TheU.S. Health Care System

Craig A. Pedersen, R.Ph., Ph.D.

Department of Pharmaceutical and Administrative Sciences

School of Pharmacy, Ohio State University

And

Mary C. Haven, M.S.

Objectives

• After viewing and listening to the Internet lectures posted on Blackboard, the student will be able to”– Discuss three reasons for the increase in health

care costs in the US in the last two decades.– List at least three reasons for dissatisfaction

with the US health care system.

Objectives Cont.

– List at least two examples of efforts by the government to increase access to health care.

– Give at least three examples of efforts by the government to contain health care costs.

– Analyze why these government efforts to contain health care costs were not effective.

– Discuss pros and cons of the US health care system.

Historically: Then and Now

• The turn of the century– People took care of themselves

• Paid for services themselves, or

• Charity

– Hospitals– Greatest problem 1850-1900

• Epidemics of acute infectious diseases

• Today– Primary causes of death

Why we are here!• Medical costs as a % of GNP

– 1929, ~ 3.5% GNP– 2001, ~ 14 % GNP

• 1 in 8 dollars of our economy is health care

• Causes for HC Cost Growth– General Inflation - Merged Hospitals– Demographics - Prescription Drug Costs– Technology - Workforce Shortages

Listen 1st Listen 2nd

Demographics: Elderly Population Will More Than Double by 2040

30.5

4762.94.3

6.8

14.3

0

10

20

30

40

50

60

70

80

90

2000 2020 (proj) 2040 (proj)

Mil

lio

ns o

f P

eo

ple

85 and older

65-84 years old34.8

53.8

77.2

Bureau of the Census: “Projections of the Total Resident Population by 5-Year Age and Sex With Special Age Categories: Middle Series”, Jan. 2000

Medical Costs as % GNP

0

2

46

8

10

1214

16

18

192919601970198019901991199219931994199519961997199819992000200120022003

http://cms.hhs.gov/statistics/nhe/historical/t1.asp (Accessed 8/19/2005)

Average % Growth/YearHealth Care Costs

012345

678910

1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

http://cms.hhs.gov/statistics/nhe/historical/t1.asp (Accessed 8/19/2005)

7.7%

9.3%

Where does the money go?• We spend more than any other country on health care

• Estimates of waste in the health care system– 8.6% waste, ineffective work

– 11.4% administration

– 10% fraud

– 15.9% unnecessary services

• Administrative costs: NEJM 2003 – U.S. $1,059 or 31% of HC expenditures

– Canada $307 or 16.7% of HC expenditures

Denmark 91% Germany 58%U.K 57% Canada 46% U.S. 40%Italy 20%

U.S. $3,724Germany $2,365Denmark $1,940 Canada $1,836 Italy $1,824U.K. $1,191U.S. (2003) $5,670

Percentage of population who are satisfied with health-care system (2000)

Per Capita health-care spending (1999)

High Spending, High Dissatisfaction

Share in GDP (1998)

U.S. 13.0%Germany 10.6%Denmark Canada 9.3% Italy 7.8%U.K. 7.2%U.S. (2003) 15.3%

0%10%

20%

30%

40%50%

60%

70%

80%90%

100%

Denmark UK U.S.

Health Affairs, 20 (2001)

Health Care Reform Efforts by the Federal Government

• Kerr Mills Act – 1960

• Medicare and Medicaid - 1965

Federalization and Cost Containment Era

• Several Strategies were employed to control rising costs – Voluntary hospital planning

– Implementing wage and price freezes

– Changing amounts and methods of reimbursement for services

– Implementing regulatory programs such as utilization review and controls on hospital capital expenditures

– Encouraging development of more cost-effective health care delivery systems

• Most were not successful in controlling costs

Major Government Cost Containment Programs

PRECURSORS TO MANAGED CARE

• 1972 Amendments to the Social Security Act– Professional Standards Review Organizations

(PSRO)• Dual responsibility for cost containment and quality

assurance

• National network of Utilization Review programs

• Did not work, replaced in 1983 by PRO’s

Major Cost Containment Programs

– Section 1122• mechanism to control capital expenditures of health care

organizations• States were required to review proposed capital

improvement expenditures• If health care organization continued to construct without

approval of the state, then federal government could withhold Medicare payments

• Certificate of Need (CON) or Determination of Need (DON) programs by state– Any Capital improvement greater than $150,000 must be

approved by the state

Major Cost Containment Programs

• 1973, Health Maintenance Organization (HMO) Act– New delivery system that was not costly for the government

• 1974, National Health Planning and Resource Development Act (NHPRD) and Health Systems Agencies (HSA)

• 1983, Peer Review Organizations (PRO)• 1983, Medicare Prospective Payment System,

Diagnosis Related Groups (PPS/DRGs)

Major Cost Containment Programs• 1993, Health Security Act –Not passed

– Clinton Health Care Reform• Comprehensive coverage• Employers still required to shoulder the costs• Introduced managed competition• Served to reform the system anyway

• 1997, Balanced Budget Act– Saving of $130 billion from Medicare and Medicaid– Cut payments to providers

• Outpatient PT and speech pathology capped at $1500/yr• Outpatient OT capped at $1500/yr

– Outpatient Prospective Payment System

Dominant Government and Private Health Plans

• Medicare / Medicaid (Government)

• Dept. of Defense / CHAMPUS (Government)

• Veterans Administration (Government)

• Federal Employee Plan (Government)

• Indian Health Service (Government)

• County Hospitals & Health Plans (Government)

• Blue Cross Blue Shield plans (Private)

• Commercial Insurance plans (Private)

• Health Maintenance Organizations (Private)

• Self-Insured Employers (Private)

• Self-Insured Asso.’s & Union Plans (Private)

• Workers Compensation Plans (Both)

Role of the Consumer in the U.S. Health Care System

• Not usually responsible for payment• Seller controls both supply & demand • Limited ability to differentiate services

• Demographic factors may influence consumption of health care (age, sex, education, income, residence location, and health status)

• Convenience and access are high priorities• Desire to have the “best” and “latest” treatment or

care