The U.S. Health Care System Craig A. Pedersen, R.Ph., Ph.D. Department of Pharmaceutical and Administrative Sciences School of Pharmacy, Ohio State University And Mary C. Haven, M.S.

Objectives After viewing and listening to the Internet lectures posted on Blackboard, the student will be able to” –Discuss three reasons for the increase in health care costs in the US in the last two decades. –List at least three reasons for dissatisfaction with the US health care system.

Objectives Cont. –List at least two examples of efforts by the government to increase access to health care. –Give at least three examples of efforts by the government to contain health care costs. –Analyze why these government efforts to contain health care costs were not effective. –Discuss pros and cons of the US health care system.

Historically: Then and Now The turn of the century –People took care of themselves Paid for services themselves, or Charity –Hospitals –Greatest problem Epidemics of acute infectious diseases Today –Primary causes of death

Why we are here! Medical costs as a % of GNP –1929, ~ 3.5% GNP –2001, ~ 14 % GNP 1 in 8 dollars of our economy is health care Causes for HC Cost Growth –General Inflation - Merged Hospitals –Demographics- Prescription Drug Costs –Technology - Workforce Shortages Listen 1stListen 2nd

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

Medical Costs as % GNP (Accessed 8/19/2005)

Average % Growth/Year Health Care Costs (Accessed 8/19/2005) 7.7% 9.3%

Where does the money go? We spend more than any other country on health care Estimates of waste in the health care system –8.6% waste, ineffective work –11.4% administration –10% fraud –15.9% unnecessary services Administrative costs: NEJM 2003 –U.S. $1,059 or 31% of HC expenditures –Canada $307 or 16.7% of HC expenditures

Denmark91% Germany58% U.K57% Canada46% U.S.40% Italy20% U.S. $3,724 Germany$2,365 Denmark$1,940 Canada$1,836 Italy$1,824 U.K.$1,191 U.S. (2003)$5,670 Percentage of population who are satisfied with health-care system (2000) Per Capita health- care spending (1999) High Spending, High Dissatisfaction Share in GDP (1998) U.S. 13.0% Germany10.6% Denmark Canada 9.3% Italy 7.8% U.K. 7.2% U.S. (2003)15.3% Health Affairs, 20 (2001)

Health Care Reform Efforts by the Federal Government Kerr Mills Act – 1960 Medicare and Medicaid

Federalization and Cost Containment Era Several Strategies were employed to control rising costs –Voluntary hospital planning –Implementing wage and price freezes –Changing amounts and methods of reimbursement for services –Implementing regulatory programs such as utilization review and controls on hospital capital expenditures –Encouraging development of more cost-effective health care delivery systems Most were not successful in controlling costs

Major Government Cost Containment Programs PRECURSORS TO MANAGED CARE 1972 Amendments to the Social Security Act –Professional Standards Review Organizations (PSRO) Dual responsibility for cost containment and quality assurance National network of Utilization Review programs Did not work, replaced in 1983 by PRO’s

Major Cost Containment Programs –Section 1122 mechanism to control capital expenditures of health care organizations States were required to review proposed capital improvement expenditures If health care organization continued to construct without approval of the state, then federal government could withhold Medicare payments Certificate of Need (CON) or Determination of Need (DON) programs by state –Any Capital improvement greater than $150,000 must be approved by the state

Major Cost Containment Programs 1973, Health Maintenance Organization (HMO) Act –New delivery system that was not costly for the government 1974, National Health Planning and Resource Development Act (NHPRD) and Health Systems Agencies (HSA) 1983, Peer Review Organizations (PRO) 1983, Medicare Prospective Payment System, Diagnosis Related Groups (PPS/DRGs)

Major Cost Containment Programs 1993, Health Security Act –Not passed –Clinton Health Care Reform Comprehensive coverage Employers still required to shoulder the costs Introduced managed competition Served to reform the system anyway 1997, Balanced Budget Act –Saving of $130 billion from Medicare and Medicaid –Cut payments to providers Outpatient PT and speech pathology capped at $1500/yr Outpatient OT capped at $1500/yr –Outpatient Prospective Payment System

Dominant Government and Private Health Plans Medicare / Medicaid (Government) Dept. of Defense / CHAMPUS (Government) Veterans Administration (Government) Federal Employee Plan (Government) Indian Health Service (Government) County Hospitals & Health Plans (Government) Blue Cross Blue Shield plans (Private) Commercial Insurance plans (Private) Health Maintenance Organizations (Private) Self-Insured Employers (Private) Self-Insured Asso.’s & Union Plans (Private) Workers Compensation Plans (Both)

Role of the Consumer in the U.S. Health Care System Not usually responsible for payment Seller controls both supply & demand Limited ability to differentiate services Demographic factors may influence consumption of health care (age, sex, education, income, residence location, and health status) Convenience and access are high priorities Desire to have the “best” and “latest” treatment or care