services. Moreover, policymakers may be faced with examining the relative benefits of certain health services ranging from preventive programs to intensive care for the terminally ill. Given tightening budgetary constraints, policymakers may have to choose to reallocate health dollars to those services with the greatest potential payoff. We also made certain underlying assumptions regarding the future of the American health care system: --The federal government will continue to provide or help finance health care to certain populations, such as military personnel, veterans, the poor, the elderly, and other medically needy persons. --No system of national health insurance will be adopted in the near future. --American society will continue to place a high priority on quality health care. --Competition in the health care market will continue to increase. SCOPE AND METHODOLOGY We approached this effort from a national perspective to explore the impacts of cost-containment efforts on aggregate, not just federal, health care expenditures. In organizing the extensive information gathered for the report, we concentrated on those providers accounting for the greatest share of the health care dollar--hospitals, physicians, and nursing homes. The implications of past policies and the potential effects of future policies for expenditures in these three areas are discussed as they relate to health resources, delivery systems, utilization patterns, and financing. In chapter 1, we provide an overview of the health care sector, including a description of historical trends, current changes underway, and possible future developments. We also discuss the issues, highlight questions for policymakers to pursue, and present possible strategies for dealing with the issues. Chapters 2 through 5 contain our synthesis of the information used in framing these issues. The interrelationships and characteristics of the health care system make some overlap between major sections of the report inevitable. Other ways of organizing the report, such as focusing on the effects of major policies on the demand for and supply of health services, would not, however, have eliminated this overlap. NATURE OF THE DATA A significant problem encountered in this project related to the age and quality of information available. However, we made a substantial effort to include the most recent data in this report. In certain instances, recent data relating to expenditures, utilization, resources, and alternative delivery methods were not available. The national health expenditure data used in this report were the most recent available at the time we completed our work. As this report was going to publication, the Department of Health and Human Services (HHS) announced the availability of certain 1984 expenditure data which are scheduled for publication in the fall of 1985. We attempted to incorporate these expenditure data into the report when feasible. Because of inadequacies in some health care data, many of the studies in the literature on the effectiveness of cost-containment efforts are inconclusive. In some cases, only preliminary evaluations are available because of the newness of programs or initiatives. In other cases, data are scarce or inadequate to form the basis for definitive analyses. In addition, methodologies and data bases used to assess effectiveness are often inconsistent from study to study. Another problem related to the inherent difficulty in performing cost-effectiveness analyses in the health care area. On the cost side, it is sometimes difficult to gather data that unambiguously reflect the unit costs of providing care. For example, because of cross-subsidies of some services in hospitals, it may not be appropriate to compare the costs of care in hospitals with those in other facilities. In addition, although economic analysis might show certain alternative services to be less costly on a per unit basis, as the quantity of services provided increases when prices fall, the impact on total health care expenditures may be difficult to determine. In many cases, the net cost impact of alternatives is not yet known. On the benefits side, measurement of the quality of care frequently presents a significant methodological obstacle. Of paramount concern is the ultimate impact of changes in the health care system on health outcomes. Studies measuring health outcomes, however, are difficult, expensive, and take a long time to complete. Therefore, researchers frequently use proxy measures of quality but must often qualify their results because of uncertainty as to the equivalence of health status associated with different alternatives. We attempted to point out the problems in the various studies used and the appropriate cautions to be exercised in reaching conclusions, where appropriate, in this report. OVERVIEW OF THE PROBLEM National health expenditures increased from almost $27 billion, or 5.3 percent of GNP in 19601 to over $387 billion, or 10.6 percent of the GNP in 1984.2 Assuming that these trends continue as they are today, projections are that health care spending could reach $660 billion, or more than 11 percent of the GNP, by 1990,3 and 14 percent of the GNP by the year 2000.4 Although such spending appears to be quite high, no amount of the nation's resources is necessarily correct for health. Americans have traditionally placed great value on the ready availability of high quality health care and would not want to skimp or face, sharp reductions in the care available when they or their loved ones are ill. Nevertheless, many believe that the public may not be receiving sufficient benefits to justify the substantial spending increases that have occurred. Until the mid-1970's, the cost of care was not the central theme of health policy. Rather, health care policy focused on methods to expand access to and improve the quality of medical care, to control and eradicate communicable diseases, and to encourage the development of new technologies. To achieve these objectives, payment systems were designed to encourage expansion of the health care delivery system and patients' access to it. Providers were offered positive rewards through retrospective cost or charge-based reimbursement systems to participate in programs, such as Medicare and Medicaid, to expand medical care for the elderly and the poor. The national commitment to provide access to high quality health care has resulted in innumerable benefits to Americans. In a 1983 report, the Congressional Budget Office (CBO) stated that more than 95 percent of all elderly persons have hospital protection under Medicare and nearly the same number have protection against the costs of physicians' services.5 A large number of poor persons are also afforded health care under the Medicaid program. More than 21 million persons received Medicaid benefits in fiscal year 1983.6 Similarly, the advent of third-party insurance has afforded the majority of Americans access to and protection against the expense of medical care. In 1982, three-quarters of the population had some form of private health insurance covering hospitalization.7 Altogether, third-parties (including public and private payers) paid for over 92 percent of the hospital care delivered and nearly 72 percent of physicians' care in 1983.8 As a result of this national commitment to high quality health care, the health status of the American people has improved remarkably. For example, overall life expectancy has increased from 49.2 years at the turn of the century, to 68.2 years in 195010 and an estimated 74.7 years in 1983. 11 Especially impressive is the reduced mortality from many of the leading causes of death. However, with an economy that has been struggling with high budget deficits, the goals of "unlimited access" and "highest possible quality" are being reexamined. This situation presents us with the dilemma of deciding how to maintain access to the health care system and preserve its quality with the reality that the nation's financial resources are limited. A considerable amount of action to deal with this perplexing problem is taking place. The federal government instituted a prospective payment system for Medicare in 1983 in an attempt to provide financial incentives to hospitals to control spending. Many states have also taken action to control spending, particularly in their Medicaid programs. Similarly, private payers are instituting reforms in insurance coverage to encourage more efficient delivery of services. Some observers of the health care scene contend that efforts to control expenditures will result in some trade-offs that may adversely affect access to care and the quality of care provided. For example, many payers have increased cost-sharing in their medical plans. Thus, some patients may forego medical care because they are unable to pay for it. Further, prospective payment systems, such as Medicare's, which pay providers a pre-determined amount based on a patient's diagnosis, may result in services being withheld or premature discharges and subsequent readmissions. Other observers of the health care scene do not see all of the trade-offs as bad, however. For example, in the past, providers and patients had incentives to use the most costly health care services, such as inpatient hospital care, since most third-party payers reimbursed extensively for these services. However, admission to a hospital sometimes results in complications unrelated to the patient's original condition. Cost-containment efforts that encourage the use of outpatient services may obviate some of these problems; thus, some contend that quality of care may actually improve. Besides efforts to provide more efficient delivery of health care, providers, payers, and others are "wrestling" with a myriad of issues surrounding the provision of sophisticated and high cost care that may be of only marginal benefit to certain patients, such as the terminally ill and permanently unconscious. Today, a major Today, a major issue focuses on the appropriate use of such care. Confronted with legal, ethical, and religious issues as well as the constant threat of malpractice suits, providers are placed in a difficult position of trying to contain spending while using these resources efficiently. WHAT BENEFITS HAVE RESULTED FROM THE The health status of the American people has improved significantly during the past 20 years. This improvement has been demonstrated by increases in life expectancy, improvements in quality of life, and better access to medical care. Increases in life expectancy 12 Between the mid-1950's and the late 1960's, there was no real increase in life expectancy for any group of Americans. However, since 1968, death rates have been steadily decreasing at one of the fastest rates during this century. 131 The crude death rate, which stood at 1,719 per 100,000 persons in 190014 and 964 in 1950,15 was estimated at 859 in 1983.16 Even more impressive, however, was an overall 20-percent reduction in death rates between 1968 and 1980, including reduced mortality from many of the leading causes of death. For example, during that period, death rates declined While the decreases in death rates have benefited all age groups, particularly noteworthy have been the changes in death rates among infants and those over 65 years of age. Infant mortality, long viewed as an important indicator of the nation's health status, declined from a rate of 26 per 1,000 live births in 196018 to about 10.9 per 1,000 in 1983. 19 From 1955 to 1967, the United States lagged behind most other countries in the western world in increasing life expectancy. However, age-adjusted death rates among the elderly in the United States improved significantly beginning in 1968 and extending through the 1970's. 20 One of the factors contributing to the decline in death rates has been the use of antibiotics. For example, the use of penicillin has reduced the incidence of disabling rheumatic fever in patients with acute streptococcal infections (mostly sore throats) from over 30 cases per 1,000 in 1960 to less than 1 case per 10,000 in 1980. Similarly, prompt treatment of bloodstream meningococcal infections with antibiotics has led to a significant decrease in mortality rates. Before the advent of antibiotics, 50 to 90 percent of such patients died. Prompt antibiotic treatment of meningococcal infections reduces mortality rates in most hospitals to under 10 percent.21 |