Source: Adapted from Bernstein, A. B., Hing, E., Moss, A. J., Allen, K. F., Siller, A. B., Tiggle, R. B. (2003). Health care in America: Trends in utilization. Hyattsville, MD: National Center for Health Statistics; and Shortell, S. M., & Kaluzny, A. D. (2006). Health care management (5th ed.). Clifton Park, NY: Delmar Cengage Learning. And CDC. (2018). National Center for Health Statistics. Health, United States, 2017: With special feature on mortality.. National Center for Health Statistics. Health, United States, 2017: With special feature on mortality. Retrieved from www.cdc.gov/nchs/data/hus/hus17.pdf
Cost Containment Strategies
Research has suggested the hazards and ethical problems in the overuse of services in fee‐for‐service settings (where payment is made based on service rendered to individuals for individual services) rather than service underuse in capitated care (where payment is made based on service rendered to a group of patients) (Berwick 1994; Leape et al., 1990). Over the years, cost containment strategies have targeted the financing and reimbursement sides of health care. Financing strategies have used health services regulation and limitation by means of taxes or insurance premiums and encouraged competition such as managed competition. Reimbursement containment strategies have used regulatory and competitive price controls and utilization controls, such as capitation, patient cost sharing, and utilization management. Capitation and prospective payment have had some of the most significant impacts on cost containment.
Capitation
Even though legislation creating managed care was passed in 1973 (the Health Maintenance Organization Act), managed care did not become a major player or driving force in health care until the late 1980s. In an effort to reduce the number of hospitalizations and control profit incentives for health care providers, managed care plans offered hospitals and practitioners a capitated set fee for office visits and hospitalizations for a group of patients. Capitation is the payment of a fixed dollar amount, per person, for the provision of health services to a patient population for a specified period of time, for example, 1 year. Under capitation, health care organizations benefit from using their financial resources to keep people well. Otherwise, health care providers bear the financial loss. Then in the mid‐1990s, the U.S. population had quality concerns with this system and backlashed against managed care organizations.
Prospective Payment
Reacting to rapidly increasing costs to Medicare, the Tax Equity and Fiscal Responsibility Act (TEFRA) passed in 1982 mandated the Prospective Payment System (PPS) to control health care costs. For Medicare Part A services, PPS uses Medicare's administrative data to develop and continually refine PPS payments based on diagnosis‐related groups (DRGs), that is, patients with similar diagnoses. The PPS is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount for reimbursement to acute inpatient hospitals, home health agencies, hospices, hospital outpatient and inpatient psychiatric facilities, inpatient rehabilitation facilities, long‐term care hospitals, and skilled nursing facilities. For Medicare Part B services, the Resource‐Based Relative Value Scale (RBRVS) is used to determine reimbursement amounts for practitioner services. The major problem that the CMS has encountered with funding prospective payment is DRG creep, in which health care providers up code or over bill a patient to indicate a need for financial reimbursement for more expensive health care services to recoup what the health care provider believes is a more equitable payment.
Health Care Quality
The health care report To Err Is Human, confronted health care clinicians and managers with concerns about the poor quality of health care attributable to misuse, overuse, and underuse of resources and procedures, which was responsible for thousands of deaths (IOM, 1999). The health care report, Crossing the Quality Chasm (IOM, 2001), and several large studies (McGlynn et al., 2003; Thomas et al., 2000), have shown that the quality of health care in the United States is at an unexpected low level and needs improvement in many dimensions, given the amount of money the United States spends on health care (Table 2.7). One implication is that if a measure is described in a way that is clear and understandable, people are more likely to value the measure (AHRQ, 2011).
Table 2.7 Health Care Dimensions Needing Improvement
| Health Care Should Be | Health Care Should |
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