Ohio University Business Principles Associated with Patient & System Cost Paper

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Ohio University - School of Nursing



This week you have read about several areas of financing as it relates to the health care system and some health care retail areas that may be of interests. For this assignment, put yourself in a nurse manager, director of nursing, Chief Nursing Officer (CNO), or business owner role. Discuss three or more business principles as discussed in the Greg Fisher Power Point-in the learning activities (in your own words) which are needed to maintain safe, quality, patient-centered care that is fiscally sound, provide supportive data. In your discussion consider:

Why have you selected the business principles?

Are the business principles used at your current facility?

If you feel that they are, give supportive examples.

  • If you feel they are not give examples of how they could be implemented.
  • Why are those specific principles important in health care?

Why are those specific principles important to you?

  • Your initial post must be posted before you can view and respond to colleagues, must contain minimum of two (2) references, in addition to examples from your personal experiences to augment the topic. The goal is to make your post interesting and engaging so others will want to read/respond to it. Synthesize and summarize from your resources in order to avoid the use of direct quotes, which can often be dry and boring. No direct quotes are allowed in the discussion board posts.
  • Post a thoughtful response to at least two (2) other colleagues' initial postings. Responses to colleagues should be supportive and helpful (examples of an acceptable comment are: "This is interesting - in my practice, we treated or resolved (diagnosis or issue) with (x, y, z meds, theory, management principle) and according to the literature..." and add supportive reference. Avoid comments such as "I agree" or "good comment."
  • References:

Initial Post: Minimum of two (2) total references: one (1) from required course materials and one (1) from peer-reviewed references.

Response posts: Minimum of one (1) total reference: one (1) from peer-reviewed or course materials reference per response

.Textbooks:Policy and Politics in Nursing and Health Care, Elsevier Saunders, 2021, 8th edition

Read Chapters 16, 17, 31, 46, 66, 67, 69

  • Do not panic! There are several chapters to read; however, they are brief. Mason, Gardner, Hopkins Outlaw and O’Grady provide succinct explanations and specific examples of health care policy in action. The beginning chapters discuss the philosophy of politics, the readings then continue with media influences, disparities, the importance of EBP, and more. I think this week will be informative and thought provoking. This week I do strongly suggest that you at least skim the supplemental readings.

    Click for more options Greg Fisher is a lecturer at the University of Washington. In this PowerPoint he discusses the top ten business principles. This presentation will help you with your discussion boards and ICP. Click here to access the presentation.
    Click for more options Are you the weakest link? As you participate in this week’s lecture, you will be able to determine your areas of strengths and your opportunities for growth as a nurse. To access the lecture click here. Click for more options

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RUBRIC: DISCUSSION BOARD (30 pts) Criteria Characteristics of initial post Support for initial post Responses to Peers APA format*; Spelling/ Grammar/ Punctuation Meets Expectations 10 to 10 Points • Provided response with rationale. • The post is substantive and reflects careful consideration of the literature. • Examples from the student’s practice/experience are provided to illustrate the discussion concepts. • Addressed all required elements of the discussion prompt. • Well organized and easy to read. 5 to 5 Points • Cited minimum of two references: at least one (1) from required course materials to support rationale AND one (1) from peer-reviewed* references from supplemental materials or independent study on the topic to support responses. • The initial post is a minimum of 200 words excluding references. 10 to 10 Points • Responses to colleagues demonstrated insight and critical review of the colleagues’ posts and stimulate further discussion • Responded to a minimum of two (2) peers and included a minimum of one (1) peer-reviewed* or course materials reference per response. • Responses are a minimum of 100 words and are posted on different days of the discussion period by the due date. 5 to 5 Points • APA format** is used for in-text citations and reference list. • Posts contain grammatically correct sentences without any spelling errors. Levels of Achievement Needs Improvement 3 to 9 Points • Provided response missing either substantive rationale, consideration of the literature, or examples from the student’s practice/experience to illustrate the discussion concepts. • Addresses all or most of required elements. • Somewhat organized, but may be difficult to follow. 2 to 4 Points • Missing one (1) required course reference AND/OR one (1) peer-reviewed reference to validate response. • Post has at least 200 words. 4 to 9 Points • Responses to colleagues are cursory, do not stimulate further discussion and paragraph could have been more substantial. • Responses missing one of the following: o insight/critical review of colleague’s post, o OR respond to at least two peers, o OR a peer reviewed*or course materials reference per response • Responses are a minimum or less than 100 words and posts were on the same date as initial post. 2 to 4 Points • APA format is missing either in-text or at end of the reference list. • Posts contain some grammatically correct sentences with few spelling errors. NOTE: No direct quotes are allowed in the discussion board posts. Unsatisfactory 0 to 2 Points • Provided response with minimal rationale. • Does not demonstrate thought and provides no supporting details or examples. • Provides a general summary of required elements. 0 to 1 Points • Missing 1 or more of the correct type (course or peer-reviewed) or number of references to support response. • Post is less than 200 words or there’s no post. 0 to 3 Points • Responses to colleagues lack critical, in depth thought and do not add value to the discussion. • Responses are missing two or more of the following: o insight/critical review of colleagues’ post o AND/OR response to at least two peers o AND/OR a peer reviewed* reference per response. • Responses are less than 100 words, posted same day as initial post. 0 to 1 Points • Not APA formatted OR APA format of references has errors both in-text and at end of reference list. • Post is grammatically incorrect. *Peer-reviewed references include professional journals (i.e. Nursing Education Perspectives, Journal of Professional Nursing, etc. – see library tab on how to access these from database searches), professional organizations (NLN, CDC, AACN, ADA, etc.) applicable to population and practice area, along with clinical practice guidelines (ECRI Institute https://guidelines.ecri.org). All references must be no older than five years (unless making a specific point using a seminal piece of information) References not acceptable (not inclusive) are UpToDate, Epocrates, Medscape, WebMD, hospital organizations, insurance recommendations, & secondary clinical databases. **Since it is difficult to edit the APA reference in the Blackboard discussion area, you can copy and paste APA references from your Word document to the Blackboard discussion area and points will not be deducted because of format changes in spacing. Last updated: 1/31/2020 © 2020 School of Nursing - Ohio University Page 1 of 1 16 333 A primer on health economics of nursing and health policy Len M. Nicholsa “The price of light is less than the cost of darkness.” Arthur Nielsen Economics is the study of how resources are allocated by people operating in the real world, that is, with constraints on their time, their money, and their knowledge. It can be summarized as the study of choices people make under constraints. Because some constraints are operable on everyone, economists say the real world is a world of scarcity, by which they mean no one, and certainly not everyone, can have everything they might want. Sometimes choices today can relax constraints in the future (e.g., studying for an advanced degree can enable someone to earn higher wages and have more income to spend on goods and services in the future). Sometimes choices today are extremely limited by effective constraints (e.g., when the only jobs available pay the minimum wage; no matter how hard one works or how much one makes, there are only 24 hours in a day and every human must sleep). 334 Economics as a discipline Choices under constraints produce trade-offs, which usually boil down to the fact that you can have more of one desirable thing only if you give up another. Time for money is the classic trade-off, and allocating a limited budget over competing priorities is something every manager (household or business) in the modern world is familiar with. This sets up the fundamental economic concept of opportunity cost, or what must be given up to get something else. This is a better definition of cost than price or out-of-pocket payment, both of which can be distorted by insurance, taxes, or subsidies from the true total cost of acquiring any good or service. Economics is a social science, which means it uses logic and analytic tools to develop models that attempt to characterize and explain the essence of a human choice situation. Models must omit some details to be manageable, and the art of creating models is deciding which details are essential (and measurable) and which can be omitted. The results of the models are predictions or hypotheses about how the real world works, how choices will be made, or what the implications of choices already made will be. These predictions and hypotheses can then be tested against real world observations or data. When the models are confirmed as correct, then the results are added to the body of economic knowledge and passed on to others. When the models and predictions are shown to be inaccurate, then the models and thinking about the type of problem under study are revised. In that sense, economics is empirically driven or evidence based. Economics has evolved over time and continues to evolve, as new data emerge and new models, theories, and hypotheses are created; they compete with old models, theories, and hypotheses virtually all the time. This constant evolution is also partly why economists rarely reach unanimous consensus, but if a preponderance of evidence exists at a point in time, then a majority of economists will lean in a certain direction, just like health or other professionals do as evidence evolves in their fields. Why health care is a hard economic case Health care has some particular features that make it different from most markets, even though economic analysis can still be applied with appropriate attention to these details. Number one is unavoidable information asymmetry. This means either buyers or sellers have knowledge the other does not about a good or service. This asymmetry violates one of the key tenets of competitive markets and creates the opportunity for some market participants to take advantage of others without safeguards and institutions to protect them. Health professionals know more than most patients will ever fully understand about the patient’s condition and treatment options. This information gap is why the Hippocratic Oath and the Nursing Code of Ethics came into being and use long ago. In the extreme case, malpractice law and the procedures that health care organizations undertake to protect themselves from liability claims also protect patients. Plans and employers and consumeroriented organizations try to act as agents on the patient’s behalf, but they are almost always working from an informational disadvantage that affects market outcomes. The current movement toward transparent quality metrics is helping, but informational asymmetry is present in almost every health care transaction. The second big difference in health care is the importance of third party payers compared 335 with most markets. Public and private insurers (and sometimes employers, as self-insured organizations) pay the bulk of the cost of health care, but decisions about what services to deliver are made by clinicians and patients, sometimes far removed from knowledge of total cost. Therefore direct market participants cannot weigh the true cost and benefit of choices, which again violates a key assumption of competitive markets. Finally, the reality is that health care is sometimes a matter of life and death, and for humanitarian and professional ethics reasons, services are sometimes delivered regardless of a patient’s ability to pay. This uncompensated care must be financed, and it is, by a combination of government subsidies, higher charges to private payers who can pay more, and some health care workers accepting little or no compensation for some of their efforts. Each of these three deviations from normal competitive conditions means that market signals from health care transactions can be distorted, which can in turn distort investment and resource allocation decisions across the board. Distortions from competitive market norms require that economic analysis takes these features into account when analyzing health care markets. 336 A fundamental economic tool Supply and demand The first tool in the economists’ tool kit is supply and demand analysis, which we apply to registered nurses (RNs) in a hospital setting to illustrate its use. This tool can explain wage and employment trends and help to make predictions about the future. Let’s start with the demand curve for nurses. Centuries of evidence suggest that almost all demand curves are downward sloping, that is, as the price of whatever falls, consumers will want more of it, and vice versa. The price of a nurse to a consumer is the wage or salary, plus the costs of necessary benefits that an employer, the hospital, and consumer in this case must pay. Thus economists postulate that the demand for nurses in the hospital setting looks something like what is shown in Fig. 16.1. FIG. 16.1 Demand (D) for nurses in the hospital. The vertical axis is wage (W), which could be hourly, weekly, monthly, or annually, but must be specified to be precise. The horizontal axis is the number of nurses (N). The U.S. Department of Health and Human Services (HHS) Health Resources and Services Administration (HRSA) (2010) provides the most recent estimates at the annual level, so we will use annual figures for this illustration. The average wage was $63,994 and 1.7 million were employed in hospitals (2.8 million were working nurses in all fields). As wages fall, more nurses would be demanded by hospitals, and conversely, as wages rise, fewer nurses will be sought after. We will discuss cycles of nursing wages and employment trends in a bit, but for now, we want to make clear what might shift the entire curve or demand schedule and thus change the number of nurses that would be demanded at each wage. Graphically, we are asking what might shift the curve from D1 to D2, as in Fig. 16.2. 337 FIG. 16.2 Demand (D) for nurses in the hospital. The vertical axis is wage (W), which could be hourly, weekly, monthly, or annually but must be specified to be precise. The horizontal axis is the number of nurses (N). Factors that are assumed to be constant for each demand curve and, if they change, will shift the entire demand curve include: • The size and health of the population that might need hospital care, inpatient or outpatient • The percentage of that population that is well managed and coordinated by an independent primary care group that minimizes the need for hospital care • The number of hospitals, the number of beds in those hospitals • The number of outpatient units • The number of physicians and or advanced nursing practices, nursing homes, or home health agencies the hospitals own • The production function of delivering care (substituting more or fewer other health professionals for RNs in the technology of care delivery) • The prices/wages of potential substitutes or other complementary health professionals (e.g., licensed practical nurses, advanced practice nurses, or physicians) Changes in any of these factors can shift the curve outward from D1 to D2, or inward (not shown). Changes in these factors help explain employment and wage trends for nurses over time. The supply curve for hospital nurses is even more straightforward. The greater the wage, the more nurses are willing to work in the hospital setting or settings the hospital owns, as shown in Fig. 16.3. 338 FIG. 16.3 The supply (S) of nurses in the hospital. The vertical axis is wage (W), which could be hourly, weekly, monthly, or annually but must be specified to be precise. The horizontal axis is the number of nurses (N). The factors that would shift the entire supply curve for nurses include: • Net growth in qualified nursing personnel willing to work in hospitals, such as new entrants from nursing schools and programs minus retirements • Working conditions in hospitals versus other employment alternatives (e.g., nursing homes, skilled nursing facilities, assisted living facilities, independent physician’s offices, home health agencies, other ambulatory clinics, ambulatory surgery centers, diagnostic laboratories) • Wages in alternative employment • Other household income (either from a spouse or invested wealth) Note the first supply-shifting factor, net growth in qualified nursing personnel, reflects the impact of nursing faculty, federal support for nursing education, and preceptor shortage realities. Combing the pieces of the tool, Fig. 16.4 displays equilibrium in the market for hospital nurses. Fig. 16.4 depicts an equilibrium in the economist’s sense that the wage has no tendency to rise or fall, because the quantity demanded equals the quantity supplied. A change in the number of hospitals or the wages of nurses in nursing homes, for example, would shift demand or supply, respectively, and upset the equilibrium in this market over time. Demand and supply curves, once stable, do engender forces that tend to push prices/wages to the market clearing levels, which is when the market reaches equilibrium and the demand equals supply and there is then no tendency to change. 339 FIG. 16.4 The demand (D) and supply (S) of nurses in the hospital. The vertical axis is wage (W), which could be hourly, weekly, monthly, or annually but must be specified to be precise. The horizontal axis is the number of nurses (N). Vacancy rates The purpose of this primer is to use economics to explain key dimensions of the markets for nurses and their implications for health policy. All nurse managers know that hospitals usually face nursing vacancies, so they might be wondering, how can there be a positive vacancy rate in hospitals and also strong tendencies to equilibrium wages? Doesn’t the persistence of vacancy rates that never go away render the traditional tools of economics inaccurate for nursing markets? No, and here’s why. A vacancy rate, the percentage of nursing positions that are unfilled, is a reflection of a shortage, where demand exceeds supply. Shortages should not persist if wages adjust upward to market (equilibrium) clearing levels. The actual history of vacancy rates and nursing wage adjustments suggests that the standard economic model works reasonably well to explain movements in wages and employment but with a lag for real world inertia. This inertia in raising wages is commonly caused by reluctance to raise nurses’ pay until other options for recruitment are exhausted, as well as the time lag before information about higher wages and aggressive recruitment is well known enough to encourage more entry into nursing schools, reentry to work, or increasing hours of nursing work (Fig. 16.5) (Feldstein, 2011). 340 FIG. 16.5 Registered nurse (RN) vacancy rate and real wage growth. One technical note about Fig. 16.5; the darker line shows real wage growth, or wages adjusted for inflation. This is a relevant concept because, if wages do not rise as much as inflation, this amounts to a wage cut, because actual purchasing power of the wage level would have declined. Two inferences should be drawn from Fig. 16.5: (1) Real wage growth can be negative if vacancy rates are low enough or falling long enough and (2) vacancy rates did not fall below 4% between 1979 and 2009. This suggests there is a natural floor in vacancy rates below which hospital administrators are not comfortable hiring; that is, they do not really want the market for nurses to clear completely, possibly because they fear how high equilibrium wages might actually be at that moment, and those high wages would significantly increase hospital costs, very possibly forever. Thus equilibrium in nursing markets is effectively reached when hospital vacancy rates are approximately 4%. 341 Cost-effectiveness of nursing services In this era of hyper–cost consciousness, every part of the health care system is often required and wants to demonstrate its unique value. Cost-effectiveness is a technique that allows analysts to compare the costs and outcomes, in nonmonetary units such as body mass index reduction or quality-adjusted life years (QALYs) saved, across two or more possible strategies. It differs from cost-benefit analysis in that the outcomes are not measured in monetary terms but in health-related terms. Thus, if intervention A is more cost-effective than intervention B, either it yields the same health benefit for a lower cost or it delivers more health benefit per dollar cost. The relevant metric is usually cost per QALY saved. Cost-effectiveness studies are surprisingly rarely done on alternative nursing staffing patterns and care delivery modalities. The literature is much more likely to report analyses of a small number of advanced practice nurses partially or wholly replacing physicians or being added to a physician-led team. It is far simpler, frankly, to investigate the impact on cost and outcomes from a specific marginal intervention, for example, adding a carecoordination nurse to a primary care practice, than to compare the cost-effectiveness of 7:1 versus 5:1 hospital patient to nurse staffing ratios across hospitals in the United States. The former requires only an accounting of changes in costs and outcomes, and marginal costs are typically just the nurses’ salaries, whereas the marginal outcome effect might be reduced admissions, reduced emergency room visits, better hypertension control, and so on. The latter requires complete transparency of different hospital accounting systems, congruence on allocation of fixed costs and variable costs, and so on. This is why the few studies of the effect of nurse staffing patterns on cost that have been done have typically focused on the impact on quality or patient outcomes, not overall hospital costs. It is simply too difficult to compare costs across hospitals because of variable accounting practices. A notable exception is the paper by Rothberg and colleagues (2005) that estimated the cost-effectiveness of moving the patient/nurse ratio from 8:1 to 4:1, using total hospital costs as the cost metric. Those costs depend on nursing wages, and how much they would have to rise to call forth the proposed increase in staffing ratios (acknowledging the supply curve for nursing labor is upward sloping, as we postulated and drew previously); cost per hospital day; impact of more nursing hours on adverse events, mortality, and length of stay; and the risk of nurse dissatisfaction from high patient/nurse ratios and the cost of turnover. The most important feature of a good cost-effectiveness analysis is to do a complete inventory of existing and differential costs and impacts on outcomes. Rothberg and colleagues (2005) used estimates of the range of these costs and impacts from the published literature and did sensitivity analyses of the values of the key variables along with a Monte Carlo technique, which essentially runs the experimental calculation (or gamble, hence the name) repeatedly to yield the range of possible outcomes and the best possible estimate of the most likely outcome from lower patient-to-nurse ratios. Rothberg and colleagues (2005) found that reducing patient/nurse ratios from 8:1 to 4:1 reduced mortality and increased costs, but that the incremental mortality gain per dollar fell as the ratio got closer to 4:1. In other words, cost per life saved rose as the ratio fell toward 4:1. Moving from 8:1 to 7:1 cost $24,900 per life saved (in 2005 dollars), whereas moving from 5:1 to 4:1 cost $136,300 per life saved, more than five times as much. The 342 former would clearly be within the $50,000 per life saved threshold typically used by U.S. insurers and government agencies around the developed world to decide if a treatment is worth covering (Grosse, 2008; Neumann & Cohen, 2018; Weinstein, 2008). The latter incremental gain in mortality would not pass this threshold test. Still, most states leave staffing decisions to hospitals, and they are, predictably, all over the map in the absence of a definitive empirical study and national regulation. Thus the final decision is left to the market. 343 Impact of health reform on nursing economics The Affordable Care Act (ACA) has many features which impact nursing and the entire health care system, but the most far reaching for nursing are those which relate to payment and delivery reforms. The increasingly explicit aim of the ACA is to catalyze, through public programs and multipayer incentives, a transformation across the health care system from fee-for-service medicine (which is basically pay-for-volume) to more accountable health care that will be closer to pay-for-value. This approach is reflected in the ACA’s shared savings programs, especially Pioneer Accountable Care Organizations, the ACA Patient-Centered Medical Home (PCMH) experiment, and the Comprehensive Primary Care Initiative, as well as with bundled payments. The underlying assumption, widely shared, is that enabling most health delivery organizations to provide high-value care is the only way the health system as a whole is going to be financially sustainable, while serving all of us, as the ACA also envisions, rather than some of us, as the U.S. health care system currently does. Although the new emerging models of care obviously differ in details, they share one common theme, which is to pay groups of providers for larger and larger units of service. For example, instead of paying physicians separately for each visit and associated tests with fee-for-service and then paying hospitals separately for each admission with a diagnosisrelated group (DRG)–based payment, pay one lump sum to a team to take care of the patient for a given episode (bundled payment) or length of time (global capitation). The opportunity for nursing is that nurses’ inherent skill set, patient-focused care, communication, and coordination across silos of care can help both physicians and hospitals to deliver higher-quality care more efficiently than today. The challenge for nursing is that the price is largely hidden, within the per visit charges of physicians and within the per diem charges of hospitals. This means that current data systems are unable to credibly estimate the value of nursing services and the optimal configuration of nurses within multidisciplinary clinical teams. Keeping a clear eye on nursing value to the team is essential for truly cost-effective and high-quality care to be priced and delivered, and not all managers are able to do this at the moment (Buerhaus, 2010). These types of payment reforms are being adopted by private payers, in some cases faster than the government pilots can spread, such as with PCMHs. What they all have in common, for the first time in American health care (except for the closed staff model health maintenance organizations such as Kaiser Permanente and Group Health Cooperative), is that providers have powerful incentives to reorganize care delivery and coordination processes to seek the Triple Aim: cost-effective, timely, and efficacious care. Although this transformation is likely to be good for nurses at the RN level and above in the medium and long term, the transformation is not without risks and probably bodes some pain for some nurses in the short term. The first-order effect of these incentive changes has been to modernize the nation’s nurse practice acts to reflect current standards. The intense battles in many state houses over the scope of practice of advanced practice nurses have become relatively moot, because now health delivery organizations gain from using advanced practice nurses and others to practice at the top of their education and training. Too often, restrictive state nurse practice acts are still intent on protecting physicians’ short-run economic interests at the expense of 344 higher-cost care and limited access to qualified providers for all concerned. The ACA and the incentives it unleashed will eventually lead to full practice authority for these nurses. This general incentive realignment is extending to reorganizing physician offices, starting with primary care because of the sheer number of PCMHs already in existence (attributable to public and private initiatives), but it will soon extend to specialists and hospitals also. Care-coordination nurses and nurses who function well within and even lead team-based delivery of care can earn premium wages, because communication across former silos of care will be paramount to reduce the avoidable hospital admissions and readmissions that have been huge cost drivers for patients with multiple chronic conditions. Systems which learn how to lower the costs on high-cost patients who account for most health care expenditures and attain satisfactory outcomes at the same time will be the systems that flourish. Nurses and social workers are becoming the backbone and sinew of care coordination and these new, more efficient systems of care. A short-run cost could materialize for those nurses who work for hospitals and physician groups who deny, delay, or resist this incentive realignment and do not clearly see the value of nursing services, long past the point of being behind their peers. Top-level managers of these organizations may not be doing appropriate cost-effectiveness analyses of how best to reorganize care to align with new incentive structures but may rather be focused on preserving their top-level incomes even as overall revenue inevitably falls. The only solution they may see is to increase patient/nurse ratios by laying off relatively expensive RNs and either not replacing them or replacing them with lower-trained and less-expensive health professionals. And some small outlying hospitals will close owing to lack of demand for their services in a world focused on the ability of enhanced primary care to prevent hospitalizations and readmissions. The marketplace will then have two strategies in competition: (1) a lower-cost and more team-based approach and (2) a higher-cost and more libertarian or traditional cowboy style go-it-alone health care. The lower-cost and team-based approach will surely win, but it may take a while before the evidence is clear to the common public, and the traditional providers will, in the meantime, claim loudly that they are the only high-quality alternative left. Credible quality measurement infrastructures, price, and quality transparency for consumers to make comparison shopping possible will hasten the demise of the old school strategy, but even so it may take 10 years at least before it disappears altogether. The ACA will then ultimately create a more welcoming environment for nurses and their many talents, but some might have a more painful transition to this better world than others. 345 Discussion questions 1. Describe at least three issues that make the health care market behave differently from other markets. 2. According to economic principles, what forces go into play as demand for nursing goes up? 3. What role could nurses play, enlarge, or expand in value-driven care delivery models such as Primary Care Medical Homes and Accountable Care Organizations? a This chapter is reprinted from the seventh edition of the book with minor revisions by Diana Mason. 346 References Buerhaus P.I. Health care payment reform: Implications for nurses Nursing Economics 1, 2010;28: 49-54 Retrieved from https://proxy.library.upenn.edu/login? url=https://search.proquest.com/docview/236936730?accountid=14707. Feldstein P.J. Health policy issues: An economic perspective 2011; Health Administration Press Chicago, IL. Grosse S. Assessing cost-effectiveness in healthcare: history of the $50,000 per QALY threshold Expert Review of Pharmacoeconomics & Outcomes Research 2, 2008;8: 165-178. Neumann P., Cohen J.T. QALYs in 2018—Advantages and concerns JAMA 24, 2018;319: 2473-2474. Rothberg M., Abraham I., Lindenauer P., Rose D. Improving nurse to patient staffing ratios as a cost-effective safety intervention Medical Care 8, 2005;43: 785-791. U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Professions. (2010). The registered nurse population: Initial findings from the 2008 National Sample Survey of Registered Nurses. Retrieved from bhpr.hrsa.gov/healthworkforce/rnsurveys/rnsurveyinitial2008.pdf. Weinstein M. How much are Americans willing to pay for a quality-adjusted life year? Medical Care 4, 2008;46: 343-344. 347 17 348 Financing health care in the United States Joyce A. Pulcini, Betty Rambur “What does U.S. health care have in common with an exotic international bazaar? The prices at one are almost never posted, whether for a heart bypass operation or antique rug. And the final price will almost certainly have little to do with the seller’s opening bid.” Susan Dentzer Health care financing in the United States is fragmented, complex, and fuels the most costly care in the world. Despite this expense, the United States consistently ranks low in quality and the last in health outcomes among 11 wealthy countries (Schneider et al., 2017). As designed, our system leaves many overtreated (Lyu et al., 2017)—and, paradoxically, underserved (Grady & Redberg, 2010)—others undertreated, and all riddled with unnecessary, inefficient, and harmful care (Berwick & Hackbarth, 2012). Representing roughly one-fifth of the U.S. economy, medical errors are recognized as the third leading cause of death in the country (Makary & Daniel, 2016). The Affordable Care Act (ACA) of 2010 took steps to reshape how health care is paid for, enhance transparency, and test new payment and delivery models, but its primary purpose was to extend insurance coverage to the large number of uninsured Americans through private insurance regulation, expansion of public insurance programs, and creation of health insurance marketplaces to foster competition in the private health insurance market. Despite ACA implementation and revisions, health insurance affordability and cost containment are significant ongoing policy challenges (see Chapter 18 for more on the ACA). This chapter will provide an overview of U.S. health care financing, reimbursement and payment reform, including the impact of the ACA, the Tax Cuts and Jobs Act of 2017 (TCJA) (P.L. 115-97, Congress.gov, n.d.)—an amendment to the Internal Revenue Code with health care implications—and selected federal administrative rules changes and stateled initiatives. 349 Historical perspectives on health care financing Understanding today’s complex and often confusing approaches to financing health care requires an examination of the nation’s values and historical context. Some dominant values underpin the U.S. political and economic systems. The United States has a long history of individualism, an emphasis on freedom to choose alternatives, and an aversion to large-scale government intervention into the private realm. Compared with other industrialized nations, social programs have been the exception rather than the rule and have been adopted primarily during times of great need or social and political upheaval. Examples of these exceptions include the passage of the Social Security Act of 1935 and the passage of Medicare and Medicaid in 1965. Health care in the United States had its origins in the private sector market with an aim of assuring reimbursement to physicians and hospitals (Starr, 1982), rather than providing care to consumers. The political power of physicians, hospitals, and the insurance industry has fueled a continuing debate about the degree to which government should be involved in health care. Other highly developed countries, such as Canada, the United Kingdom, France, Germany, and Switzerland, use a range of private and public financing mechanisms to provide health care for all their citizens. In contrast, the United States has viewed health care as a market-based commodity, readily available to those who can pay for it but not available universally to all people. The passage of the ACA was significant, though controversial, in its approach to expand access to affordable health insurance. The debate over the role of government in social programs intensified in the decades after the Great Depression. The Social Security Act of 1935 brought sweeping social welfare legislation, providing Social Security payments, workman’s compensation, welfare assistance for the poor, and certain public health, maternal, and child health services, but it did not provide health care insurance for all Americans. During the decade following the Great Depression, nonprofit Blue Cross and Blue Shield (BC/BS) emerged as a private insurance plan to cover hospital and physician care. The idea that people should pay for their medical care through insurance before they actually got sick ensured some level of security for both providers and consumers of medical services. The creation of insurance plans effectively defused a strong political movement toward legislating a broader, compulsory, government-run health insurance plan at the time (Starr, 1982). After a failed attempt by President Truman to legislate a national health plan in the late 1940s, no progress occurred on this issue until the 1960s, when Medicare and Medicaid were enacted as amendments to the original Social Security Act. BC/BS dominated the health insurance industry until the 1950s, when for-profit commercial insurance companies entered the market and were able to compete with BC/BS by holding down costs through their practice of excluding sick people (those with preexisting conditions) from insurance coverage. Over time, the distinction between BC/BS and commercial insurance companies became increasingly blurred as BC/BS began to offer financially competitive for-profit plans (Knickman & Kovner, 2015). In the 1960s, the United States enjoyed relative prosperity, along with a burgeoning social conscience, and an appetite for change that led to a heightened concern for the poor and older adults and the impact of catastrophic illness. In response, Medicaid and Medicare, two separate but related programs, were created in 1965 as amendments to the Social Security Act. Medicare 350 is a federal government-administered health insurance program for the disabled entitled to Social Security Disability Insurance (SSDI) benefits, those over 65 years, and those with end-stage renal disease (started in 1973) or amyotrophic lateral sclerosis (started in 2001) regardless of age. Medicaid is a federal program administrated by states but funded by both federal and state monies. It is subject to state rules within parameters required by the federal government. It was designed to serve low-income people who are in certain categories, such as pregnant women with children and elderly or disabled individuals who meet certain income limits. 351 Government programs Current public/federal funding for health care in the United States National health expenditures (NHE) are substantial in the United States, totaling $3.3 trillion in 2016 or $10,348 per person and accounting for 17.9% of the gross domestic product (GDP) (Centers for Medicare and Medicaid Services [CMS], 2018b). The proportion of health care spending by type of care in 2015 is presented in Fig. 17.1. FIG. 17.1 National health expenditures by category, 2015 ($bn). *Other = Government administration + Government public health activities + Investment (noncommercial research, structures, and equipment). Source: (Courtesy of Kaiser Family Foundation. National health expenditure projections. [2014–2024]. Spending growth faster than recent trends. Health Affairs, 34(8), 1407–1417. Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.) Medicare outlays were $672.1 billion in 2016 and accounted for 20% of all NHE. Medicaid outlays in 2016 were $565.5 billion and accounted for 17% of total NHE. In 2016, hospital and physician expenditures and clinical services expenditures had slower growth rates than in 2015 by 5.7% and 5.9%, respectively, and prescription drug spending was 8.9% slower than in 2015 (CMS, 2018b). The federal government’s share of this health care spending was 28.3%; the proportion of Medicare spending as a share of total federal spending on health care as of 2017 is seen in Fig. 17.2. Why so expensive? 352 FIG. 17.2 Medicare as a share of the federal budget, 2017. Source: (Courtesy of Kaiser Family Foundation. Retrieved from www.kff.org/medicare/issue-brief/the-facts-on-medicarespending-and-financing/.) In the United States, no single public entity oversees or controls the entire health care system, making the payment for and delivery of health care complex, inefficient, and expensive. Instead, the system is composed of many public and private programs that form interrelated parts at the federal, state, and local levels. The public funding systems continue to represent a larger and larger proportion of health care spending and include Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), the U.S. Department of Veterans Affairs (VA), and the U.S. Department of Defense Military Health System program TRICARE for military personnel, military retirees, and their families. Other examples of federal programs are the Indian Health Service, which covers American Indians and Alaskan Natives, and the Federal Employees Health Benefits (FEHB) Program, which covers all federal employees unless excluded by law or regulation. The U.S. system is often perceived as a private or pluralistic system inclusive of both private and public payers; but, starting in 1965, the government was and continues to be deeply involved with U.S. health care. Himmelstein and Woolhandler (2016) reported that 64.3% of U.S. health care was financed through a governmental mechanism in 2014, and this is projected to rise to 67.1% by 2024, while Canada—a nation with single-payer financing offering universal coverage—is roughly 70% publicly funded. Notably, their study included all forms of public funding inclusive of direct governmental payments for Medicare, Medicaid and the other public programs described above, public employee’s health insurance, and federal, state, and local tax subsidies to health care. Medicare Before the enactment of Medicare in 1965, older adults were more likely to be impoverished 353 by excessive health care costs. The proportion of elders covered with health insurance shifted from 56% prior to Medicare to 98% now. Roughly 17% of people with Medicare are younger than 65 and are disabled (National Committee to Preserve Medicare and Medicaid, 2018). Medicare provides access to care and medical technology, and, since 2006, prescription drug coverage. But health coverage may not be enough to ensure that older adults are able to live healthy lives. The percentage of persons over age 65 years living below the poverty line decreased from 35% in 1959 (when older adults had the highest poverty rate of the population) to 9.3% in 2016 (U.S. Census Bureau, 2018); however, there is now evidence of increasing poverty among older population on fixed incomes. The National Council on Aging (NCOA, 2018b) reports that more than 25 million individuals over 60 are living at or below 250% of poverty. They also note that 21% of Social Security recipients who are married and 43% of single recipients aged 65+ depend on Social Security for 90% or more of their income. Medicare and Social Security payments come in part from payroll deductions taken during working years and are not merely “government handouts” as some claim. At the same time, entitlement funding can fuel overtreatment. Disproportionate funding of the older population—particularly for care that is of low value, wasteful, or unnecessary— raises concerns about intergenerational injustice, because these public funds may not be available for other segments of society such as children (Newacheck & Benjamin, 2014). The Medicare trustees annual report regularly projects that the Medicare hospital insurance trust fund will be depleted by certain dates. For example, the 2018 report projects that the fund will be depleted in 2026, 3 years earlier than the projection in 2017 (Cubanski & Newman, 2018), and fiscal concerns are likely to accelerate as more baby boomers obtain Medicare eligibility. Americans are eligible for Medicare Part A at age 65 years, the age for Social Security eligibility, or sooner if they are determined to be disabled. Medicare Part A accounted for $280.5 billion in benefit spending in 2016 and covered 56 million Americans. Medicare Part A covers hospital and related costs and is financed through payroll deduction to fund the hospital insurance trust fund at the payroll tax rate of 2.9% of earnings paid by employers and employees (1.45% each) (CMS, 2017a). Medicare Part B, which accounted for $289.5 billion in spending in 2016, covers 80% of the fees for physician services, outpatient medical services and supplies, home care, durable medical equipment, laboratory services, physical and occupational therapy, and outpatient mental health services. Part B is financed through subscriber premiums and general revenue funding as well as cost-sharing with beneficiaries set at roughly 20% of costs of care used. Medicare Part C, or the Medicare Advantage Program, allows beneficiaries to enroll in a private health plan and also receive some extra services such as vision or hearing services. Medicare Advantage enrollment has been increasing and covered 33% of all Medicare beneficiaries in 2017 (Cox, Levitt, & Claxton, 2017). In 2018, CMS provided Medicare Advantage plans with a 3.4% increase, well above the 1.84% initially proposed (Dickson, 2018). An element of the Chronic Care Act also expands Medicare Advantage reimbursement for telehealth provided outside rural areas and allows these plans to participate in new payment models for chronically ill patients (Veterans Administration, 2018). Medicare Part D is a voluntary, subsidized outpatient prescription drug plan with additional subsidies for low- and modest-income individuals. It accounted for about $99 354 billion in benefit spending in 2016 and enrolled 43 million beneficiaries in 2016 (CMS, 2017a). Medicare Part D is financed through general revenues and beneficiary premiums, as well as state payments for “dual eligibles”—recipients who get both Medicare and Medicaid (Kaiser Family Foundation [KFF] 2014). The ACA will phase out by 2020 the Medicare Part D “donut hole” period of noncoverage for prescription drugs that left many seniors unable to pay out-of-pocket for their medications (CMS, 2017a). The ACA authorized that certified nurse midwives (CNMs) be reimbursed at 100% of the physician payment rate. Other advanced practice registered nurses (APRNs), including nurse practitioners (NPs), are paid 85% of the physician rate for the same services. In addition, Medicare will not pay for home care or hospice services unless they are ordered by a physician. And, unfortunately, the ACA required physician orders for durable medical equipment for Medicare beneficiaries. Medicaid Medicaid is a public insurance program jointly funded by state and federal governments but administered by individual states under guidelines of the federal government. Medicaid is a means-tested program, as eligibility is determined by financial status. Before changes by the ACA, only low-income people within certain categories were eligible. These categories included recipients of Supplemental Security Income (SSI), families receiving Temporary Assistance to Needy Families (TANF), and children and pregnant women whose family income is at or below 133% of the poverty level. To qualify for federal Medicaid matching grants, a state must provide a minimum set of benefits, including hospitalization, physician care, laboratory services, radiology studies, prenatal care, and preventive services; nursing home and home health care; and medically necessary transportation. Some states opt to provide a greater set of services than the minimum and also allow eligibility at a higher percent of poverty. The proportion of residents on Medicaid also varies dramatically by state, with New Mexico the highest at 31% of its residents on Medicaid and CHIP, and Utah the lowest at 10%, with a nationwide average of 19% (KFF, 2018a) (Fig. 17.3). Medicaid programs are also required to pay the Medicare premiums, deductibles, and copayments for “dual eligible” persons who are often medically complex, frail, and thus expensive to insure. 355 FIG. 17.3 Percentage of people on Medicaid or State Child Health Insurance Program (SCHIP) by state. Source: (Courtesy of Kaiser Family Foundation. Further details available at Kaiser Family Foundation. [2018]. Medicaid state facts. Retrieved from www.kff.org/interactive/medicaid-state-fact-sheets/.) Medicaid is increasingly becoming a long-term care financing program for older adults in nursing homes, representing nearly two-thirds of total nursing home spending. Although roughly half of long-term care is delivered in nursing homes and half in community settings, nursing homes account for 70% of the cost (KFF, 2017a). Many older adults “spend down” their life savings to become low income and be eligible for Medicaid, an issue with ethical concerns on both sides of the argument. One view is that these funds should be a genuine safety net available only for those without the means to care for themselves. Others find it reasonable that people should be able to spend down—in essence giving their wealth to family or friends—and be cared for through public funds. Regardless of one’s perspective, the overall impact of aging baby boomers on Medicaid funds is substantial, growing and directly competing with other state priorities such as public school funding. In keeping with its goal to expand health insurance coverage to more Americans, the ACA expanded eligibility for the Medicaid program to any legal resident under the age of 65 years with an income up to 138% of the federal poverty level. One intent of the law was to have one eligibility standard across all states and eliminate eligibility by specific categories (Rosenbaum, 2011). The federal government agreed to pay for nearly all the expansion costs to insure more low-income people. The U.S. Supreme Court, however, struck down the mandate to expand Medicaid and ruled that states could decide whether or not to expand the program. As of May 13, 2019, 37 states and the District of Columbia had expanded Medicaid, and 14 have not (KFF, 2019). Some states are also seeking and receiving waivers to Medicaid requirements deemed restrictive. This option originated to allow states to try novel payment and delivery models, such as community-based 356 approaches to long-term care. Starting in 2018, waivers were granted to states that intend to impose work or community engagement requirements or ongoing education as a condition of Medicaid eligibility. CHIP was created in 1997 to help cover uninsured children whose families were not eligible for Medicaid. It has been funded through state and federal funds, but states set their own eligibility standards. The ACA committed the federal government to paying up to 100% of its costs, beginning in 2015. The ACA also required states to maintain their eligibility standards for CHIP (Emanuel, 2014). CHIP was reauthorized for 6 years in January 2018 after several delays and public outcry. This program continues a 23% enhanced federal match until 2019 and decreases it after that. Also, after October 1, 2019, this program would only apply to those with incomes at or below 300% of the federal poverty level (KFF, 2018b). CHIP continues to enroll a high number of children, with an estimated enrollment of 35.5 million in 2018 (Medicaid.gov, 2018). Family and pediatric NPs and CNMs are required to be reimbursed under federal Medicaid rules if, in accordance with state regulations, they are legally authorized to provide Medicaid-covered services. Reimbursement varies by state from 75% to 100% of physician rates. However, restrictions still apply as Medicaid managed care programs are not all fully reimbursing NPs at the same rate as physicians or for all primary care services rendered by these providers (Bellot et al., 2017). State health care financing State governments not only administer and partially fund some public insurance programs such as Medicaid and CHIP but they are also responsible for individual state public health programs. The mission of public health as defined by the Institute of Medicine (IOM), now called the National Academy of Medicine, is to ensure conditions in which people can be healthy (IOM, 1988). Whereas medicine focuses on the individual patient, public health focuses on whole populations even when serving individuals, for example, with immunizations. Medical care for the individual patient is associated with payment by health insurance. Public health programs are instead usually funded by local, county, and state revenues, often combined with grants from the federal government in areas such as maternal and child health, obesity prevention, human immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS), substance abuse, and environmental health. In addition to overseeing such public health initiatives, states will continue to have a major responsibility for the regulation of health insurance, health care providers and professionals. Safety net health services such as those offered by community health centers, including federally qualified health centers (FQHCs), are funded primarily through the Community Health Centers Fund, which increased from $1 billion in 2011 to $3.6 billion in 2017. This community health center funding was extended in March of 2018 to $5.4 billion to support the work of these centers (National Association of Community Health Centers, 2018). At the same time, funding for foreign public health prevention has dropped, including funding for infectious disease monitoring and prevention. Local/county/community level Similar to state governments, local and county governments in many states also have the responsibility of protecting public health. Some provide indigent care by funding and 357 running public hospitals and clinics, such as New York City’s Health and Hospitals Corporation and Chicago’s Cook County Health and Hospitals System. Although receiving a subsidy from their local government, these hospitals—which serve primarily poor patients and those without health insurance—also receive additional payments from Medicare and/or Medicaid. Such payments are provided hospitals that serve a disproportionate share (DSH, pronounced “dish”) of Medicaid or Medicare patients and hospitals that meet the criteria for Medicare DSH, Medicaid DSH, or both and receive additional Medicare and/or Medicaid payments. The future status of DSH payments is in flux, creating uncertainty in those organizations that depend on them. Public hospitals and clinics are dependent on taxes and other forms of public funding, and their budgets have been squeezed during times of fiscal restraint by local, state, and federal governments, putting in jeopardy their long-term sustainability. It was also anticipated that successful, full implementation of the ACA would remove the need for safety net public hospitals because all would be insured. Paradoxically, Medicaid expansion states have improved financial outlooks in their safety net hospitals (Dobson et al., 2017), a phenomenon found across hospital sectors inclusive of rural hospitals (Lindrooth et al., 2018). In addition, critical access hospitals and federally designated health centers (rural health clinics and community health centers) receive augmented reimbursement as an organization deemed essential to a community that would otherwise not be financially viable. 358 The private (commercial) health insurance Although commercial health insurance has been the dominant nongovernmental payer, most Americans have little understanding of how insurance markets function, how insurance premiums are set, and the manner in which health care economics differs from classic free markets. Pricing in free markets The prime driver of the cost of health insurance is the price and volume of health services used. In general, Americans use more high-cost, low-value services than international counterparts. Although there may be an impression that “insurance is paying for it,” these costs are collectively borne by those in an insurance pool. Therefore, high utilization in the form of a medical trend and pharmaceutical trend provides the basis for next year’s premium increase. Insurance companies also must prepare for unexpected utilization— such as from an unexpected epidemic—through a contribution to reserves. The contribution to reserves (conceptually analogous to saving) supports the creation of financial resources sufficient for adherence within prescribed risk-based capital (RBC) ratios. The RBC ratio is a framework created by The National Association of Insurance Commissioners and widely adopted by state insurance regulators. It exists to assure that insurance companies have sufficient financial resources to meet their obligations (Liner, 2017). In other words, monitoring RBCs provides insurance regulators the data they need to be confident an insurance company remains “solvent”, that is, able to reimburse providers for care given to patients as outlined in the terms of the insurance benefits package. Ponder the alternative: an insurance company becomes bankrupt and is not able to reimburse providers for services received, leaving it to the patient to pay out of pocket or to the provider to bear as uncompensated care. If the latter, uncompensated care is then built into the rate request for other commercial payer groups, again increasing the cost of insurance. Administrative costs including salaries for employees and leadership complete the cost structure for insurance companies. Consumers, unaware of underlying cost structure, may be high utilizers of health care yet decry the very cost of increased insurance premiums they helped create. Although some insurance companies are profitable, others have experienced substantial financial strain. Still others have benefited from changes in tax law. The TCJA reduced the corporate tax rate from 35% to 21% and eliminated the minimum alternative tax, returning $2.3 billion to some BC/BS companies, despite them being “nonprofit” (Livingston, 2018). Some have suggested that health insurance is an inherently flawed design, given that insurance typically is for an unlikely event, such as a flood or car accident, not natural human phenomena such as health and illness. In addition to the cost and high use of services, some unique aspects of health care markets create inefficiencies relative to classic free markets. In classic free markets, for example, consumers ration their own expenses based on the cost and perceived value of the purchase because they bear the financial consequences in an immediate way. Cost sharing in the form of deductibles, copayment, and coinsurance is one way to reflect these principles in health care. Yet classic free markets rely on a complementary principle: consumers are aware of the value and quality of items they might purchase and are in a 359 powerful position to purchase or walk away. Health care is, instead, characterized by an “asymmetry of information” whereby the providers of health care largely drive the decision-making, the cost, and the cost consequences (see Chapter 16 on health economics). Employer-based insurance Most Americans’ commercial health insurance is obtained as a benefit of employment in the form of group health insurance. It is important to note, however, that although it may appear that the employer is paying for the insurance, the cost is borne by the employee as part of their overall compensation package. Thus, some economists consider employerbased health insurance a hidden tax. Cost-shifting also compounds the financial burden by increasing the cost of services paid for by commercial insurance to off-set lower payments by governmental payers. Medicare reimbursement is theoretically set at the cost of care but is less than the deemed actual cost, sometimes called “Medicare lite” reimbursement. Medicaid generally reimburses providers less than Medicare for the same services, and thus substantially less than the deemed actual cost. All of these “underpayments,” including uncompensated care in the form of bad debt and charity care, are shifted to commercial insurance charges, meaning that those with commercial insurance pay more for the same service because they are compensating for underpayment by Medicare and Medicaid. Price variability and the lack of price transparency represent serious health financing problems in the United States (Potter, 2015). Until the passage of the ACA, employers had no obligation to provide employee health insurance, leaving many Americans uninsured, especially those working in lower-wage jobs. Underinsurance was also common before the ACA and its “essential benefits package.” Pre-ACA, one way for an insurance company to offer a less expensive insurance product was for it to cover fewer health services. Although enjoying a less expensive premium, the consumer was often unwittingly underinsured and obtained health services that the insurance company was not obligated to pay for. If, for example, a woman—either by intention or accident—chose a health insurance plan that did not include maternity benefits and became pregnant, costs related to prenatal, delivery and postpartum care would not be covered. As this example illustrates, the “essential benefits” requirement of the ACA creates a social and financial safety net, but it does not create less expensive insurance premiums because, in general, the more services that are covered, the more expensive the premium. This issue has created ongoing political dialogue. A 2018 CMS administrative rule now allows states to determine which benefits are deemed “essential” in individual and small group health plans. Set to start in 2020, it is expected that more conservative states will not include some women’s reproductive care as “essential,” and some states will allow “skimpy” benefits packages that are less expense but leave insurance plan beneficiaries underinsured, creating more out-of-pocket expenses for consumers and greater potential for uncompensated care for providers. As private health insurance premiums have risen, employers have asked employees to pay for a greater percentage of their insurance premium and to enroll in plans that require more cost-sharing in the form of copayments, deductibles, and coinsurance. Individual insurance market 360 Approximately 7% of insured Americans have purchased their health insurance from the nongroup individual insurance market (Cox, Levitt, & Claxton, 2017). Prior to the ACA, these plans typically were more expensive and insurers in all but a few states had been able to deny insurance to applicants with preexisting medical conditions and impose lifetime caps. The ACA outlawed these discriminatory practices based on medical history. Because private insurers are regulated by individual states, wide disparities exist in coverage from state to state, and there is a great deal of uncertainty in the individual insurance market, a particularly paradoxical circumstance given that one role of insurance is to minimize uncertainty. Health insurance is generally regulated by a state agency or process. Some states now mandate that NPs be considered primary care providers and eligible for credentialing and payment by private insurers, but there is wide variation in the extent to which APRNs are included in insurers’ provider panels. This variation can be seen among states, among insurers within a given state, and among the plans offered by an insurer (Brassard, 2014). 361 The problem of continually rising health care costs Many factors influence the growth in national health care expenditures, including • Weak price controls. Unlike other industrialized countries, the U.S. federal and state governments do much less price setting and regulation of what can be charged for health care services and supplies. • Administrative burden. There are complex, multipayer administrative systems of insurers and providers. • Care patterns. The use, and often overuse, of expensive medical technology and medical specialists persists, in the face of a lack of focus on primary care and upstream social determinants of health. • Inflationary payment models. The incentive in fee-for-service (FFS) reimbursement is for providers to increase their volume of services and provide unnecessary health care. • Consumer expectations. Consumers have lacked knowledge of the actual cost and value of their care; furthermore, consumers perceive more expensive care to be better care, even if the evidence does not support this (Kliff, 2014). • Pharmaceutical costs. Ongoing development of new medications heralds new forms of treatment. Americans uses many of these drugs, but also pay more for them than people in other countries. Future costs will also be impacted by the aging of the population and increasing number of people with complex chronic illness who use a disproportionately high percentage of the health care dollars. Twenty-five percent of all of Medicare’s expenses for those over 65 years of age are incurred in the last year of life (Cubanski et al., 2016). Chronic illness accounts for nearly two thirds of all health care expenditures; and, if you add mental health conditions, that number is 86% (National Center for Chronic Disease Prevention and Health Promotion, 2018). In 2015, about 1% of the population accounted for nearly a fifth (23%) of all out-of-pocket spending on health services, mostly because of chronic illnesses, whereas 50% of the population accounted for 3% of all out-of-pocket health spending (KFF, 2017b) (Fig. 17.4). 362 FIG. 17.4 Contribution to total health expenditures by individuals, 2016. OOP, Out of pocket. Source: Kaiser Family Foundation analysis of Medical Expenditure Panel Survey, Agency for Healthcare Research and Quality, U.S. Department of Health and Human Services. Courtesy of Kaiser Family Foundation. [2019]. Peterson Kaiser Health System tracker: How do health expenditures vary across the population? Retrieved from www.healthsystemtracker.org/chart-collection/health-expenditures-vary-across-population/? sf_data=results&_sft_category=spending&sf_paged=2%20]#item-discussion-of-healthspending-often-focus-on-averages-but-a-small-share-of-the-population-incurs-most-of-thecost_2016.) In summary, although medical costs are projected to continue flat growth, overall health care expenditures—driven by new services and pharmaceuticals as well as market consolidation resulting in higher prices—represent an increasingly unsustainable trend (PricewaterhouseCoopers, 2018). A 2018 poll found 65% of Americans “very concerned” about the cost of health care, inclusive of premiums and cost sharing such as deductibles and copayments. These concerns span demographics, including millennials and baby boomers, Democrats and Republicans, and diverse racial and ethnic groups (Reuters, 2018). Cost-containment efforts Over time, two approaches have been primarily used to contain costs. Regulation versus competition. During the 1970s, modest government regulation attempted to contain health care costs through state rate-setting agencies and health planning mechanisms, such as certificate of need (CON) programs and regional health systems agencies (HSAs), which evaluated and approved applications for the construction of new facilities, beds, and new technology. 363 During the 1980s and early 1990s, when proponents of competition and free market health care became politically more influential, rate setting and CON programs were weakened and HSAs were eliminated. Although free-market principles, as they apply to health care, have few similarities to a fully competitive market in economic terms, the rise of managed care programs and competition among health insurance plans in the 1980s may have temporarily slowed the growth of health costs before they began to rise again. Managed care. The origins of today’s managed care plans were in early prepaid health plans of the 1920s, which evolved into health maintenance organizations (HMOs) in the 1970s, and into a variety of models in the subsequent 30 years, including preferred provider organizations (PPOs). A managed care system shifts health care delivery and payment from open-ended access to providers, paid for through FFS reimbursement, toward one in which the provider is a gatekeeper or manager of the patient’s health care and assumes some degree of financial responsibility for the care that is given through a capitated budget. Originally, in managed care, the primary care provider was the gatekeeper, deciding what specialty services were appropriate and where these services could be obtained at the lowest cost. In the 1990s, negative media attention concerning the incentives to restrict care in the managed care model fueled a political backlash. Consumer and provider demands for greater choice in services and access to providers caused managed care plans to loosen gatekeeper requirements and provide more direct access to specialists. As a result, managed care became less effective in holding down expenditures and fueled a rise in health insurance premiums and health care costs. Medicaid and Medicare also promoted managed care plans to control their expenditures for health care by using capitated payment and managing patient care. All 50 states offer some type of Medicaid-managed care plan, and states can decide if participation is voluntary or mandatory. Some states created state-run Medicaid-only plans, but others enroll Medicaid recipients in private managed care organizations. By 2010, when the ACA was passed, 70% of the Medicaid population received some or all of their services through Medicaid-managed care plans (Kaiser Health News, 2010). Medicaid-managed care spending for long-term care increased by $29 billion (284%). from FY 2012 through 2016 (Eiken et al., 2018), 364 Reimbursement mechanisms and payment reform The prior sections detail financing mechanisms. Governmental entities such as Medicare and Medicaid are not only financers—that is, sources of tax revenue for health care—but also serve as regulators and payers. The following section details payment mechanisms and the dramatic changes in health care delivery that are fueled by payment reform, but first, a bit of payment history. Fee-for-service reimbursement Until the 1980s, Medicare and private health insurers paid providers through retrospective FFS reimbursement. In FFS, providers charge a fee for each service, procedure, and supply, and then providers or patients submit claims to insurers for payment. FFS payment creates a strong incentive for providers to increase the volume of services and raise prices to increase their revenue. In addition, through the reimbursement mechanisms of their patients who are on Medicare, the federal government initially paid hospitals (Medicare Part A) on a per diem basis according to the number of Medicare recipients hospitalized. Such retrospective per diem reimbursement created incentives for long hospital stays. Thus, hospital stays—particularly for high-intensity specialty care—and physician services were revenue generators, regardless of the value of that care. By contrast, nursing services in hospitals continued to be grouped into an aggregate hospital fee or as part of the room fee, rendering nursing care to be viewed as a cost center rather than a revenue generator. This mechanism makes it difficult to measure the value of nursing care in hospitals, whereby “value” is the product of the cost of nursing care and the quality/outcomes of that care. In recognition of the inherent and exploding cost challenges created by retrospective per diem reimbursement, Medicare’s prospective payment system for hospitals was enacted in 1983. Diagnosis-related groups (DRGs) were the strategy for implementation of this system. Now, instead of being reimbursed for each day a patient was hospitalized, a prospective, predetermined sum was provided regardless of the length of stay for each of the approximately 500 diagnostic groups typically used in inpatient care. In this manner, although Medicare retained financial risk for the overall number of hospitalizations, the hospital assumed financial risk for the length of stay. Thus, the DRG-based payment financially incentivizes short lengths of stay because hospitals receive the same payment regardless of length of stay. Nursing care remained bundled into the cost of the hospitalization, whereas some other “ancillary” services such as anesthesia remained FFS and generate additional revenue for the organization. Led by Medicare, Medicaid and commercial insurance quickly followed the move to prospective payments for hospitals. The prospective payment approach helped to slow the rate of growth of payment for hospital care, shortening average length of stay, and increasing patient acuity in hospitals (Heffler et al., 2001), initially without demonstrable negative impacts on quality (Davis & Rhodes, 1988). Over time, however, premature hospital discharge was associated with readmissions and other complications, and these—initially—received additional reimbursement. As a result, poor quality care was actually reimbursed at a higher level than high quality care. Initial attempts to address this paradox included public reporting of hospital readmission rates. This, however, did not turn the tide on premature discharges; in 2012, Section 3025 of the ACA, The Hospital Readmission Reduction Program, resulted in 365 hospitals receiving a financial penalty if the “same cause” readmission rate was above a defined level. This was just one element of the move from volume-based care toward valuebased care, which is designed to create better alignment of the financial consequence and quality. Hospital-directed, value-based initiatives are critical to affordability, given that nearly one-third of total U.S. health care expenditures are hospital payments (Centers for Disease Control and Prevention [CDC], 2017). Hospitals traditionally have been the largest employer of nurses, and changes in reimbursement that lead to care redesign also shape needed nursing skills, such as with care transitions and enhanced primary care nursing (Bodenheimer & Mason, 2016). Physician/clinician reimbursement under fee-for-service. Payment for physician and clinical services encompasses approximately 20% of total NHEs (CMS, 2017b)—a significant driver of health care costs. FFS is still the predominant way of reimbursing for physician and clinician services. In this model, public and private health insurers pay physicians through a complicated formula related to medical coding and medical billing to determine the final payment (Emanuel, 2014). The American Medical Association (AMA) created Current Procedural Terminology (CPT), a coding system for visits to physicians and other providers. There are codes for evaluation and management, office visits, emergency room visits, prevention services, anesthesia, radiology, pathology, laboratory codes, and medicine codes, such as for dialysis (Emanuel, 2014). These codes are then linked to a specific diagnosis, as outlined initially in the International Classification of Diseases ICD–9 and, now, ICD–10, and then assigned payment levels. In the past, insurers paid what physicians billed. But in 1992, under Medicare Part B physician payment reform, payment was linked to a resource-based relative value scale (RBRVS), which was based on the degree of physician work (time, skill, training, intensity), practice expertise (nonphysician labor and practice expenses), and the cost of malpractice for the specialty, as well as the geographic cost of living (Emanuel, 2014). Although the goal was to use relative value units (RVUs) not only to reduce expenses but also to redistribute physician services to increase primary care services and decrease the use of highly specialized physicians, this system still favored specialist care and hospital-based care. Still the Medicare RVUs per service ratings were adopted by private insurers, but they used different conversion factors, enabling them to pay more for each service. In addition, the same procedure done in a hospital is reimbursed at a higher rate than if done in a physician’s office. This “facility fee” has been one driver of physician market consolidation, that is, fewer independent physician/physician groups. Research has demonstrated that the incentive is to do more procedures in hospital-owned facilities and is a threat to the affordability of health care (Capps, Dranove, & Ody, 2017). One effort to correct this perverse incentive started in 2019, when CMS instituted “site neutral” payments for clinic visits or services provided in hospital outpatient departments. Site neutral payments simply means that reimbursement will be the same regardless of the setting in which the service is delivered. This policy shift is projected to save Medicare $380 million in 2019 (LaPointe, 2018). Nevertheless, site neutral payments are opposed by hospitals because they create a loss of valuable hospital revenue. In response, some hospitals have sued the Department of Health and Human Services (HHS) in an effort to stop site neutral payments (Bannow, 2019) Since 1997, the Medicare program has also attempted to contain costs by limiting how 366 much physician payments can increase through the sustainable growth rate (SGR), a target based on physician costs, Medicare enrollment, and the GDP (Emanuel, 2014). The intent of the original law was to reduce Medicare payments to physicians if the SGR was exceeded. There was, however, no incentive in the SGR for individual physicians to contain costs because the SGR is calculated for physician services for the entire country. Moreover, Congress regularly passed a so-called “doc-fix” bill to prevent SGR cuts from going into effect, enabling higher Medicare payment rates for physicians, APRNs, and other providers (Lowrey, 2014). By 2015, the SGR was considered unsustainable and ineffective in limiting physician spending growth or fostering better care (McClellan et al., 2015). It was replaced by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). MACRA is bipartisan-supported legislation that amends section 1848(a)(8)(A) of the Social Security Act and, in addition to replacing the unpopular SGR, consolidates quality reporting programs and shifts Medicare payments toward value rather than volume. MACRA’s quality component, the Merit-based Incentive Payment System (MIPS), replaced three legacy Medicare reporting programs: the Electronic Health Record (ERH) Incentive Program, also called “Meaningful Use”; the Physician Quality Reporting System; and the Value-Based Payment Modifier (CMS, n.d.). Clinicians reimbursed by Medicare, including NPs, who meet the minimum threshold of patients/services have the option of FFS reimbursement subject to a +/− modification based on their performance on MIPS criteria or, alternatively, delivering care in a qualified advanced alternative payment model (APM) and receiving an additional 5% incentive payment. Although the administrative rules guiding this legislation continue to evolve, moving providers from traditional FFS to APM models remains a priority of CMS (Daly, 2018). Understanding APMs is thus essential for the contemporary clinician. Value-based advanced alternative payment models An estimated 86% to 95% of payments to providers are still paid through the FFS payment system, creating an inherent incentive to increase volume and costs (Pearl, 2017). In response, value-based APMs are being tested throughout the United States. These new models are best understood when conceptualized as least-to-most-like FFS, within two broad categories: models in which reimbursement is linked to outcomes of care and those in which provider accountability includes not only outcomes but also cost. Accountability for outcomes—pay for performance and patient-centered medical homes. Pay for performance (P4P) models complement FFS by providing additional reimbursement if performance outcomes are met. The patient-centered medical home (PCMH) can be construed as a particular form of P4P in which the model of primary care is team based, emphasizing care coordination and communication. Quality and outcomes are measured; settings that achieve defined targets receive additional reimbursement. Although conceptually appealing, payment for outcomes in primary care has been somewhat mixed. It is possible that primary care practices have not been fully transformed to realize the potential in the PCMH model. Indeed, previous studies have found a “physician-centric mindset” and unimaginative use of NPs and physician assistants to be a barrier (Nutting, Crabtree, & McDaniel, 2012). In a similar vein, registered nurses have not yet realized their potential in primary care (Bodenheimer & Mason, 2016). New models are 367 being developed that maximize use of all health care providers including registered nurses in primary care settings, but this innovation has yet to be fully implemented (Bodenheimer & Bauer, 2016). Taken as a whole, disappointing results in cost containment spur payers’ interest in financial risk-sharing and risk-bearing models of reimbursement (see chapter 31 for more on the PCMH). Accountability for outcomes and cost—accountable care organizations. Accountable care organizations (ACOs) are groups of providers who agree to take accountability for the cost and outcomes of care. The three iterations are pioneer ACOs, shared savings ACOs, and next generation ACOs. Both pioneer and next generation ACOs require substantial financial risk sharing. Shared savings ACOs have an option for upsideonly risk, meaning if the cost of care for a population is less than expected, providers receive those savings and share them with the payer. If, however, the cost of care is greater than projected for a population, they do not share that loss with the payer. In contrast, two-sided risk includes downside risk, whereby the cost of care that is above that projected creates a financial loss that is also shared between the providers and payer or, in the case of full risk bearing, borne by the provider group. Some observers have proffered that upside-only shared savings offer “training wheels” or “on ramps” (Berenson et al., 2016, p. 5) to risk bearing for FFS provider groups that are not prepared or willing to assume financial risk for their clinical decision-making. Medicare upside-only ACOS may be eliminated through CMS administrative rule changes (Gregory, 2018), with Medicaid and commercial insurance likely to follow. Notably, only ACOs in which providers bear substantial financial risk for cost of care are recognized as advanced APMs, exempt from MIPS, and eligible for the 5% incentive payment under MACRA. An “attributed provider” is the lead provider for a patient or panel of patients, accountable for the outcomes of care in upside-only ACOs, and outcomes and costs in twosided risk models. One current limitation of ACOs is that NPs are not able to be an attributed provider under Medicare, while states determine if NPs can be attributed providers in Medicaid and commercial insurance, leading to dramatic variations by states. An additional serious limitation is the practice of “incident to billing” in which NPs can bill under a physician’s national provider number (Buerhaus et al, 2018). These practices mask the contribution of NPs and undermine the goal of payment form directed at provider accountability for the cost and outcomes of their care. Accountability for outcomes and cost—bundled payments. Bundled payments offer a predetermined reimbursement for the cost of care for an episode of care and are sometimes called “episode-based payments.” They are conceptually similar to DRGs, but the fixed payment is not just for the hospitalization, but for all pre- and posthospitalization care for an episode, including readmissions. Thus, providers bear financial risk for their decision-making, treatments, complications, etc., across care settings, not just in the hospital. Initially voluntary, the Obama administration moved to mandatory bundled payments for joint replacement in 75 randomly selected health services areas representing nearly 800 hospitals, with the intention of adding three new mandatory bundles. Thirty-two new voluntary bundled payments were announced in 2018. Although the required quality metrics associated with these 32 bundled payments vary somewhat by procedure/condition, all include two metrics that nurses can powerfully influence: (1) allcause readmission rates and (2) advanced care planning, predetermining the care an 368 individual would want or decline if they could not speak for themselves, shared via advanced directives, medical proxies, or naming durable power of attorney for health care. The administration of President Trump initially truncated the Obama administration’s planned mandatory bundles and supported only those arrangements in which providers voluntarily choose to participate. Late in 2018, however, this stance was reversed, and administrative support for mandatory bundles was reinstated (Landi, 2018). Given that 17 conditions account for more than 50% of Medicare spending (Cutler & Ghosh, 2012), and that the first year of mandatory bundles resulted in half of the participating hospitals maintaining quality while creating substantial cost saving (Liao & Navathe, 2019), it is likely that more mandatory bundled payment initiatives will emerge. Accountability for outcomes and cost—global budgets. Global budgets take the concept of a bundled or risk-bearing ACO to a more comprehensive level. Statewide all-payer global budget approaches are being tested in the United States, and the approach varies by state. Maryland is focused on hospitals (CMS, 2018a), Vermont’s approach is as part of an all-payer ACO, Pennsylvania focuses on rural hospitals, and Massachusetts has set an all-payer target (not a cap) to contain health care spending growth (Murphy, Hughes, & Conway, 2018; Murray, 2018; Zemel & Riley 2016). 369 What is next? The U.S. health care system continues to be undergoing a massive transition spurred in part by unsustainable costs, variable quality, and access barriers. There is, however, less agreement on what to do about it. The TCJA of 2017 removed the tax penalty the ACA placed on those who do not have health insurance. This effectively removed the individual mandate, despite that element of the ACA withstanding a Supreme Court challenge. The ACA required “essential benefits” remains in effect in the law; however, the CMS administrative rule change that allows states to determine their own essential benefits will likely create wide differences among basic health insurance plans. There is, however, support for continuance of the value-based payment initiatives started in the Obama administration. A dramatic explosion of new delivery models inclusive of telehealth, remote monitoring, and virtual care is also occurring. These innovations are driven, in part, by payment reform but also by technological innovations, increasing societal comfort with digital and virtual solutions, and innovative disruptors such as Amazon. Administrative rule changes such as those allowing VA physicians, nurses, and other providers to administer care to veterans using telehealth and virtual technology regardless of patient location (Office of Public and Intergovernmental Affairs, 2018) illustrate that innovation and care transformation is permeating the nation. The complexity and magnitude of the changes in the U.S. health care system, as well as the economic and ethical imperatives for change, make it an ideal time for informed, bold action on the part of nurses and others toward a goal of a more equitable, sustainable, costeffective, and safe system. The health of this nation depends on it. 370 Discussion questions 1. Which payment reform models have the greatest potential for enhancing nurses’ potential to impact care, increase quality, and decrease costs? Why? 2. Imagine that you have just been named the U.S. health care czar. Your first assignment is to design a new health care system for the nation. How do you finance it? What do you measure? How do you determine what services should be covered, i.e., what constitutes “essential” care? 371 References Bannow T. Dozens of hospitals sue to end site-neutral payment policy Modern Healthcare 2019; Retrieved from www.modernhealthcare.com/article/20190122/NEWS/190129991/dozens-ofhospitals-sue-to-end-site-neutral-payment-policy. Bellot J.et al:. Does contracting with managed care organizations remain a barrier for nurse practitioners? Nursing Economics 2, 2017;35: 57-63. Berenson R., Upadhyay D., Delbanco S, Murray R. Payment method and benefits designs: How they work and how they work together to improve health care 2016; Urban Institute Washington DC. 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Heffler S., Levit K., Smith S., Smith C., Cowan C., Lazenby H..et al:. Health care spending growth up in 1999: Faster growth expected in the future Health Affairs 2, 2001;20: 193-203. Himmelstein D., Woolhandler S. The current and projected share of US health costs American Journal of Public Health 3, 2016;106: 449-451. Institute of Medicine. The future of public health 1988; National Academy Press Washington, DC. Kaiser Family Foundation. (2014). The Medicare prescription drug benefit fact sheet. 373 Retrieved from www.kff.org/medicare/fact-sheet/an-overview-of-the-medicarepart-d-prescription-drug-benefit/. Kaiser Family Foundation. (2017a). Medicaid’s role in nursing home care. Retrieved from www.kff.org/infographic/medicaids-role-in-nursing-home-care/. Kaiser Family Foundation. 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Business Principles Associated with Patient and System Cost

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Business Principles Associated with Patient and System Cost
Greg Fisher identifies the ten basic business principles which are crucial elements to any
organization. Nonetheless, as a Chief Nursing Officer (CNO), I believe that there are three
critical principles: deciding on who we serve, deciding on what one does, and deciding on what
makes us different. These three principles are essential since they help the respecti...

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