RVIEW

The United States made a commitment many years ago to expand access to high quality health care for Americans. Programs to increase the supply of physicians and hospitals, encourage the development of medical technology, and expand care for the poor and elderly demonstrate this commitment.

Innumerable benefits have resulted from the national priority given to health care. Life expectancy now approaches 75 years of age, infant mortality has declined, the prevalence of many communicable diseases have been reduced, and improved methods of diagnosing and treating illness have emerged. However, these benefits have been achieved at considerable expense as health care expenditures have spiralled and consumed an increasing percentage of the gross national product (GNP). (See ch. 1.)

THE PROBLEM: HOW TO CONSTRAIN HEALTH SPENDING
WHILE PRESERVING BENEFITS

National health expenditures have increased from
$27 billion or about 5 percent of the GNP in 1960
to over $387 billion or more than 10 percent of
the GNP in 1984. If these trends continue,
health care spending could reach $660 billion or
more than 11 percent of the GNP by 1990 and 14
percent of the GNP by the year 2000. While these
figures may seem high, the correct amount of the
nation's resources that should be devoted to
health care has not been determined.
Nevertheless, the public may not be receiving
benefits commensurate with the spending increases
that have occurred. (See ch. 1.)

Already a considerable amount of action has
taken place to deal with this problem. The
federal government instituted a prospective
payment system in the Medicare program in an
attempt to provide financial incentives to
hospitals to control spending. States and
private payers have also instituted reforms in
insurance coverage to encourage more efficient
provision of health care. Some progress has been

made: 1984 expenditures showed the slowest rate of growth (9.1 percent) in 20 years. However, spending increases continue to outpace the general inflation rate. If spending is to be controlled, more reforms are needed.

This situation confronts the nation with a complex problem. Efforts to control expenditures may adversely affect access to care and the quality of care provided. For example, increased deductibles and copayments in health insurance plans may result in some patients foregoing needed care because they are unable to pay for it. In turn, this may cause their medical condition to worsen and make subsequent treatment more difficult and expensive.

Prospective payment systems, such as Medicare's, create incentives for providers to cut back on services on which they lose money or not to admit patients whose treatment will be more costly than the payment received. Thus, access to and quality of health care may erode.

The nation has not yet had to determine how much
of its resources should be devoted to health
care. However, in the struggle to reduce high
budget deficits at all levels of government and
as industries strive to maintain their
competitiveness, the nation may be faced with
this difficult decision unless the cost issue is
confronted head on.

THE ISSUES

GAO identified 31 key health care cost

containment issues that American society needs to
address. These issues relate to the supply of
health resources, health care delivery, use of
the system, and health care financing. They were
arrived at by applying the following criteria:

--National significance of the issue.

--Magnitude of the potential cost savings.

--Extent of adverse impacts on access and quality.

--Feasibility.

--Time lag between implementation and impact on expenditures.

GAO concentrated its efforts on those providers accounting for the largest share of the health care dollar: hospitals, physicians, and nursing homes. Overall, nearly 70 cents of each dollar spent for health care in 1984 went to these providers.

Health resources issues

Key health resources issues focus on the

supply of hospital beds and the diffusion and use of medical technology.

Supply of hospital beds

There is a debate about the appropriate number of hospital beds which should exist. Some studies have shown that the United States has from about 69,000 to 264,000 excess hospital beds, depending on the criteria used. Although difficult to quantify, these studies indicate that too many hospital beds increase health care spending. However, the empirical evidence on the impact of health planning legislation to regulate bed supply shows that efforts to control the number of hospital beds have had little impact on costs. Options suggested by health experts in regard to bed supply include: closing beds or converting them to other uses, such as nursing home care; health planning; reducing federal subsidies for hospital construction; and increasing competition in the health care market to prompt hospitals to reduce any unneeded beds.

Medical technology

The rapid development of expensive medical technology, such as resonance scanners, kidney dialysis, and heart and liver transplants, while benefiting many patients, has also contributed to increased expenditures. The main problem results from the ease with which some technological advances have been introduced, diffused, and utilized before their effectiveness was clearly demonstrated. This problem could be alleviated by requiring that medical technology be thoroughly evaluated before extensive use and that expensive equipment and other resources be shared. (See ch. 2.)

Delivery systems issues

Key delivery systems issues center on the increased use of alternatives to conventional care and the trend toward proprietary operation of health care facilities.

Alternative delivery systems

The organization and structure of the nation's health care delivery system has, for the most part, contributed to health care being provided in a more costly manner or in the more costly settings. Under a fee-for-service arrangement, physicians have a disincentive to reduce the type and quantity of services provided. Also delivery of care in hospitals and nursing homes is expensive, and often alternative forms of care could be substituted.

In addition, continued delivery of substantial resources to terminally and other seriously ill patients is very costly. However, termination of services which may be of marginal benefit, raises serious legal, ethical, and religious issues.

One alternative for more efficiently delivering health care is to increase the use of programs to direct patients to the most appropriate level of services. Physicians or other health care personnel could function as "gatekeepers" to direct patients to the most appropriate long-term and primary care services. Such systems could prevent costly institutionalization when community-based care would suffice or could minimize health care spending by controlling access to more expensive specialists.

Another option is to increase the use of cost-effective alternative methods of delivering care. Outpatient services can be used in lieu of more expensive inpatient hospital services. Using such alternatives, however, which may be cost-effective on a per unit basis, may raise aggregate health care expenditures if they add to, rather than replace, existing services.

Profit-oriented health industry

A recent trend that could further affect how health care is delivered is the emergence of a profit-oriented health industry. Some contend

that this trend will adversely affect the quality of care patients receive out of providers' concerns to maximize profits. Others contend, however, that quality of care may improve due to increased competition, resulting in improved management and efficiency of operations. The effect of the delivery of care on a for-profit basis is the subject of considerable debate. Specifically, the issue involves whether for profit institutions can be more efficient without adversely affecting access and quality. (See ch. 3.)

Utilization issues

Utilization issues focus on reducing the

provision of inappropriate services stemming from a lack of cost-consciousness and other behaviors on the part of consumers and providers.

Increased use of the nation's health care system has contributed to rising health care expenditures. In 1983, there were more than 36 million hospital admissions, about 1.3 billion visits to physicians, and about 1.4 million persons residing in nursing homes. However, a substantial amount of such care has been found to be either medically unnecessary or inappropriate. For example, in 1984, the Health Care Financing Administration concluded that more then 30 million days of hospital care provided could have been eliminated. Widespread variances also occur in the amount of surgery performed.

Extensive health insurance coverage has encouraged patients to demand more health care and has reduced concern about the relative costs of care. Also, the cost and charge-based payment system normally used by health insurers creates incentives to furnish more care. This, coupled with physicians' concerns about malpractice suits, has tended to increase utilization of the system.

Reducing unnecessary use

Over the years, many efforts have been undertaken to curb unnecessary utilization. For example, cost sharing has been introduced into health insurance plans, utilization review programs for