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original Medicare program required participating hospitals and skilled nursing homes to maintain utilization review committees where physicians would review the necessity and quality of care rendered to hospitalized Medicare patients. As a result of the poor performance of hospital utilization review committees, the 1972 amendments to the Social Security Act established Professional Standards Review Organizations (PSRO's) to review the necessity and quality of care for Medicare, Medicaid, and Maternal and Child Health Program patients. PSRO's are to be established nationwide in each of some 200 designated areas and are to be composed of the physicians in the area who wish to participate. The legislation also called for the PSRO's to establish norms or benchmarks for care to be used as a basis for reviewing medical care.
There is considerable controversy regarding the probable effectiveness of PSRO's, which are only now beginning to operate in some areas of the country. While some would argue that establishing norms of care are essential in evaluating care rendered, some critics contend that such benchmarks tend to err on the side of being conservative, i.e. taking all possible steps in rendering medical care, hence their impact may be to increase the number of procedures performed on individual patients. Also, the question of peer review has been questioned by some because of the historical reluctance of medical professionals to criticize and penalize their peers. Health professionals may tend to give their peers considerable latitude in determining how best to deal with their patients. While it is conceded by many that such latitude is essential, it is also recognized by many that such an approach is not likely to depress the quantity of health services provided. There is little in the way of evaluation which demonstrates that either utilization review or PSRO's, to date, have been effective in reducing hospital admissions or the cost of health care.
An approach given considerable support recently has been the second consultation by a physician where another physician proposes to perform surgery. The basis for such support are recent studies done
in New York where it was found that second consultations reduced the amount of surgery that was performed. Although the findings have been challenged by some members of the medical profession, a number of insurers have included this option in their health insurance policies.
2. Cost sharing. Most of the available evidence shows that increasing the out-of-pocket costs of health care for consumers reduces or alters their use of health services. Conversely, increased insurance coverage increases consumer use of health services. A major cause of the increased use and cost of hospital services, for example, has been attributed by many experts to the increasing share of hospital bills that are paid by health insurance, both public and private. The sponsors of many major national health insurance proposals have included cost sharing by consumers in the proposals not only as a means of reducing the Federal share of the health costs, but as a means of lessening consumer demand. Recently, General Motors tried unsuccessfully to persuade
the United Auto Workers to include cost sharing in the form of deductibles and copayments as a method of containing costs. Consumer cost sharing is controversial, with critics claiming that it hits the poor the hardest, discourages people from seeking care when they need it, and is administratively cumbersome. They also argue that since providers are the major determiners of demand, any controls should be directed at providers rather than consumers. However, as noted above, studies do show that cost sharing may reduce costs.
E. Alternative Ways of Delivering Health Care
Many of the changes in the delivery of health care services which are intended to save money attempt to do so by substituting less expensive forms of treatment for more expensive ones and by changing patient and provider behavior. For example, there are attempts to provide treatment for particular medical problems on an outpatient or ambulatory care basis rather than providing them in a hospital or other institution. Efforts are being made to delegate tasks previously performed by physicians, dentists, and other health professionals to "extenders" who earn lower incomes than such health professionals. Through steps such as mergers, cooperative activities and consolidation of activities, providers attempt to avoid duplicative work and achieve greater economies of scale. In some instances, changes attempt to shift the burden of providing health care and maintaining health to a greater extent to the patient.
It should be noted that many measures which promise to contain costs may not achieve this result and, in certain instances, can have the opposite effect. If the lower cost service, such as a physician extender, is used to replace a higher cost service, then a savings would take place. However, if the lower cost service is provided in addition to the higher, aggregate spending would be increased. In addition, where cost saving approaches are introduced, there is no assurance that the savings that result will be transferred to consumers, but may be retained by the health industry. The following examples of cost-saving measures, therefore, should be considered only as those which have the potential for lowering overall health care costs and of lowering costs to individual consumers.
1. Health Maintenance Organization. There is considerable evidence that care provided through HMO's can be less expensive than that provided through fee-for-service insurance plans. Unlike fee-forservice medicine, HMO physicians' compensation is fixed and does not vary according to the volume of services they perform. Dr. Theodore Cooper, Assistant Secretary of HEW for Health, noted in November 1975: "Over all, HMO's appear to achieve cost savings of 10 to 30 percent, compared with traditional health care."
A California study (Roemer et al.) produced data on prepaid group practice HMO's, as compared with conventional patterns of medical
care. (Such costs comparisons commonly combine out-of-pocket expenditures with premiums to obtain the total cost of medical care.) The following table shows one of the findings of the study:
The National Advisory Commission on Health Manpower examined health care costs in California in 1965, comparing per capita costs for Kaiser Health Plan members with the per capita costs for all other persons in California. The Commission found:
Depending upon the figure used on non-Kaiser expendi-
The Social Security Administration, in a study published by Corbin and Krute, compared per capita Medicare reimbursements made to feefor-service providers and health maintenance organizations. Seven prepaid group practices were examined. Five of the seven had lower per capita costs than those experienced under the fee-for-service reimbursement system.
An important consideration in measuring costs of health maintenance organizations is the type of insurance with which it is compared. Studies show, for example, that increasing health insurance coverage increases the use of health services. The cost of health services provided by health mainenance organizations is most frequently compared with the cost of care provided under other relatively comprehensive health insurance plans, for example, those plans covering Federal employees and other groups with relatively broad health coverage. There may be a need for additional studies which compare the costs of care provided where persons are enrolled in health maintenance organizations with the costs of care provided to persons with less comprehensive insurance as well.
2. Home Care and Extended Care Facilities. Home care and extended care facilities allegedly reduce costs because certain types of illness that currently result in hospitalization may be treated equally
well at home or in an extended care facility.
However, it is not known how prevalent these types of illness may be. While the need for home care and nursing home care is substantial, especially among the elderly, relatively few of those who could benefit require hospitalization. experts contend that patients for whom hospitalization is justified on medical grounds will not, as a practical matter, be placed in another appropriate setting unless the hospital is operating at near capacity, requiring a serious search for alternatives, or unless incentives are changed, notably for physicians, to cause them to look for alternatives. Moreover, home health care programs that pay for housekeeping and other non-health services may be called on to make substantial expenditures for services now provided at no cost by friends, relatives and volunteers. There is little documentation showing the impact of home and extended care on the overall costs of health care.
3. Physician Extenders. For some time it has been acknowledged that physicians can delegate a substantial number of tasks that they have traditionally performed to well trained assistants, commonly referred to as physician extenders. With adequate support from physicians, physician extenders can diagnose and treat large numbers, estimated as high as 70 to 80 percent, of health problems which physicians have traditionally dealt with themselves. A study of physician extenders, commissioned by the Health Resources Administration of the U.S. Department of Health, Education and Welfare, concluded that "given the assumed task delegations and the expected level of acceptance, the median estimate of the need of physicians in the target years (1980, 1985, and 1990) could be lowered by as much as 22 percent." In a study reported in the "New England Journal of Medicine" in January of 1974, the addition of two physician extenders enabled two family practitioners to increase the number of families under their care by 22 percent in the course of a year.
There are few studies which have dealt extensively with the cost issue, although there are frequent claims that care provided by physician extenders is more economical. Obviously, their impact on health costs will depend on the effect they have on the overall supply of services and on the charges for their services. Similarly, questions remain concerning the training that should be required of physician extenders and the degree of physician supervision needed to protect the interests of the patient.
4. Surgical Centers and Ambulatory Surgery. Surgical centers are free-standing, ambulatory centers designed to perform minor, sameday surgery. Many are privately owned, frequently by physicians. Their principal benefits appear to be patient and physician convenience because of faster scheduling and cost savings. In one area studied, Phoenix, Arizona, it was found that the surgical center was charging less for similar operations and apparently had caused a reduction in prices charged for outpatient surgery by community hospitals in some instances.
However, comparisons based on charges are misleading because to a large extent the hospitals are paid by third parties on the basis
of their costs, which may be quite different from their charges. example, both a hospital and a surgical center may charge $100 for a specific surgical procedure. For the surgical center, the $100 charge is the amount that patients or their third parties are expected to pay. The hospital, on the other hand, is largely reimbursed on the basis of its costs, so that if the cost of performing the procedure in the hospital is more than the $100 surgical center charge, the hospital would be the more expensive of the two. Alternatively, if the hospital's costs were less than the $100 charge, the hospital would be the less expensive. Another complicating factor is that some of the overhead costs of a hospital that are paid in connection with a surgical stay will have to be paid by the cost-paying third parties, whether surgical patients go to that hospital or to a surgi-center. Studies to assess the impact of surgi-centers on health costs and the quality of care they afford are currently being carried out by the Department of HEW. In addition to surgical centers, ambulatory surgery can also be performed in outpatient departments or scheduled for the operating rooms of hospitals. Health maintenance organizations such as the Kaiser Health Plans frequently use both approaches as alternatives to hospitalizing patients.
5. Institutional Efforts to Improve Efficiency. In a number of instances, hospitals and other institutions have joined together to share services which have resulted in cost savings or cost containment. The most common arrangement, according to the American Hospital Association, is group purchasing, where a number of hospitals jointly purchase their supplies and some of their equipment. Other shared services include shared laundry services, food, and computer services, which have reduced unit costs. There are instances of hospitals forming consortia for the purpose of lowering clinical costs through such means as agreeing to close pediatric and maternity departments of member hospitals to eliminate an overall surplus of such services, and agreements to refrain from the establishment of duplicative, expensive equipment and services. There is no documentation of the impact these approaches have on the overall costs of care provided through the institutions involved.
F. Health Education and Self Care
Our behavior does affect our health. Recent studies by Lester Breslow and others in California showed that people live considerably longer and have considerably fewer health problems if they observe simple health habits such as getting the right amount of sleep, eating properly, and refraining from smoking and excessive drinking. However, we know relatively little about how to educate and motivate people to assume good health habits in the absence of excessively authoritarian measures.
Another dimension of health education relates to the proper use of health services. Some experts contend that informed health care utilization, e.g. seeing doctors early in the course of medical problems, can lessen the seriousness of such problems and lessen the cost of treatment. As noted in the following section on preventive services, there