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					           Code Blue
 Chapters 12 through 16
Economics drives healthcare
            Chapter 12

 In chapter 12, David Brannan is
  struggling with a reversal in the
  family’s financial situation.
 Financial problems are not unusual in
  the United States. Each year
  thousands of people take out
         Financial Difficulties

   Individuals facing financial difficulties
    have one of two choices:
     Increase income, or
     Decrease expenses
Brannan Community Hospital

 Brannan Community Hospital is also
  suffering from financial difficulties.
 West Douglas realizes that he has a
  similar option.
       Increase the hospital’s revenues, or
        decrease its costs.
   He decides to tackle the problem of
    cost first.
Brannan Community Hospital

 Before he can determine if the
  hospital’s costs are too high, he must
  know a little more about the
  healthcare industry.
 He recognizes that healthcare is an
  expensive product.
     Major National Problem

   Increasing healthcare costs are a
    major problem for most companies
    and their employees.
        Major National Problem

   Many companies are finding that they can
    no longer afford to provide coverage for
    their employees.
       Some are dropping health insurance as a
       Others are moving jobs overseas where
        healthcare costs are less.
      Health Expenditures

 In 2004, the United States spent $1.9
  trillion for healthcare.
 It is estimated this expenditure will
  double in the next seven years.
 If this occurs, many Americans will be
  unable to afford the cost of basic
  Chapters 13 through 16

 Why are healthcare costs so
  Technology
  The uninsured
  An aging American population
  Lack of adequate incentives for
   cost control

   Technology has provided the ability to save
    lives that would have been lost just a
    decade ago.
   No one wants to return to 1990s medicine,
    but few are willing to pay the cost.

   For example, the cost of a new hospital
    including equipment runs anywhere from
    one to two million dollars per bed.
   Hospitals often purchase new equipment,
    not because the old has worn out, but
    because it will save more lives.
         The Uninsured

 An estimated 47 million people were
  uninsured in 2002.
 Some are uninsured because they
  cannot afford healthcare insurance.
           The Uninsured

   Others who could afford it, would
    rather spend their income on other
    things such as a nicer home, or
    automobile, or recreation equipment.
            The Uninsured

Many hospitals collect only 50% of
 billed charges.
 Uncollected revenues arise from
     Underpayment of actual costs by
      Medicare and Medicaid
     Discounts demanded by large insurance
     Bad debts
     Charity care
         The Uninsured

 Hospitals must cover costs somehow.
 Many compensate for unreimbursed
  care by overcharging self-pay
 These patients pay for their own care
  and for the care of others.
         An Aging American
   When American soldiers returned
    from World War II, many started
       An Aging American
 The children of these soldiers were
  known as the baby boomers, due to a
  rapid increase in births in the late
  1940s and early 1950s.
 These baby boomers are
  nowbecoming senior citizens.
          Healthcare Costs

   A non-profit study group calculated
    the cost of adding ten years to the
    life of one person using ten promising
    medical technologies.
                    Here’s what they found . . .
                                                     Living longer cost money ...

Rand, a non-profit research firm, estimated the cost to Medicare if 10 promising medical technologies
were developed and widely adopted. The figures represent cost — not just for the specific treatment —
for each 12 months of added life the technology brought to an American 65 and older.

Treatment                                What it does or would do                   Cost per additional year of life

Anti-aging compound for healthy          $1-a-day compound adds 10 years to
people                                   life                                                  $11,245

Cancer vaccine                           Stimulates immunity to cancer                         $23,330
                                         New drug reduces cell death after
Treatment for acute stroke               stroke                                                $28,024

Anti-aging compound for unhealthy        $1-a-day compound adds 10 years to
people                                   life                                                  $38,105

Telomerase inhibitors                    Limits cancer cell reproduction                       $79,170

Alzheimer's prevention                   New drug delays onset of disease                     $102,774

Implantable cardioverter defibrillator   Controls heart rhythm                                $131,892
                                         Insulin-sensitizing drug reduces
Diabetes prevention                      disease                                              $188,316

Anti-angiogenesis                        Limits cancer cell growth                            $638,141
Left ventricular assist device           Sometimes called "artificial hearts"                 $654,968

Pacemakers for atrial fibrillation       New generation of pacemakers                        $1,795,850
Another cause of high costs:
lack of proper incentives for
         cost control
 In a free enterprise market economy,
  the market provides incentives for
  cost control.
 There is no ―market mechanism‖ in
    Lack of Proper Incentives

 When people shop on the basis of
  price . . .
 This creates cost competition . . .
 Which provides an incentive for
  businesses to keep costs low.
 There is no such incentive in the
  healthcare industry.
    Lack of Price Competition

 When is the last time you heard
  someone say:
 ―Where can I get a cut-rate price on a
  brain operation?‖ or
 ―Who is the cheapest doctor in
            In addition . . .
   Most products in a market economy have
    prices that can be determined before they
    are purchased.
            In addition . . .
   This is not true of healthcare.
   Doctors and hospitals don’t post their
    charges, and . . .
   Most patients don’t know the cost of the
    products they purchase until they receive a
   Are there other reasons
providers didn’t control costs?
 Yes, one of these had to do with the
  way doctors and hospitals were paid.
 Hospitals traditionally were paid cost
  plus a small margin for profit.
 This was called cost reimbursement.
 Cost reimbursement provided few
  incentives for cost control.
           Cost Control

 If you were the administrator of a
  hospital that received full cost
  reimbursement plus a 3% profit from
  insurance companies, what is one
  easy way you could increase profits?
 Let cost increase!
    Hospital Reimbursement

 The government tried to correct this
  problem in the early 1980s by fixing
  the price of hospital products and
 With fixed price reimbursement,
  hospitals would absorb the cost of
 Fixed price payment is also called
  prospective payment.
    Hospital Reimbursement

 One type of prospective
  reimbursement is diagnostic related
  group (DRG) reimbursement.
 Medicare classified all illnesses into
  approximately 400 categories.
 A fixed price was set for each
    Hospital Reimbursement

 If the hospital’s actual costs to treat
  the patient were less than the fixed
  payment, they made an additional
 If the costs were higher, the hospital
  had to absorb the loss.
 DRG reimbursement provided an
  incentive to keep costs down.
           Other Incentives

   Another way that the government
    and the insurance industry has tried
    to provide incentives for cost control
    is through managed care.
    Managed care tries to keep
         costs down by:
 Negotiating lower prices with doctors
  and hospitals.
 Mandating that patients go to these
  doctors and hospitals.
 Making patients get a second opinion
  before getting an expensive
  procedure or operation.
 Encouraging patients to use generic
            Managed Care

   Not everyone likes managed care.
     Doctors feel that insurance companies
      are telling them how to practice
     Patients don’t like being told where to go
      for treatment.
   The issue is cost versus choice.
     If you don’t like the system . . .

   Then you and those of
    your generation will have
    to fix it.
   The students in your
    class who go on to
    become healthcare
    professionals, will face
    problems far more severe
    than any previous
    generation of healthcare
         Redesign of System

   The author is convinced that if the
    healthcare delivery system of tomorrow is
    to meet the needs of the American
    population, physicians nurses and other
    health professionals will have to take the
    system back from the businessmen,
    accountants and actuaries.
   Both groups are needed, but more input is
    needed from doctors and nurses.
         Redesign of System

   In a sense you will play the role of West
    Douglas, except you’ll be trying to save the
    American healthcare delivery system
    instead of just one hospital.
   To fix the system you will need to
    understand how it works.
   Hence, the reason I’ve included a section
    on health economics in the book.
     Other Topics Covered

 Systems
 Listening Skills
Appendix to chapter 15

   Note to teachers and students. The author
    used the national health skill standards
    developed as a pilot project by the U.S.
    Department of labor in determining what
    topics should be included in Code Blue.
   A test on these standards leading to a
    Healthcare Foundation Skills Certificate can
    be taken by students wishing this
    certification (
   After completing Code Blue, the author took the
    exam and felt that all of the skill standards were
    covered in sufficient detail except for systems.
   While the author did not write Code Blue to
    provide specific answers found on the test,
    systems is such a broad area that the it was felt
    advisable to add an appendix focusing specifically
    on those systems topics NOCTI felt relevant for
    the exam.
   Although this appendix was written specifically for
    students interested in taking the test, the material
    should be useful to any health occupations
                  A System

   A system is an orderly and complex
    arrangement of parts.
   There are many types of systems including:
      Physiological systems: the digestive system,
       the neurological system, and the circulatory
      Economic systems: capitalism and
      Computer systems: network, mainframe,
       and PC computer systems.
         Common Elements

   Most systems have the following
     Input – resources entering the system.
     Throughput – the processes and
      resources used to create a product.
     Output – the final product.
     Feedback – information taken from the
      output to control or correct errors in
        Systems Thinking

 Systems thinking is one approach to
 It is also known as systems analysis.
          Systems Thinking

   Systems thinking is a way of solving
    problems by looking at a problem
    from a broad perspective, looking not
    only at the individual parts of the
    system, but the way these parts
    relate to each other.
          Systems Thinking

   Systems thinking recognizes the
    whole is greater than the sum of its
    parts, and often results in different
    conclusions than those reached by
    traditional problem-solving models.
    The American Healthcare
        Delivery System
   The American healthcare delivery industry
    is a system.
   System components include doctors,
    hospitals, insurance companies, and so on.
   In addressing problems within the
    healthcare delivery system, it is important
    to look at the system as a whole, and not
    just focus on one or more of its
      Backwards Thinking

 Systems thinking involves backwards
 It begins with the final goal and
  works backwards, analyzing the
  relationship of each part or activity to
  the goal.
         Backwards Thinking

   For example, if the goal of a team is
    to produce low-cost but high-quality
    medical products, then backwards
    thinking starts with the final product,
    and evaluates each input an activity
    involved in producing the product.
 Evaluate each activity to see
            if . . .
 The activity was needed for the
  manufacture of the product.
 The activity raised quality.
 The activity cut costs.

If the answer to the first       If the answer to the second
question is no, the team might   or third question is no, the
evaluate stopping the input or   team might redesign the
the process.                     input to achieve that goal.
        Advantages of Systems
   Globalism: It provides a global
    approach to problem-solving.
     Systems thinking helps employees ―see
      the forest for the trees.‖
     It enables team members to see the big
    Advantages of Systems
 Focus: Systems thinking allows
  problem solvers to identify cause and
  effect relationships.
 It focuses on the activities needed for
     Advantages of Systems
   Team building: Systems thinking
    helps team members identify the goal
    of the team, and understand how
    their individual activities contribute to
    that goal.
    The American Healthcare
        Delivery System
   The American healthcare delivery
    system can be modeled as follows:
    Healthcare System Inputs

 Human resources include the
  professionals who diagnose and treat
  the patients.
 Financial resources are the funds to
  pay the salaries of the healthcare
 Patients, of course, are the people
  who enter the system for diagnosis,
  treatment, and so on.
    The American Healthcare
        Delivery System
   Inputs include:
     Human and financial resources
     patients
Finance mechanisms are an
   important throughput
   By this we mean the individuals,
    insurance companies, government
    agencies, and so on who pay the bills.
    How does America finance
 Self payment—some patients pay
  their own doctor and hospital bills.
 Employers—many companies provide
  health insurance.
 Private insurance—some people buy
  their own health insurance coverage.
    How does America finance
 Medicaid—state-run programs that
  pay the cost of healthcare for the
  poor or indigent.
 Medicare—a federally funded
  program that pays for some
  healthcare products and services for
  those 65 years of age and older.
    How does America finance
   The healthcare industry—many
    healthcare providers (most specifically
    hospitals) provide charity care.
    The American Healthcare
        Delivery System
   Throughputs include
     Treatment and education resources
     Financial mechanisms
     Management and control mechanisms
    The American Healthcare
        Delivery System
   Outputs include
     Healthy patients
     Healthy lifestyles
    The American Healthcare
        Delivery System
   Information & feedback links outputs
    to inputs
     The healthcare delivery
     system is like a mobile
   Movement or pressure exerted on
    one component exerts pressure on
        For example . . .

 Pressure to cut cost affects the
  volume of patients entering the
 Greater volumes of patients entering
  the system puts pressure on finance
  mechanisms such as Medicare and
        For example . . .

 Changes in financing can affect cost,
  quality, and access to care.
 More resources spent preventing
  illness will cut resources needed for
  diagnosis and treatment.
 Staff shortages can raise wages and
  put pressure on financing

 The healthcare industry is a complex
  system of many parts.
 It is impossible to change one part of
  the system without influencing
 Historically, some people
  haveattempted to fix the system by
  focusing on one or more broken

 By failing to take a systems approach
  and consider the big picture,
  however, they often reap unintended
 Those wishing to address quality,
  cost, and accessibility must adopt a
  systems approach to problem-solving.
Listening Skills
Appendix to Chapter 16
          Listening Skills

 Listening may seem like an inborn
  ability, but active listening requires
  practice and skill.
 Have you ever had a conversation
  with someone who’s distracted?
 Listening is an important part of
  successful communication.
      Characteristics of good
       listeners include . . .
   An interest in the subject
   An ability to focus
   A desire to know, versus a desire to be
   The ability to set aside prejudice
   The ability to read body language
   Patience – a willingness to give the speaker
   A willingness to put oneself into another’s
      Tips for increasing your
           listening skills
   Talk less, listen more. Pay attention
    to what the speaker is saying, instead
    of thinking about what you are going
    to say next.
    Tips for increasing your
         listening skills
 Give feedback – paraphrase or restate
  what the other person is saying.
 Offer your interpretation.
    Tips for increasing your
         listening skills
 Reflect on what is being said.
 Asked questions – probe.
       Review of Discussion
   Chapters 12 through 16.
The End

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