Running Head: HEALTH CARE INDUSTRY

Health Care Industry of USA [Name of the Writer] [Name of the Institution]

HEALTH CARE INDUSTRY

Table of Contents
Introduction ................................................................................................................................................. 3 Discussion .................................................................................................................................................... 3 Physician Reimbursement ...................................................................................................................... 3 Resource-Based Relative Value Scale ............................................................................................... 3 Hospital Reimbursement .................................................................................................................... 4 Diagnosis-Related Groups and Prospective Payments .................................................................... 4 Per-Diem Hospital Reimbursement .................................................................................................. 4 ESRD Treatment..................................................................................................................................... 5 Hemodialysis and Peritoneal Dialysis ............................................................................................... 5 ESRD Treatment and its Economics ................................................................................................. 5 Patient Options and Potential Trade-offs ............................................................................................. 6 Ethical Implications of Treatment Options based on Cost Evaluation .............................................. 8 Conclusion ................................................................................................................................................... 8 References .................................................................................................................................................... 9

HEALTH CARE INDUSTRY Health Care Industry of USA

Introduction Health care industry of USA is complex with intricate reimbursement techniques from the insurers. Reform laws have been passed over the time to simplify the process and availability of the services to mass. ESRD program was introduced in 1973 to study the patterns of general health care needs of population. The model failed because renal population cannot represent general US population. Discussion Physician Reimbursement Resource-Based Relative Value Scale In response to inflation in the late 1980s, Medicare introduced bundled services as a way to draw physician services priced at reasonable rate. It was introduced in opposition to the feefor-service (Piece-rate) mechanism. Fee-for-service system was thwarted in the wake of inflation because it was associated with higher prices since physicians were paid what they asked. The bundled service package called Resource-Based Relative Value Scale is priced after thorough research of all the resources put in by the physician. Federal Medicaid program also determined rates which were quite lower, and followed it aggressively with no price negotiations for the physicians. Medicaid was later mandated to at least raise their rate to 60% of the Medicare rates (Jonas & Konver, 2011).

HEALTH CARE INDUSTRY Hospital Reimbursement In case of private insurers, rates are decided by mutual consent. Whereas, public insurers (Medicare and Medicaid) determines the rates through complex formulas and then the hospitals are offered those rates without any room for negotiations. This approach came in response to the unregulated rates demanded by hospital that were initially followed by the insurers. Unregulated approach resulted in increased hospital cost inflation. This inflation influenced public insurers to follow take it or leave it model with the hospitals, for the rates they offer.

Diagnosis-Related Groups and Prospective Payments Introduced in 1983 by federal government, it works with public insurer offering an upfront fixed amount to the hospital for the stay and specific diagnosis related to the need of its covered patient. The amount will not be increased regardless of the duration of hospital stay of the patient or any other tests or care that might be required later. This prompts the hospital to increase their efficiency level by reducing unnecessary stays, and services rendered. The newer approach promoted by 2010 reform laws is bundled payments for entire medical treatment, where physician or hospital is provided with the fixed amount to deal one case.

Per-Diem Hospital Reimbursement As the name suggests, per-diem calls for revising the rates daily. Private insurers extensively negotiate rates with the hospitals on daily basis. Public insurers set their per-diem rates and require the hospitals to accept them. DRG groups are not usually followed to set rates; rather per-diem approach is commonly seen to be practiced by insurers.

HEALTH CARE INDUSTRY ESRD Treatment End Stage Renal Disease is the last stage of the Chronic Kidney Disease (CKD). For survival, this stage requires the patient to be on dialysis or have his kidney transplanted. Without immediate treatment, patient could suffer from Uremia leading to death. Ideal treatment is transplantation, but with the waiting list having 85000 contenders, patient prefers Dialysis (Sullivan, 2009).

Hemodialysis and Peritoneal Dialysis Hemodialysis is usually performed in outpatient centers. It requires the patient to visit the facility thrice a week with the treatment taking time between 3.5 to 4.5 hours. Because of the time constraint, patients sometimes move to Peritoneal Dialysis which can be performed at home but requires daily commitment and carefulness. If not being careful, it may lead to infection in response to which the user is to be converted to Hemodialysis. Therefore, PD does not receive much of the recommendations from nephrologists. The reimbursement plan, however, remains same for both the treatment methods. But Peritoneal Dialysis costs less as compared to Hemodialysis because PD prescribed patients are healthier and have greater renal function so they are not prescribed ancillary drugs.

ESRD Treatment and its Economics Dialysis market is basically dominated by Fresenius Medical Care and De Vita; they collectively have 82.1% market share (Sullivan, 2009). FMC is fully integrated global health care company providing health care to the patients in addition to the manufacturing and supply of the Dialysis equipment. Whereas, DaVita is Dialysis provider in the US.

HEALTH CARE INDUSTRY The main economics start from the infrastructure. Dialysis requires high infrastructure investment to support various clinics with minimum employment of the administrative cost and

staff. With the insurers reluctant to increase the rate, and pressure from medical labor community on the rise, providers had to maintain profitability. Dialysis units sold to outpatient centers and clinics require one time investment of around 1.5-2.5 million (Sullivan, 2009). To off-set this and operate in profitability, increased volume base of patients is required. This is the reason because of which patients are usually not recommended Peritoneal Dialysis and instead they are prescribed Hemodialysis, regardless of it being more expensive. As far as the nephrologists are concerned, they are lured in this quagmire through being offered to invest in the Dialysis company. Now, since the nephrologists share an ownership in the Dialysis company, it would be favorable to prescribe Hemodialysis. SMEs usually employ such tactics as a result of which nephrologists and physicians share a vested interest in the increased patient base of the clinic or outpatient centers. This is the perspective at the back of which PD is not that much commended among the renal patients despite of it being low cost alternative to the Hemodialysis.

Patient Options and Potential Trade-offs Cost of treatment is basically when patients pool in their sickness risk along with others, they would be entitled to getting treated in time of their sickness. Current healthcare policy of Medicare mandates it to use 90% of its funds for 10% of its beneficiaries; those 10% might include an elderly person who is taking last breaths of his life, and those funds could be expended to some young person who is suffering from some chronic disease that could be cured if treated immediately. The same funds could be used for hiring more nurses for care, or to invest

HEALTH CARE INDUSTRY in healthcare R&D. This is the potential trade-off or opportunity cost that is associated the cost of treatment. Quality of treatment is associated with the release of funds, though after certain limit, the

marginal utility of each dollar invested tends to decrease (Milstead, 2008). Increased spending on healthcare on federal level therefore records no significant consequence. Whereas, on individual level, it is directly related to the illness of oneself or family member. Resources are scarce and policies are made through economists reports as to how to utilize these limited resources in a way that could elevate quality of treatment. Potential tradeoffs related to quality of treatment could be recommendation that serve ulterior motives of, for instance, nephrologists. If the patient is recommended to use Hemodialysis instead of Peritoneal Dialysis, despite of him being compliant to all the requirements put forth by the physician for the patient who could be prescribed PD, it is a trade-off related to Quality of treatment. Access to treatment is patients access to the treatment. If one person is enrolled in the hospital as a covered patient, it might decrease the chances of some other patient who is more in need to receive proper treatment because only 10% of patients are expended the funds. With Health Insurance Exchanges (HIE) entering into the insurance market, new domain is added to the potential trade-off related to access to the treatment. HIE would be comprised of numerous providers offering their plans at competitive rates to the customer; guiding the customer while providing basic information, making the market much more organized and competitive. This exchange is for people who are not covered through their employers.

HEALTH CARE INDUSTRY Ethical Implications of Treatment Options based on Cost Evaluation Provenge is expected to increase life expectancy of one by four months, although it is an

expensive drug, but this should not be the ground on which treatment should be discarded (Stein, 2010). Doctors are responsible to cure and if that is not possible, they are liable to treat the patient until there is no other option available to heal the suffering. Although it is true that resources are scarce, four months could be very important for someone. Continuous R&D should be pursued to come up with alternatives but at the same time, the treatment should be delivered. Providers prescribing Hemodialysis to patients just as a way to increase their patient volume to cover fixed investment in the Dialysis equipment can very easily be challenged on moral high grounds. It is a breach of oath from the doctors side to use patient to ones own advantage. Patients who cannot afford to invest time in Hemodialysis could face adverse consequences at the expense of monetary favor to a nephrologist. Patient would be paying higher charges for having Hemodialysis; which could become financial burden for some as well, when he could have been treated properly using PD. It is imperative to choose a way that is beneficial for both the parties, rather than to manipulate patients.

Conclusion A regulatory body is required to keep a check on recommendations provided to renal patients so that doctors could not impose prescriptions that are favorable to them. Extensive R&D should be pursued and development of beneficial drug or provision of treatment should not be barred because of the high cost associated. Although cost is the indicator that needs to be considered in every decision taken, a treatment should not be discarded solely on the basis of the cost attached.

HEALTH CARE INDUSTRY References Kovner, A. R. & Knickman, R. J. (2011). Health Care Delivery in the United States (10th ed.) New York, NY: Springer Publishing. Milstead, A. J. (2008). Health Policy and Politics: A Nurse's Guide (3rd ed.) Sudbury, MA: Jones and Bartlett Publishers. Reinhardt, U. E. (2010, Jan 20). State of the Nation (A Special Report): VoicesA good start. The Wall Street Journal, p. R5. Retrieved from: http://online.wsj.com/article/SB10001424052748704675104575001101419588486.html Retrieved on: Sept. 19, 2012 Stein, R. (2010, November 8). Review of prostate cancer drugs Provenge renews medical costbenefit debate. The Washington Post. Retrieved from: http://www.washingtonpost.com/wpdyn/content/article/2010/11/07/AR2010110705205.html. Retrieved on: Sept. 19, 2012 Sullivan, J. D. (2010). End Stage Renal Disease Economics and the Balance of Treatment Modalities. Journal of Service Science & Management, vol. 3 no. (1), pp. 4550. .