CHAPTER 4

HEALTH CARE DELIVERY SYSTEMS

Medical care delivery systems emphasizing control, coordination, and systematic continuity of care have evolved from the traditional solo physician, fee-for-service system of delivery and are being used on a limited basis. These systems include prepaid group practice plans, foundations for medical care, and HMOs. These organizations generally use at least 20 percent less hospital days per 1,000 patients than the traditional delivery system. A 20-percent reduction in the need for existing beds for the AHA-registered shortterm hospitals means 190,000 beds could be available to meet future bed needs. At an estimated $15,000 construction cost of a patient bed area, use of these 190,000 beds to meet future bed needs would preclude the expenditure of $2.85 billion. It is unlikely that all 190,000 beds could be available because of facilities distribution problems and the improbability of providing these alternative medical care delivery systems to the entire population. However, this gross estimate does point out that wider use of delivery systems other than the traditional system may offer significant savings.

TRADITIONAL MEDICAL CARE DELIVERY SYSTEM

Although striking technological advances have been made under our present pluralistic medical care delivery system, it has come under criticism for lack of control and coordination.

The present medical care delivery system has been described as the result of a haphazard growth of uncoordinated institutions. The majority of physicians conduct solo feefor-service practices, and their level of compensation is directly related to the amount of services provided. Hospitals are generally independent of each other, independent of other providers of service, and free of any central control. There is virtually no economic competition among hospitals, and the investment risk has been reduced by the insurance reimbursement method which, in general, insures recovery of reasonable costs.

The traditional medical care delivery system is primarily oriented toward treatment during the acute phase of illness and does not generally offer the public a complete, coordinated spectrum of health care, including the maintenance of good health. Hospital use is more extensive than under better controlled and coordinated systems for the delivery of health services. There is a maldistribution of medical facilities and services; on one extreme, services are unavailable to segments of the population and, on the other extreme, there are many cases of unnecessary duplication of facilities and services.

ALTERNATIVE MEDICAL CARE DELIVERY SYSTEMS

Alternative methods of medical care delivery being used or advocated include prepaid group practice, foundations for medical care, HMOs, and health care corporations (HCCs). Many experts believe such systems must be used to significantly reduce the use of facilities and to reduce or contain health care costs.

Prepaid group practice

"Prepaid group practice" has been broadly defined as a medical care delivery system which accepts responsibility for the organization, financing, and delivery of health care services for a defined population. Essentially, it combines a financing mechanism (prepayment) with a particular mode of delivery (group practice) by means of a managerialadministrative organization responsible for insuring the availability of health services for a subscriber population. Prepaid group practice plans also generally provide comprehensive benefits including hospitalization; complete physician services; and diagnostic, laboratory, and X-ray services.

Physicians under a prepaid group practice plan are generally compensated by a means other than fees for services. Some plans compensate physicians by salary, others by allocating the fixed per capita sum for each subscriber (capitation payments) among the partners, and others by various incentive payments. In any event, these groups have an economic incentive to deliver the most appropriate and least costly services.

The number of prepaid group practice plans and their members varies depending on definition. On the basis of an SSA research report published in March 1971 with data as of the end of 1968 and updated statistics obtained during our study, we estimate that in early 1972 there were 27 (counting Kaiser-Permanente as six separate plans) operational community prepaid group plans serving a membership of 3.4 million. Also the SSA research report estimates that at the end of 1968 there were 101 employer-employee-union group practice plans serving a membership of 1.6 million and 11 private prepaid group medical clinics serving about 150,000. A recent report prepared by the New York State Health Planning Commission estimates there are 30 additional community prepaid group plans in various stages of development in various States.

Various studies have shown that prepaid group practice plan members have substantially lower hospital use rates than members of traditional insurance plans. Statistics often quoted are those from an HEW report for FEP, which, with over 8 million employees, annuitants, and their dependents, is the largest voluntary health insurance program in the world. In 1970 approximately 4.7 percent of the program population was enrolled in 14 group practice plans. A comparison of FEP use data indicates that under the Blue CrossBlue Shield Plan and the Indemnity (Aetna) Plan, hospital use in terms of patient days per 1,000 insured persons has been twice as high as those under the prepaid group practice plans. This is shown below for nonmaternity hospital services under the high option of FEP.

Data indicates that the lower hospital use for group practice plans is not dependent on age differences since the inpatient day rate is about one-half the figure for Blue Cross and Indemnity (Aetna) for each age group and for each of the three patient categories: annuitants, active

employees, and dependents.

Using the Blue Cross Plan as the constant and adjusting the data for the other two plans to the annuitant, active employee, and dependent composition of the Blue Cross population, the comparative number of hospital days in 1968 per 1,000 patients is: Blue Cross, 924; Indemnity (Aetna), 934; prepaid group practice plans, 429.

As shown below, nonmaternity surgery experience indicates that prepaid group practice plans have lower inpatient surgery rates than Blue Cross-Blue Shield. The differences in inpatient rates by type of plan have been consistently different since FEP was initiated. The data has not been adjusted for differences in age, sex, or other population characteristics of the various plans.

Seven additional studies prepared by the Group Health Association of America, Inc., showed a range of 410 to 744 hospital days per 1,000 persons covered per year for prepaid group practice and a range of 534 to 1,167 days per 1,000 persons for the traditional fee-for-service system. For three of the studies, some adjustments were made for variations in population composition. However, generally the data was not adjusted. For five of the studies, the prepaid group practice members used at least 100 fewer hospital days per 1,000 persons than patients under traditional fee-forservice systems. The other two studies showed no significant differences in hospital use rates for subscribers to both types of plans. The use rates for the plans handling fee-for-service practices were significantly lower for these two studies than is usually found under Blue Cross-Blue Shield. The lower fee-for-service use rate for one study was accredited to a very active program by the labor union to control expenditures and to educate members.