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Chapter 6
Health Care Economics
Delmar Learning
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Health Care Economics
• Fee for Service system
• Provider control over health care services
rendered
• Provider control over where health care
services provided
• Pay as you go
• Quality at any cost
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Managed Care
• Payer control over health care services
rendered
• Payer control over where health care
services provided
• Shared risk
• Balance cost with quality
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Implications for Nursing Practice
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Understand health care economics
Must provide cost-effective, quality care
Reduce or eliminate wasteful practices
Coordination of care
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U.S. Health Dollar Source
(HCFA, 2000)
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Medicaid 15%
Medicare 19%
Private Insurance 32%
Out of Pocket 17%
Other Private 5%
Other Public 12%
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U.S. Health Dollar Spending
(HCFA, 2000)
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Hospital Care 33%
Other Spending 26%
Physician Services 20%
Nursing Home Care 8%
Prescription Drugs 8%
Program administration and net cost 5%
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Economics
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Macroeconomics
Microeconomics
Economic policy
Financing
Reimbursement
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Economic terms
• Market system
• Gross Domestic product (GDP)
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In 1999, 13% of GDP spent on healthcare
• Inflation
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Health Care Economic Terms
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Capitation
Case Management
Co-payment
Diagnosis Related Groups (DRGs)
Fee for Service
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Health Care Economic Terms
(cont.)
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Managed Care
Managed Care Organization
Managed Competition
Out-of-Pocket Expenses
Preferred Provider Organization (PPO)
Third Party Payer
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Medicare
Part A
• Automatic coverage at age 65
• May obtain coverage earlier if disabled
• 40 quarter rule to determine eligibility
• Helps pay hospital, home health, skilled
nursing facility and hospice care
• Funded by payroll taxes paid by employer
and employee
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Medicare (cont.)
Part B
• Supplemental medical insurance
• Helps pay for physician, outpatient hospital
care, and durable medical equipment
• Does not cover medications
• Funded by Federal government and
individual (via insurance premiums)
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Medicaid
• Funded by Federal and State taxes
• Program is administered by the states
• Pays for the health care of low-income
persons
• Does not cover all people below the
Federal poverty line
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Factors Causing Increased
Health Care Costs
• Increased Cost per Volume of Service
(CPVS)
• Per Capita Increases in Volume of Service
(PCIVS)
• Increased elder population
• Advanced technology
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Factors Causing Increased
Health Care Costs
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Rising Administration Costs
Client Complexity
Uncompensated Care
Health Care Fraud
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Government's Role in Health
Care
• Historical role
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Intervene only when private sector has failed
to provide a service
• Governmental involvement
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Ensure availability of care
Ensure standards
Provide funding to upgrade systems and
educate health care providers
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Changing Climate in Health
Care
• 1961 – 1969 Great Society Legislation
• 1970s New Federalism and implementation of
block grants
• 1980s Decrease federal funding for social
welfare
• Decentralize programs to states using block
grants
• Market forces to shape health care
• Implement DRG prospective payment system
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Changing Climate in Health
Care
1990s Clinton era
• Kennedy-Kasselbaum bill “Health portability
plan”
• Increased State jurisdiction over health care
2000s Bush era
• Prescription benefit coverage for senior citizens
• Health care safety net
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Cost Controls
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Finance controls
Regulatory finance controls
Reimbursement controls
Usual and customary reimbursements
Client cost sharing
Utilization controls
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Actions to Control Costs
• Diagnostic related groups (DRGs)
• Increased utilization of general
practitioners instead of specialists
• Increased utilization of nurse practitioners
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Access to Health Care
Insurance
• Health insurance provided through
employers
• Increased numbers of uninsured or
underinsured
• Out of pocket costs
• Pre-existing conditions
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Access to Health Care
Insurance
• Medicare
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Part A
Part B
• Medicaid
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Emerging Trends
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Managed Care
Managed Care in Medicare and Medicaid
Managed Competition
Rationing
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