Midterm Exam Answer Key

These were the best answers on the midterm exam.
Medicare is a type of health insurance program for the elderly age 65 and above. There are 38
million people enrolled nationally and 2.8 million beneficiaries in Florida. Florida has the second
largest Medicare population in the nation (second to California). Florida has the largest
percentage of elderly 65 years+ per total population in the state of all states and this
dramatically effects the dynamics of healthcare financing in Florida. For example, Medicare
covers nearly 34% of all patient days in Florida hospitals and many hospitals (80 or more),
especially those on the south and southwest coasts are Medicare dependent which means they
derive 65% of their income from Medicare. Medicare has Part A which covers hospital care and
Part B which covers physician care. There are some deductibles for hospital care,
approximately 700-800 for the first day(s). Medicare, according to Estaugh covers only about
43% of an elderly person’s medical care when needed. Between the hospital deductibles and
the 80/20 copayments for Part B, many seniors p8rchase other health insurance to cover the
gaps. In Florida, Medicare amounts to nearly 46% of all acute care discharges and 54% of all
hospital days. With the advent of prospective payments, combined with the 1983 DRG’s and
the rising costs of health care, hospitals are finding it difficult to financially survive and the
Medicare program itself is in jeopardy of not being able to appropriately cover cots in the future
especially with the growth of the baby boomer generation, many of whom will be entering the 65
year plus age in the coming decade.
A financial fix appears to be enrolling Medicare patients into HMOs, managed care.
Medicare HMO enrollment is increasing. In 1990, 11% of beneficiaries were enrolled in
HMOs, today nearly 25% are enrolled. HMO enrollment offers a wider range of benefits and
can relieve the elderly of many of the out of pocket costs they now pay with their gap
insurance (premiums, deductibles, copays). HMOs have proven to reduce hospital days
(down 6.2 per stay from 7.4 in 1990). Other solutions to encourage more elderly into HMOs
is the Medicare Plus Choices, allowing elderly to choose from a buffet of benefits specific to
their needs. Lastly, HMOs that operate specific to seniors can be effective in lowering and
containing costs as they can perform utilization review and care management being solely
focused on the specific medical health needs of seniors. All of Medicare is federally funded.
Medicaid is a part federal and part state funded health plan for the indigent. Currently there
are 1.47 million enrolled in Florida, or 10% of the population. Medicaid is a major expense
for many states. Expenditures in Florida have grown from $334 million in 1978 to 3.1 billion
in 1990-91 to 7 billion in 1998-99. The enrollment has dropped slightly from 1.6 million in
1993. The Welfare Reform Act which took many poor people off AFDC also had the effect
of disenrolling many of these clients from Medicaid. The Children’s Health Insurance
Program of the 1997 Balanced Budget Act will be successful in re-enrolling many children
needing health insurance coverage. Although 62% of Medicaid enrollees are children and
families, this group utilizes or is responsible for only 26% of the expenditures. While 26% of
the Medicaid enrollees are 65 years+, this population is responsible for 62% of the
expenditures, mostly on nursing home care. Like Medicare, the future movement is to enroll
Medicaid clients into HMOs. Medicaid clients can choose between Medipass, a primary
care program or Medicaid HMO. The Florida legislature of 1998 called for a 50/50 mix and
would like to eventually require all to join HMO. Medicaid works diligently to recover cost
from third parties such as other insurers, estates, etc. In 1997, the third party recovery
amount peaked to 46 million, it was 40 million in 1994. Tobacco use has been estimated to
contribute to disease which costs Florida Medicaid 400 million in 1996. The recent court
battle and success with tobacco companies should help to recover much of this expense.
This program also saved 926 million in cost avoidance, up from 110 million in 1990. Cost
avoidance is aimed at trying not to pay until perhaps other insurance or other sources will.
The BBA 1997 will place Medicaid nursing facilities on a prospective payment basis, holding
down these large expenses (62% of all for age 65+). Costs and expenses may rise in the
future as a result of children gaining and regaining coverage but children are relatively
inexpensive and much disease and disability can be prevented with good primary care for
them and other Medicaid clients enrolling in managed care.
Physicians control 85% of all health care expenditures and their payments are the second
largest expense next to hospitals in the health care system. Doctors have a great deal of
professional authority and autonomy and medical authority to order tests, require follow up
visits, admit patients to hospitals and other facilities and to prescribe drugs. In the past, the
financial incentives for doctors were to order, admit and prescribe without external limits as they
were paid fee for services and could set charges. In the past two decades, doctors have been
scrutinized by managed care. Many have felt that their professional and medical authority has
been impeded upon. Today, many are paid by capitation which is a set predetermined dollar
amount per patient per month for a twelve month period, or whatever the contract period may
be. Managed care organizations have implemented utilization review techniques and peer
reviews to monitor the practice behavior of doctors. Those who are shown to overutilize, over
refer to specialists, etc., may face losing their contracts with the HMOs. In the future,
consumers may lose choice volume regarding their primary care doctors as HMOs will find
managing costs and care easier and more financially successful with a group of fewer, yet cost
conscious doctors.
Currently, there is a glut of specialists and a disproportionately fewer primary care doctors,
30% of all MDs in Florida are primary care. Geographic maldistributions also are evident.
Rural areas have less access to both types of doctors. There are approximately 40,000
MDs in Florida and 645,000 nationally. The greatest increase of Doctors was seen in
medical surgical specialists and an increase in all specialists, a 28% increase since 1990
compared to a 10% increase in primary care doctors. The government predicts we will only
need 140 specialist MDs/1000,000 by 2010, yet it looks as if there might be 183/100,000.
The government can pay teaching med. schools and hospitals not to train MDs (in contrast
to paying $70,000 a year for each resident in training) and can restrict the influx of foreign
med. school graduates. Managed care will force doctors to change their practice behaviors.
One technique being considered besides RBVS ( paying according to time, judgment skill of
a procedure) would be to implement Total Risk Capitation which would be to pay MD’s
based on a global budget, giving them a set dollar amount per patient per year and putting
all the risk in their court. This is a sort of prospective payment mechanism which puts
expenditure limits on the doctor and could force behavior change. Doctors who do not wish
to comply will chance losing privileges with the HMOs.
Doctors have been banding together to protect their ever rising incomes and their autonomy.
Solo practice will become a thing of the past. Many are joining groups and the future will
see them in large networks together. This gives them better negotiating clout and makes
the ever increasing administrative costs and day to day tasks of information processing
easier for all in the network. Although some MD groups have tired to offer their own
insurance by joining with hospitals, this has proven difficult for them to manage and to put up
the required capital to satisfy the Department of Insurance. Physician practice management
firms are not doing well lately for these reasons and for the fact that they have investors to
satisfy. Practicing medicine, as MDs are finding, is easier for them than managing policy
and insurance risk.
The future may hold that we see a reverse in the trends among specialists vs. primary care.
As more Americans including Medicare and Medicaid beneficiaries become HMO members,
more primary care doctors will be needed, not just to be gatekeepers but to really practice
preventive medicine which will help to slow health care cost inflation.
Hospitals are the largest expense of the health care industry, 35% of all expenditures. The
industry is comprised of a variety of different types of facilities including nonprofit, private for
profit and nonprofit, tax exempt for profit and multihospital systems, and public not for profit.
With the rising costs of health care expected to soon reach 1.3 trillion, up from billions in the
1980’s, hospitals have been the one sector to experience the effects of cost containing
measures. With the advent of Diagnostically Related Groups in 1993 from the Medicare
program (max cost assigned to specific procedures), hospitals have had to try all measures to
contain costs, including moving patients out of the hospital sooner (patient days have dropped
for the 65 and under population by 12% while outpatient services grew 40% since 1990).
Average stays and costs per stay have also decreased. Hospital (census?) use to be in the
80% range (daily beds occupied). Today, census rates are in the mid 50’s range. Florida has
26,000 empty beds. All of the cost containment efforts from DRGs to restricted allowable care
by HMOs and the restricted payments placed by Medicare and Medicaid have forced many
small, nonprofit and private small for profit hospitals to close. The trend is toward regional
multihospital systems. As Estaugh makes the analogy, these multi hospitals systems are like
Walmart. They are good at providing the service at lowest cost better than smaller chains.
They become powerful financially with investors and investments which earn revenue. They are
also good at marketing to consumers (i.e., pretty birthing and family centers). They pay a great
deal more in Federal tax (500 billion avg), than smaller nonprofit yet they also take less indigent
In Florida, there are a combination of different types of hospitals but 75% are multihospital
system hospitals. Particularly the big ones Columbia, Tenet Adventist and Bay Care.
Florida has 219 acute care hospitals. While managed care has resulted in reduced patient
days, and lowered census, and the trend for hospitals to merge into multihospitals systems,
all hospitals are impacted by such restrictions as prospective payment by Medicare and
Medicaid. In Florida, 47% of all hospital revenues are from Medicaid. Some hospitals are
Medicaid dependent, 80 on the Southwest coast and in south Florida where there is a large
concentration of elderly. Recent data shows hospital revenues up 19% while expenses
grew 17% in 1998. All hospitals have to be very cost careful. Those nonprofit public
hospitals that care for the bulk of the uninsured in Florida. There are 3 million uninsured in
Florida which as cost 940 billion in hospital care. The multihospital systems claim that they
pay high Federal tax to offset their lack of “case sharing” for the indigent. Fortunately in
Florida, most hospital admissions are for the elderly. However, with 8 million Hispanics and
other uninsured immigrants, Florida does have a greater rate of uncompensated care, 7.3%
of all expenditures vs. 6.1% nationally. Physicians are crucial to hospitals as they order
admissions. MDs have had to shorten patient stays. In order to recoup costs they have
increased the intensity of care during these shortened stays. However, with disease
management plans and other UR techniques, Medicare and managed care will limit these
clever techniques for increasing revenues. Some doctors and hospitals have together and
separately (competitively too) gotten into the business of outpatient care. Both are realizing
this is more revenue producing than inpatient care.
There are 4.5 million HMO members in Florida. There are 39 plans vs. 650 nationally. The
different types are: staff HMOs in which physicians are salaried by the plan, network HMOs
which are a combination of staff and group HMOs, group HMOs are HMOs in which the
organization contracts with a group of physicians. Also, there are preferred provider HMOs
were patients can go to specialists but have to pay 20% copay. HMOs provide subscribers with
a broad set of benefits in a defined period of time in exchange for a premium which is set for
usually 12 months. Indemnity plans operate on a fee for service and while they offer
beneficiaries much more freedom of MD choice including specialists, they are more expensive.
There is usually an 80/20 deductible and charges for hospital and MD services to indemnity plan
patients are usually higher than for HMO patients. HMOs attempt to contain costs by selective
contacting with only cost containing MDs (those that keep utilization in check, keep it down),
and offering discounts to these doctors, costs are also kept down by requiring copayments for
doctors visits and drug prescriptions. These copayments as well as premium may very well be
rising in the near future as HMOs have lost 10% revenue in the last year. Due mostly to the
market being saturated (membership enrollment nearing its maximum). HMOs would like to
raise premiums but large employer groups and the Department of Insurance combine to
disallow this. HMOs can restrict choice of doctors, particularly specialists, and certain types of
care (i.e., going to out of area cancer specialists for treatment) are not allowed. Over all though,
patients receive a broad array of benefits including eye exams, mammograms and other
preventive health care. Emphasis on preventive health care will also increase as a cost inflation
prevention. The leading causes of death/disability, heart disease, cancer, stroke, diabetes and
asthma, are very costly. Many of these can be managed with prevention to reduce costs.
HMOs face financial danger unless they can manage costs and utilization even better in the
future. Consumers are placing a great deal of pressure on HMOs for less premiums, more
freedom to go to specialists, more prescription drugs, and more tests (diagnostic). The
primary source of revenues is patient premium. By restricting utilization and reducing
volume (while at the same time keeping demanding consumers happy), HMOs are in for
some difficult times. Like hospitals, small HMOs will be closing and large HMOs, though
less of them, will be the norm in the future.
Long term health care in the US consists of nursing home care, home health care and recently,
community care retirement centers and life care centers as well as adult congregate living
facilities. The majority of the industry is for profit, with 385,000 nursing home beds for profit
owned by multihospital systems and 62,000 beds freestanding for profit versus 240,000
nonprofit beds. There are a total of 900,000 beds nationally. There are 71,000 beds in Florida,
2% of which are owned by for profit hospitals. Like the nation, most Florida beds are owned by
private chains. Occupancy rates in Florida nursing homes has risen to 73% in 1998 from 52%
in 1996. Medicare pays for a limited time and if a person does not have adequate financial
resources, Medicaid pays (62% of all Medicaid expenses in Florida). Hospitals have shortened
the LOS for elderly and discharged more and more to nursing homes, placing patients with
great medical needs into these beds. At one time a lucrative business, nursing homes are
beginning to fell the effects of the BBA 1197, with prospective payment systems. The industry
which one reaped billions is now under scrutiny from Medicaid.
Home health care has seen an increase in business as it cares for many who cannot afford
nursing homes. However, with restrictions from Medicare and Medicaid, it too is beginning
to suffer financially. Forty-eight home health care businesses closed in Florida in 1998-99.
The nation is witnessing a growth in the aging population. Financing long term care as the
people now age 50-64 grow (in Florida 14% of the population to 21% in 2010), long term
care financing will be difficult for Medicaid to continue with. Many early retirees and baby
boomers fail to consider financial planning for their long-term care needs. Too many (even
current elderly) are surprised to find out that Medicare coverage for long term care is so very
limited. Many more people will be living to 85+ with a 60% chance of being in a nursing
home 5 years or more.
The long-term care industry dilemma poses a few questions. Should long term care be an
integral part of the health care system? Should people plan to use their own financial
resources? Only 2% of the 50+ age group have purchased long term care insurance. Who
is responsible? Who will regulate it? Florida, with its large elderly population will surely set
an example. We have to work on these questions today while other states deal with other
issues. Perhaps only the wealthy will be able to afford community care centers. We may
end up with a range of quality long-term care centers analogous to Hilton Hotels all the way
down to Motel 6’s. The trend does seem to be away from skilled nursing home care to a
variety of community care. Some will specialize for Alzheimer’s patients, stroke and
cardiovascular patients.