Why Not The Best?
U.S. Health Care in Comparative Perspective
“OF ALL THE FORMS OF INEQUALITY,
INJUSTICE IN HEALTH CARE IS THE MOST
SHOCKING AND INHUMANE”
MARTIN LUTHER KING JR.
“IF I HAD TO SUM UP THE AMERICAN
HEALTH CARE SYSTEM IN ONE WORD,
THAT WORD WOULD BE ‘CHAOS.’ ”
PRIMARY CARE PHYSICIAN
EAST LANSING, MICHIGAN
A PREFATORY NOTE:
POWERPOINT “FOOTNOTES”
THIS MODULE FEATURES THREE “FOOTNOTE” SLIDES
(#s 24-26) CONTAINING DETAILED INFORMATION
RELEVANT TO THE MAIN NARRATIVE (MN).
FOOTNOTES APPEAR AT THE END OF THE SECTION ON
MANAGED CARE; THIS COLOR SCHEME DISTINGUISHES
THEM FROM MN SLIDES.
A Comparative Perspective on U.S. Health Care
• A purely domestic analysis of health care is
inadequate because it excludes: 1)
comparative evaluation of American health
care performance; 2) the potential relevance
of foreign health care models to the U.S.
health care system.
• (Point#2 will receive detailed treatment in
Module#9.)
• This module focuses on point#1 by
surveying American health care from a
comparative international perspective. We
will also review the unique ways in which
the U.S. system has evolved in recent years.
• In particular, we’ll be looking at the following
questions….
America the Exceptional: US Health Care Delivery
1. In what ways is the U.S. health care system
“exceptional”?
2. What factors account for this “exceptionality”?
3. What are the system’s major characteristics?
4. What efforts have been made to reform the system?
5. What have been the results of recent reforms? In
particular, what has been the impact of managed care, and
what has been the reaction to it?
In What Ways is US Health Care “Exceptional”?
• As noted, American society places unusual stress on
individual responsibility. One consequence has been a
relatively “immature” welfare state devoid of many benefits
& services taken for granted elsewhere.
• Preference for private sector health care delivery is one
aspect of this pattern. Nowhere else in the advanced world
has government played so modest a role in
regulating/managing health care; nowhere else is access to
care so dependent on specific qualifying criteria. Indeed,
the U.S. is the only advanced country in which access to
health care is not an inherent right of citizenship.
• America is likewise “exceptional” in its high per capita
health care spending (#7). Yet Americans are on average
no healthier than people in other societies that spend far
less (#8). The American health care system is thus
“exceptional,” insofar as heavy expenditures have yielded
comparatively “light” results (#9).
PER CAPITA HEALTH EXPENDITURE (1997)
U.S.
Germany
Canada
Japan
$0
$500
$1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500
SOURCE: OECD HEALTH DATA 1998
HEALTH STATUS INDICATORS, 1995
INFANT
MORTALITY
LIFE EXPECTANCY
MEN
WOMEN
U.S.
8.0
72.5
79.2
CANADA
6.0
75.3
81.3
GERMANY
5.3
73.0
79.5
JAPAN
4.3
76.4
82.8
HEALTH CARE EXPENDITURES 1970 – 1997
(IN PERCENTAGE OF GDP)
12
10
8
U.S.
GERMANY
CANADA
JAPAN
6
4
2
0
1971
1979
1985
1997
US “Exceptionality” : The Uninsured & Underinsured.
• U.S. health care eligibility is based on one or more of the following
three criteria:1) employment (private insurance); 2) very low – income
or welfare status (Medicaid); 3) stage of life (Medicare). Those without
jobs, not old, or ---paradoxically---not poor enough therefore often
have problems securing health insurance. Even many employed
people---- notably those in small business, contingently- or selfemployed---also often lack adequate (perhaps, any) coverage. (Slide
#11 provides the details)
• Since most of the uninsured are young, some analysts conclude that
lack of health care protection is not a serious national problem; after
all, the young typically do not need medical services nearly as often as
do older people.
• But two facts---highly relevant and deeply worrisome ---counter such
complacent assumptions: 1) the # of uninsured people is rising by
about1m per year(#12); 2) officially undefined & uncounted, the
underinsured probably number upwards of 100m. Inadequate coverage
is thus a problem arguably as serious as total lack of coverage.
HEALTH INSURANCE COVERAGE, 1997
8%
14%
Uninsured
Job based
Public
Individual
24%
54%
NONELDERLY AMERICANS W/OUT HEALTH INSURANCE
1987 – 1997
(CALCULATED AS PERCENTAGE OF THE POPULATION)
20
15
10
5
0
1987
1991
1995
1997
SOURCE: EBRI ISSUE BRIEF, #204 (DECEMBER)
What Factors Account for US “Exceptionality?”
• “Idealist” analysts identify cultural factors---notably, our individualist
ethos and suspicion of “big” government---as crucial in accounting for
U.S. “exceptionality.”
• “Structuralists” contend that our fragmented political system, with its
“checks and balances” and divided state - federal jurisdictions, is the
major source of American “exceptionally.”
• While not entirely discounting either of these positions, “materialists”
regard the political clout of the trillion
dollar a year health care industry as the
decisive factor obstructing reform.
Let’s
pare costs
by cutting
people.
How
incisive
!
U.S. “Exceptionality” :
Does the U.S. Have the “Best Health System in the World”?
• Partisans of the existing system claim that it is exceptional in the
affirmative sense of providing the world’s “best” care.
• Yet much depends on how “best” is defined. Thus, high – tech care,
fine medical schools, and large cadre of specialist physicians are often
cited as proof of U.S. excellence.
• American medical education is certainly---and rightfully---a matter of
national pride. Yet many experts question whether our emphases on
advanced technology & specialized manpower really are decisively
important, especially since other advanced societies attain comparable
health care outcomes at far less cost.
• Note, too, that the “best” U.S. care is only available to a small minority:
the Mayo Clinic and Sloan Kettering, nominally available to all, actually
cater to an elite clientele. Most Americans must therefore settle for
what is quite literally second best; that is, care that is good by
advanced world standards, but hardly in a class by itself.
The American Health Care Reform Drama
Act I: HSA (Enter Stage Center)
• While “reform” of the health care system has occurred. its primary
focus has not been on extending protection---as noted, the number of
uninsured continues to rise---but rather on curbing expenditures,
which had gone virtually out-of-control by the late 1980s.
• The problem arose from reliance on fee–for–service (FFS) indemnity
insurance, which tended to promote overuse. Indeed, in the FFS
(non)system, patients could be as unrestrained in seeking treatment as
physicians could be in providing it.
• President Clinton’s Health Security Act (HSA) of 1993 was initially
hailed as a sensible alternative. It would have: (1) extended health
coverage to all Americans; (2) established regional “purchasing
alliances” to spur price competition among newly organized networks
of providers.
• The HSA was doomed, however, by business opposition and by its
own bewildering complexity. Its rejection by Congress opened the way
to the current system of (mostly) for – profit managed care, in which
government has been a follower rather than a leader.
Act II: Managed Care (Enter Stage Right)
• Few concepts have sparked as much confusion as managed care--indeed, patients are often unaware that they are being treated in
managed care settings.* Here managed care will be defined as: health
care delivery arrangements designed to restrain provider prices and
regulate the availability of services.
• Managed care is thus a repudiation of the now rapidly fading FFS
system. The latter was open, loose, and inefficient. In contrast,
managed care deliverers monitor and regulate all health care services,
which are in principle only authorized when (1) covered by contract; (2)
deemed medically necessary; (3) provided at “capped,” discounted, or
otherwise reduced cost. Thus, managed care hospitalization
arrangements typically feature provider discounts and hospital stays
calculated in terms of the minimal in-patient recovery time.
• Although many regard its long term prospects as dubious, the new
system has certainly been a short term cost-saving success (#17).
However, as we shall see (#s19 - 23), there is bitter controversy about
whether managed care constitutes an adequate alternative to a
foreign -style national health care system.
* “Footnote” slide# 24 explains why managed care has been so elusive
a concept.
NATIONAL HEALTH EXPENDITURES (NHE), 1970 - 1996
14
12
NHE as % of
GDP
10
8
Average
annual growth
in NHE
6
4
2
0
1970
1980
1994
1996
SOURCE: HCFA, OFFICE OF THE
ACTUARY, NATIONAL HEALTH
STATISTICS GROUP
Managed Care: Bureaucratic and Competitive Dimensions
• Managed care incorporates both bureaucratic and competitive
elements. It is bureaucratic insofar as it features elaborate controls on
patients & providers in order to restrain costs. For example, under
managed care, patients typically must receive authorization from their
designated primary care physician before consulting specialists. The
primary care physician is thus obliged to function as a bureaucratic
“gatekeeper,” responsible for deciding whether patient resort to
expensive specialist services is medically necessary.
• Managed care is also competitive, however, in that physicians are often
obliged to provide services at lower-than-customary prices in order to
retain their standing as authorized managed care providers.
• More generally, managed care companies compete with one another,
and can lose crucial market share if their prices aren’t in line with
those of their competitors. Loss of market share devastates share
prices, and can threaten a company’s very existence: as profits
decline, firms lose the capacity to invest in up-to-date management
information technology, thereby endangering their ability to remain as
cost efficient as their competitors. The immediate result is likely to be
relatively high prices; the eventual result, bankruptcy or forced merger.
THE CASE FOR MANAGED CARE
• Its advocates see no alternative to managed care. In their view, failure
of the cumbersome Clinton plan confirmed the folly of relying on
government in the health care area. Private sector partisans see this
same message when they survey health care worldwide. They
conclude that governments everywhere add to the expense and detract
from the quality and efficiency of health care. In Britain, for example,
the National Health Service (NHS), the classic public sector model, has
recently required a bracing dose of private competition as a corrective
to its “socialist” planning procedures.
• Managed care proponents make the following specific points in
explaining why government “meddling” allegedly results in wasteful
muddle:
– The price mechanism is the only accurate and flexible indicator of
supply and demand. Without competitive market pricing as a guide
to resource allocation, planning defaults to “experts,” who, as
often as not, overestimate supply or underestimating demand.
(Cont’d on #20).
–
THE CASE FOR MANAGED CARE
– State-funded systems are notorious for their long waiting lists,
thereby supposedly confirming what happens when public
(mis)planning substitutes for private competition.
– Laws inevitably involve coercion, and coercion makes for bad
medicine; skilled professionals simply cannot be expected to
perform “as ordered.”
– Public health care policy inevitably reflects behind-the-scenes
political haggling among powerful & largely self-interested groups.
– Legislators lack either the time or expertise to make good laws in a
highly technical area requiring professional insight and experience.
– “Results are what count,” and by this inarguable standard,
managed care has already been a resounding success. It has
brought the rate of medical inflation down from formerly
stratospheric heights (#17), and has introduced market discipline
and rationality into health care delivery. It is not a perfect system---there is no such thing---but it effectively “gets the job done.”
– Whatever problems remain will fade over time. That is because,
unlike government, market suppliers must remain responsive to
buyers---in this case, employer – purchasers, who demand value for
money. It is this feature of the market system that is the best
guarantee of quality health care.
THE CASE AGAINST MANAGED CARE
• While the case against managed care can be classified into
three categories---political, systemic, and internal---in
reality, all three are grounded on a single insight. It is that
health care delivery is inevitably flawed if motivated
exclusively, or even predominately, by profit. While
financial incentives have a place in medicine, their use
must be balanced against patient welfare, as determined by
medical professionals.
• Those advocating unrestricted reliance on private sector
managed care have thus overextended an essentially
sound argument---in the language of logical analysis, they
have committed the fallacy of reductio ad absurdum. More
particularly, they have conflated the need to use resources
efficiently with the unrestrained search for profits. The
former can be reconciled with quality patient care through
careful planning, as in the Canadian system. The latter,
however, is without limits except as externally imposed.
THE CASE AGAINST MANAGED CARE
 Health care should never simply be treated as a commodity, as it is
under managed care: i.e., it is not a item purchased after a rational
comparison of alternatives. Instead, health care is a life necessity
dispensed by those whose professional judgments inevitably must
have immediate priority over the judgments of laymen, whether
“consumers” (i.e., patients), profit-oriented insurers, or government
bureaucrats. This point deserves emphasis because, under managed
care, immediate decisions made by physicians are indeed often
second-guessed, and sometimes vetoed, by those lacking medical
expertise, or on-site knowledge of the patient.
 This does not mean, however, that medical decisions should not be
strategically circumscribed by political ones. As noted, FFS indemnity
insurance had to be abandoned because of the adverse financial
consequences of virtually unrestricted physician autonomy. Needed,
then, is a system that allows maximum practicable professional
discretion, yet obliges physicians and medial administrators to
efficiently manage what are inevitably finite resources. (Cont’d on
#23.)
THE CASE AGAINST MANAGED CARE
 While its creation will of course be “no mean
trick,” intelligent implementation of this principle
would provide a humane and rational alternative to
both FFS and managed care.
 Such alternatives will be discussed in Module #9.
Why is”Managed Care” So Difficult to Understand?
• “Managed care” is a relative newcomer to the health care scene, so
that difficulties in grasping its meaning are understandable. The
concept itself is difficult to define (#16) , and the actual forms of
managed care organizations (MCO) are still in flux: hybrid MCOs
abound, with “textbook” types probably being the exception. (See #s
25 & 26 for more on this point.)
• Yet sheer novelty is only one reason why the concept of managed care
often evokes bewilderment. Less noticed but more basic may be the
cultural tendency to regard concepts as things rather than as
relationships, thereby deepening the confusion. Thus, “managed
care” and health maintenance organizations (HMOs) are most likely to
be envisaged, respectively, as a type of health care and an actual place
within which such care is provided. In reality, however, these concepts
have multiple meanings depending on the contexts in which they are
used. For example, “HMO” can refer to (a) a clinical setting; (b) insurer;
(c) institutionalized relationship between payers, insurers, and
providers. Semantic tangles of this sort will undoubtedly continue
pending adoption of a more refined nomenclature. Meanwhile, a high
level of “contextual awareness” is obviously in order.
INDEPENDENT PRACTICE ASSOCIATION (IPA)
 Employer hires an HMO (insurer), which in turn pays an IPA a per patient
fee (“capitation”). The IPA then contracts with primary care M.D.s
on a capitated basis, while paying specialists on a discounted FFS
basis. IPAs also often pay “bonuses” to those providers who meet SPECIALISTS
quality and output standards. Participating physicians remain
“independent:” and may retain private practices and contract
w/ other HMOs.
X
INS. CONTRACT
EMPLOYER
X
HMO
CAPITATION
X
IPA
PURCHASER
IPAs are the fastest growing type of HMOs: by 1996 they
already had 26m members, and continue to grow rapidly.
They are popular w/ physicians because they allow them to
PREFERRED PROVIDER ORGANIZATION (PPO)
 Employer hires PPO (insurer), which in turn pays all contracted providers on a
discounted fee-for-service basis. In return providers benefit from increased
patient volume. While some PPOs have HMO-style gatekeepers, most allow
patients to directly consult specialists. Patients can also go outside the PPO
network, but must absorb a higher co-pay for doing so. This is a particularly
popular PPO feature, and has been emulated by so-called HMO point-of-service
(POS) plans. PPOs use utilization reviews and other practices
designed to assure quality and limit cost.
SPECIALISTS
X
INS. CONTRACT
EMPLOYER
PURCHASER
X
PPO
DISCOUNTED FFS
DISCOUNTED FFS
PPOs now enroll around 90m people; they tripled their
enrollments between 1990 and 1996. PPOs also are popular
with employers and with physicians, for whom increased
PRIMARY CARE