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CHAPTER
1
Overview of Health Care: A Population Perspective
This chapter provides a broad overview of U.S. health care industry, its policy makers, its values and priorities, and its responses to
problems and changing conditions. A template for understanding the natural histories of diseases and the levels of medical
intervention is illustrated and explained. Major influences in the advances and other changes to the health services system are
described with pertinent references to the Patient Protection and Affordable Care Act (ACA). Issues of conflicts of interest and
ethical dilemmas resulting from medicine’s technologic advances are also noted.
Health care continuously captures the interest of the public, political leaders, and all forms of media. News of medical
breakthroughs, health system deficiencies, high costs and, most recently, federal health care reform through the Patient Protection
and Affordable Care Act (ACA) attract high-profile attention. Consuming over 17% of the nation’s gross domestic product,1
exceeding $2.7 trillion in costs,2 and employing a workforce of over 16 million,3 it is understandable that health care occupies a
central position in American popular and political discourse. In large measure, the development and passage of the ACA resulted
from decades-long problems with rising costs, questionable quality, and lack of health care system access for large numbers of unor underinsured Americans. If the ACA is successful in accomplishing its intended goals by 2019, it will extend health insurance
coverage to 32 million presently uninsured people; the remaining uninsured will be illegal immigrants, low-income individuals
who do not enroll in Medicaid, and others who choose to pay a penalty rather than purchase coverage.4 The current projected cost
of ACA implementation is just under $1.1 trillion.5 Compared with seven other developed nations (the U.K., Germany, Sweden,
Canada, France, Australia, and Japan), Americans’ health status lags sorely behind on important indicators. The United States
ranks eighth behind all of these nations in life expectancy at birth, highest in infant mortality rate, and highest in the probability of
people dying between the ages of 15 and 60 years.6 These are startling outcomes given that the United States continues a per
capita annual health care expenditure that is triple that of Japan, which has the best health outcomes, and more than double that of
several other of the aforementioned nations.2,7 Although the ACA will provide vastly increased access to health care for 30+
million Americans, there are strong reasons for policy makers’ focus on whether increased access can result in measurable
improvements in Americans’ health status. “Health policy researchers are increasingly aware of the dangers of overstating the link
between insurance and health.”8 As some suggest, ultimately improvements in population health will require the ACA’s success in
merging the concepts of public health into the reformed system’s approach to personal medical care.4 With the ACA’s overarching
emphasis on prevention and wellness and realigned financial incentives to support these, there is even reason for optimism that
“over time, prevention and wellness could become a dominant aspect of primary care.”4
For many, the fortunes and foibles of health care take on deeply serious meanings. There was a widespread sense of urgency
among employers, insurers, consumer groups, and other policy makers about the seemingly unresolvable problems of inadequate
access, rising costs, and questionable quality of care. Passionate debates about the ACA in health care reform focused many
Americans on the role health care plays in their lives and about the strengths and deficiencies of the complex labyrinth of health
care providers, facilities, programs, and services.
Problems of Health Care
Although philosophical and political differences historically fueled the debates about health care policies and reforms, consensus
finally emerged that U.S. health care system is fraught with problems and dilemmas. Despite its decades-long series of impressive
accomplishments, the health care system exhibits inexplicable contradictions in objectives; unwarranted variations in
performance, effectiveness, and efficiency; and long-standing discord in its relationships with the public and with governments.
The strategies for addressing the problems of cost, access, and quality over the 75 years since the passage of the Social
Security Act reflected the periodic changes in political philosophies. The government-sponsored programs of the 1960s were
designed to improve access for older adults and low-income populations without considering the inflationary effects on costs.
These programs were followed by regulatory attempts to address first the availability and price of health services, then the
organization and distribution of health care, and then its quality. In the 1990s, the ineffective patchwork of government-sponsored
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health system reforms was superseded by the emergence of market-oriented changes, competition, and privately organized
managed care organizations (MCOs).
The failure of government-initiated reforms created a vacuum, which was filled quickly by the private sector. There is a
difference, however, between goals for health care reform of the government and those of the market. Although the proposed
government programs try to maintain some balance among costs, quality, and access, the primary goal of the market is to contain
costs and realize profits. As a result, there remain serious concerns that market-driven reforms may not result in a health care
system that equitably meets the needs of all Americans and may even drive up costs.9
As the recent querulous debate over health care reform illustrated, when the dominant interest groups—government,
employers, insurers, the public, and major provider groups—do not agree on how to change the system to accomplish widely
desired reforms, the American people would rather continue temporizing. They are “unwilling to risk the strengths of our existing
health care system in a radical effort to remedy admittedly serious deficiencies.”10
Understanding Health Care
Health care policy usually reflects public opinion. Finding acceptable solutions to the perplexing problems of health care depends
on public understanding and acceptance of both the existing circumstances and the benefits and risks of proposed remedies. Many
communication problems regarding health policy stem from the public’s inadequate understanding of health care and its delivery
system.
Early practitioners purposely fostered the mystique surrounding medical care as a means to set themselves apart from the
patients they served. Endowing health care with a certain amount of mystery encouraged patients to maintain blind faith in the
capability of their physicians even when the state of the science did not justify it. When advances in the understanding of the
causes, processes, and cures of specific diseases revealed that previous therapies and methods of patient management were based
on erroneous premises, new information remained opaque to the American public. Although the world’s most advanced and
proficient health care system provides a great deal of excellent care, the lack of public knowledge has allowed much care to be
delivered that was less than beneficial and some that was inherently dangerous.
Now, however, the romantic naïveté with which health care and its practitioners were viewed has eroded significantly. Rather
than a confidential contract between the provider and the consumer, the health care relationship now includes a voyeuristic
collection of insurers, payers, managers, and quality assurers. Providers no longer have a monopoly on health care decisions and
actions. Although the increasing scrutiny and accountability may be onerous and costly to physicians and other providers, it
represents the concerns of those paying for health care—governments, insurers, employers, and patients—about the value
received for their expenditures. That these questions have been raised reflects the prevailing opinion that those who now chafe
under the scrutiny are, at least indirectly, responsible for generating the excesses in the system while neglecting the problems of
limited access to health care for many.
Cynicism about the health care system grew with more information about the problems of costs, quality, and access becoming
public. People who viewed medical care as a necessity provided by physicians who adhere to scientific standards based on tested
and proven therapies have been disillusioned to learn that major knowledge gaps contribute to highly variable use rates for
therapeutic and diagnostic procedures that have produced no measurable differences in outcomes. Nevertheless, as the recent
discussions about system-wide reforms demonstrated, enormously complex issues underlie the health industry’s problems. “The
quest for greater efficiency in the delivery of health care services is eternal in a country that spends far more on health care than
any other, consistently has growth in spending that outstrips that of income, is unable to provide insurance coverage to at least
17% of its population, and ranks poorly among industrialized countries in system-wide measures such as life expectancy and
infant mortality.”11
Why Patients and Providers Behave the Way They Do
The evolution of U.S. hospital system makes clear the long tradition of physicians and other health care providers behaving in an
authoritarian manner toward patients. In the past, hospitalized patients, removed from their usual places in society, were expected
to be compliant and grateful to be in the hands of professionals far more learned than themselves. More recently, however,
recognizing the benefits of more proactive roles for patients and the improved outcomes that result, both health care providers and
consumers are encouraging patient participation in health care decisions under the rubric of “shared decision making.”12
Indexes of Health and Disease
The body of statistical data about health and disease has grown enormously since the late 1960s, when the government began
analyzing the information obtained from Medicare and Medicaid claims, and computerized hospital and insurance data allowed
the retrieval and exploration of clinical information files. In addition, there have been continuing improvements in the collection,
analysis, and reporting of vital statistics and communicable and malignant diseases by state and federal governments.
Data collected over time and international comparisons reveal common trends among developed countries. Birth rates have
fallen and life expectancies have lengthened so that older people make up an increasing proportion of total populations. The
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percentage of individuals who are disabled or dependent has grown as health care professions have improved their capacity to
rescue otherwise moribund individuals.
Infant mortality and maternal mortality, the international indicators of social and health care improvement, have continued to
decline in the United States but have not reached the more commendable levels of countries with more demographically
homogeneous populations. In the United States, the differences in infant mortality rates between inner-city neighborhoods and
suburban communities may be greater than those between developed and undeveloped countries. The continuing inability of the
health care system to address those discrepancies effectively reflects the system’s ambiguous priorities.
Natural Histories of Disease and the Levels of Prevention
For many years, epidemiologists and health services planners have used a matrix for placing everything known about a particular
disease or condition in the sequence of its origin and progression when untreated; this schema is called the natural history of
disease. Many diseases, especially chronic diseases that may last for decades, have an irregular evolution and extend through a
sequence of stages. When the causes and stages of a particular disease or condition are defined in its natural history, they can be
matched against the health care interventions intended to prevent the condition’s occurrence or to arrest its progress after its onset.
Because these health care interventions are designed to prevent the condition from advancing to the next, and usually more
serious, level in its natural history, the interventions are classified as the “levels of prevention.” Figures 1-1, 1-2, and 1-3 illustrate
the concept of the natural history of disease and levels of prevention.
The first level of prevention is the period during which the individual is at risk for the disease but is not yet affected. Called
the “prepathogenesis period,” it identifies the behavioral, genetic, environmental, and other factors that increase the individual’s
likelihood of contracting the condition. Some risk factors, such as smoking, may be altered, whereas others, such as genetic
factors, may not.
When such risk factors combine to produce a disease, the disease usually is not manifest until certain pathologic changes
occur. This stage is a period of clinically undetectable, presymptomatic disease. Medical science is working diligently to improve
its ability to diagnose disease earlier in this stage. Because many conditions evolve in irregular and subtle processes, it is often
difficult to determine the point at which an individual may be designated “diseased” or “not diseased.” Thus, each natural history
has a “clinical horizon,” defined as the point at which medical science becomes able to detect the presence of a particular
condition. Because the pathologic changes may become fixed and irreversible at each step in disease progression, preventing each
succeeding step of the disease is therapeutically important. This concept emphasizes the preventive aspect of clinical
interventions.
FIGURE 1-1 Natural History of Any Disease in Humans.
Source: Reprinted with permission from H. R. Leavell and E. G. Clark, Preventative Medicine for the Doctor in His Community: An
Epidemiologic Approach, 3rd edition, p. 20, © 1965, The McGraw Hill Companies, Inc.
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FIGURE 1-2 Levels of Application of Preventative Measures.
Source: Reprinted with permission from H. R. Leavell and E. G. Clark, Preventative Medicine for the Doctor in His Community: An
Epidemiologic Approach, 3rd edition, p. 21, © 1965, The McGraw Hill Companies, Inc.
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FIGURE 1-3 Natural History of Cancer.
Source: Reprinted with permission from H. R. Leavell and E. G. Clark, Preventative Medicine for the Doctor in His Community: An
Epidemiologic Approach, 3rd edition, pp. 272–273, © 1965, The McGraw Hill Companies, Inc.
Primary prevention, or the prevention of disease occurrence, refers to measures designed to promote health (e.g., health
education to encourage good nutrition, exercise, and genetic counseling) and specific protections (e.g., immunization and the use
of seat belts).
Secondary prevention involves early detection and prompt treatment to achieve an early cure, if possible, or to slow
progression, prevent complications, and limit disability. Most preventive health care is currently focused on this level.
Tertiary prevention consists of rehabilitation and maximizing remaining functional capacity when disease has occurred and
left residual damage. This stage represents the most costly, labor-intensive aspect of medical care and depends heavily on
effective teamwork by representatives of a number of health care disciplines.
Figure 1-4 illustrates the natural history and levels of prevention for the aging process. Although aging is not a disease, it is a
condition that is often accompanied by medical, mental, and functional problems that should be addressed by a range of health
care services at each level of prevention.
The natural history of diseases and the levels of prevention are presented to illustrate two very important aspects of U.S.
health care system. First, it quickly becomes apparent in studying the natural history and levels of prevention for almost any of the
common causes of disease and disability that the focus of health care historically has been directed at the curative and
rehabilitative side of the disease continuum. The serious attention paid to refocusing the system on the health promotion/disease
prevention side of those disease schemas reflected in the National Prevention Strategy of the ACA13 came about only after the
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costs of diagnostic and remedial care became an unacceptable burden and the lack of adequate insurance coverage for over 49
million Americans became a public and political embarrassment.
The second important aspect of the natural history concept is its value in planning community services. The illustration on
aging provides a good example by suggesting health promotion and specific protection measures that could be applied to help
maintain positive health status.
FIGURE 1-4 Natural History of Aging.
Source: Reprinted with permission from H. R. Leavell and E. G. Clark, Preventative Medicine for the Doctor in His Community: An
Epidemiologic Approach, 3rd edition, pp. 272–273, © 1965, The McGraw Hill Companies, Inc.
Major Stakeholders in U.S. Health Care Industry
To understand the health care industry, it is important to recognize the number and variety of its stakeholders. The sometimes
shared and often conflicting concerns, interests, and influences of these constituent groups cause them to shift alliances
periodically to oppose or champion specific reform proposals or other changes in the industry.
The Public
First and foremost among health care stakeholders are the individuals who consume the services. Although all are concerned with
the issues of cost and quality, those who are uninsured or underinsured have an overriding uncertainty about access. It remains
uncertain as to whether U.S. public will someday wish to treat health care like other inherent rights, such as education, but the
passage of the ACA suggests that there is general agreement that some basic array of health care services should be available to
all U.S. citizens. As the country waits to judge the success of the ACA in opening access to the previously uninsured, consumer
organizations, such as the American Association of Retired Persons, and disease-specific groups, such as the American Cancer
Society, the American Heart Association, and labor organizations, remain politically active on behalf of various consumer
constituencies.
Employers
Employers constitute an increasingly influential group of stakeholders in health care because they not only pay for a high
proportion of the costs but also take proactive roles in determining what those costs should be. Large private employers, coalitions
of smaller private employers, and public employers wield significant authority in insurance plan negotiations. In addition,
employer organizations representing small and large businesses wield considerable political power in the halls of Congress.
Providers
Health care professionals form the core of the industry and have the most to do with the actual process and outcomes of the
service provided. Physicians, dentists, nurses, nurse practitioners, physician assistants, pharmacists, podiatrists, chiropractors, and
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a large array of allied health providers working as individuals or in group practices and staffing health care institutions are
responsible for the quality and, to a large extent, the cost of the health care system. Recognizing the centrality of individual
providers to system reform, the ACA is now offering numerous opportunities for the participation of physicians and other health
care professionals in innovative experimentation with integrated systems of care.14,15
Hospitals and Other Health Care Facilities
Much of the provider activity, however, is shaped by the availability and nature of the health care institutions in which providers
work. Hospitals of different types—general, specialty, teaching, rural, profit or not-for-profit, and independent or multifacility
systems—are central to the health care system. However, they are becoming but one component of more complex integrated
delivery system networks that also include nursing homes and other levels of care and various forms of medical practices.
Governments
Since the advent of Medicare and Medicaid in 1965, federal and state governments, already major stakeholders in health care,
have become the dominant authorities of the system. Governments serve not only as payers but also as regulators and providers
through public hospitals, state and local health departments, veterans affairs medical centers, and other facilities. In addition, of
course, governments are the taxing authorities that generate the funds to support the system.
Alternative Therapies
Unconventional health therapies—those not usually taught in established medical and other health professional schools—
contribute significantly to the amount, frequency, and cost of health care. In spite of the scientific logic and documented
effectiveness of traditional, academically based health care, it is estimated that one in three adults uses alternative forms of health
interventions each year.16 Because of their popularity, state Medicaid programs, Medicare, and private health insurance plans
provide benefits for some complementary therapies.16
It is estimated that over $9 billion per year is spent on such alternative forms of health care as Rolfing, yoga, spiritual healing,
relaxation techniques, herbal remedies, energy healing, megavitamin therapy, the commonly recognized chiropractic arts, and a
host of exotic mind–body healing techniques.16
The public’s willingness to spend so much time and money on unconventional therapies suggests a substantial level of
dissatisfaction with traditional scientific medicine. The popularity of alternative forms of therapy also indicates that its recipients
confirm the effectiveness of the treatments by referring others to their practitioners. The National Institutes of Health has
established a National Center for Complementary and Alternative Medicine to fund studies of the efficacy of such therapies. Thus,
as a somewhat paradoxical development, some of the most ancient concepts of alternative health care are gaining broader
recognition and acceptance in an era of most innovative and advanced high-technology medicine.
More for monetary than therapeutic reasons, a number of hospitals are now offering their patients some form of alternative
medicine. According to an American Hospital Association survey, over 15% of U.S. hospitals opened alternative or
complementary medicine centers by the year 2000. With a market estimated to be over $27 billion and patients willing to pay cash
for alternative medicine treatments, hospitals are willing to rationalize the provision of several “unproven” services.17
Health Insurers
The insurance industry has long been a major stakeholder in the health care industry and has played a highly significant role in the
development of the ACA. The industry will be a major contributor to offset the ACA’s costs. In the years 2014–2018, health
insurers will pay annual fees totaling $47.5 billion with future years’ fees based on the previous year increased by the rate of
premium growth.18 MCO insurance plans are the predominant form of U.S. health insurance. MCOs may be owned by insurance
companies, or they may be owned by hospitals, physicians, or consumer cooperatives. MCOs and the economic pressures they
can apply through the negotiation of prepaid fees have produced much of the change that has occurred in the regional systems of
health care during the past three decades.
Long-Term Care
The aging of U.S. population will be a formidable challenge to the country’s systems of acute and long-term care. Nursing homes,
home care services, other adult care facilities, and rehabilitation facilities will become increasingly important components of the
nation’s health care system as they grow in number, size, and complexity. The ACA’s creation of seamless systems of integrated
care that permit patients to move back and forth among ambulatory care offices, acute care hospitals, home care, and nursing
homes within a single network of facilities and services will provide a continuum of services required for the more complex care
of aging patients.
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Voluntary Facilities and Agencies
Voluntary not-for-profit facilities and agencies, so called because they are governed by volunteer boards of directors, provide
significant amounts of health counseling, health care, and research support and should be considered major stakeholders in the
health care system. Although the voluntary sector traditionally has not received the recognition it deserves for its contribution to
the nation’s health care, it is often now viewed as the safety net to replace the services of government or other organizations that
are eliminated by budgetary reductions.
Health Professions Education and Training Institutions
Schools of public health, medicine, nursing, dentistry, pharmacy, optometry, allied health, and other health care professions have a
significant impact on the nature, quality, and costs of health care. As they prepare generation after each succeeding generation of
competent health care providers, these schools also inculcate the values, attitudes, and ethics that govern the practices and
behaviors of those providers as they function in the health care system.
Professional Associations
National, state, and regional organizations representing health care professionals or institutions have considerable influence over
legislative proposals, regulation, quality issues, and other political matters. The lobbying effectiveness of the American Medical
Association, for example, is legendary. The national influence of the American Hospital Association and the regional power of its
state and local affiliates are also impressive. Other organizations of health care professionals, such as the American Public Health
Association, America’s Health Insurance Plans, the American Nurses Association, and the American Dental Association, play
significant roles in health policy decisions. The American insurance industry lobbyists from organizations such as America’s
Health Insurance Plans had major influences on the provisions of the ACA.19
Other Health Industry Organizations
The size and complexity of the health care industry encourage the involvement of a great number of commercial entities. Several,
such as the insurance and pharmaceutical enterprises, are major industries themselves and have significant organizational
influence. The medical supplies and equipment business and the various consulting and information and management system
suppliers also are important players.
Research Communities
It is difficult to separate much of health care research from the educational institutions that provide for its implementation.
Nevertheless, the national research enterprise must be included in any enumeration of stakeholders in the health care industry.
Government entities, such as the National Institutes of Health and the Agency for Healthcare Research and Quality, and not-forprofit foundations, such as the Robert Wood Johnson Foundation, the Commonwealth Fund, the Henry J. Kaiser Family
Foundation, and the Pew Charitable Trusts, exert tremendous influence over health care research, policy development, and
practice by conducting research and widely disseminating findings and supporting and encouraging investigations that inform
policy decision making.
Rural Health Networks
Rural health systems are often incomplete, with shortages of various services and duplications of others. Federal and state
programs have addressed this situation by promoting rural health networks’ development.20 Networks may be formally organized
as not-for-profit corporations or informally linked for a defined set of mutually beneficial purposes. Typically, they advocate at
local and state levels on rural health care issues, cooperate in joint community outreach activities, and seek opportunities to
negotiate with MCOs to provide services to enrolled populations. Most of these networks strive to provide local access to primary,
acute, and emergency care and to provide efficient links to more distant regional specialists and tertiary care services. Ideally,
rural health networks assemble and coordinate a comprehensive array of services that include dental, mental health, long-term
care, and other health and human services.
With costs increasing and populations declining in many rural communities, it has been difficult for rural hospitals to continue
their acute inpatient care services. Nevertheless, rural hospitals are often critically important to their communities. Because a
hospital is usually one of the few major employers in rural communities, its closure has economic and health care consequences.
Communities lacking alternative sources of health care within reasonable travel distance not only lose payroll and related business
but also lose physicians, nurses, and other health personnel and suffer higher morbidity and mortality rates among those most
vulnerable, such as infants and older adults.21
Some rural hospitals have remained viable by participating in some form of multi-institutional arrangement that permits them
to benefit from the personnel, services, purchasing power, and financial stability of larger facilities. Many rural hospitals,
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however, have found it necessary to shift from inpatient to outpatient or ambulatory care. In many rural communities, the survival
of a hospital has depended on how quickly and effectively it could replace its inpatient services with a productive constellation of
ambulatory care, and sometimes long-term care, services.
Rural hospital initiatives have been supported by federal legislation since 1991. Legislation provided funding to promote the
essential access community hospital and the rural primary care hospital. Both were limited-service hospital models developed as
alternatives for hospitals that were too small and geographically isolated to be full-service acute care facilities. Regulations
regarding staffing and other service requirements were relaxed in keeping with the rural settings22 and included allowing
physician’s assistants, nurse practitioners, and clinical nurse specialists to provide primary or inpatient care without a physician in
the facility if medical consultation is available by phone.
The Balanced Budget Act of 1997 included a Rural Hospital Flexibility Program that replaced the essential access community
hospital/rural primary care hospital model with a critical access hospital (CAH) model. Any state with at least one CAH may
qualify for the program, which exempts CAHs from strict regulation and allows them the flexibility to meet small, rural
community needs by developing criteria for establishing network relationships. Although the new program maintained many of
the same features and requirements as its predecessor, it added more flexibility by increasing the number of allowed occupied
inpatient beds and the maximum length of stay before required discharge or transfer. The new program also allowed a swing bed
program to provide flexibility in their use. The goal of the CAH program is to enable small rural hospitals to maximize
reimbursement and meet community needs with responsiveness and flexibility.
The Balanced Budget Act also served rural hospitals by providing Medicare reimbursement for “telemedicine” and other
video arrangements that link isolated facilities with clinical specialists at large hospitals. Telemedicine technology makes it
possible for a specialist to be in direct visual and voice contact with a patient and provider at a remote location. The ACA contains
significant support for the continued expansion of telemedicine programs that began with prior Medicare-supported pilot
projects.23
Priorities of Health Care
The priorities of America’s health care system—the emphasis on dramatic tertiary care, the costly and intensive efforts to fend off
the death of terminal patients for a few more days or weeks, and the heroic efforts to save extremely low birth-weight infants at
huge expense while thousands of women go without the prenatal care that would decrease prematurity—contribute to the obvious
mismatch between the costs of health care and the failure to improve the measures of health status in the United States. It is
difficult to rationalize the goals of a system that invests in the most expensive neonatal services to save high-risk infants while
reducing support for relatively inexpensive and effective prenatal services with potential to prevent high-risk births in the first
place.
If health care were to be governed by rational policies, the benefits to society of investing in primary prevention that is
unquestionably cost-effective would be compared with both human and economic costs of salvaging individuals from preventable
adverse outcomes. Unfortunately, priorities have favored heroic medicine over the more mundane and far less costly preventive
care that results in measurable human and economic benefits. As noted previously in this chapter, major tenets of the ACA are
designed to shift the focus from curative to preventive priorities though the implementation of the National Prevention Strategy.13
Tyranny of Technology
In many respects, the health care system has done and is doing a remarkable job. Important advances have been made in medical
science, which have brought measurable improvements in the length and quality of life. The paradox is, however, that as
technology grew in sophistication and costs, increasing numbers of people were deprived of its benefits. Health care providers can
be so mesmerized by their own technologic ingenuity that things assume greater value than persons. For example, hospital
administrations and medical staffs commonly dedicate their most competent practitioners and most sophisticated technology to
the care of terminal patients while allocating far fewer resources to primary and preventive services for ambulatory clinic patients
and other community populations in need of basic medical services.
Some hospitals recognize this disparity by conducting outreach and education programs for the medically underserved. Now
with the ACA aligning reimbursement with prevention and wellness efforts, it is likely that more institutions will find it beneficial
to initiate and maintain prevention initiatives and allocate staff to the potentially more productive care of discharged patients and
ambulatory clinic populations.
The recurring theme among health services researchers assessing the value of technologic advances is a series of generally
unanswered questions:
1.
2.
3.
4.
5.
How does the new technology benefit the patient?
Is it worth the cost?
Are the new methods better than previous methods, and can they replace them?
Is treatment planning enhanced?
Is the outcome from disease better, or is the mortality rate improved?
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Although many of the latest advances have gained great popularity and widespread acceptance, rigorous assessments that address
these basic questions remain sorely needed.
Much of the philosophy underlying the values and priorities of the health care system today can be attributed to the unique
culture of U.S. medicine. That philosophy owes much to the aggressive “can do” spirit of the frontier. Diseases are likened to
enemies to be conquered. Physicians expect their patients to be aggressive too. Those who undergo drastic treatments to “beat”
cancer are held in higher regard than patients who resign themselves to the disease. Some physicians and nurses feel demoralized
when dying patients refuse resuscitation or limit interventions to palliative care.
The treatment-oriented rather than prevention-oriented health care philosophy has been encouraged by an insurance system
that, before managed care’s prevention orientation and efforts to curb unnecessary interventions, rarely paid for any disease
prevention other than immunizations. It is also understandable in a system prizing high-technology medicine and rewarding
volume regardless of value, that there has been much more satisfaction and remuneration from saving the lives of the injured and
diseased than in preventing those occurrences from happening in the first place.
Social Choices of Health Care
The American emphasis on cure over prevention disinclined the health care professions to address those situations over which
they have had little control. Behavioral issues such as acquired dependence on tobacco, alcohol, and drugs must be counted
among the significant causes of impaired health in our population. If left unchanged, the future effects on health and medical care
associated with these addictions probably will exceed all expectations. Similarly, the AIDS epidemic is as much a social and
behavioral phenomenon as it is a biologic one. Nevertheless, outside of the public health disciplines, the considerable influence
and prestige of the health care professions have been noticeably absent in steering public opinion and governmental action toward
an emphasis on health. Similarly, in comparison with resources expended on treatment after illness occurs, relatively little
attention had been given to changing high-risk behaviors even when the consequences are virtually certain and nearly always
extreme.
Aging Population
The aging of U.S. population will have wide-ranging implications for the country. As the United States ages over the next several
decades, its older population will become more racially and ethnically diverse. Projecting the size and structure in terms of age,
sex, race, and Hispanic origin of the older population is important to public and private interests, both socially and economically.
U.S. Census Bureau projects that nearly one in five residents will be aged 65 or older by 2030 and that by 2050 the number of
Americans aged 65 and older will be 88.5 million, which is more than double its projected population in 2010.24 Between 2010
and 2050, U.S. Census Bureau projects that the proportion of U.S. population comprising persons over 85 years old will increase
from 14% to 21%24 (see Figure 1-5).
In the same period, the minority composition of the older population is expected to more than double from 20% to 42% and
the older Hispanic population is projected to more than triple24 (see Figure 1-6). The growth of the older population will present
serious challenges to policy makers and programs, such as Social Security and Medicare and will also affect families, businesses,
and health care providers.
As medical advances find more ways to maintain life, the duration of chronic illness and the number of chronically ill
individuals will increase with a concomitant increase in the need for personal support. The intensity of care required by frail older
adults also has the potential of affecting worker productivity as it is common for family members to leave the workforce or to
work part time to care for frail relatives.
The increased number of older persons with chronic physical ailments and cognitive disorders raises significant questions
about the capability and capacity of U.S. health care system. Health care professionals are just beginning to respond to the need to
focus health care for older adults away from medications or other quick-fix remedies. The system is slowly acknowledging that
the traditional medical service model is inappropriate to the care of those with multiple chronic conditions.
The growing number of older adults faces serious gaps in financial coverage for long-term care needs. Unlike the broad
Medicare program coverage for the acute health care problems of older Americans, the long-term care services needed to cope
with the chronic disability and functional limitations of aging are largely unaddressed by either Medicare or private insurance
plans. With the exception of the relatively small number of individuals with personal long-term care insurance, the costs of longterm care services are borne by individual older adults and their caregivers.
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Note: Line indicates the year that each age group is the largest proportion of the older population.
FIGURE 1-5 Distribution of the Older Population by Age: 2010 to 2050.
Source: Reproduced from U.S. Census Bureau, The Next Four Decades: The Older Population in the United States: 2010 to 2050.
FIGURE 1-6 Percent Hispanic for the Older Population by Selected Age Groups for the United States: 2010 to 2050.
Source: Reproduced from U.S. Census Bureau, The Next Four Decades: The Older Population in the United States: 2010 to 2050.
As a last resort, the Medicaid program became the major public source of financing for nursing home care. Medicaid
eligibility, however, requires that persons “spend down” their personal resources to meet financial eligibility criteria. For those
disabled older adults who seek care in the community outside of nursing homes, Medicaid offers very limited assistance.
Provisions of the ACA make some progress in addressing these issues. The reform plan, called “Medicaid Money Follows the
Person” (MFP), set demonstration projects in motion by providing grants to states for additional federal matching funds for
Medicaid beneficiaries making the transition from an institution back to their homes or to other community settings.25 Grants
enable state Medicaid programs to fund home- and community-based services for individuals’ needs, such as personal care
assistance to enable their safe residency in the community. Other long-term care provisions under the ACA include “Community
First Choice Option in Medicaid,” which provides states with an increased federal Medicaid matching rate to support communitybased attendant services for individuals who require an institutional level of care,26,27 and a “State Balancing Incentive Program,”
which enhances federal matching funds to states to increase the proportion of Medicaid long-term services and support dollars
allocated toward home- and community-based services.27 It is hoped that these demonstrations will yield results that may be
expanded to address the serious gaps that exist in services between home- and community-based and institutional care available
for older Americans.
Access to Health Care
Much attention has been paid to the economic problems of health care, and considerable investments of research funds have been
made to address the issues of health care quality. However, the third major problem—that of limited access to health care among
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the estimated 49 million uninsured or underinsured Americans—has continued to confound decision makers for decades and
evolved into both a moral and an economic issue.
Polar positions have been taken by those who have addressed the question of whether society in general or governments in
particular have an obligation to ensure that everyone has the right to health care and whether the health care system has a
corresponding obligation to make such care available. Consider these opposing viewpoints by P. H. Elias and R. M. Sade,
respectively:
Physicians who limit their office practice to insured and paying patients declare themselves openly to be merchants rather than
professionals. … Physicians who value their professionalism should treat office patients on the basis of need, not remuneration.28
The concept of medical care as the patient’s right is immoral because it denies the most fundamental of all rights, that of a man
to his own life and the freedom of action to support it. Medical care is neither a right nor a privilege: it is a service that is provided
by doctors to others who wish to purchase it.29
Although health care providers debate their individual and personal obligations to provide uncompensated care, the system itself
finessed the problem for many years by shifting the costs of care from the uninsured to the insured. This unofficial but practical
approach to indigent care was ethically tolerable as long as the reimbursement system for paying patients was so open ended that
the cost of treating the uninsured could easily be passed on to paying patients. The cost shifting that worked under old
reimbursement systems that paid for virtually everything after the fact was not feasible under new payment schemes of the 1980s
and beyond that pay a preestablished and fixed price in advance of treatment based on diagnosis. The ACA’s insurance and
reimbursement mechanisms recognize that a transparent approach to providing insurance coverage for low-income persons will
address the long-standing inequities in a system previously required to cryptically manage uncompensated care. In this regard, the
ACA’s provisions are a pointed example of the need for government intervention on behalf of its citizenry when markets are
unable or unwilling to respond.
Ideally, U.S. health policy makers would have preferred to assure the public that the health care system would provide all
citizens with comparable access to health care and to assure physicians and other health care providers that they would be free of
government interference in decisions about service production and delivery. However, a very long history of failed attempts at
free-market approaches has resulted in the indisputable conclusion that government intervention is needed to materially improve
the access problem.
Quality of Care
Another health care system problem area is variations in the quality and appropriateness of medical care. The uncertainty that
pervades current clinical practice is far greater than most people realize. Problems in the quality and appropriateness of many
diagnostic and therapeutic procedures impact heavily on costs.
Since the 1999 report of the Institute of Medicine that estimated that medical errors take from 44,000 to 98,000 lives per year,
the Congress, the president, medical institutions, and the public have been stirred to respond to a problem that has existed for
decades. The increasing complexity of the health care system, the potency of its pharmaceuticals, the dangers inherent in surgical
procedures, and the potential for error in the many information transfers that occur during hospital care combine to put patients at
serious risk.
Health care errors are a leading cause of preventable deaths in the United States.30 The overall burden on society is much
greater when both fatal and nonfatal events are counted and when medical mishaps in medical offices, ambulatory centers, and
long-term care facilities are considered.31
Conflicts of Interest
One of the greatest advantages of U.S. high-technology health care systems is the ability of physicians and patients to benefit
from referrals to a broad range of highly specialized clinical, laboratory, rehabilitation, and other services.
In recent years, however, increasing numbers of physicians have begun to invest in laboratories, imaging centers, medical
supply companies, and other health care businesses. In many cases, these are joint ventures with other institutions that conceal the
identity of the investors. When health care providers refer patients for tests or other services to health care businesses that they
own or in which they have a financial stake, there is a serious potential for conflicts of interest. For the last several years both
federal and state governments and the American Medical Association have conducted studies that confirm that physician-owned
laboratories, for example, perform more tests per patient at higher charges than those in which physicians have no investments.32
These conflicts of interest undermine the traditional professional role of physicians and significantly increase health care
expenditures. In another dimension of conflicts of interest, the ACA includes “Sunshine” provisions that arose from activities
related to enforcement of the federal kickback statute pertaining to financial relationships between health industry
(pharmaceutical, biologics, and medical device companies) and health care providers.33 The ACA “requires reporting of all
financial transactions and transfers of value between manufacturers of pharmaceutical/biologic products or medical devices and
physicians, hospitals and other covered recipients that are reimbursed by U.S. federal government.”33 In addition, the ACA
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requires the Centers for Medicare & Medicaid Services to establish a Web site to post information pertinent to these transactions
in a searchable, downloadable database.33 Fines for manufacturer noncompliance with reporting requirements can reach up to $1
million per reporting year.33
Health Care’s Ethical Dilemmas
Once almost an exclusive province of physicians and other health care providers, moral and ethical issues underlying provider–
patient relationships and the difficult decisions resulting from the vast increase in treatment options are now in the domains of
law, politics, journalism, health institution administrations, and the public. During the last few decades, the list of ethical issues
has expanded as discoveries in genetic identification and engineering, organ transplantation, a mounting armamentarium of highly
specialized diagnostic and therapeutic interventions, and advances in technology have allowed the lives of otherwise terminal
individuals to be prolonged. In addition, an energized health care consumer movement advocating more personal control over
health care decisions, economic realities, and the issues of the most appropriate use of limited resources are but a few of the topics
propelling values and ethics to the top of the health care agenda. There is a social dimension to health care that never existed
before and that the health professions, their educational institutions, their organizations, and their philosophical leadership are
now beginning to address.
Clearly, the rapid pace of change in health care and the resulting issues have outpaced U.S. society’s ability to reform the
thinking, values, and expectations that were more appropriate to a bygone era. Legislative initiatives are, correctly or not, filling
the voids.
The 1997 decision of the U.S. 9th Circuit Court of Appeals permitting physician-assisted suicide for competent, terminally ill
adults in the state of Oregon is an unprecedented example. The New York state’s 1990 passage of health care proxy legislation
that allows competent adults to appoint agents to make health care decisions on their behalf if
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CHAPTER
4
Hospitals: Origin, Organization, and Performance
This chapter’s overview of the genesis of U.S. hospitals provides a basis for understanding their characteristics, organization, and
major private and governmental insurance initiatives that contributed to their growth and centrality in the health care system. The
chapter discusses the diverse functions of hospitals and their staff and management structures, and important aspects of quality of
care and the relationship between staff and patients. The chapter reviews and summarizes hospital marketplace activities in response
to health reform and pertinent major elements of the Patient Protection and Affordable Care Act as they directly affect hospitals.
Of all the familiar institutions in U.S. society, the hospital is, at the same time, the most appreciated, most maligned, and least
understood. Besides serving as a place for the treatment of the sick and injured, it may function as a research laboratory, an
educational institution, and a major employer within the community. In the era of health care reform, these core functions can be
expected to remain intact. However, virtually everything about the way in which hospitals have operated including their
ownership structures and financing and their relationships with physicians, other health care providers and their communities will
continue to undergo vast change. Hospitals are focal points in market reforms and changes required by the Patient Protection and
Affordable Care Act (ACA). Subsequent sections of this chapter outline the nature of the changes affecting hospitals, and
significant challenges and opportunities presented by reforms to improve the quality of care, increase patient satisfaction, improve
the health of populations, and reduce costs.
Historical Perspective
The often strained relationship between patients and hospital personnel dates back to the earliest history of health care in the
United States. The indifference to patients’ needs for information, comfort, and humane contact that is a common complaint about
hospital care is rooted not only in the overall history of medical care but also—and especially—in the history of hospitals.
Hospitals in early America were founded to shelter older adults, the dying, orphans, and vagrants and to protect the inhabitants
of a community from the contagiously sick and the dangerously mentally ill.
During the 18th century, Boston was the largest city in the new democracy, with about 7,000 citizens. Philadelphia and New
York each had about 4,000 people. Whatever passed for medical care in those days was provided in the home. It was necessary,
however, in these and other seaport towns to provide refuge for sailors and other shipboard victims of contagious diseases who
often were unceremoniously left ashore when the ships departed. The town responded by organizing pest houses, quarantine
stations, or isolation hospitals to segregate the sick from the town inhabitants and to prevent the spread of disease. Because these
facilities were not intended to be used by the local citizenry, they were usually located well outside the city limits.
As populations grew, mental illness became an additional problem. Individuals whose behavior offended or frightened the
townspeople came to the attention of the town board. It was common in those days for the town board to order relatives or friends
to build a small stronghouse, or cell, on their property to contain a person with mental illness. If the individual had no relatives or
friends, the town might lease him or her at an auction to the lowest bidder, who would take responsibility for confining that
individual for 1 year, usually in exchange for his or her labor.
The existence of pest houses, or isolation hospitals, also provided the towns with a solution for dealing with other individuals
whose presence posed a risk to or offended its inhabitants. Over time, people with mental illness or those in poor health, the
homeless, and the petty criminal joined the contagious ill that occupied those facilities.
Bellevue Hospital was originally the Poor House of New York City, established in 1736 to house the “poor, aged, insane, and
disreputable.” In 1789, the Public Hospital of Baltimore was established for low-income populations, people with mental or
physical illness, and the seafaring of Maryland. One hundred years later, in 1889, it became the now prestigious the Johns
Hopkins Hospital.
Eventually, almost every city of any size in early America had a pest house to isolate patients during epidemics. Most cities
also had an almshouse for low-income populations, sometimes with an added infirmary. Many of today’s county or municipal
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hospitals were originally combinations of almshouses and infirmaries.
The largest county institution, Eloise Hospital in Wayne County, Michigan, was started in 1835 to serve the “old, young, deaf,
dumb, blind, insane, and destitute.” It grew to 6,000 beds to care for acute and chronic illness and mental diseases and to provide
domiciliary services to low-income populations. The Kings County Hospital in Brooklyn, Philadelphia General Hospital, and
Cleveland City Hospital are similar examples.
Most hospitals in the United States in the 19th century were dirty, unventilated, and contaminated with infections. They were
overcrowded and offered little or no medical care. The only nurses available were former prison inmates or women who could get
no other work. The public, however, knew little of these conditions. Because visiting was restricted, patients were effectively cut
off from the outside world. Persons with family or the means to obtain home medical or nursing care shunned hospitals.
Certain religious orders saw the hospitals’ clients as so helpless, so miserable with incurable disease, or so maimed by
accident that they presented an opportunity for spiritual outlet for those seeking salvation through good works. Thus began the
close relationships of the Protestant and Catholic religions with hospitals and hospital nursing. Religious nursing groups played a
major role in the evolution of hospital care. Catholic religious orders were the first groups responsible for kindly and humane
nursing performed by fairly well-educated, sincere, and devoted “sisters.” The American branch of St. Vincent de Paul Sisters of
Charity, founded by Mother Elizabeth Seton in 1809, established hospitals that still stand in cities across the United States.
The Protestant nursing movement began in Germany and was brought to Pennsylvania in 1850. It was based on the formal
training of nurses in religion, nursing, and nursing education. The nurse teachers were called deaconesses. The Protestant church
hospital, or deaconess movement, had an important influence on nursing.
Ironically, it was the Civil War of the 1860s that brought about public appreciation of the work of women in nursing. When
sick or wounded soldiers were returned to their hometowns attended by obviously dedicated and capable nurses, it was the first
time that relatives of those soldiers encountered women as nurses outside of their own homes. Nursing gained a much more
positive image and came to be viewed as a respectable career option for women.
All this early hospital care was focused on only the most unfortunate of the population with physical and mental illness.
Although provided in the most deplorable conditions, hospital care nonetheless reflected the early American concept of charity
and public responsibility, which required that provision be made for low-income populations, people with physical or mental
illness, vagrants, and criminals. Institutions originally classified as almshouses provided refuge for all of them. Later, physicians
realized the efficacy of separating the sick population from the rest of the needy and putting them in facilities more properly
called hospitals. The Pennsylvania Hospital in Philadelphia, the New York Hospital in New York City, and the Massachusetts
General Hospital in Boston were founded by physicians who obtained citizen funding for charitable hospitals. Their motives for
establishing hospitals also included providing a place to practice surgery and obstetrics, centrally locating patients to serve their
instruction of medical students, and protecting the well population from people with physical or mental illness.
Sources That Shaped the Hospital Industry
Health Insurance
The transformation of hospitals from simple, charitable institutions to complex, technical organizations was accompanied by a
parallel growth of private hospital insurance. In 1940, only 9% of U.S. population had hospital insurance.
By the 1960s, billions of dollars were flowing into hospitals from insurance companies, such as Blue Cross/Blue Shield,
medical society plans, and other plans sponsored by unions, industry, physicians, and cooperatives. The availability of hospital
insurance removed an important cost constraint from hospital charges. The ability of insurers to cope with ever-rising hospital
costs by distributing relatively small premium increases over large numbers of subscribers opened the floodgates to hospital
admissions. Expanding hospital services and relatively unrestrained reimbursement rates created an inflationary spiral that was to
persist for decades.
In addition, medical advances and medical specialization encouraged hospitalization, and the hospital industry expanded to
meet the demand. After World War II, the American Hospital Association (AHA) convinced Senators Lister Hill and Harold
Burton to sponsor legislation that provided federal monies to the states to survey hospitals and other health care facilities and to
plan and assist construction of additional facilities. The Hill–Burton Hospital Construction Act was signed as Public Law 79–75
in 1946 and became a major influence in the expansion of the hospital industry.1 Over 4,600 projects to expand existing facilities
or construct new ones were initiated within 20 years after its passage. That federal support of hospital construction was critically
important to the location of hospitals in underserved rural areas.
Medicare and Medicaid
In 1966, the hospital industry was the recipient of another major legislative contribution to its fiscal well-being by the passage of
Medicare, Title XVIII of the Social Security Act. The legislation provided the growing population of Americans over age 65 years
with significant hospital and medical benefits. In one decisive legislative action, the large population of older Americans, the
group most likely to need hospitalization, was ensured hospital care, and the hospitals were ensured to be reimbursed on the basis
of “reasonable costs.”
The companion program, Medicaid, Title XIX of the Social Security Act, was established at the same time to support medical
and hospital care for persons classified as medically indigent. Unlike Medicare, Medicaid required the states to establish joint
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federal–state programs that covered persons receiving public assistance and, if they wished, others of low income. Because the
states had broad discretion over eligibility, benefits, and reimbursement rates, the programs that developed differed widely among
the 50 states.
Medicare, and to a lesser extent Medicaid, had enormous impact on hospitalization rates in the United States. In a little over
10 years after the implementation of Medicare, persons over 65 years old were spending well over twice as many days in the
hospital as those aged 45–64 years.1 Because the rising Medicare rates became the standards for establishing hospital
reimbursement rates in general, Medicare probably did more to fuel the rising costs of hospital care than any other factor.
The Medicare and Medicaid programs also had another effect. Because these programs provided government funding for the
hospital care of low-income population and older adults, they altered the long-standing nature or mission of hospitals by
diminishing the traditional charitable or social role of those voluntary institutions. It was not long after the implementation of
those programs that hospitals became increasingly focused on profit, maximizing the more lucrative activities, and closing or
reducing services that operated at a loss. In the 1980s, hospitals along with most of U.S. industry became market oriented and
aggressively enterprising. The monetary incentives built into the Medicare system favored entrepreneurial, short-term financial
interests.
Rosemary Stevens, author of In Sickness and in Wealth: American Hospitals in the Twentieth Century, wrote this: “One effect
was to bring hospitals into prominence as enterprises motivated by organizational self-interest, by the excitement of the game, by
greed.”1 She concluded with this statement:
Medicare and Medicaid, supposedly designed to promote egalitarianism, fostered sharp inequities in the health-care system while
disarming criticism from low-paid American workers and the poverty population. The stage was set for today’s struggles to
rethink, once again, the American health-care system—and to redefine the relative roles of voluntarism, government, and business
for the last few years of the twentieth century.1
Growth and Decline in Numbers of Hospitals
The number of hospitals in the United States increased from 178 in 1873 to 4,300 in 1909. In 1946, at the close of World War II,
there were 6,000 American hospitals, with 3.2 beds available for every 1,000 persons. That year, Congress passed the Hill–Burton
Hospital Construction Act to fund expansion of the hospital system to achieve the goal of 4.5 beds per 1,000 persons.2 The system
grew thereafter to reach a high of approximately 7,200 acute care hospitals.
During the 1980s, however, medical advances and cost-containment measures moved many procedures that once required
inpatient hospitalization to outpatient settings. Outpatient hospital visits increased by 40% with a resultant decrease in hospital
admissions. Fewer admissions and shortened lengths of stay for patients resulted in a significant reduction in the number of
hospitals and hospital beds. Health care reform efforts and the emergence of managed care as the major form of insurance for U.S.
health care resulted in hospital closings and mergers that reduced the number of governmental and community-based hospitals in
the United States to approximately 5,700.
Types of Hospitals
Acute care hospitals are distinguished from long-term care facilities such as nursing homes, rehabilitation centers, and psychiatric
hospitals by the fact that the average length of stay for patients is less than 30 days. Such hospitals have one of three basic
sponsorships:
1. Voluntary not-for-profit entities
2. Owned and managed by profit-making corporations
3. Public facilities, supported and managed by governmental jurisdictions
Hospitals may also be divided into teaching and nonteaching hospitals. Teaching hospitals are affiliated with medical schools and
provide clinical education for medical students and medical and dental residents. They, and many hospitals not affiliated with
medical schools, also provide clinical education for nurses, allied health personnel, and a wide variety of technical specialists.
According to the Association of American Medical Colleges, only about 6% of U.S. hospitals (about 400 hospitals) are
teaching facilities affiliated with one or more of the allopathic and osteopathic medical schools in the United States.3 Most
teaching hospitals are voluntary not-for-profit institutions or government-sponsored public hospitals. The most recently published
survey of this country’s hospitals conducted by the AHA concluded that there were 2,903 voluntary not-for-profit hospitals
sponsored by religious groups or other community-based organizations. They constitute just over 50% of the 5,724 registered
hospitals in the United States.4
They include large numbers of small community general hospitals and smaller numbers of large tertiary care facilities. These
large tertiary care facilities are usually affiliated with medical schools. The presence of medical school faculty with strong
research interests and the availability of medical residents to assist in the collection of clinical data put teaching hospitals in the
forefront of clinical research on medical conditions and treatments.
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The federal government, through the U.S. Department of Veterans Affairs (VA) or the U.S. Public Health Service, operates
208 public hospitals. In addition, state and local governments maintain over 1,000 public hospitals.4 These public hospitals are
usually large teaching hospitals with a heavy preponderance of economically disadvantaged patients.
Public hospitals in many localities deliver the fiscally problematic, but essential, community services that other hospitals are
reluctant to provide. These high-cost, low-fiscal return services include sophisticated trauma centers, psychiatric emergency
services, alcohol detoxification services, other substance abuse treatment, and burn treatment. In addition, there are 421
nonfederal psychiatric hospitals.4
Investor-owned, for-profit hospitals grew from a few physician-owned facilities before the 1965 Medicare and Medicaid
legislation to 1,025 in 2011.4 Most for-profit hospitals belong to one of the large hospital management companies that dominate
the for-profit hospital network. An increasing number, however, are physician-owned specialty hospitals. Such hospitals usually
limit their services to treatments in one of three major specialty categories: orthopedics, surgery, or cardiology.
Although these new specialty hospitals are typically upscale facilities with many patient amenities, they usually operate with
greater efficiency and provide excellent care in their few targeted services. Nevertheless, they have raised a series of concerns
about their performance and their effect on community hospitals.
First, it is clear that specialty hospitals treat the less complex, more profitable cases, leaving the more difficult, less profitable,
or uninsured patients to be served by community hospitals. Second, because physician-owners of specialty hospitals profit directly
by the value of services provided by their hospitals, there are concerns that clinical decisions may be influenced by financial
incentives.5
Supporters of physician-owned specialty hospitals point out that the physician-owners take great pride in the quality of care
provided in their hospitals, that they also work in community hospitals, and that their facilities enhance their communities by
paying taxes as for-profit companies.6
The number of beds in not-for-profit, state and local government, and federal hospitals decreased in the last decade, whereas
the much smaller number of beds in for-profit facilities increased slightly. The most recent annual survey by the AHA counted
924,333 staffed beds among all U.S. registered hospitals in the United States.4
Financial Condition of Hospitals
In the wake of pressures from managed care market penetration beginning in the 1990s, thousands of hospitals were involved in
mergers, acquisitions, and other multihospital deals in an effort to capture and solidify market shares and gain economies of scale.
Hospitals’ economic problems resulted from a combination of factors over which the hospitals had little control. The Balanced
Budget Act of 1997, which reduced payments for Medicare patients below the costs of treating them, wreaked havoc on U.S.
hospitals. At the same time, hospital changes were held in check by hard-bargaining managed care organizations. In this period, in
contrast to the restraints on revenues, costs were rising at an unprecedented pace. Costly new technology, pharmaceuticals, and
services, as well as inflation, combined with declining occupancy to significantly reduce operating margins. According to a survey
by the AHA published in 2000, 90% of the responding hospitals reported serious financial problems that required cost-cutting
measures, and many had reduced staff.7 The development of private specialty hospitals and diagnostic centers owned by
physicians, which compete with community hospitals for their most profitable services only added to the continuing losses of
community hospitals.
Market reforms of the 2000s and impacts of the ACA continue to press hospitals forward into altered patterns of ownership,
operation, and reimbursement. Ongoing changes and challenges are outlined and discussed in later sections of this chapter.
Academic Health Centers, Medical Education, and Specialization
Medical, dental, nursing, pharmacy, and allied health schools and their teaching hospitals are the principal sources of education
and training for most health care providers. An academic health center is an accredited, degree-granting institution that consists of
a medical school, one or more other professional schools, or programs such as dentistry, nursing, pharmacy, public health and
allied health sciences that has an owned or affiliated relationship with a teaching hospital, health system, or other organized care
provider.
Much of the basic and clinical research in medicine and other health care disciplines is conducted in these health centers and
their related hospitals. The teaching hospitals usually provide the most technologically advanced care in their communities and
also offer inpatient and ambulatory care for economically disadvantaged populations. Thus, the three objectives of academic
health centers—education, research, and service—are fulfilled most adequately by teaching hospitals.
The influence of these health centers on health care during the last few decades has been extraordinary. The advances that
occurred in the medical sciences and technology that resulted in the introduction of life-saving drugs, anesthetics, surgical
procedures, and other therapies and the development and use of sophisticated computerized diagnostic techniques increased both
the use and the costs of hospital services. This increased intervention resulted in increases in both the life expectancy of most
Americans and the proportion of the gross national product devoted to health care; however, these advances also significantly
expanded the knowledge base and performance skills required of physicians to practice up-to-date clinical medicine.
Academic health centers responded by increasing the number of physicians with in-depth expertise in increasingly narrow
fields of clinical practice. Specialization and subspecialization grew, subdivided, and grew more. More and more physicians
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limited their activities to narrower and narrower fields of practice. In doing so, they greatly increased the overall technologic
sophistication of hospital practice along with the number of costly consultations that take place among specialist hospital
physicians; the amount of expensive equipment, supplies, and space maintained by hospitals to serve specialist needs; and, in
general, the complexity of patient care. The contributions of highly specialized clinical practice to the quality of hospital care
have been both extraordinarily beneficial and regrettably negative. Although the superspecialists of U.S. medicine have given the
profession its justified reputation for heroic medical and surgical achievements, specialization also has fragmented and
depersonalized patient care and produced a plethora of often questionable tests, procedures, and clinical interventions.
Academic health centers have contributed admirably to the advancement of medicine, and especially hospital-delivered
medical and surgical care, but they have not brought their impressive expertise to bear effectively on solving delivery system
problems that have plagued their industry. Rather, the commitments of academic medicine to high-technology research and
patient care and its adherence to traditional organizational structures and professional roles have prevented it from taking the lead
in correcting health care system problems that emanate from fragmented and piecemeal approaches to care delivery. As the
technology of medicine advanced, population health and medical care diverged into the separate disciplines of public health and
clinical medicine.8 As a result, medical education and medical organizations in general did not position themselves to lead health
care system reforms. As vast reforms with a population health focus begin to take shape, academic medicine is in the position of
accommodation and faced with numerous challenges to prepare for ongoing changes.9
Hospital System of the Department of Veterans Affairs
The tax-supported, centrally directed Veterans Health Administration of the VA is the country’s largest health care system and a
significant component of America’s medical education system. The VA owns and operates 153 hospitals, most of which are
affiliated with medical schools. The VA also operates 135 nursing homes, 47 residential rehabilitation facilities, and over 900
outpatient clinics.10 With its large number of hospitals and other facilities—over 12,000 full-time salaried physicians, over 900
dentists, and 33,000 nurses—the medical care program of the VA would be expected to be a prime target for the congressional
cost cutters of large and expensive federal programs. With the conflicts in Iraq and Afghanistan, however, the VA escaped the
competitive pressures of the rest of the system. Instead, with broad bipartisan political support, the VA has received an annual
congressional appropriation consistently higher each year than requested in the president’s budget. Apparently, the strong political
advocacy for veterans in the United States restrains any congressional initiative to give up VA hospitals in favor of subsidizing the
care of veterans in the private sector.
Like the rest of the hospital industry, the VA is reorganizing its facilities to lower costs, improve the quality of its care, and
better integrate its patients throughout the system. Its major change has been the creation of 22 networks called Veterans
Integrated Service Networks, each of which functions as a vertically integrated delivery system.11
An important part of the VA’s organizational transition is its Health Services Research and Development Service. It works to
improve the quality of health care for veterans by examining the impact of the organization, financing, and management of health
services on their quality, cost, access, and outcomes. The latter activities are especially important because the VA is not only
facing rising costs but also an influx of more severely traumatized patients and an aging and sicker veteran population of past
wars.
Structure and Organization of Hospitals
The hospital organizational structure is a complex maze of committees, departments, personnel, and services. In addition to being
a caring, people-oriented institution, it is at the same time a many-faceted, high-tech business. It operates just like any other large
business, with a hierarchy of personnel, channels of authority and responsibility, and constant concern about its bottom line.
Likewise, the people who work in hospitals exhibit the same range of human characteristics as their counterparts in other
businesses. Patients and their families trying to obtain the best possible results from the services of a hospital, therefore, should
base their approach on the same principles they use in dealing with other service entities. They need to determine who is in
charge, what services to expect from whom and when, with what results, and at what cost to them.
The following description of hospital structure and organization uses the voluntary not-for-profit community hospital as the
example because this type of institution has historically provided the model for hospital organization. The direction, control, and
governance of the hospital are divided among three influential entities: the medical staff, the administration, and the board of
directors or trustees. The major operating divisions of a hospital represent areas of the hospital’s functions. Although they may
use different names, the usual units are medical, nursing, patient therapy, diagnosis, fiscal, human resources, hotel services, and
community relations.
Medical Division
The medical staff is a formally organized unit within the larger hospital organization. The president or chief of staff is the liaison
between the hospital administration and members of the medical staff. Typically, the medical staff consists primarily of medical
physicians, but it also may include other doctoral-level professionals, such as dentists and psychologists.
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A major role of the medical staff organization is to recommend to the hospital board of directors the appointment of
physicians to the medical staff. The board of directors approves and grants various levels of hospital privileges to physicians.
Such privileges commonly include the right to admit patients to the hospital, to perform surgery, and to provide consultation to
other physicians on the hospital staff. Another medical staff function is to provide oversight and peer review of the quality of
medical care in the hospital. It performs this function through a number of medical staff committees, which coordinate their
efforts closely with the hospital’s administration and committees of the hospital’s board of directors. Additional roles of the
hospital’s board of directors in monitoring quality are discussed later in this chapter.
Members of the medical staff who have completed their training and are in practice are referred to as attending physicians. In
addition, the hospital usually has a house staff of physicians who are engaged in post-medical school training programs under the
supervision of attending staff members. These members of the house staff or residents rotate shifts to provide 24-hour coverage
for the attending medical staff’s patients in the specialty departments to which they are assigned.
There is no universal rule as to how a hospital’s medical departments or divisions are organized. Most often, the types of
practice of the hospital’s medical staff determine the specialty components within the medical division. Medicine, surgery,
obstetrics and gynecology, and pediatrics are usually major departments. In larger hospitals and in most teaching hospitals, the
subspecialty areas of medical practice are represented by departments as well. In the internal medicine specialty, subspecialty
departments might include cardiology or cardiac care, ophthalmology, urology, oncology, gastroenterology, pulmonary medicine,
endocrinology, otolaryngology, and a variety of others. In the surgical area, subspecialties might include orthopedics, thoracic,
neurosurgery, cardiac surgery, and plastic and reconstructive surgery. Each medical department or division in a hospital is headed
by a physician department head or chairman who is charged with overseeing the practice and quality of medical services delivered
in the department. In a teaching hospital, either the department head or another designated attending physician is responsible for
coordinating the required educational experiences of medical students and residents.
Nursing Division
The nursing division usually comprises the single largest component of the hospital’s organization. It is subdivided by the type of
patient care delivered in the various medical specialties. These nursing units are composed of a number of patient beds grouped
within a certain area to allow centralization of the special facilities, supplies, equipment, and personnel pertinent to the needs of
patients with particular conditions. For example, the kinds of equipment and skills and the level of patient care needs vary
considerably between an orthopedic unit and a medical intensive care unit.
A head nurse, often carrying the title of “nurse manager,” has overall responsibility for all nursing care in his or her unit. Such
care includes carrying out the attending physician’s and house staff physician’s orders for medications, diet, and various types of
therapy. In addition, the nurse manager supervises the unit’s staff, which may include nurses’ aides and orderlies. The nurse
manager is also responsible for coordinating all aspects of patient care, which may include services provided by other hospital
units, such as the dietary department, physical therapy department, pharmacy, and laboratories. The nurse manager also has the
responsibility of coordinating the services of departments such as social work, discharge planning, and pastoral care for the
patients in the unit.
Because nursing services are required in the hospital at all times, staff is usually employed in three 8-hour shifts, although 12hour shifts are increasing in popularity as a cost-saving measure by many hospitals as the total number of nurses employed with
benefits can be reduced by that staffing pattern. Normally, the nurse manager of a unit works during the day shift, and two other
members of the nursing staff assume what is referred to as charge duty on the other two shifts of the day. Charge nurses report to
the nurse manager.
A nursing supervisor may have management responsibility for a number of nursing units. These nursing supervisors in turn
report to a member of the hospital’s administration, who is usually a vice president for nursing or an assistant administrator.
It is also common to find an individual with the title of ward clerk or unit secretary on each nursing unit. The ward clerk
assists the nurse manager with paperwork and helps to schedule and coordinate the other hospital services related to patient care.
Allied Health Professionals
Not as well known as the physicians and nurses who are central to the care and treatment of patients in hospitals is the wide array
of personnel who provide other hospital services that support the work of the physicians and nurses and the others who operate
behind the scenes to make the facility run smoothly.
Staff members in an increasingly diverse array of health care disciplines are classified as allied health personnel. These
professionals support, complement, or supplement the functions of physicians, dentists, nurses, and other professionals in
delivering health care to patients. They contribute to environmental management, health promotion, and disease prevention.
Allied health occupations encompass as many as 200 types of health careers within 80 different allied health professions, and
advancing medical technology is likely to create the need for even more personnel with highly specialized training and relatively
unique skills. Those who are responsible for highly specialized or technical services that have a significant impact on health care
are prepared for practice through a wide variety of educational programs offered at colleges and universities.
The range of allied health professions may be best understood by classifying them by the functions they serve in the delivery
of health care. Some disciplines may serve more than one of these functions:
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1. Laboratory technologists and technicians play a major role in the diagnosis of disease, the monitoring of physiologic
function, and the effectiveness of medical interventions. Medical technologists, nuclear medical technologists, radiologic
technologists, and cytotechnologists are but a few of the specialists on whom hospitals depend.
2. Allied health practitioners of the therapeutic sciences are essential to the treatment and rehabilitation of patients with a
wide variety of injuries and medical conditions. Examples include physical, occupational, and speech therapists and
physician assistants.
3. Behavioral scientists are crucial to the social, psychological, and patient education activities related to health
maintenance, disease prevention, and accommodation to disability. Professionals in this category include social workers,
health educators, and rehabilitation counselors in mental health, alcoholism, and drug abuse.
4. Specialist support service personnel include those who perform administrative and management functions and others
with special expertise that often work closely with the actual providers of patient care. Health information
administrators, formerly called medical record administrators, food service administrators, dietitians, and nutritionists
are examples of personnel in this category.
The following descriptions of some of the key hospital services reflect the close functional relationships among the various
kinds of highly specialized individuals required to staff hospital services.
Diagnostic Services
Every hospital either maintains or contracts with laboratories to perform a wide array of tests to help physicians diagnose illness
or injury and monitor the progress of treatment. One such laboratory is the pathology laboratory, which examines and analyzes
specimens of body tissues, fluids, and excretions to aid in diagnosis and treatment. These laboratories are usually supervised by
the hospital’s pathologist, who is a physician specialist.
Grouped under the rubric “diagnostic imaging services,” in addition to basic radiographic images (x-rays), a wide array of
more sophisticated imaging equipment that incorporates computer technology is found in these departments, including
ultrasonography, computed tomography, magnetic resonance imaging, and positron emission tomography (PET). Unlike
radiograph technology, which is limited to providing images of the body’s anatomic structures, these imaging advances have
unique abilities to visualize structures in several planes and, with PET, even quantify complex physiologic processes occurring in
the human body. Thus, they add immeasurably to the understanding and treatment of major ailments, including heart disease,
stroke, cancer, epilepsy, and other conditions.
A variety of other diagnostic services also may be available through specific medical specialty or subspecialty departments,
such as cardiology and neurology. For example, a noninvasive cardiac laboratory administers cardiac stress testing to assess a
patient’s heart function during exercise. Obstetricians commonly use an imaging capability called ultrasonography to visualize the
unborn fetus.
Rehabilitation Services
Rehabilitation or patient support departments provide specialized care to assist patients in achieving optimal physical, mental, and
social functioning after resolution of an illness or injury. One such department is physical medicine, where diagnosis and
treatment of patients with physical injuries or disabilities are conducted. This department is headed by a specialist physician
called a physiatrist who usually works with a team of physical therapists, occupational therapists, and speech therapists. Other
health-related specialists, such as social workers, may provide additional services to support the rehabilitation of patients with
complex problems.
Other Patient Support Services
The hospital pharmacy purchases and dispenses all drugs used to treat hospitalized patients. The department is headed by a
licensed pharmacist, who is also responsible for pharmacy technicians and others who work under his or her supervision.
Among other functions, the social services department helps patients about to be discharged to arrange financial support and
coordinate needed community-based services. Generally, the social services department assists patients and their families to
achieve the best possible social and domestic environment for the patients’ care and recovery. Such services are available to all
hospital patients and their families.
Discharge planning services (discussed in more detail later in this chapter) may or may not be a part of the social services
department. Frequently, staffing includes both nurses and social workers who are responsible for planning posthospital patient
care in conjunction with the patients and their families. The discharge planning department becomes involved when the patient
requires referral for one or more community services or placement in a special care facility after discharge.
Nutritional Services
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The nutritional services department includes food preparation facilities and personnel for the provision of inpatient meals, food
storage, and purchasing and catering for hospital events. It may also operate a cafeteria for employees and, in larger hospitals,
may sponsor educational programs for student dietitians. An important function of this department’s staff is educating patients on
dietary needs and restrictions. This department usually is headed by a chief dietitian who has a degree in nutritional science, and it
may be staffed by any number of other dietitians and clinical nutrition specialists with specific expertise in dietary assessment and
food preparation.
Administrative Departments
Hospitals contain other professional units that provide a wide variety of nonmedical services essential to the management of the
hospital’s physical plant and business services. Patients are certainly aware of two of them: the admissions department, through
which a hospital stay is initiated, and the business office, through which a hospital stay is terminated. These units are two of the
many components of the hospital’s complex management structure.
The general administrative services of the hospital are headed by a chief executive officer or president who has the day-to-day
responsibility for managing all hospital business. He or she is the highest ranking administrative officer and oversees an array of
administrative departments concerned with financial operations, public relations, and personnel. Most larger hospitals have a chief
operating officer, who oversees the operation of specific departments, and a chief financial officer, who directs the many and
varied fiscal activities of the hospital. Those key administrative officers are commonly positioned as corporate vice presidents.
The large number of employees and the wide array of individual skills required to staff a hospital competently call for a personnel
or human resources department with highly specialized labor expertise. That department is also usually headed by a vice president
for human resources. Because nursing is such a large component of the hospital’s service operations, the larger facilities also
maintain a chief nursing executive at the vice presidential level.
Hotel Services
Hotel services are generally associated with the hospitality functions common to hotels. They include building maintenance,
security, laundry, television, and telephone services.
Information Technology’s Impact on Hospitals
Although overall rates of adoption of health information technology throughout the health care industry have been slow, hospitals
have implemented technologies at faster rates than physician offices. A recent survey conducted by the AHA found that the
percentage of U.S. hospitals that adopted health information technology, specifically electronic health record (EHR) capability
more than doubled from 16% to 35% between 2009 and 2011.12
In the past, hospitals were primarily motivated to adopt new health information technology to lower costs, reduce medical
errors, and meet The Joint Commission requirements.13 The technology allowed hospitals to reduce information duplication and
improve the utilization of laboratory and radiology results.14 Administratively, new health information technology increased the
efficiency of coding and billing15,16 and provided health care personnel with quicker access to patient records.17
In 2004, President Bush signed an executive order that called for “the development and nationwide implementation of an
interoperable health information technology infrastructure to improve efficiency, reduce medical errors, raise the quality of care,
and provide better information for patients, physicians, and other health care providers.”18 The long-range sequence of goals has
been to establish:
1.
2.
3.
4.
Electronic medical records in medical offices and hospitals
Regional health information organizations for information analysis and exchange
Statewide information networks for data mining, knowledge gains, and information exchange
A national information network for public health monitoring and population statistics
Congress has continued to encourage health information technology with a steady flow of bills promoting a national health
information network, overall health information technology adoption, physician grants for electronic medical records purchases,
and, recently, the HITECH Trust Act. Under this act, the Centers for Medicare and Medicaid Services (CMS) are providing
reimbursement incentives for eligible professionals and hospitals that are successful in becoming “meaningful users” of certified
EHR technology. “Meaningful use” was defined as “not only the adoption of the technology, but the implementation and
exchange of health information to improve clinical decision making at the point of care.” The incentive payments began in 2011
with penalties under Medicare for noncompliance beginning in 2015.
As of mid-2012, over 4,000 hospitals had enrolled in the Medicare and Medicaid EHR Incentive Programs and eligible
hospitals had received almost $5 billion in “meaningful use” incentive payments.19 Of additional note, 85% of hospitals have
reported that by 2015 they intend to take advantage of the incenti...
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