1. Chapter 7 Paying for Health Care in America: Rising Costs and Challenges Copyright © 2014 by Mosby, an imprint of Elsevier Inc.

2.  Historical highlights  1847: Massachusetts Health Insurance of Boston offers group policy  1861-1865: Insurance plans available during Civil War  1929: First group health coverage for a monthly charge for teachers in Dallas, Texas; beginning of Blue Cross/Blue Shield  1950s: Employee benefit packages initiated to attract workers  1965: Creation of Medicare and Medicaid programs, making comprehensive health care available to millions of Americans History of Health Care Financing Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 2

3.  Historical highlights  1980-1990: Managed care plans emerge  1993: Hospitals come under DRGs  2003: Medicare Prescription Drug Improvement and Modernization Act of 2003; most significant expansion of Medicare since its enactment  2006: Pay-for-performance introduced  2008: Medicare no longer pays hospitals for treating preventable errors known as never events  2010: Congress passes sweeping health care reform legislation: Patient Protection and Affordable Care Act History of Health Care Financing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 3

4.  Themes that have driven health care financing  Physician was primarily responsible for decision making Physicians controlled all access to health care services Tests or procedures were provided if physician determined that any marginal benefit might be obtained  Objective was to provide the best care to everyone  Sophistication and cost of medical technology rapidly increased History of Health Care Financing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 4

5.  Fee-for-service payment method and economic incentives contributed to increased costs The more tests or procedures performed, the greater the physician’s earnings because earnings tied to procedures Economic incentives to provide as much care as possible Patients insulated from costs because insurance was paying the bill Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 5 History of Health Care Financing (cont'd)

6.  Lack of cost consciousness contributed to increased costs Patients not aware of costs Providers had little incentive to be concerned about costs Providers received more income for using more services Providers incurred no financial risk for using additional resources Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 6 History of Health Care Financing (cont'd)

7.  Medicare expenditures increased rapidly The program was implemented in 1965 with a fee-for-service payment mechanism Rapid growth of expenditures became a major factor in the federal budget deficit Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 7 History of Health Care Financing (cont'd)

8.  Health care financing revolution  In 1965, health expenditures were $202/person; rose to $8,402/person by 2010  Initiated in 1983 when Medicare moved to a prospective payment system based on DRGs  Medicare limited total payment to the hospital to an amount preestablished for the patient’s specific DRG  Shift critical for hospitals because Medicare was the largest single payer of hospital charges Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 8 History of Health Care Financing (cont'd)

9.  Once reimbursement revolution began, private insurance companies initiated similar reimbursement arrangements  Medicare extended financing revolution to physician reimbursement in the early 1990s and initiated the resource-based relative value scale (RBRVS)  RBRVS brought physician reimbursement more in line with skills required and actual time spent on procedures Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 9 History of Health Care Financing (cont'd)

10.  Managed care  Encompasses several different approaches Health maintenance organizations (HMOs) Preferred provider organizations (PPOs) Point-of-service plan (POS) The insurance company, a peer review organization, or another review mechanism evaluates patient’s medical options and brings cost consciousness to bear on medical decision making Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 10 History of Health Care Financing (cont'd)

11.  Primary commonality is a method to oversee the use of health services Coverage may be denied (in contrast to the previous “if it might help, do it” approach) Goal is to minimize payment for inappropriate or excessive health services  Rapid expansion of managed care in response to numerous factors Overuse of medical care and resources Effects of employers’ health costs on business profits International competitiveness Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 11 History of Health Care Financing (cont'd)

12. Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 12 1.The 1983 “revolution” in health insurance reimbursement that formed the primary method of reimbursement in today’s health care system was due to: A. The inferior care provided by managed care organizations B.Rapidly rising health care costs C.Technological advances that increased the cost of health care D.The change from a prospective to a retrospective payment system

13.  Lack of access to health care  Primarily reflects a lack of health insurance coverage  In 2010, 49.9 million people in the U.S. were uninsured (16.3% of the population)  Primary groups with no insurance Working poor employed by small firms without insurance coverage Part-time workers and unemployed people Access to Health Care and the Uninsured and Underinsured Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 13

14.  Poor more likely to lack usual source of care, less likely to use preventive services, and more likely to be hospitalized for avoidable conditions  Medicaid Combined federal and state health insurance program Intended to improve access to health care for the poor Currently covers 48.6 million people Recipients are not as likely to obtain needed health services Access to Health Care and the Uninsured and Underinsured (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 14

15.  Lack of access to health care  Underinsured and uninsured generate uncompensated care and “bad debt” for health care providers, who must then increase charges to paying customers (households and public and private insurers) in a process known as “cost shifting”  Uncompensated care and cost shifting: primary reasons some groups advocate for national health insurance  States have begun initiatives to assist the uninsured  Major health care reform legislation was passed by Congress in 2010; impact will become evident as legislation moves to implementation in the coming years Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 15 Access to Health Care and the Uninsured and Underinsured (cont'd)

16.  Expands health insurance coverage to uninsured Americans while controlling costs and improving the quality of health care  Individual mandate for U.S citizens and legal residents to be covered by a health insurance plan  Addresses many issues including employer requirements, health insurance exchanges, and prevention and cost-reduction approaches  Excellent summary of the legislation is available at www.kff.org www.kff.org Patient Protection and Affordable Care Act (PPACA) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 16

17. 2.What is one rationale in support of health care reform? A. The percentage of the gross domestic product (GDP) for health care in the United States is less than in countries with national health insurance. B.Uninsured populations generate uncompensated care costs, leading to a process known as cost shifting. C.Medicaid limits coverage to those who are at or below poverty level. D.The government does a better job of managing expenditures when compared with private companies. Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 17

18.  Health resources  “Labor” or inputs devoted to producing health care Nurses, physicians, pharmacists, technicians, administrators Education and training for “labor”  “Capital,” including all medical facilities and equipment available  “Land,” including the actual land area for hospitals and other facilities  “Entrepreneurship” encompasses skills and risk taking that businesspersons bring to health care organizations Allocation of Health Care Resources Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 18

19.  Resource allocation questions  What share of all goods and services should be devoted to health care?  If expenditures devoted to health care increase, what non─health goods and services can be eliminated?  What combination of health care services should be produced?  Who should receive medical goods and services?  Will high-tech, institution-based services be emphasized over a prevention-oriented health system? Allocation of Health Care Resources (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 19

20.  Market system  Means by which a buyer and a seller come together so the buyer can purchase products or services from the seller  Implies private ownership of resources and private decision making by consumers about their purchases and by businesses about their products and sales Economic Approaches to Allocating Health Care Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 20

21.  U.S. economy founded on the principles of a competitive market system Numerous buyers and sellers in the market, so no single seller can manipulate the price Consumers and sellers are well informed about market conditions and prices New resources are free to enter and leave this market Economic Approaches to Allocating Health Care (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 21

22.  Regulated market system  Implies some sort of government control over business owners/sellers  U.S. health care system is a regulated market system because it is regulated to some extent by federal or state legislation  Most European countries include a substantial amount of government planning in their health systems Economic Approaches to Allocating Health Care (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 22

23.  U.S. system violates principles of competitive market Consumers may not know what health care to purchase without a provider’s diagnosis Difficult to get information about prices of services Providers may be in charge of decision making about what services the patient needs Provider’s reimbursement incentives may encourage overuse or underuse of treatment options Consumers often pay less than full price because the health insurance may pay part or all of the costs With health insurance, the consumer may perceive health care as cheaper than it is and may be motivated to overconsume Economic Approaches to Allocating Health Care (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 23

24.  Third-party payers  Entities other than the patient that assume responsibility for payment (e.g., health insurance company)  Interfere with common principles of a competitive market system Economic Approaches to Allocating Health Care (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 24

25.  Private insurance  Accounts for the largest percentage of coverage for health care  Cost of health insurance to employees passed on by the employer to the consumer  Everyone pays part of the country’s health care cost in every purchase made  Individuals also pay a portion of their health care directly through payments for insurance premiums, deductibles, and copayments  With managed care products such as HMOs and PPOs, the premium the consumer pays for coverage has continued to rise How Health Care Is Paid Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 25

26.  Public insurance: Medicare and Medicaid  Government is the biggest influence in the health insurance market, generating 50% of hospital revenues and 25% of physician incomes  Medicare Largest health insurance program in the U.S. Entitlement program based on age or disability criteria rather than on need Part A covers inpatient hospital services, skilled nursing facilities (SNFs), and home health benefits Part B covers physician services Part D provides a prescription medication benefit How Health Care Is Paid (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 26

27.  Medicaid Joint federal-state program to provide health insurance coverage for impoverished families Covers primarily disabled persons, low-income households with children, and those in nursing homes who qualify on the basis of low income Primary payer of long-term care nationwide For most states, Medicaid represents the fastest growing component in the state budget How Health Care Is Paid (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 27

28.  Effect of payment modes  Provide incentives for increased efficiency and cost- effectiveness of care Growth of free-standing clinics and outpatient centers Care settings shifting from acute care to community-based sites Health care is shifting to an increased emphasis on preventive care Nonetheless, health costs remain the fastest increasing element in federal and state budgets How Health Care Is Paid (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 28

29.  New methods of payment modes to control cost and quality Pay-for-performance: method of reimbursing providers based on the quality of care provided with an emphasis on disease prevention and reduction of complications Never events  Medicare no longer pays hospitals for the extra cost of treating preventable errors commonly referred to as never events  Purpose is to encourage hospitals to direct resources to preventing errors rather than being paid for them  Never events include hospital-acquired infections, injuries from falls, wrong site surgery, mismatched blood transfusions, and others How Health Care Is Paid (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 29

30.  Nurses a major force in health care delivery  Ensure positive patient outcomes and maximize reimbursement  American Nurses Association’s Health System Reform Agenda Supports quality health care as a basic human right and universal access to health care for all U.S. citizens Confirms that the health care policies must be outcomes based and reflect the IOM’s six quality aims for health care: safe, effective, efficient, timely, patient-centered, and equitable Targets primary care to lower dependence on costly secondary and tertiary care Advocates team approach that includes consumers, providers, policymakers, and industry leaders to create an affordable health care system Implications for Nursing Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 30

31.  Nursing and health care finance decisions  Changes in health care financing directly affect professional nursing practice  Government policy influences the public’s openness to securing services from various professionals such as nurse practitioners  Financing affects salaried employees because providers build job opportunities on the basis of payment sources  Payment modes determine whether a particular nursing role will be reimbursed Implications for Nursing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 31

32.  Efficiency and effectiveness of care  Care coordination: decrease duplication of services and reduce wasted health care resources  Case management: ensure that patients get effective treatment at the appropriate level of care  Disease management: manage and improve the health status of a defined patient population over the course of a disease  Outcomes management: demonstrate efficiency of care via measurable, effective outcomes Implications for Nursing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 32

33.  Expansion of technology  Under examination for cost-efficiency vs. outcome delivery  Nurses will play a key role in educating patients and families about the cost/benefit ratio and assist in selecting alternatives  Internet offers promise for innovative programs  Nurses can combine clinical skills with information technology skills to meet a critical need for health information and data management Implications for Nursing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 33

34.  Consumer empowerment  Customers or patients as health care consumers are demanding quality services at affordable rates  Nurses must understand and provide customer- focused care  New relationships with consumers are developing that emphasize cost sharing based on individual health practices Implications for Nursing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 34

35.  Consumer empowerment  Legislation is in place to protect individuals enrolled in managed care plans: access, quality, cost  Nurses can take the lead in demonstrating the value of wellness and of teaching health consciousness  Reducing health care costs as a consumer Implications for Nursing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 35

36.  Consumer empowerment  Reducing health care costs as a consumer Take good care of yourself; manage minor illnesses by yourself at home Use the Internet to learn more about your health and ways of preventing disease Recognize early warning signs of disease and get prompt treatment Practice preventive health with health screenings and routine self-examinations Develop an active relationship with health care providers to improve communication Implications for Nursing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 36

37.  Consumer empowerment  Reducing health care costs as a consumer Use emergency care only in emergencies Know health risks for lifestyle choices, such as alcohol and drug use, dietary habits, sedentary behaviors, safety at home, and driving Implications for Nursing (cont'd) Copyright © 2014 by Mosby, an imprint of Elsevier Inc. 37