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Trends in National Health Care Expenditures


									Health Care USA   1
Chapter 7

  Health Care USA   2
• Understand the scope and magnitude of U.S.
  health care spending in relationship with other
  developed countries
• Understand how the U.S. health care payment
  system evolved & current trends
• Understand the related roles of government & the
  private sector in financing health care
• Understand efforts to link costs with quality

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                   PART 1
• National Health Care Expenditures
  – Influences on health care finances
  – Primary components of health care expenditures
• Private Health Insurance
  – Blue Cross/Blue Shield
  – Commercial Insurers
  – Managed Care

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•Multiple payment sources
  – Working Americans’ employer health
  insurance (Blue Cross/Blue Shield,
  managed care plans)
  – Public funds support Medicare (66 +),
  Medicaid for low-income individuals

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  Influences on Health Care Financing

• Providers, employers (purchasers), consumers,
• Tensions- Responsibilities of
  –   Government
  –   Employers
  –   Consumers
  –   Providers
  –   The Market

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       Health Care Expenditures in
• 2008 expenditures= $ 2.33 trillion, 16% of
  GDP, $ 7,681/person; 1/6 of total economy
• Hospital care, physician services, prescription
  drugs: 3 top expenses
• Government sources finance 48% of total

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    FIGURE 7-1 National Health Expenditures per Capita and
     Their Share of the Gross Domestic Product, 1960–2008.

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.

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                  FIGURE 7-2
                  The Nation’s
                   Health Care
                  Dollar 2008:
                    Where It

                  Source: Centers for Medicare and
                  Medicaid Services, Office of the
                  Actuary, National Health Statistics

Health Care USA                                9
FIGURE 7-3 The Nation’s Health Care Dollar
      2008: Where It Came From
                                               1Other Public includes programs such as
                                               workers’ compensation, public health
                                               activity, Department of Defense,
                                               Department of Veterans Affairs, Indian
                                               Health Service, State and local hospital
                                               subsidies and school health.
                                               2Other Private includes industrial in-plant,
                                               privately funded construction, and non-
                                               patient revenues, including
                                               3Out of pocket includes co-pays,
                                               deductibles, and treatments no covered by
                                               Private Health Insurance.
                                               Note: Numbers shown may not add to
                                               100.0 because of rounding.

                         Source: Centers for Medicare and Medicaid Services, Office of
                         the Actuary, National Health Statistics Group.

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Factors that Decreased Expenditure Growth

• Managed care utilization controls

• Hospital prospective payment

• Managed care physician fee restrictions

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U.S. Health Spending Compared with
   Other Developed Countries (2)
• 1970-2005: U.S. had largest increase in
  percent of GDP devoted to health care among
  29 other countries
  – Lower life expectancy based on per capita income
  – Lower ranking on health status indicators
  – Spent > twice median spending of others per capita
    on health care

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U.S. Health Spending Compared with
   Other Developed Countries (2)
 – With 3rd highest level of public spending on health
   care, U.S. public insurance covered only 26.5% of
 – Lower U.S. utilization rates per capita (hospital
   stays and physician visits)
 – Lower supply of expensive technology
 – Higher income & medical care prices…not
   superior health care or better outcomes

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        U.S. Health Care Waste
• 30-40% of spending yields no value,
  inefficiently producing valuable services
• CBO Director (2008): “future health care
  spending…the single most important factor
  determining the nation’s long-term fiscal
  – Evidence-based physician practice needed to
    reduce variability

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     Health Care Fraud & Abuse
• FBI 2009 estimates: $ 75-250 B
• U.S. Justice Department & HHS Inspector
  General investigate, convict and exclude
  – 2009 : Health Care Fraud Prevention and
    Enforcement Action Team using new technology
    to identify and analyze suspected fraud

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    Major Contributors to Increases in Health
•   New diagnostic & treatment technology
•   Growth in older population
•   Medical specialization
•   Uninsured, underinsured populations
•   Labor intensity
•   Reimbursement system incentives

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      New Diagnostic & Treatment
• Equipment, devices & pharmaceutical agents,
  requiring advanced personnel training & new
  personnel roles
  – Computed tomography scanning, Magnetic
    resonance imaging, PET scanning
  – Pacemakers, implantable cardio-converters
  – Drugs and drug marketing to consumers

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            Aging Population
• Since 1900, 65+ year olds tripled in number
• 85+ year old projected at 8.9 M by 2030
  – Major consumers of hospital inpatient care
  – Advanced age accompanied by chronic conditions
    requiring surgeries, drug therapies

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        Medical Specialization
• ~60% of physicians are specialists
• Americans demand specialty care and use of
  diagnostic testing
• Managed care relaxing hurdles to specialty
  care referrals

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    Uninsured and Under-insured
• 47 million, 16% of Americans
• Almost 75% of uninsured in households with
  at least one full-time worker
• No insurance: late care, medical
  complications, emergency care, avoidable
• Costs passed to insurance premiums, taxes

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              Labor Intensity
• People- centered services require high staff to
  consumer ratio
• New technologies require new, technically
  trained personnel
• Aging population contributes to home care,
  other personnel needs
• 3.2 M new jobs by 2014 will be in health

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          Economic Incentives

• Traditional payment for piece-work drove high
• Managed care, prospective payment dulled
• System still largely physician and hospital
  driven with continuing incentives for over-use

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       Private Health Insurance
• 1800s: movement to insure workers against
  lost wages due to work injuries; later coverage
  added for serious illness
• Insurance payments to medical care providers
  not until 1930s

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      Health Insurance Concepts
• Antithetical to “insurance” premise of
  guarding against unlikely events, health
  insurance evolved to pay for both routine and
  unexpected events
  – Indemnity coverage protected from all costs of
    care; prevailed 1930s-1970 introduction of
    managed care

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        Blue Cross/Blue Shield
• 1930 Baylor University teachers’ contract with
  Baylor, TX hospital to cover inpatient services
  on an annual basis
  – Model for Blue Cross development
• Blue Shield for physician payment followed in
  1940s with AMA financing of Association of
  Medical Care plans

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  Insurance Transformed Health Care (1)

• Established hospitals as centers of medical
  care proliferation & technology
• Put hospital care within easy reach of working
  – Annual hospital admissions 50% higher for
    covered individuals than nation as a whole by late

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  Insurance Transformed Health Care (2)
• Private insurance countered forces that lobbied
  for national health insurance, strongly opposed
  by private medicine
  – Focused government insurance on low-income
  – Stimulated American Hospital Assn. & local
    hospitals to subsidize semi-private and ward care
    for low-income populations

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 Features of Blue Cross & Blue Shield

• Initially, not-for-profit corporations &
  community rated (without regard to
  demographics, occupation, etc.), later,
  experience- rated to compete with for-profit
• Since 1990s, many plans converted to for-
  profit status

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   Commercial Health Insurance
• Entered market in decade following Blues
• Used experience-rating to charge higher
  premiums to less healthy; competed with Blues
  for healthy persons with lower premiums
• By early 1950s surpassed Blues’ enrollment

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              Managed Care
• Throughout the 1960s, rapidly increasing
  Medicare expense, quality concerns by
  government and industry health insurance
  purchasers resulted in development of the
  HMO Act of 1973
• Many employer groups had used specific,
  contracted arrangements; Act opened
  participation to all employers

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           HMO Act of 1973
• Loans & grants for planning, implementing
  combined insurance, health care delivery
• Required comprehensive services for acute and
  preventive care
• Employers of >25 mandated to offer HMO
  option, if available & fund premiums=to prior

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           HMO Fundamentals
• Links health care provision to prepayment
• Population, not individual-based
• Financial risk-sharing among providers,
  insurers, consumers
• Intended to reverse incentives for utilization

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               HMO Models
• Staff: MD employees provide primary care in
  HMO-owned facilities
• Independent Practice Association:
  Community-based MDs serve HMO members
  on pre-paid, fee-for-service, contracted basis
• Hybrids: group practice, network, direct

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            Payment Methods
• Encourage cost-conscious, effective, efficient
• Capitation: per-member per-month fee paid in
  advance whether or not services used
• Withholds: retains percentage of customary
  fee, refunded if targets met

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         Financial Risk-sharing
• For Providers: capitation, withholds,
  expenditure targets

• For Subscribers: co-payments, deductibles

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   Evolution of Managed Care (1)
• Point of Service (POS) plans spawned by demands
  for out-of-network choices
• Preferred Provider Organizations (PPOs): MDs &
  hospitals offer private payers & self-insured firms
  negotiated fee discounts in return for business volume
  guarantee (60 % of all employer-covered workers)
• Today, virtually all health insurance is some form of
  managed care

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  Evolution of Managed Care (2)
• Disease Management
    • Use of evidence-based guidelines for
      subscribers with high-risk medical and
      potentially high-cost conditions
    • Identified from claims data
    • Insurer or contracted services to monitor
      condition and ensure compliance

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   Evolution of Managed Care (3)
• Primary physician “gatekeeper” role declining
  in importance
  – Subscriber demands for more choice in referrals
• Staff model decline

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     Managed Care Backlash (1)

• Organized medicine, consumers protested
  restrictions on choice of providers, referrals,
  other practices
• Presidential commission est. to review patient
  – President Clinton imposed patient protections on
    companies supplying federal workers

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     Managed Care Backlash (2)
• Bipartisan Patient Protection Act proposed in
  1998 never passed

• State legislatures led with 900+ laws &
  regulations addressing provider and consumer

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     Managed Care Backlash (3)
• Consumer-Driven Health Plans: employers’
  response to rising costs & demands for
  consumer choice
  – Employees take responsibility for health care
    decisions and cost-consciousness
  – Health care reimbursement or Health Savings
    Accounts using high-deductible policies
  – 2009: ~8% employee participation

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   Trends in Managed Care Costs (1)

• 1990s: slowest rate of cost growth in years
• 1998: premiums rose again
  –   Insurance underwriting cycle
  –   Prescription drug costs
  –   Investor pressures
  –   Consumer demands for choice

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   Trends in Managed Care Costs (2)
• 1999-2009, avg. family policy premiums
  increased 131% to $13,375
   – Workers’ contribution: 17% single, 27%
     • 40 hour/week minimum wage worker
       ($7.25/hour) gross earnings (before taxes) = $

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     Impact of Rising Premiums
• Higher worker contribution results in dropped
• Employers use “benefit buy-downs,” reducing
  benefit scope, increasing co-pays, and/or
  – 1% increase in premiums= 164,000 additional

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    Managed Care “Report Card”
• 5-year literature review notes failings in dual
  promise to lower costs and increase quality
  – Needed:
     • Systematic information systems’ revamping
     • More appropriate provider incentives
     • Revised, evidence-based clinical processes

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  Managed Care Industry Changes
• Consolidations & mergers: 5 publicly traded
  companies now enroll 103+ million members,
  82% of all subscribers
• Responses to provider/consumer issues:
  – States’ patient protection legislation
  – Loosening of choice on patient referrals
  – Patient access to policies, esp. payment denials

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              PART 2
•Managed Care & Quality
•Self-funded Insurance Programs
•Government as Payer
  – Cost and Quality Initiatives
•State Experiments
•Future Challenges

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   Managed Care Organizations and
• American Association of Health Plans est.
  1979; renamed National Committee on Quality
  Assurance (NCQA) in 1990
  – Independent, not-for-profit, funded by
    accreditation fees and revenues from sale of a
    quality indicator compendium on 250 health plans
    serving 50 million Americans

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                   NCQA (1)

• Evaluations & accreditation on a voluntary
  basis for
  –   Managed care organizations
  –   Preferred provider organizations
  –   Managed behavioral health organizations
  –   New health plans
  –   Disease management programs

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                  NCQA (2)
• Accreditation entails rigorous reviews of all
  organization aspects including on-line surveys and
  onsite visits:
   – Management, physician credentials, member rights
     & responsibilities, preventive health services,
     utilization, medical records, disease management
     programs, outcomes of care, measures of clinical

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                   NCQA (3)

• Certifications for organizations that provide
  – Provider credentials’ verifications
  – Utilization management services
  – Disease management services

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                HEDIS (1)
• Health Plan Employer Data and Information
  Set (HEDIS) evolved from partnership among
  health plans, employers and the NCQA in
• Standardized method for MCOs to collect,
  calculate, report performance information to
  facilitate plan comparisons by employers,
  other purchasers & consumers

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                      HEDIS (2)
•    Data set contains 71 measures of MCO
     performance in 8 domains (“Report Cards”):
    1.   Effectiveness of care
    2.   Accessibility & availability of care
    3.   Satisfaction with care
    4.   Health plan stability
    5.   Use of service

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                   HEDIS (3)
•    Domains, continued
    6. Cost of care
    7. Informed health choices
    8. Health plan descriptive information

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  HEDIS Promotes Transparency
• Centers for Medicare and Medicaid Services
  requires all funded MCOs to report HEDIS
• All NCQA accredited plans must publicly
  report their clinical quality data
• Many states require Medicaid managed care
  plans to report HEDIS data

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 Internal MCO Quality Monitoring
• Physician performance & outcomes
• Hospital outcomes quality
• Disease management programs, e.g.
  – Patient self-management education
  – Risk stratification
  – Outreach with clinical specialists

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 Self-Funded Insurance Programs (1)

• Large employer, union or trade association
  collects premiums, pays medical benefits
  claims instead of using a commercial carrier

  – Actuarial firm may set premiums
  – Third party administrator (TPA) administers
    benefits, pays claims, collects utilization data,
    manages expensive cases

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 Self-Funded Insurance Programs (2)

• Employer Advantages
  – Avoid administrative charges of commercial
  – Avoid state premium taxes
  – Accrue interest on reserves
  – Exemption from ERISA minimum benefits &
    liability for plan coverage denial decisions

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 Government as Payer: A System in Name
                Only (1)
• Early focus: military, government employees, special
  populations, e.g. Native Americans
• Now: Medicare, Medicaid, U.S. Public Health
  Service hospitals, state, local, long-term psychiatric
  facilities, Veterans Affairs, military & dependents,
  workers’ compensation, public health protection,
  service grants

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 Government as Payer: A System in Name
                Only (2)
• “System:” Mosaic of reimbursement,
  vendors/purchaser relationships, matching
  funds, direct services, e.g.
  – Contracts with providers, not direct service
    provision (Medicare, Medicaid, grants)
  – Federal with State matching funds (Medicaid)
  – Direct services (Veterans Affairs)

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 Medicare: Historical Significance
• 1965: Title XVIII of Social Security Act
• All Americans ≥65 yrs. entitled to health insurance
  benefits; 20 million entered system in 1965.
• Financed by payroll taxes
• Conceded accreditation, administration to private
  sector-JCAHO…Now “JC”
• Hospital payments by local Blue Cross

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     Initial Medicare Components

• Part A: Mandatory hospital coverage, outpatient
  diagnostics, extended care facilities, home care post-
  hospitalization; funded by Social Security payroll
• Part B: voluntary MD coverage, tests, medical
  equipment, home health; funded by beneficiary
  premiums matched with federal revenues
• Cost sharing: deductibles, co-insurance; medi-gap

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        Medicare Components
• Part C: Managed Care Options for Private
  Health Plan Enrollment (1997)
• Part D: Prescription Drug Coverage (2003)

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 Growth in Medicare Expenditures
• Costs rose much more rapidly than expected
• 1976: Most cost growth due to hospital personnel,
  non-personnel and profits
• Early amendments added covered services,
  increased costs; quality concerns escalated
  through 70s and 80s.
• Later amendments addressed cost growth
  reductions and quality improvement

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Medicare Cost Containment & Quality
    Improvement Measures (1)
 • Comprehensive Health Planning Act (1966):
   organize local health planning
 • Professional Standards Review Organizations
   (1972): review Medicare hospital care.
 • Health Systems Agencies (1974): plan for health
   resources based on population needs (replaced
   CHP); plans based on local population needs

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Medicare Cost Containment & Quality
    Improvement Measures (2)
• OBRA 1980, 1981 amendments to reduce hospital
  lengths of stay, advocating home care
• Tax Equity & Fiscal Responsibility Act (TEFRA)
  1982: Peer Review Organizations (PROs) replaced
  PSROs, providing clearer cost/quality criteria;
• 2001: renamed PROs to QIOs (Quality Improvement

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Medicare Cost Containment & Quality
    Improvement Measures (3)
• DRGs (1983): Shifted Medicare from
  – Pre-set hospital case reimbursement based on
    diagnosis using the International Classification of
    Disease (ICDA) codes
     • Rewarded efficient care, financially penalized
     • Other insurers followed lead

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       DRG Implementation (1)
• Predictions of “quicker/sicker” discharges proved
• Federal prospective Payment Assessment
  Commission (ProPac) established to review
  – Post-implementation research demonstrated no
    deleterious effects on patient outcomes

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       DRG Implementation (2)
• Slowed cost growth through length of stay
  reductions, personnel reductions
• Hospitals realized increased profits
• Impact of major shifts to outpatient services,
  shifting costs to private pay patients dampened
  cost-containment results

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 DRG Cost Containment & Quality
   Improvement Measures (3)
• COBRA 1985: penalties for financially-
  motivated patient transfers

• Emergency Medical Treatment and Labor
  Act (1986) refined 1985 COBRA

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Cost Containment & Quality Improvement
             Measures (4)
• Physician Fees: Rapidly rising Medicare payments
  and specialty services prompted action:
      • 1987-1989: price freeze ineffective; results
        suggested offset by increased volume
      • 1992: RBRVS: Pay same amount for office
        procedures whether provided by specialist or
        primary physician; incentives for primary care
        practice; updated by AMA & specialty societies

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• 1996 Kennedy-Kassenbaum Bill
  – Reaction to failed Clinton National Health Security
     • Prohibited coverage denial due to pre-existing
       health condition
     • Ensured continued coverage between employers
     • Established “portable” Medical Savings

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Cost Containment & Quality Improvement
             Measures (5)
• Balanced Budget Act of 1997:
  – Predictions of Hospital Trust Fund insolvency
  – Medicare unsustainable w/o cuts in other
    programs, increased taxes & budget deficits
  – Medicare f-f-s outmoded in MCO environment
  – Medicare gaps for low income populations

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   Balanced Budget Act of 1997
– Reduce Medicare spending growth rate over 5
  years through direct and indirect cost reductions
– Fund State Child Health Insurance Program
  (SCHIP) to enroll 10+ million Medicaid-eligible
– Introduce Medicare managed care
– Enact demonstration projects on quality & cost

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        Balanced Budget Act Provisions

•   New Medicare Part C-managed care
•   Demonstration projects
•   Prevention initiatives
•   Provider payment reductions
•   Anti-fraud & abuse provisions
•   Rural hospital initiatives
•   Outpatient & Nursing Home Prospective Payment

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   Balance Budget Act Outcomes
• Significant decrease in Medicare spending
  growth through 2002; $ 68 B in savings
• Private insurers’ entry through Medicare Part
• Successful SCHIP implementation
• Fraud & abuse financial recoveries

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            Responses to BBA
• Strong resistance from affected groups
  – Balanced Budget Refinement Act (1999) to
    curtail MCO withdrawals from Medicare
    +Choice (Part C)
  – Consolidated Appropriations Act of 2000:
    restored $17 B in cuts, postponed/adjusted new
    payment schemes

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   Ongoing Medicare Cost Reduction &
   Quality Improvement Initiatives (1)
• 2001: CMS “Quality Initiative” to monitor
  conformance with standards of care:
  – Hospitals, nursing homes, home health care
    agencies, physicians, other facilities
• Medicare Quality Monitoring System:
  – Monitors quality of care delivered to Medicare f-f-
    s beneficiaries

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    Ongoing Medicare Cost Reduction &
    Quality Improvement Initiatives (2)
• Hospital “Pay-for-Performance” plans to reward
  positive patient results & efficient care
• “Hospital Compare” website: 20 criteria assessing
  hospital conformity with evidence-based practice
• Beginning in 2008 : No reimbursement for treatment
  of hospital acquired infections; investigating other
  options for “never happen” events and resulting
  treatment costs

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   Ongoing Medicare Cost Reduction &
   Quality Improvement Initiatives (3)
• Hospital Consumer Assessment of Health Care
  Providers and Systems” surveys added to
  “Hospital Compare” to provide patient
  perspectives on hospital experience.

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       Medicaid and the SCHIP
• 1965: Title XIX of Social Security Act
• Mandatory joint federal-state program
  – Shared state support based on state’s per capita
• Basic insurance coverage for 47 M low income
• 16% of personal health service spending; 41%
  of nursing home care

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              Medicaid Scope
• Federal government establishes broad
  guidelines; requirements are state-established
  – Low income families and children
  – Long-term care for older and disabled individuals
  – Supplemental coverage for low-income Medicare
    beneficiaries for non-Medicare covered services

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    Federally Mandated Medicaid Services

•   Inpatient, outpatient hospital services
•   Physician services
•   Diagnostic services
•   Nursing home care for adults
•   Home health care
•   Preventive health screening
•   Pregnancy related & child health services
•   Family planning services

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     Medicaid Expenditure Growth
•   Growth in eligible populations, longevity
•   Provider payment increases
•   Disproportionate share hospital program
•   Growth in intensive & long term care
•   Increased survival of low birth weight infants

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            Medicaid Funding
• Personal income tax, corporate and excise
• Unlike Medicare, no entitlement; a transfer
  payment from more affluent to needy
• Direct reimbursement to providers; no

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        Medicaid Managed Care
• 1990s: States experimented with Medicaid
  managed care to stem 300% growth since
• 1993: Federal waivers allowing mandatory
  managed care accelerated enrollment.
• 1997: BBA lifted all waiver requirements
• 50 states participate; majority of recipients in
  managed care

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 Children’s Health Insurance Program
• BBA targeted enrollment of 5 M children with
  federal matching funds, 1998-2007
• By 2008, 7 M enrolled; but 8.1 M remained
• Reauthorized in 2009 through 2013 with

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FIGURE 7-7 Number of Children Ever Enrolled in the
     Children’s Health Insurance Program.

                            Source: Children’s Health Insurance Statistical Enrollment Data System
                            (SEDS) 1/29/09

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     Medicaid Quality Initiatives

• The Center for Medicaid & State Operations
  (CMSO) develops & implements Medicaid &
  SCHIP quality initiatives with state programs
• Division of Quality, Evaluation & Health
  Outcomes provides technical assistance to
  states for quality improvement initiatives

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     Medicaid Quality Strategies
1. Evidence-based care
2. Payment aligned with quality
3. Health information technology
4. Partnerships with internal & external expert
5. Information dissemination, technical
   assistance, sharing best practices

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            Future Prospects

• Little federal action 2000-2008 left major
  gaps in plans for cost control and access
• States experimented with universal coverage
  since 2003
• 2008 presidential election focused on swift,
  major health care reforms

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            State Experiments
• Maine: make affordable coverage available to
  all; decrease cost growth, expand Medicaid,
  improve quality
• Massachusetts: personal responsibility
  mandate with government subsidy
• Vermont: government, employer premium
  assistance; state-wide plan for preventing and
  managing chronic conditions

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           Future Challenges
• Moral dilemma: defining values about
  allocations of resources
• Breaking lose from old philosophies, value
  systems and politics in implementing the
  Patient Protection and Affordable Care Act of

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