Hospitals are becoming increasingly centralized into multi-hospital systems whereas traditionally they have been autonomous and independent. A 1982 survey identified 256 multi-hospital systems managing 33 percent of the nation's acute care community hospitals. The average annual growth rate in the number of beds by nonprofit organizations in these multi-hospital systems was 3.5 percent between 1978 and 1982 compared with 4.8 percent for investor-owned organizations. Much of the growth in multi-hospital systems occurred through the acquisition of financially-troubled independent hospitals rather than construction of new hospitals.40 The largest multi-hospital chain in the United States is the Hospital Corporation of America, which operated 378 hospitals accounting for about 55,700 beds in 1984.41 For-profit facilities have always dominated the nursing home industry. Approximately 81 percent of nursing homes in 1984 were operated for-profit.42 HOW DO THE VETERANS ADMINISTRATION AND THE DEPARTMENT OF DEFENSE PROVIDE HEALTH CARE? The federal government established health care delivery systems for certain federal beneficiaries that are separate and distinct from the care delivered in the community by private hospitals and nursing homes. Major systems are operated by the VA and the DOD, while the Public Health Service also provides care to certain special populations, such as native Americans. We chose to focus on the VA and the DOD because of the relative size of these programs and to describe matters (such as resources, utilization, and financing issues) pertaining to them in this chapter. Veterans Administration Benefits for veterans, especially those with serviceconnected injuries, date back to the early days of the United States. Initially, such programs were primarily federal pension programs; whatever medical and hospital care veterans received was provided by states or communities. To meet the needs of the large numbers of war-injured veterans from the Civil War, two World Wars, and other conflicts, new facilities and services were developed. After these immediate needs were met, the system had excess capacity and medical benefits were extended to veterans with non-service-connected health needs who could not otherwise defray the costs of their medical care. Today, only a small portion of the total veteran population is served by the VA health system. For example, in fiscal year 1981 when there were 30 million veterans, only 10 percent used VA's health services. Further, 70 percent of the patients treated by the VA had problems unrelated to military service.43 VA facilities make up the largest medical care delivery system in the United States. In fiscal year 1984, the VA provided care in 172 hospitals, 226 outpatient clinics, 105 nursing home care units, and 16 domiciliary facilities.44 The VA's Department of Medicine and Surgery employed about 199,000 persons at the end of that year. The VA also awards contracts and grants to provide health care services in non-VA hospitals, community nursing homes, and state veterans' homes. Hospital and outpatient care is provided for certain dependents and survivors of veterans under the Civilian Health and Medical Program of the VA (CHAMPVA). During fiscal year 1984, the VA cared for approximately 1.3 million hospital inpatients in VA and non-VA facilities; more than 65,000 nursing home patients in VA and community facilities; and about 22,000 patients in VA domiciliaries. Also, VA provided about 18.6 million outpatient visits in fiscal year 1984. In fiscal year 1984, VA spent about $8.4 billion for medical care. 45 The VA is likely to experience pressures to expand in the 1980's. At the end of fiscal year 1981, 3.3 million or 11 percent of the veteran population was 65 years of age or older, and thus entitled to free hospital and nursing home care on a space available basis. By the turn of the century, VA estimates that the number of veterans 65 or older will increase to 9 million or one-third of the total veteran population.46 It is unclear whether the VA will attempt to handle the increased need for services through its own facilities or make greater use of non-VA contract services in the private sector. Department of Defense The military health care system is composed primarily of the direct care systems of the Army, Navy, and Air Force, and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). These systems operate to support military forces by providing comprehensive medical care to military members and other eligible beneficiaries. Specifically, the objectives of the military health care systems include --maintaining physically and mentally fit soldiers and trained health manpower to support combat, contingency, and mobilization plans; --providing care and treatment capabilities in a theatre of operations and in the United States for combat casualties; --providing health services for dependents of soldiers, retired members and their dependents, and dependents and survivors of deceased soldiers; and --providing a major incentive for members of the military, including health professionals, to select military service as a career. 47 The medical facilities within the direct care system range from small clinics with limited medical specialty capabilities to large hospitals with medical teaching programs. In 1983, there were 168 military hospitals and 520 freestanding clinics worldwide. Also, in 1983, the DOD system accounted for about 924,500 hospital admissions and more than 36.5 million 48 outpatient visits. The CHAMPUS program had its beginning in 1956 when dependents of active duty military personnel were authorized to receive medical services outside DOD facilities if such facilities were unavailable within the DOD system. In 1966, the program was expanded to provide medical care coverage from civilian sources to retired members, to their dependents, and to 49 dependents of deceased members. Under the program, CHAMPUS benefits were designed to be similar to those provided by comprehensive medical insurance plans, such as the high-option Government-wide Service Benefit Plan for federal employees administered by Blue Cross and Blue Shield. Benefits under the basic portion of the program cover both inpatient and outpatient medical care. In addition, a special program is provided for persons with physical or mental handicaps. CHAMPUS beneficiaries do not pay premiums but pay only when medical services are obtained. The costs for services are shared by the government and the beneficiary. Active-duty members are not eligible for CHAMPUS. Retirees and other beneficiaries lose CHAMPUS eligibility upon reaching age 65, when they are eligible for Medicare. In fiscal year 1984, DOD spent about $7.2 billion to provide health care for its beneficiaries.51 HOW DOES THE DELIVERY SYSTEM The manner in which health care has traditionally been delivered in the United States has contributed to rising health care expenditures. Methods of reimbursing both physicians and hospitals have not provided incentives for efficient delivery of In addition, changes in the nature of hospital services have tended to raise the costs of health care. The fee-for-service system of reimbursing physicians has provided incentives for them to provide more and more services, irrespective of need.52 According to the AMA, in 1983, fee-for-service was the dominant method of payment to solo practitioners, who comprised nearly 49 percent of all physicians. In addition, 34 percent of all non-solo physicians were reimbursed on a fee-for-service basis in 1983. AMA data also indicate that the number of physicians in solo practice has declined slightly and that in 1983, 52 percent of all non-solo physicians were paid on a salary basis.53 The AMA also noted other significant trends in medical practice arrangements. For example, in 1983, 54 percent of physicians were in professional corporations compared with 31 percent in 1975. The AMA attributes this, in part, to the growth in the supply of physicians. In response to increasing competition, some physicians have also begun to provide services in new practice settings, such as free-standing, primary care 55 centers or emergency centers. 54 The increased use of hospitals has contributed significantly to higher health care spending in general and higher hospital costs in particular. In the past, cost-based reimbursement systems (discussed in ch. 5) did not reward economy.56 Moreover, hospitals have changed as a result of rapid advances in technological and medical research.57 care. An example of one such change is the development of ICUS, which use far more resources than ordinary hospital 58 ICU care has become the standard method of treatment for many medical problems despite the absence of studies of efficacy or cost-effectiveness.59 A 1984 study done by the Office of Technology Assessment found that in 1982 ICUs and coronary care unit (CCU) beds comprised only about 6 percent of hospital beds; however, they accounted for over 15 percent of total inpatient hospital costs, or about $4.7 billion.60 Because of the expense associated with CCUS, attempts have been made to improve the diagnostic accuracy of tests used to determine whether or not a patient needs intensive coronary Standard medical practice currently results in hospitalization of 1.5 million suspected heart attack cases in CCUS. A 1985 study concluded that 540,000 of these patients, or 36 percent, could be cared for in intermediate care units at significant savings and without compromising patient care if electrocardiograms were used to predict the likelihood of serious complications. 61 Another factor that affects costs of delivering health care, particularly hospital costs, relates to kidney transplants. Some contend that transplantation is less costly in the long run than dialysis. Information presented in 1983 congressional testimony before the U.S. House of Representatives indicated that over a 10-year period, kidney transplants for those patients expected to undergo renal dialysis would save about $13 million for each 100 patients.62 Since many of the estimated 87,000 patients on dialysis in 1984 were potential candidates for transplants, the cost savings appear to be substantial.63 The amount of care provided to the elderly, who consume a disappropriate share of the health care dollar in general, has also increased health care spending. For example, a 1973 study of the Medicare population found that people who died during 1967 comprised 5 percent of enrollees but accounted for about 22 64 percent of program expenditures. A later study using 1978 Medicare data found similar results.65 In 1978, the Medicare program spent an average of $4,527 for each decedent beneficiary in their last year of life. This expenditure was more than 6 times greater than the amount spent 66 per beneficiary for survivors. To a large extent, this reflects the intense use of expensive hospital care in the final months. For example, hospital reimbursements in the last 60 days of life accounted for about 50 percent of all hospital expenses per beneficiary in the last year.67 Besides the elderly, several other studies have documented the large amount of expenditures incurred by dying patients, in general. On the basis of 1981 data, one study concluded that terminal illness costs per day were as much as 40 percent higher than the average daily costs for all hospital patients in Michigan and Indiana. In addition, total per capita health care costs in these areas and Atlanta, Georgia for dying patients averaged nearly $16,000--78 percent of which was hospital related.68 A substantial amount of health care services are also frequently provided to patients who are permanently unconscious and to seriously ill newborns whose viability is questionable. Life-sustaining therapies, for instance, can be very expensive. Even when the therapy itself is not expensive, the total expense of maintaining a patient who would not survive without it for an extended period of time can be very costly. For example, it was estimated in 1979 that it costs about $280,000 for the first 2 years of care for a permanently unconscious patient.69 For seriously ill newborns, it has been estimated that 6 percent of them are placed in a neonatal ICU where they may stay from 8 to 18 days. The cost of such care is estimated at $8,000 for an average case; in 1978, $1.5 billion was spent on this care.70 However, the needs of these children often continue after their discharge since many survivors have long-term diseases or handicaps. 71 |