

Hospital-Based Outpatient Services A few years ago, hospital administrators regarded the outpatient departments of urban hospitals with a certain level of contempt. The outpatient department was often viewed as the “stepchild” of

the institution and the least popular area of the hospital in which to work. Even today, some hospital outpatient clinics in inner-city areas may function as the community’s safety net, providing primary care to medically indigent and uninsured populations. For the most part, however, outpatient services are now a key source of profit for hospitals. Consequently, hospitals have expanded their outpatient departments, and utilization of these services has grown (see FIGURE 7-4). This trend is the result of fierce competition in the health care industry; as MCOs emphasize preventive and outpatient care, there has been a relentless drive to cut costs. To compensate for the steady erosion in inpatient revenues stemming from MCO frugality, hospitals have begun sprucing up and expanding their outpatient services.

A hospital-developed continuum of inpatient and outpatient services offers opportunities for cross-referrals among services that keep patients within the same delivery system. For example, a hospital that provides both inpatient and outpatient services can enhance its revenues by referring postsurgical cases to its affiliated units for rehabilitation and home care follow-up. Patients receiving various types of outpatient services constitute an important source of referrals back to hospitals for inpatient care. By offering both inpatient and outpatient services, hospitals can also expand their patient base.

Prior to 1985, outpatient care accounted for less than 15% of the total gross patient revenues for all U.S. hospitals. This share has now grown to 46% (American Hospital Association, 2016). As part of the growing competition in delivery of outpatient services, hospitals and hospital systems have launched specialized services, such as sports medicine, women’s health, and renal dialysis. Many hospitals have also developed health promotion/disease prevention and health fitness programs as outreach efforts to the communities they serve.

Most hospital-based outpatient services can be broadly classified into five main types: clinical, surgical, emergency, home health, and women’s health.

Clinical Services Acquisition of group practices has enabled hospitals to increase their market share for outpatient clinical care. Referrals for inpatient, surgical, and other specialized services have generated additional revenues for these hospitals. Both public and private nonprofit hospitals located in inner-city locations provide uncompensated clinical services through their outpatient settings to patients who do not have access to private practitioner offices for routine care. Teaching hospitals operate various clinics, offering highly specialized, research-based services.

Surgical Services Hospital-based ambulatory surgery centers provide same-day surgical care; patients are sent home after a few hours of recovery time following surgery. Follow-up care generally continues in the physician’s office. In outpatient medical procedures, hospitals have the upper hand over freestanding centers due to their advances in medical technology, pain management, and prompt responses to emergent conditions (FIGURE 7-5).

FIGURE 7-5 Medical procedures by location.

Data from Wier, L. M., et al. 2015. Surgeries in hospital-owned outpatient facilities, 2012. Available


Facilities-2012.pdf. Accessed January 2017.

Emergency Services The ED has long been a vital outpatient component of many community hospitals. The main purpose of this department is to have services available around the clock for patients who are acutely ill or injured, particularly those with serious or life- threatening conditions requiring immediate attention. When deemed medically appropriate, prompt hospitalization can occur directly from the ED. This department has various specialists on call and is commonly staffed by physicians who have specialized

training in emergency medicine. In small hospitals, the staff may be members of the regular medical staff in rotation. Another option is to contract ED staffing to physician groups specializing in emergency medicine.

Weinerman and colleagues (1966) defined three categories of conditions for which patients present themselves to the ED:

Emergent conditions are critical and require immediate medical attention; time delay is harmful to the patient, and the disorder is acute and potentially threatening to life or function. Urgent conditions require medical attention within a few hours; a longer delay presents possible danger to the patient, and the disorder is acute but not severe enough to be life threatening. Nonurgent conditions do not require the resources of an emergency service, and the disorder is nonacute or minor in severity.

It has been well documented that in the United States, EDs are overused for nonurgent or routine care that could be more appropriately addressed in a primary care setting. Of the 136.3 million ED patient visits reported to the National Ambulatory Medical Care Survey in 2011, for example, 1.2% were triaged as needing immediate attention, 10.7% as emergent, 42.3% as urgent, 35.5% as semi-urgent, and 8% as nonurgent (National Center for Health Statistics, 2011). Reasons for nonurgent use of ED include unavailability of primary care, erroneous self-assessment of severity of ailment or injury, the 24-hour open-door policy, convenience, socioeconomic stress, psychiatric comorbidities, and a lack of social support (Hummel et al., 2014; Liggins, 1993; Padgett and Brodsky, 1992). Moreover, because the Emergency Medical Treatment and Active Labor Act (EMTALA) of 1986 requires screening and evaluation of every patient, necessary stabilizing treatment, and admitting when necessary regardless of ability to pay, EDs often function as a public “safety net” for the uninsured.

The uninsured and people on Medicaid use disproportionately more ED services than people who have private insurance coverage (Capp et al., 2015; McCaig and Burt, 2002; Meisel et al., 2011). Many private physicians do not provide services to Medicaid enrollees because of low reimbursement, which often leaves people on Medicaid without a regular source of primary care (Hing et al., 2015; McNamara et al., 1993).

Crowding in EDs has also been exacerbated by hospital and ED closings nationwide. In 1992, approximately 6,000 hospitals had EDs; fewer than 5,000 remain today (Morganti et al., 2013). Yet, the demand for ED visits has increased considerably, as reflected by the growth in the annual number of ED visits—up from 93.4 million to 130.4 million between 1994 and 2013 (McCaig and Newar, 2006; National Center for Health Statistics, 2013). Because of overcrowding, EDs must use triage mechanisms to screen patients according to their level of severity.

Because EDs require high-tech facilities, necessitate highly trained personnel, and must be accessible 24 hours a day, their costs are high and their services are not designed for nonurgent care. Inappropriate use of emergency services wastes precious resources. Hence, alternatives to the ED for nonurgent and routine care are critically needed—a problem that can be traced back to the United States’ inadequate primary care infrastructure. Precisely for this reason, the ACA did not have any material impact on the overuse of EDs for nonurgent conditions (Searing and Cantlin, 2016).

Home Health Care Many hospitals have opened separate home health departments, which provide mainly postacute care and rehabilitation therapies. Hospitals have entered the home health business to keep discharged patients within the hospital system. Hospitals operate approximately 7.4% of all Medicare-certified home health agencies in the United States (Centers for Medicare and Medicaid

Services [CMS], 2016a). Home health care is discussed in detail later in this chapter.

Women’s Health Centers Emerging recognition in the 1980s of the prominence of women as a major health market led medical institutions to develop specialized women’s health centers in hospital-based and/or hospital-affiliated settings. Following are some of the reasons behind the growth of women’s centers:

Recognition that women are the major users of health care. They seek health care more often than men do. Morbidity is greater among women than among men, even after adjusting data for childbearing-related conditions. A change in philosophy in American culture toward women, as the idea of gender equality becomes more popular. Recognition that the female majority in the United States will continue to grow, as the aging population includes more females. TABLE 7-2 shows current population trends.

TABLE 7-2 Growth in Female U.S. Resident Population by Age Groups Between 1980 and 2014 (in Thousands)

Age Groups (in Years)

< 15 15‒44 45‒64 65‒74 75‒84 ≥ 85 Total

1980 25,073 52,833 23,342 8,824 4,862 1,559 116,493

2014 29,882 63,356 42,790 14,049 7,789 4,053 161,921

Growth 4,809 10,523 19,448 5,225 2,927 2,494 45,428

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD: U.S. Department of Health and Human Services. p. 65.

Hospital-sponsored women’s health centers rely on a variety of service delivery models. These models exist on a continuum that includes telephone information and referral, educational programs,

health screening and diagnostics, comprehensive primary care for women, and mental health services. In addition to services in obstetrics, gynecology, and primary care, women’s health centers offer mammography, ultrasound, osteoporosis screening, and other health screenings. Women’s health is discussed in greater detail in the Health Services for Special Populations chapter.

Freestanding Facilities Freestanding medical clinics include walk-in clinics, urgent care centers, surgicenters, and other outpatient facilities, such as outpatient rehabilitation centers, optometric centers, and dental clinics. These clinics, which are often owned or controlled by private corporations, commonly employ practitioners on salary.

Walk-in clinics provide ambulatory services, ranging from basic primary care to urgent care, but they are used on a nonroutine, episodic basis. The main advantages of these clinics are convenience of location, evening and weekend hours, and availability of services on a “walk-in” (no appointment) basis.

Urgent care centers offer extended hours; many are open 24 hours a day, 7 days a week and accept patients with no appointments. These centers offer a wide range of routine services for basic and acute conditions on a first-come, first-served basis, but they are not comparable to hospital EDs.

Surgicenters are freestanding ambulatory surgery centers independent of hospitals. They usually provide a full range of services for the types of surgery that can be performed on an outpatient basis and do not require overnight hospitalization.

Outpatient rehabilitation centers provide physical therapy, occupational therapy, and speech pathology services. In the past, generous Medicare reimbursement attracted various operators to open outpatient rehabilitation centers, but caps were instituted

under the Balanced Budget Act of 1997. The therapy reimbursement caps are determined on a calendar year basis. For physical therapy and speech–language pathology services combined, the annual cap per patient was $1,940 for 2016. For occupational therapy services, the cap was $1,940 for 2016. Deductible and coinsurance amounts applied to therapy services count toward the amount accrued before a cap is reached (CMS, 2016b).

In recent years, neighborhood optical centers providing vision services have replaced many office-based opticians. Other freestanding facilities include audiology clinics, dental centers, hemodialysis centers, pharmacies, and suppliers of durable medical equipment (DME). DME suppliers furnish ostomy supplies, hospital beds, oxygen tanks, walkers, wheelchairs, and many other types of supplies and equipment. A growing number of the various types of freestanding facilities are part of large regional and nationwide chains, which are opening new facilities at an unprecedented rate in new geographic locations.

Retail Clinics The introduction of small clinics, staffed mostly by nonphysician practitioners, in shopping malls and large retail stores has been a relatively recent phenomenon. Once viewed as a threat to PCPs, retail clinics are now increasingly viewed as complementary services that are conveniently available to people for minor ailments. Because of their low cost of operation, even most uninsured people can pay for their services out of pocket. In turn, payers have also started to establish contracts with retail clinics. The number of retail clinics in the United States was expected to double to more than 2,800 by 2017 (RAND Corporation, 2016).

Mobile Medical, Diagnostic, and

Screening Services Ambulance service and first aid treatment provided to the victims of severe illness, accidents, and disasters by trained emergency medical technicians (EMTs) are the most commonly encountered mobile medical services. Such services are also referred to as prehospital medicine.

Early attention following traumatic injury is often lifesaving. EMTs are specially trained to provide such attention at the site and in transit to the hospital. Most ambulance personnel have a Basic- EMT rating, but advanced training can lead to EMT-Paramedic certification. Paramedics are trained to administer emergency drugs and provide advanced life support (ALS) emergency medical services. Examples include intravenous administration of fluids and drugs, treatment for shock, electrocardiograms (ECGs), electrical interventions to support cardiac function, and endotracheal intubation (insertion of a tube as an air passage through the trachea).

To provide a speedy response to emergencies, most urban centers have developed formal emergency medical systems that incorporate all area hospital EDs, along with transportation and communication systems. These communities typically establish 911 emergency phone lines to provide immediate access to services for those persons needing emergency care. When the system receives a 911 call, an ambulance is dispatched by a central communications center, which also identifies and alerts the hospital most appropriately equipped to deal with the type of emergency and located closest to the site where the emergency has occurred. Specialized ambulance services or advanced life support ambulances include mobile coronary care units, shock-trauma vans, and disaster relief vans, all of which are staffed by paramedics and EMTs who have advanced training.

Mobile medical services also constitute an efficient and convenient way to provide certain types of routine health services. Mobile eye care, podiatric care, and dental care units, for example, can be brought to a nursing home or retirement center where they can efficiently serve many patients residing in the facility. They are a convenient service for the patients, many of whom include the frail and elderly, patients who can then avoid an often difficult and tiring trip to a regular clinic.

Mobile diagnostic services include mammography and magnetic resonance imaging (MRI). Such mobile units take advanced diagnostic services to small towns and rural communities. They offer the advantages of convenience to patients and cost-efficiency in the delivery of diagnostic care.

Health screening vans, staffed by volunteers who are trained professionals and operated by various nonprofit organizations, are often seen at malls and fair sites. Various types of health education and health promotion services and screening checks, such as blood pressure and cholesterol screening, are commonly performed for anyone who walks in.

Home Health Care Home health care brings certain types of services to patients in their own homes. Without home services, the only alternative for most such patients would be institutionalization in a hospital or nursing home. Home health is consistent with the philosophy of maintaining people in the least restrictive environment possible.

Home health care encompasses a wide range of services and supplies that a person receives at home under a plan of care established by a doctor. It can include skilled nursing and home health aide services, physical therapy, occupational therapy, speech‒language pathology services, medical social services, DME (e.g., wheelchairs, hospital beds, oxygen, and walkers), medical

supplies, and other services provided in the individual’s home (National Council on Aging, 2016). Home health is delivered in the United States by a combination of large and small home health providers, both for-profit and nonprofit. More than 12,400 home health agencies serve patients across the United States, with approximately 12,100 of those agencies being certified to treat Medicare patients (CMS, 2015b; National Council on Aging, 2016). The total number of home health aides employed in the home health care services industry increased from 208,130 in 2004 to 348,740 in 2014 (Alliance for Home Health Quality and Innovation, 2015).

Growth in expenditures going to freestanding home health care agencies (additional services of home health care are provided in hospital-based facilities and are considered hospital care) accelerated from 2014 to 2015, with this spending increasing 6.3% to reach $88.8 billion in 2015; by comparison, the growth rate was 4.5% from 2013 to 2014. Stronger growth in spending by both Medicare (2.6%) and Medicaid (6.0%)—the two largest payers, which collectively accounted for 76% of U.S. home health spending —along with faster growth in private health insurance and out-of- pocket spending drove the overall acceleration of home health expenditures in 2015 (CMS, 2016a).

According to publicly available data published in 2015 by “Home Health Compare,” patient outcomes improve after receiving home health care. These data show that, after receiving home health care, 89% of wounds improved or healed after an operation, 68% of patients had less pain when moving around, 68% got better at bathing, and 65% had improved breathing (Alliance for Home Health Quality and Innovation, 2015; CMS, 2015b). A patient being discharged to home health care immediately following hospitalization is generally the least costly setting in which to deliver care, compared to discharging patients to skilled nursing facilities, inpatient rehabilitation facilities, or long-term acute care hospitals as the first setting post discharge. For example, Medicare

expenditures for a patient treated in the home after hospital discharge average $20,345, compared to an average of $28,294 for post-discharge care across all settings (Dobson, 2012).

Home health providers often leverage technology to enable the provision of care at home. In varying degrees, these providers use a diverse array of technologies ranging from remote monitoring, including phone calls (including the growing array of mobile technologies and applications), to health information technology, to in-home therapeutic and diagnostic technologies. Such technologies are often key tools that enable home health providers to improve quality and reduce the cost of care delivered to patients (Alliance for Home Health Quality and Innovation, 2014).

FIGURE 7-6 shows the demographic characteristics of patients who received home health care in 2013. According to the Alliance for Home Health Quality and Innovation (2015), 3.4 million patients received home health care in the United States in that year. Home health care patients tended to be age 65 or older (85%), female (61.5%), and white (79%).

FIGURE 7-6 Demographic characteristics of U.S. home health patients, 2013.

Data from Alliance for Home Health Quality and Innovation. 2015. Home health chartbook 2015.

Available at:

Accessed February 2017.

Because of variations in data sources, national expenditures for home health care are difficult to calculate. The CMS (2015a) estimates that total expenditures for home health amounted to $88.8 billion in 2015. Medicare and Medicaid accounted for 76% of home health spending (CMS, 2015a). Payments to home health agencies were sharply cut under the Balanced Budget Act of 1997. As a result, home health expenditures accounted for only 2.6% of

total Medicare spending in 2015, compared to 9% in 1997 (CMS, 2015a; National Association for Home Care and Hospice, 2010).

FIGURE 7-7 shows revenue sources for home health care providers and the average distribution of revenues from these sources. TABLE 7-3 and TABLE 7-4 provide additional statistics on home health.

FIGURE 7-7 Estimated payments for home care by payment source, 2014.

Data from National Center for Health Statistics. 2016. Health, United States, 2015. Hyattsville, MD:

U.S. Department of Health and Human Services. p. 298.

TABLE 7-3 Selected Organizational Characteristics of U.S. Home

Health and Hospice Care Agencies in the United States, 2014

Characteristic Home Health Care Hospice Care

Number (Standard Error)

All agencies 12,400 4,000

Percentage Distributions (Standard Error)

All agencies 100.0 100.0


Proprietary 80.0 60.2

Voluntary nonprofit 15.0 25.9

Government and other 5.0 13.9

Medicare Certification Status

Certified as home health care agency 98.7 NA

Certified as hospice care agency NA NA

Medicaid Certification Status

Certified as home health care agency 78.0 NA

Certified as hospice care agency NA NA

Geographic Region

Northeast 8.1 11.3

Midwest 22.8 22.8

South 46.6 41.2

West 17.3 24.8


Metropolitan statistical area (MSA) 84.6 76.6

Micropolitan statistical area 8.1 14.0

Neither 7.3 9.4

1 1





Neither 7.3 9.4

Include agencies that provide both home health and hospice care services (mixed).

Include agencies that provide home health care services, hospice care services, or both types of services and currently or recently served home health and/or hospice care patients. Agencies that provided only homemaker services or housekeeping services, assistance with instrumental activities of daily living (IADLs), or durable medical equipment and supplies were excluded from the survey.

A metropolitan statistical area is a county or group of contiguous counties that contains at least one urbanized area of 50,000 or more population. It may also contain other counties that are economically and socially integrated with the central county as measured by commuting.

A micropolitan statistical area is a nonmetropolitan county or group of contiguous nonmetropolitan counties that contains an urban cluster of 10,000 to 49,999 persons. It may include surrounding counties if there are strong economic ties among the counties, based on commuting patterns.

Note: Numbers may not add to totals because of rounding and/or because estimates and percentage distributions include a category of unknowns not reported in the table. Percentages are based on the unrounded numbers.

Data from Harris-Kojetin, L., et al. 2016. Long-term care providers and services users in the United states: Data from the National Study of Long-Term Care Providers, 2013-2014. Vital & Health Statistics 3, no. 38.

TABLE 7-4 Home Health and Hospice Care Patients Served at the Time of the Interview, by Agency Type and Number of Patients in the United States, 2007

Number of Patients Home Health Care Only

Home Health and Hospice Care (Mixed)

Mean (Standard Error)

Number of home health care patients

109.0 (9.2) 177.7 (17.7)

Percentage Distributions (Standard Error)





Total 100.0 100.0

0–25 16.0 (4.3) 9.8 (2.4)

26–50 21.3 (4.2) 25.1 (6.4)

51–100 29.0 (4.0) 18.4 (3.1)

101–150 10.8 (2.3) 9.4 (1.9)

151 or more 23.0 (3.5) 37.4 (4.8)

Number of Patients Hospice Care Only

Home Health and Hospice Care (Mixed)

Mean (Standard Error)

Number of hospice care patients

78.1 (6.4) 39.1 (5.7)

Percentage Distributions (Standard Error)

Total 100.0 100.0

0–25 29.5 (5.4) 57.6 (5.6)

26–50 22.1 (4.9) 24.5 (5.9)

51–100 21.2 (4.0) 6.3 (1.4)

101–150 9.9 (2.5)

151 or more 11.6 (2.3)

Estimate does not meet standards of reliability or precision because the sample size is between 30 and 59 or the sample size is greater than 59 but has a relative standard error of 30% or more.

Estimate does not meet standards of reliability or precision because the sample size is fewer than 30.

Note: Unknowns are excluded when calculating estimates. There was 1 (unweighted) case with an unknown number of home health care patients and 19 (unweighted) cases with an unknown number of hospice care patients. Percentages are based on the unrounded numbers.

1 1

1 1

1 1


1 2

1 2



Reproduced from Park-Lee E.Y., and F. H. Decker. 2010. Comparison of home and hospice care agencies by organizational characteristics and services provided: United States, 2007. National Health Statistics Reports no. 30: 1–23.

Hospice Services The term hospice refers to a cluster of comprehensive services for terminally ill persons with a medically determined life expectancy of 6 months or less. More than half of all patients in hospice programs are diagnosed with cancer upon admission. Hospice, whose programs provide services that address the special needs of dying persons and their families. It is a method of care, not a location, and services are taken to patients and their families wherever they are located. Thus, hospice can be a part of home health care when the services are provided in the patient’s home. In other instances, hospice services are taken to patients in nursing homes, retirement centers, or hospitals. Services can be organized out of a hospital, nursing home, freestanding hospice facility, or home health agency (FIGURE 7-8).

FIGURE 7-8 Types of hospice agencies, 2014.

Data from National Hospice and Palliative Care Organization. 2015. NHPCO facts and figures:

Hospice care in America. Available at:

Accessed February 2017. p. 8.

Hospice regards the patient and family as the unit of care. This special kind of care includes the following considerations:

Meeting the patient’s physical needs, with an emphasis on pain management and comfort Meeting the patient’s and family’s emotional and spiritual needs Providing support for the family members before and after the patient’s death

Focusing on maintaining quality of life rather than prolonging life (Miller, 1996)

The two primary areas of emphasis in hospice care are: (1) pain and symptom management, which is referred to as palliation, and (2) psychosocial and spiritual support according to the holistic model of care (see the Beliefs, Values, and Health chapter). Counseling and spiritual help are made available to relieve anguish and help the patient deal with his or her death. Social services include help with arranging final affairs. Apart from medical, nursing, and social services staff, hospice organizations rely heavily on volunteers.

The idea of providing comprehensive care to terminally ill patients was first promoted by Dame Cicely Saunders in the 1960s in England. In the United States, the first hospice was established in 1974 by Sylvia Lack in New Haven, Connecticut (Beresford, 1989). Hospice organizations expanded after Medicare extended hospice benefits in 1983. Hospice is a cost-effective option for both private and public payers. It is estimated that for every $1 spent on hospice, Medicare saves $1.52 in Part A and Part B expenditures (National Hospice Organization, 1995). Hospice enrollment has been found to save money for Medicare to improve care quality for patients across a number of different lengths of service (Kelly et al., 2013). The difference in costs mainly reflects services that are not medically intensive. Many states now provide hospice benefits under Medicaid. FIGURE 7-9 shows the sources of coverage for hospice services.

FIGURE 7-9 Coverage of patients for hospice care at the time of admission, 2014.

Note: Numbers may not add to 100% because of rounding.

Data from the National Hospice and Palliative Care Organization. 2015. NHPCO facts and figures:

Hospice care in America. Available at:

Accessed February 2017. p. 10.

To receive Medicare certification, a hospice must meet these basic conditions:

Provide physician certification that the patient’s prognosis is for a life expectancy of 6 months or less

Make nursing services, physician services, and drugs and biologics available on a 24-hour basis Provide nursing services under the supervision of a registered nurse Make arrangements for inpatient care when necessary Provide social services by a qualified social worker under the direction of a physician Make counseling services available to both the patient and the family, including bereavement support after the patient’s death Provide needed medications, medical supplies, and equipment for pain management and palliation Provide physical, occupational, and speech therapy services when necessary Provide home health aide and homemaker services when needed

In 2014, 1.66 million patients in the United States received hospice services; the average length of service was 71.3 days (National Hospice and Palliative Care Organization, 2015). The majority of hospice patients were 65 years or older (83.9%), female (53.7%), and white (76%). The top diagnoses were cancer (36.6%), dementia (14.8%), heart disease (14.7%), and lung disease (9.3%).

There are approximately 6,100 hospice programs in the United States (National Hospice and Palliative Care Organization, 2015). The majority of these programs are independent (59.1%), followed by hospital based (19.6%), home health agency based (16.3%), and nursing home based (5.0%).

Medicare is the largest source of financing for hospice. In terms of levels of hospic