2

6.6 million mentally retarded persons, 20 to 25 percent of whom
were moderately to profoundly retarded (i.e., IQ of less than
50).204 In 1977, HHS data indicated that, at that time, 750,000
persons with mental problems were living in nursing homes, 205
and about 187,000 mentally retarded individuals were living in
skilled nursing facilities and intermediate care facilities. 206
207

Efforts at deinstitutionalization. In the past, many mentally disabled persons were institutionalized. However, because of the humanitarian concern over the deplorable conditions in many of these facilities, new treatment methods and philosophies, and the potential for cost savings, efforts were made to place institutionalized mentally disabled patients in the community." 208

The Mental Retardation Facilities and Community Mental
Health Centers Construction Act of 1963, which was subsequently
repealed by the Omnibus Budget Reconciliation Act of 1981,
became the basis for a major part of the federal government's
involvement in "deinstitutionalization" of the mentally
disabled. Other federal programs, such as Medicaid and the
Supplemental Security Income (SSI) program, were later initiated
or amended to enable more mentally disabled persons to return to
the community. Deinstitutionalization was intended to enable
mentally disabled persons to be as independent and
self-supporting as possible by (1) preventing unnecessary
admissions and retentions in institutions, (2) finding and
developing appropriate care alternatives in the community, such
as day care and foster homes, and (3) improving conditions,
care, and treatment for those who need some level of

institutional care. 209 However, deinstitutionalization, among
other factors, has contributed to the rise in the number of
homeless persons.
210

In a

How effective are deinstitutionalization programs? 1977 report, we pointed out that deinstitutionalization efforts had returned many mentally disabled ill persons to communities. For example, the resident population in public mental hospitals has steadily declined nationwide from 505,000 persons in 1963211 to 120,000 persons in 1983.212 Furthermore, in 1967, about 193,000 persons were in public institutions for the mentally retarded. By 1982, the number had declined to

213

about 118,000 persons. 214

We were unable to identify reliable studies on the cost-effectiveness of deinstitutionalization programs. However, some state mental health officials have expressed confidence that community-based care is less expensive than institutional For example, the director of Vermont's community mental retardation program stated that the relative benefits of community vs. institutional care compelled policymakers to move people out of state institutions as rapidly as possible.215

care.

Use of delivery alternatives and other cost containment methods in the

federal direct care programs

In response to rising costs in the direct care programs, the VA and DOD have indicated that they have undertaken efforts that are designed to contain costs and maintain quality of care in their medical delivery programs.

VA use of alternative delivery

The VA said its efforts have included the use of alternative delivery methods, which include

--preadmission testing,

--outpatient care,

--ambulatory surgery for minor procedures,

--hospice,

--community-based mental health services,

--residential care and adult day care health center
programs as alternatives to the use of hospitals, and
nursing homes, and

In regard to the effectiveness of these programs, VA cited the following results:

--Preadmission testing resulted in a decrease of more than 2 days in the average length of a hospital stay from 1978 to 1982.

--Only 17 percent of mentally ill patients required in-
patient care if they were enrolled in a day treatment
program.

--The adult day care health centers program has permitted veterans to return to their own homes and also shortens the length of hospital stay.217

However, we recently reported to the Congress that patient stays in VA hospitals could be reduced substantially by, among other things, establishing more efficient patient management practices. Managers at the hospitals we visited had not fully implemented practices such as preadmission testing, and therefore 218 kept patients hospitalized longer than necessary.

DOD health care cost control

DOD also indicated that it has instituted programs to control health care costs in direct delivery of care and in CHAMPUS. Representatives from the Office of the Surgeons General of the Army, Navy, and Air Force related the following as examples of these efforts:

--expanding the use of outpatient surgery,

contracting for health care in lieu of building new
facilities,

--redistributing staff and resources to better satisfy
patient load on a system-wide basis,

--instituting preventive health programs,

--implementing family practice programs to increase the
efficiency of outpatient clinics, and

--reducing the amount of services provided to ineligibles through greater reliance on the Defense Enrollment Eligibility Reporting System (DEERS).

219

In addition, DOD has begun a series of demonstration projects that use alternative delivery methods in place of conventional care provided in the CHAMPUS program. Such efforts have included HMO and PPO demonstration initiatives. In addition, DOD is conducting an experiment in South Carolina using diagnosis related groups (DRGs) to pay non-military hospitals treating military beneficiaries. The DRG system being used is similar to the one used in the Medicare program. If the experiment is successful, DOD expects to implement the program on a national basis. Further, DOD has tightened up its regulations which allow beneficiaries to receive care in non-DOD facilities and has begun to reimburse for surgical procedures performed on an outpatient basis.220

DOD is also experimenting with certain budgeting techniques to control direct care and CHAMPUS costs. The direct care system and CHAMPUS are presently funded separately, which gives the area hospital commander little or no incentive to control CHAMPUS expenditures. In a departure from this historical funding method, DOD will institute a catchment area demonstration project. Under this project, the area hospital commander will be allocated the direct care facility's operating budget plus the estimated funds required to treat CHAMPUS eligibles in the hospital's catchment area. With the health care needs for the entire catchment area under the control of the hospital commander, DOD expects that federal funds will be more advantageously programmed and used, access to and quality of care will be improved, and the cost of care for both the beneficiaries and the federal government will be controlled.221

Other efforts to contain costs

In addition to the use of alternative methods of delivering health care, other efforts have been adopted to contain costs in the direct care delivery programs. One such effort was the result of legislation enacted that requires VA and DOD to share their medical resources.

Health planning legislation (discussed on pp. 87-88) did not apply to VA or DOD health care facilities. Nevertheless, the appropriate acquisition and use of medical resources in the federal direct care delivery sector has concerned the Congress and has received increased attention as these agencies' health care costs have escalated. One way the Congress has attempted to control expenditures in the direct care delivery sector has been by authorizing DOD and VA to share their medical resources.

Although authority for federal agencies to share resources has existed for many years, no law required such sharing. Federal agencies did not establish effective sharing programs because they believed that their primary missions were specific beneficiaries and that providing care for another agency's beneficiaries would hinder this. As a result, many opportunities to share resources, particularly in federal hospitals, were hindered or foregone, according to our series of reports between 1977 and 1979.*

In response to our recommendations, the Congress enacted the Veterans Administration and Department of Defense Health Resources Sharing and Emergency Operations Act (Public Law 97-174) in 1982. The act included a legislative mandate for sharing between VA and DOD and created a joint VA/DOD Health Care Resources Sharing Committee. CBO noted that this legislation could result in substantial savings to the federal government, but was unable to estimate the magnitude of savings.

*We have issued the following reports on interagency sharing of federal medical resources: Sharing Cardiac Catheterization Services: A Way to Improve Patient Care and Reduce Costs (HRD-78-14, Nov. 17, 1977); Computed Tomography Scanners: Opportunity for Coordinated Federal Planning Before Substantial Acquisitions (HRD-78-41, Jan. 30, 1978); Legislation Needed to Encourage Better Use of Federal Medical Resources and Remove Obstacles to Interagency Sharing (HRD-78-54, June 14, 1978); and Federal Hospitals Could Improve Certain Cancer Treatment Capability by Sharing (HRD-79-42, Feb. 7, 1979).

We have long advocated maximum sharing of medical resources among federal agencies, and VA and DOD have begun to take some positive actions in this direction.

Besides the use of alternative delivery methods and the sharing legislation, the VA and DOD have adopted other cost-containment measures. Such efforts include utilization review programs in VA and DOD facilities and health promotion programs.

WHAT PROBLEMS EXIST IN THE WAY HEALTH CARE

IS DELIVERED IN THE UNITED STATES?

For the most part, the organization and structure of the nation's traditional delivery system, together with the characteristics of the medical care market, often results in health care being provided a more costly manner and/or in more costly settings.

Physicians

Under the fee-for-service system of delivering health care, physicians have a disincentive to reduce the type and quantity of services provided. However, the increased supply of physicians and the competition for patients is resulting in some physicians entering into alternative practice modes, such as HMOS, in which they are paid on either a salaried or capitated basis. Under these arrangements, physicians have little incentive to provide more medical services than needed. However, the fee-for-service system remains as the predominant form of medical practice and alternative methods of delivering health care do not appear to be utilized to the extent possible. For example, in fiscal year 1983, only about 2 percent of the Medicare population was enrolled in HMOs. This is partly due to reluctance on the part of Medicare recipients to change to a system which precludes them from choosing their own provider. Hospitals

Hospitals have emerged as sophisticated institutions for the delivery of health care where complex technology can be employed to deal with virtually every known ailment or lifethreatening condition. However, such care is expensive. There are, however, potentially less costly alternatives to hospital care for certain conditions and treatments. Unfortunately, many of these alternatives have not been used to the extent possible due to incentives that have encouraged the use of expensive hospital care and the prestige associated with maintaining large tertiary teaching facilities.