Chapter 2: Benchmark Developments in US Health Care

The Great Depression and the Birth of the Blue Cross

 2 parties regarding healthcare:
o Physician and self
o Physician decided fees, made house calls, etc.
o AMA supported patient/doctor relationship, didn’t want non-physician related
activity
 Dramatic shift, employers offered health and life insurance
o Covers costs if you get sick or died on the job
o Emphasis on employer’s benefit, not patient’s
o Compulsory insurance—insurance you had to buy
 Opposed by the AMA
 Baylor University Hospital Plan
o Insurance for public school teachers guaranteed them 21 days of hospital care

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o Created the model for, and credited with the genesis of Blue Cross Blue Shield

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o By 1937, many plans, physician and hospital endorsement, AMA supported

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 1965 passing of Medicare and Medicaid legislation
o Title 19 of SSA—Medicaid

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o Title 18 of SSA— Medicare
o Title 21—CHIP rs e
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o Expansion of Medicaid—CHIP (Children’s Health Insurance Program)
 Voluntary insurance against hospital care costs became prominent health insurance
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 Blue Cross plans effectively improved hospitals’ access to patients

 Post WWII private health insurance system pumped an ever-increasing amount of
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national income into health care

Dominant Influence of Government

 Federally sponsored programs account for 43% of US personal healthcare expenditures
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 1930 establishment of NIH

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o Support programs addressed at heart disease, cancer, stroke, mental illness,

mental retardation, maternal and infant care
 1935 Social Security Act
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o Federal aid to the states for public health and welfare assistance, maternal and
child health, children with disabilities services
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o Government finally got involved in insurance

o Title V Act—funds for states to take care of orphans and widows of WWII
 “Creative Federalism” Kennedy-Johnson policy
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o Direct aid to schools of medicine, dentistry, pharmacy, nursing

o Support of health planning, healthcare regulation, consumer protections
 1970 “New Federalism”
o Nixon rescinded federal government’s direct administration of several healthcare
programs
o Shifted revenues to state and local governments through block grants

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 Consolidated grants of federal funds, formerly allocated for specific

programs, that a state or local government may use at its discretion
 Skyrocketing costs of Medicare and Medicaid
o Underestimated number of older adults, cost of new technology, rising
expectations for advanced diagnostics and treatment
Three Major Healthcare Concerns
 Cost, Quality, Access
Efforts at Planning and Quality Control
 1965 amendment to the Public Health Services Act
o Established the Regional Medical Program initiative
 Nationwide network of medical programs in designated geographic areas
to address the leading causes of death: heart disease, cancer, and stroke
 Innovative ways to bring latest clinical services to patients
 1966 Comprehensive Health Planning Act
o To promote comprehensive planning for rational systems of healthcare personnel

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and facilities in designated regions

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o Required federal, state, and local partnerships

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o Required a majority of consumers on every decision-making body

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 1974 National Health Planning and Resources Development Act

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o Combined RMP and CHPA with political assessments
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o Established Health System Agencies (HSAs) which required representation of
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healthcare providers and consumers on governing boards and committees to
deliberate and recommend resource allocations to federal and state authorities
 Largely ineffective
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Managed Care Organizations

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 1973 Health Maintenance Organization Act

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o Development of health maintenance organizations (HMOs)

o HMO: an organization responsible for the financing and delivery of
comprehensive health services to an enrolled population for a prepaid, fixed fee
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o Expected to hold down costs, promoting health and preventing illnesses

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o Can’t go out of network (Kaiser), organized for cost containment

 PPO: Preferred Provider Organization: organized by physicians and hospitals to meet the
needs of private, third party, and self-insured firms
o 2001
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o Today’s most popular form of employer-sponsored health insurance

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o Can go out of network

The Reagan Administration: Cost Containment and Prospective Hospital Reimbursement
 Decentralization of program responsibility through block grants
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 Medicare prospective payment system in hospitals

o Based on diagnostic-related groups (DRGs)
o Shift from fee-for-service to pre-paid prospective mode based on patient diagnosis
o Designed to encourage efficient use of resources by putting hospitals at risk for
charges that exceed per-case DRG limits

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 o Created opportunity for hospital to retain portion of unexpended predetermined
case payment
 Resource-based relative value scale (RBRVS)
o New payment method, makes physician payments equitable across various types
of service, specialties, and geographic locations
Biomedical Advances: Evolution of High-Technology Medicine
 1960s:
o Sabin and Salk vaccines ended annual epidemics of poliomyelitis
o Tranquilizers Librium and Valium
o Birth control pill first prescribed, became most widely used and effective
contraception method
o Heart-lung machine, major improvements in efficacy and safety of general
anesthesia techniques made first successful heart bypass surgery 1964
 1972 Computed Tomography (CT)
 MRI

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 Competition with sophisticated and expensive new technology

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 Insurance plans based on age, what employer and employees are willing to pay

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Technical Advances Bring New Problems
 Increased age of life brings problems with quality of life and the right to die

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 AMA created 3 programs to assess the ramifications of medical advancements
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o Diagnostic and Therapeutic Technology Assessment Program
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o Council on Scientific Affairs
o AMA Drug Evaluations
 Office of Technology Assessment (OTA) shut down in 1955
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 Agency for Healthcare Research and Quality created in 1989

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o Supports research to better understand the outcomes of health care at both clinical
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and systems level

Influence of Interest Groups
 5 major groups who play key roles in debates on tax-funded health services:
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o Providers
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o Insurers
o Consumers
o Business
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o Labor
 Physicians developed most powerful lobby
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American Medical Association

 Founded in 1847
 Largest medical lobby
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 Opposed every government-provided insurance plan proposed by every president

Truman-Carter
 Supported by Obama’s plan of expending healthcare access to all Americans
Insurance Companies
 Political efforts viewed as self-serving

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  Efforts to eliminate high-risk consumers from the insurance pools, frequent premium rate
increases
 Supported Obama’s healthcare expansion but opposed general option that would limit
their profits
Consumer Groups
 American Association of Retired Persons (AARP) founded in 1958
o One of the most influential consumer groups in the healthcare reform movement
o Large size and research capability, 38 million older citizens who are the most
determined voters
Business and Labor
 The National Federation of Independent Businesses founded in 1943 is largest
representative of small firms
 The National Association of Manufacturers founded in 1895 represents interests of large
employers
 US Chamber of Commerce founded in 1912 represents 3 billion businesses of all sizes

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 Labor unions have a strong presence and represent their member’s interests

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 The American Federation of Labor and Congress of Industrial Organization (AFL-CIO)

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tremendous influence on national health policy

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o Passed Occupational Safety and Health Act of 1970

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 Service Employees International Union (SEIU) founded in 1921 largest union
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representing healthcare workers
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Pharmaceutical Industry
 Pharmaceutical company profits at all time high
 2003 Medicare Part D prescription drug benefit plan
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o Prohibited Medicare and the federal government from using its enormous
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purchasing power to negotiate prices with drug companies

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Public Health Focus on Prevention

 American Public Health Association founded in 1872
o Substantial influence on national scene through organized advocacy and
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educational efforts at the federal, state, and local levels

Health Insurance Portability and Accountability Act
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 HIPPA enacted under Clinton administration in 1996

 2 primary purposes:
o Help ensure that workers could maintain uninterrupted health insurance coverage
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if they lost or changed jobs by enabling them to continue converge through their
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prior employer’s group health plan

o Privacy of personal health information
 “Administrative Simplifications” mandated the DHHS to establish
national standards for regulations protecting the privacy and security of
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certain health information

 DHHS published “Privacy Rule” and “Security Rule”—particularly
applies to health information held or transferred in electronic form
 DHHS final rules in 2013 extended HIPPA’s privacy and security
provisions to subcontractors and other business entities which handle
patient information

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 The Balanced Budget Act of 1997
 Proposed to reduce growth in Medicare spending through savings over 5 years and
targeted hospitals specifically
 Increased cost sharing among Medicare beneficiaries and extended payment system with
DRGs to outpatient, home health agencies, nursing homes, inpatient rehab
 Opened Medicare program to private insurers through Medicare + Choice Program
 “State Children’s Health Insurance Program” targeted uninsured children whose family
income was too high to qualify for Medicaid and too low to afford private health
insurance
o Renamed CHIP “Children’s Health Insurance Program”
o Largest expansion on health insurance coverage for children in the US since
Medicaid began
Oregon Death with Dignity Act and Other End-of-Life Legislation
 November 8, 1994 approval of Oregon Death with Dignity Act
o Physician assisted suicide for terminally ill adults

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o Response to extended, painful, demeaning nature of terminal medical care

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o Consideration of high costs of lengthy and futile medical care

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Health Information Technology for Economic and Clinical Health Act

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 April 27, 2004 Bush created Office of the National Coordinator for Health Information

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Technology (ONC)
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 American Recovery and Reinvestment Act (ARRA) February 19, 2009
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o Health Information Technology for Economic and Clinical Health Act (HITECH)
 Promote development of a nationwide network of electronic health records
The Internet and Health Care
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 Health and wellness information, communication with others who have same health
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problems, valuable data about medical institutions and providers that allow well-
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informed choices about services and procedures

The Patient Protection and Affordable Care Act of 2010
 Intends to:
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o Reverse incentives that drive up costs

o Enact requirements that increase accountability and transparency of quality
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o By 2019, increase access by expanding health insurance coverage to several

million Americans
o Added consumer protections and enhanced access to needed services to nation’s
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most vulnerable population

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Judicial Challenges to ACA

 State of Florida: federal district court lawsuit challenging constitutionality of individual
coverage and Medicaid expansion mandates
 25 additional states, National Federation of Independent Businesses and others also filed
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Florida suit
 Issues of contention
o Congressional authority to mandate individual coverage with non-compliance
penalties under either its power to regulate interstate commerce or impose taxes
o Congressional authority to make all of a state’s existing Medicaid funding
contingent on compliance with the ACA’s Medicaid expansion provisions

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  Supreme Court decisions:
o Upheld individual mandate with non-compliance penalties treated as legitimate
taxes
o Ruled Medicaid expansion unconstitutionally coercive of states
 Remedy: prohibit federal government from making existing state’s
Medicaid funding contingent upon participation in the expansion
The Affordable Care Act Implementation Provisions
 Four major goals:
o Providing new consumer protections
o Improving quality and lowering costs
o Increasing access to affordable care
o Holding insurance companies accountable
New Consumer Protections
 Online insurance policy comparisons
 Prohibit coverage denial due to pre-existing medical conditions, charging higher based on

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gender or health status

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 Eliminate annual and lifetime limits on coverage

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 Enhance venues for appealing coverage denials
 Support states’ assistance to consumers in navigating the reformed system

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 Prohibit insurance companies from rescinding coverage or denying payment due to
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technical or other errors in a subscriber’s original application
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Improving Quality and Lowering Costs
 Provide small business tax credits for employee premiums
 Provide one-time rebate, then 50% discount for seniors’ uncovered prescription drug
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costs
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 Require all new insurance plans and Medicare to provide all specified free preventative
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services
 15 billion dollar prevention and public health fund for proven public health programs
 Enhance federal anti-fraud, waste, abuse initiatives in Medicare, Medicaid, and CHIP
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 New Center for Medicare and Medicaid Innovation to test care improvements and
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continuity
 New Community Care Transitions Program for seniors’ transition from hospital to home
 New Independent Payment Advisory Board
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 New Medicare Value-based Purchasing Program with hospital financial incentives

 Accountable Care Organizations to improve Medicare service coordination across the
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service spectrum
 Federal programs must collect, report data to identify and help reduce health disparities
 Enhanced state funding for Medicaid preventative services
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 New pilot, Bundled Payments for Care Improvement focused on total episode of patient
care rather than individual services
 Tax credits for individuals within specified income limits, applicable to insurance
premium costs
 Health insurance marketplace offers choice of plans meeting specified benefits and cost
criteria for individuals and small businesses

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  Physician payment adjustments based on quality
 Excise tax on high-cost insurance plans to support coverage for uninsured and discourage
use of most expensive plans
Increasing Access to Affordable Care
 Access to insurance for individuals with pre-existing conditions
 Young adults coverage up to 26 on parents’ insurance plan
 5 billion dollars cover early retirees in employment-based plans
 expand primary care workforce in shortage areas through scholarships and loan
repayments for physicians and nurses
 Incentivize states to regulate insurance premium increases and bar companies with
excessive premiums from participation in new health insurance exchanges
 Additional matching funds for states expanding Medicaid enrollment
 New funds to attract and retain rural health care providers
 Funds to expand community health centers to serve 20 million additional patients
 New Community First Choice Option for states’ Medicaid home-based services to reduce

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institutional care

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 Increase Medicaid payments to 100% of Medicare payments for primary physicians

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 Support for states’ coverage of non-Medicaid eligible children through the CHIP
 Support for states’ Medicaid enrollment of individuals earning less than 133% of the

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federal poverty level income
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 Require all who can afford it to purchase health insurance or pay a fee (tax)
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 Health Care Choice Compacts to increase competition by allowing insurance sales across
state lines
Holding Insurance Companies Accountable
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 Ensures premium dollars are spent primarily on health care

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 Eliminates additional Medicare costs from Medicare managed care plans

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