Santerre Neun - Chapter 4

Chapter 4
Health Care
Systems
and Institutions
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Elements of a Health Care System
• Health care system

– Deals with the production, consumption, and
distribution of health care services in a society
• Structure
– Determines who actually makes the following
choices
• What medical goods to produce?
• How to produce?
• Who should receive medical care?
• Centralized
– Choices are decided by a government, or a
central authority
– Pros
• Is more capable of distributing output more
uniformly
• Has greater ability to exploit any large-sized
economies
– Cons
• Lacks the competitive incentive to innovate
• Faces high costs of collecting information about
consumer needs
• Decentralized
– Individual consumers and health care
providers interact in the market
– Pros
• May provide more alternatives and innovation
– Cons
• Incurs high costs due to:
– Economies of size
– Nonuniformity
– Lack of coordination
• Health care systems are huge, complex,
and constantly changing as they respond
to:
– Economic forces
– Technological forces
– Social forces
– Historical forces
Figure 4.1 - A Model of a Health Care
System
Premiums
Sponsor Insurers or third-party payers
M ble
ge
s
va
icie
REIMBURSEMENT
on
era
ria
FINANCING
vid iums
ey p a y
pol
cov
(fi me
Cla
Lo
ual
xe n
—i Prem
Ta wa
we
nce
im
d o ts)
xe ge
s
r
s
r
ura
ndi
Ins
s
Medical services Health care providers

Patients (e.g., hospitals
or and physicians)
Out-of-pocket fees or
Consumers
producers
PRODUCTION
The Role and Financing Methods
of Third-Party Payers
• Third-party payers
– Are private health insurance companies or the
government
– Are intermediaries between the consumer and
the health care producer
– Monitor the behavior of health care providers
as a means of controlling medical costs
– Are responsible for managing the financial risk
associated with the purchase of medical
services
Role and Financing Methods
of Third-Party Payers
• Private health insurance company
– The consumer pays a premium in exchange
for some agreed-upon amount of medical
insurance coverage
• Government / Public health insurance
company
– Financing of medical care insurance comes
from taxes
Table 4.1 - A Comparison of Health
Care Systems
Click here to view the image
Risk Management, Reimbursement,
and Consumer Cost Sharing
• Reimbursement - Fixed payment
– Independent of the amount of medical
services actually provided to patients
– If actual costs < fixed payment; surplus kept
by heath care providers
– If actual cost > fixed payment; cost overruns
incurred by health care providers
• Reimbursement - Variable payment
– Varies with the amount of medical services
actually delivered to patients
– Retrospective reimbursement
• Bills for actual costs incurred generated by health
care providers
– Fee-for-service payment
• A price paid for each unit of a medical service
Figure 4.2 -The likelihood of a large volume of medical
services for different reimbursement & consumer
copayment schemes
Type of reimbursement scheme
Fixed payment Variable payment
Low High
Low Likelihood likelihood
Out-of-pocket (1) (2)
price to
consumer
Very low Moderate
High Likelihood Likelihood
(3) (4)
• According to health policy makers, cost
sharing is required on the supply and/or
demand side of the market
– To reduce the potential for excess medical
services
• Canada
– Everyone receives same medical benefits
– No copayments
– Reimbursement takes place between the
government and health care providers
– Ministry of health in each province
– Canada Health Act of 1984
– Nearly complete autonomy is enjoyed by the
physicians in treating patients
• Germany
– Sickness Funds
• Collect employer and employee insurance
premiums
• Negotiate lump-sum funds
• Negotiate fixed prices for various procedures with
the local hospitals
• Negotiations are based on the diagnosis-related
group (DRG)
• Switzerland • United Kingdom
– Negotiations of – District health
medical fees authorities (DHAs)
– Managed care – Independent
arrangement
community-based
– Canton family practitioners
governments set
the prices for – Hospital trusts
services delivered
by public hospitals
The Production of Medical Services
• Inpatient care basis
– Hospitals or nursing homes
• Outpatient (ambulatory) care basis
– Physician clinics
– Outpatient department of a hospital
• At home: Preventive care and first aid
– Long-term or chronic care services
• Health care providers
– Hospital
• Freestanding, independent institution
• Part of a multihospital chain
– Physician
• Solo practice
• Group practice
• Employees of the hospital
• Health care services
– Private sector
• For-profit
• Not-for-profit
– Public sector
Institutional Differences: For-Profit vs.
Not-for-Profit Health Care Providers
For-profit firms Not-for-profit firms
•Initial capital •Initial capital
– Exchange funds for – Donations
ownership with the
private sector
•Profits
− Non-distribution
•Profits
constraint; profits cannot
– Earn accounting profits
be distributed to
and and distribute
employees, managers, or
cash dividends to their
company directors
owners
•Sell/liquidate the firm •Sell/liquidate the firm
– Easy • Very difficult
Institutional Differences: For-Profit vs.
Not-for-Profit Health Care Providers
For-profit firms Not-for-profit firms
•Taxes and subsidies •Taxes and subsidies
– No such exemptions as − Exempt from certain
the not-for-profit firms types of taxes
– Not eligible to receive − Eligible to receive
any subsidies from the subsidies from the
government government
•Types of goods and •Types of goods and
services provided services provided
– No restrictions by law on – Restricted by law
the types goods and
services
Why Are Not-for-Profit Health Care
Providers So Prevalent?
• Market failure in the private sector -
Factors
– Imperfect information possessed by the
consumers
– Equity
– Externalities
• Why the public sector does not simply take
over the allocation of health care
resources in the presence of market failure
– Consumer needs are heterogeneous
– Government faces difficulties in developing an
appropriate cost-effective overall policy that
meets the desires of all consumers
– Multitude of not-for-profit health care
providers
• Fit for heterogeneous demands
• If these market failures are substantial,
why is the for-profit sector allowed to
operate at all in the health care field?
– Consumer knowledge and preferences
– Some consumers are well-informed and look
for desired output at lowest price
Production of Health Care in the Four
Systems
• Canada
– Private sector
• Mostly not-for-profit hospitals
• Owned by charitable or religious organizations
• Germany
– Private sector
– Public hospitals control 51% of all hospital
beds
• Not-for-profit (35%)
• For-profit (13%)
Production of Health Care in the Four
Systems
• United Kingdom
– Private sector
– Mostly not-for-profit
– Until 1990, almost all hospitals were publicly
owned
• Switzerland
– Combination of private and public providers
Physician Choice & Referral
Practices
• Availability and utilization of medical
services depends on:
– The degree of physician choice a consumer
possesses
– The types of referral practices used within the
health care system
An Overview of the U.S. Health Care
System
• Health insurance covers about 84% of the
population
– Private (64%)
• For-profit commercial insurance
• Not-for-profit insurers (Blue Cross/Blue Shield)
– Public - provided by the government (31%)
• Medicare
• Medicaid
System
– Employment related coverage (55%)
• Employers – voluntary sponsor health insurance
plans
System
• The two major types of public health
insurance:
– Medicare - Uniform, national public health
insurance program for aged and disabled
individuals
• Two parts of Medicare
– Part A (Compulsory plan)
– Part B (Voluntary or supplemental plan)
– Medicaid - Provides coverage for certain
economically disadvantaged groups
Reimbursement for Health Care in
the U.S.
• Forms of reimbursements
– Fee-for-service
– Discounted fees
– Diagnosis-related group (DRG)
• Prospective basis for services provided to
Medicare patients
• 999 different payment categories
– Based on characteristics of the patient (age and sex),
primary and secondary diagnosis, and treatment
Reimbursement for Health Care in
the U.S.
• Selective contracting
– Health care providers competitively bid for the
right to treat Medicaid patients
– Recipients of Medicaid are limited in the
choice of health care provider
• Managed care organizations (MCOs)
– About 71% of all Medicaid recipients
– About 23% of all Medicare beneficiaries
Production of Health Services and
Provider Choice in the United States
• Primary care physicians
– Mostly in private for-profit sector and involved
in group practices
• Hospital industry
– Not-for-profit hospitals control around 70% of
all hospital beds
• Nursing home industry
– For-profit organizations owns more than 70%
of all nursing homes
Production of Health Services and
Provider Choice in the United States
• Up to early 1980s
– Most insured individuals had full choice of
health care providers
• Introduction of restrictive health insurance
plans and new government policies
– Limited the degree of consumers’ choice
– Prevalence of primary caregiver
• Gatekeeper of further availability of service
• Must refer the patient for additional care
– Lower premiums

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Chapter 4

• Health care system

Medical services Health care providers

Click here to view the image

Fixed payment Variable payment

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