Chapter 2

Benchmark Developments
in U.S. Health Care

Chapter Objectives
Acquire knowledge of major legislative,
economic, organizational and professional
influences in health care delivery system
evolution including major features and
implementation timetable of the Patient
Protection and Affordable Care Act of 2010
Understand how benchmark
developments continue to affect medical
education, scientific advancement , costs
and consumer expectations

Health Care Industry

Transformation
Until 1940s (pre-insurance), industry
dominated by physicians, hospitals
Patient/MD relationships sacred;
treatments, payments confidential
Mostly personal payments
No third party must be permitted to
come between patient and physician
in any medical matter. AMA, 1934

Shift from Personal Payment to

Insurance Payment
Dramatic alteration in
physician/patient relationship
Distanced patients from awareness
of costs & responsibility for decisions
Created business of medicine

Health Insurance Historical

Highlights (1)
1800s: some employer sickness
insurance, fraternal orders, unions;
fixed sums replaced lost wages.
1915: drive for compulsory insurance
begun on European models
Protect workers from lost income
due to accidents

Health Insurance Historical

Highlights (2)
Metropolitan & Prudential industrial
policies ($.10-25 /wk., paid $50-100
on death.)
WWI interrupted drive for compulsory
insurance
AMA officially opposed compulsory
insurance (1919) believing insurance
would decrease incomes based on
experience with arbitrary fees paid
by accident insurance.

Great Depression: Genesis of

Hospital Insurance Plans
Hospitals experimented with insurance
as financial woes depressed admissions
Baylor University Plan: birth of the Blue
Cross Model; public school teacher paid
$ .50/month for guarantee of 21 paid
hospital days
By 1937, 26 plans with 600,000 enrolled
with physician and hospital
endorsement

No Socialized Medicine
AMA continued aggressive protest
against government involvement in
insurance
All insurance plans served hospital,
physician interests.

Growth of Private
Insurance
Post WWII: Government exempted
health insurance benefits from
wage/price controls and exempted
workers health insurance
contributions from taxable income.
Insurance companies raised
premiums without pressure to control
costs
Attention focused on avoiding
infringement on physicians and

Dominant Influence of
Government (1)
Social Security Act of 1935- most
significant U.S. social initiative in U.S.
history:
Federal aid to states for public health,
welfare, maternal/child health,
crippled children
Legislative basis for most subsequent
health and welfare programs including
Medicare & Medicaid.

Dominant Influence of
Government (2)
Post WWII: categorical programs
addressed needs unmet by states,
local government, private sector
Federal subsidies for hospital
construction, research, professional
education
Government programs now almost
50% of total U.S. health care
expenditures

Government Financial
Involvement
Physician, other professional training
subsidies
50%+ of all research funds, National
Institutes of Health
Building, expanding hospitals: 1940s-1970s
Student support
Health planning, regulation
Consumer protection-related agencies (e.g.
FDA, OSHA)

Political Values Shape

Health Care (1)
Kennedy-Johnson Era: Creative Federalism
Federal grants increased from $7 to $24
million between 1961-1968
Health Professions Educational Assistance
Act; Nurse Training Act; Economic
Opportunity Act for neighborhood health
centers
1965 Medicare & Medicaid
Many other access related policies

Political Values Shape

Health Care (2)
Nixon-Ford Era: New Federalism
Deleted categorical programs,
shifted to state block grants
HMO Act of 1973
Decentralized, shifted support from
public health, social programs

Legislation: Unintended
Effects
Medicare, Medicaid to improve
access: skyrocketed costs with
underestimations of aged
population growth, technology costs
and service utilization
Hill-Burton Act of 1946 to increase
hospital capacity led to vast overcapacity
HMO Act of 1973 to control costs:
raised many access and quality

Three Major Health Care

Concerns
Cost, quality and access are a
generations-long conundrum of U.S.
health care delivery
Attempts to control each result in
problems with the others: e.g. cost
controls raise quality and access issues;
increasing access raises cost concerns;
improving quality raises cost concerns

Efforts at Planning and Quality

Control
Federal government attempts to
address costs, quality and access
met with powerful industry influences
to preserve the status quo.
Federal efforts included:
Regional Medical Program (1965);
Comprehensive Health Planning Act
(1966); National Health Planning and
Resources Development Act creating
Health Systems Agencies (1974)

Managed Care Organizations

1973 Health Maintenance Organization Act
funded federal demonstration projects to :
Link service delivery and financing with prepaid
fixed fees; expected to hold down costs
Comprehensive services emphasizing prevention
By 1999 managed care organizations insured the
majority of all privately insured individuals
Major backlashes by consumers and providers
Unsuccessful in containing costs

The Reagan
Administration
1981-1989: Reductions in
government involvement and funding
Block grants to states
Reductions in social program support
Prospective Medicare hospital
reimbursement (DRGs) became the
model for hospital reimbursement
New resource-based physician payment
to contain physician fees is a model in
use till today

Bio-medical Advances
Dramatic technology advances of
1960s and 1970s:
Sabin polio vaccines
Tranquilizers, anti-depressants-librium
and valium
Birth control pills
Heart-lung machines
Improved general anesthesia
Computed tomography scanners

Technological Advances: New

Problems
Extending life versus the individuals
right to die
Equal access to technology
regardless of ability to pay
Profit-motivated overuse of
technology with no patient benefit
Technology availability causes
overuse due to fears of litigation

Problems of Technological Advances: Private

and Government Attempts at Solutions

AMA: established Diagnostic and Therapeutic

Technology Assessment Program; the Council
on Scientific Affairs; AMA Drug Evaluations
Federal Government: 1972 Technology
Assessment Act created Office of Technology
Assessment (shut down in 1995); Agency for
Health Care Policy and Research created in
1989 renamed Agency for Healthcare Policy
and Quality current research on health
outcomes

Roles of Medical Education &

Specialization
Medical schools, teaching hospitals: conduct
advanced research, form values and skills of
physicians, nurses, other professionals
Teachers as role models reinforce values to
new professionals
Tradition, narrow faculty expertise: obstacles
to educational reforms related to populationbased health care
Issues persist about workforce needs and
future planning for physician supply

Influence of Interest Groups

Many problems arise from division
between governments, private health
care industry both seeking to protect
the interests of their stakeholders
Tax-funded proposals spawn wellfinanced lobbying by providers,
insurers, consumers, business, labor
unions

American Medical Association

AMA: est. 1847 to improve medical
education
217,000 members, about 17% of
physicians and medical students
History of opposition to government
controls & advocacy for physician
autonomy; supported the ACA; cost
containment, malpractice reform,
autonomy remain contentious

Insurance Companies
Political efforts viewed as self-serving
by eliminating high-risk consumers
from insurance pools and premium
rate increases
Health Insurance Association of
American waged highly successful
media campaign to influence failure
of Clinton Plan
Vigorously opposed ACA public
option that would have curtailed

Consumer Groups
Informed and assertive citizens exert
increasing influence on legislative
decisions.
AARP- 40 million members
Patients Coalition ( 50+ not-for-profit
organizations)
Numerous other consumer advocacy
organizations lobby individually or as
coalitions on health care issues

Business and Labor (1)

Business groups and coalitions as the
primary purchasers of health care for their
employees, lobby intensively on health care
issues:
National Federation of Independent Businesses:
350,000 individual members representing small
firms (sued for relief from the ACA)
National Association Manufacturers- large
employers with 11,000 members.
U.S. Chamber of Commerce: 3 M businesses of
all sizes

Business and Labor (2)

Labor unions have strong interests in
health care benefits of members:
American Federation of Labor and
Congress of Industrial Organization (AFLCIO), 13 M members
Service Employees International Union
(SEIU) 2.1 M members with 1.1 M in
health care

Pharmaceutical Industry
One of the most well-funded and
influential lobbying organizations in health
care
Anticipated increased drug use by older
population and gains from participation in
Medicare prescription drug program
Succeeded in strongly influencing the
Medicare Part D prescription drug plan by
prohibiting the federal government and
Medicare from negotiating volume price
discounts with drug companies

Public Health Focus on

Prevention
Public health organizations advocate
for health promotion, disease
prevention and needs of underserved
populations
Historically, negative perceptions result
from linking public health with
government bureaucracy or socialism

American Public Health Association

maintains 30,000 members and
significant lobbying activities.

Economic Influences of Rising

Costs
Growth in health spending and insurance
premiums rising much faster than U.S.
economic growth
High costs are the major impetus for reforms
Numbers of uninsured reached a high of 49 M,
an increase of 12 M, since Clintons health
reform failure in 1994.
Uninsured numbers vary as function of
employment status, premium costs and
Medicaid eligibility

Health Insurance Portability &

Accountability Act of 1996
Ensured coverage renewal for workers changing
jobs
Regulated insurers coverage of pre-existing
conditions
Mandated medical record computerization and
privacy (implementation in process)
Office of National Coordinator of Health
Information Technology (Bush- 2004) and
American Recovery and Reinvestment Act
(Obama-2009) that provided $ 20.8 to
incentivize adoption of electronic health records

Aging of America
Many needs for system adaptations
to care for frail older persons
Social & family changes limit
opportunities for informal care-giving
Inadequate caregiver supports
Institutional system offers little to fill
gaps
High costs of institutional care tax
personal and Medicaid resources

Oregon Death with Dignity Act

of 1994
Also known as Physician-Assisted
Suicide Act
Terminally ill may request lethal
medication
Stringent legal guidelines to prevent
abuse

Washington State implemented

similar law in 2009
Montana State Supreme Court
upheld law protecting physicians

Internet and Health Care

Vast consumer resources of health and
wellness information: communication with
others about similar health concerns; data
about institutions and providers.
Physicians, other providers access for
latest clinical information
Smartphone apps benefit consumers
and providers
Information ranges from professionally
reliable to questionable and is essentially
unregulated

Landmark Legislation: the Patient

Protection and ACA of 2010
Political background
Obamas pledge: Universal health care
enacted in first term
Some in administration opposed health
reform due to attention required for
crises in banks and auto industries,
education reform and other needs
Drivers: rising medical costs for families
and corporations, federal deficit, volume
vs. value issues, numbers of un- and
underinsured

Judicial Challenges to the

ACA (1)
State of Florida: federal district court
lawsuit challenging constitutionality
of individual coverage and Medicaid
expansion mandates
25 additional states, National
Federation of Independent
Businesses and others also filed
Florida suit.
Virginia filed separate lawsuit
challenging the individual mandate.

Judicial Challenges to the

ACA (2)
Issues of contention
Congressional authority to mandate
individual coverage with noncompliance penalties under either its
power to regulate interstate commerce
or impose taxes
Congressional authority to make all of a
states existing Medicaid funding
contingent on compliance with the
ACAs Medicaid expansion provisions

Judicial Challenges to the

ACA (3)
Supreme Court decisions (2012)
Upheld individual mandate with noncompliance penalties treated as
legitimate taxes
Ruled Medicaid expansion as
unconstitutionally coercive of states
with the remedy of prohibiting the
federal government from making
existing state Medicaid funding
contingent upon participation in the
expansion

The ACA Implementation

Provisions
Implementation timeline: 2010-2019
Major goals
Providing new consumer protections
Improving quality and lowering costs
Increasing access to affordable care
Holding insurance companies
accountable

New Consumer
Protections (1)
Online insurance policy comparisons
Prohibit coverage denial due to preexisting medical conditions
Eliminate annual and lifetime limits
on coverage
Enhance venues for appealing
coverage denials

New Consumer
Protections (2)
Support states assistance to
consumers in navigating the
reformed system
Prohibit insurance companies from
rescinding coverage or denying
payment due to technical or other
errors in a subscribers original
application for coverage

Improving Quality and Lowering

Costs(1)
Provide small business tax credits for
employee premiums
Provide one-time rebate, then 50%
discount for seniors uncovered
prescription drug costs
Require all new insurance plans and
Medicare to provide specified free
preventive services
$ 15 B Prevention and Public Health Fund
for proven public health programs

Improving Quality and Lowering

Costs(2)
Enhance federal anti-fraud, waste,
abuse initiatives in Medicare,
Medicaid and CHIP
New Center for Medicare & Medicaid
Innovation to test care improvements
and continuity
New Community Care Transitions
Program for seniors transition from
hospital to home
New Independent Payment Advisory

Improving Quality and Lowering

Costs(3)
New Medicare Value-based Purchasing
Program with hospital financial
incentives
Accountable Care Organizations to
improve Medicare service coordination
across the service spectrum
Federal programs must collect, report
data to identify and help reduce health
disparities

Improving Quality and Lowering

Costs(4)
Enhanced state funding for Medicaid
preventive services
New pilot, Bundled Payments for
Care Improvement focused on total
episode of patient care rather than
individual services
Tax credits for individuals within
specified income limits, applicable to
insurance premium costs

Improving Quality and Lowering

Costs(5)
Health Insurance Marketplace offers
choice of plans meeting specified
benefits and cost criteria for
individuals and small businesses
Physician payment adjustments
based on quality
Excise tax on high-cost insurance
plans to support coverage for
uninsured and discourage use of
most expensive plans

Increasing Access to Affordable

Care (1)
Access to insurance for individuals with
pre-existing conditions
Young adults coverage up to 26 years on
parents insurance plans
$ 5B to cover early retirees in
employment-based plans
Expand primary care workforce in shortage
areas through scholarships and loan
repayments for physicians and nurses

Increasing Access to Affordable

Care (2)
Incentivize states to regulate
insurance premium increases and bar
companies with excessive premiums
from participation in new health
insurance exchanges
Additional matching funds for states
expanding Medicaid enrollment
New funds to attract and retain rural
health care providers

Increasing Access to Affordable

Care (3)
Funds to expand community health
centers to serve 20 million additional
patient
New Community First Choice Option
for states Medicaid home-based
services to reduce institutional care
Increase Medicaid payments to 100%
of Medicare payments for primary
physicians

Increasing Access to Affordable

Care (4)
Support for states coverage of nonMedicaid eligible children through the
CHIP
Support for states Medicaid enrollment
of individuals earning less than 133% of
the federal poverty level income
Require all who can afford it to purchase
health insurance or pay a fee (tax)

Increasing Access to Affordable

Care (5)
Health Care Choice Compacts to
increase competition by allowing
insurance sales across state lines

Holding Insurance Companies

Accountable (1)
Require that 85% of premiums for
large employers and 80% for small
employers are spent on health care
services or improvements; require
rebates to subscribers for noncompliance
Eliminates costs from Medicare
Advantage plans and bonuses plans
for high quality care

Summary (1)
CBO estimate of ACA 2012-2021 net cost
for 32 M new insured: ~$ 1.1 trillion; new
revenues from taxes, penalties and other
sources: $ 510 B.
Budget projects are speculative and will
evolve over succeeding years
Lobbying is underway to alter financial
provisions
Major questions in turnover of existing
federal administration in 2016

Summary (2)
ACA includes new programs, grants,
demonstration projects, guidance
documents and regulations with
scores of new rules to be issued
throughout the implementation
period.
Outcomes of the ACA will be
impacted by numerous factors
including the national economy,
political environment, provider and