144 unit 2 | Working Within the Organization
3.Individuals want different services or have
different preferences.Some people choose
alternative treatment modalities such as
acupuncture, herbal therapy, or massage therapy
rather than traditional health care. Health-care
services are marketed extensively.
Regulation and Competition
During the past three decades, federal and state
governments have attempted to restrain the cost of
health care by focusing.Regulationattempts to
control cost through government actions;competi-
tion uses market forces. Competition can drive
aspects of health care through consumers,
providers, and suppliers. Among the attempts to
control cost were:
1.Medicare Prospective Payment System (PPS).
In 1983 the federal government changed its
method of paying hospitals for treating
Medicare patients. Instead of paying for actual
costs, the PPS pays hospitals a fixed, predeter-
mined sum for a particular admission. If a hos-
pital can provide the service at a cost below the
fixed amount, it pockets the difference. If more
resources and money are used than the prede-
termined amount, the hospital incurs a loss.
2.DRGs.Tied to the PPS, DRGs are the patient
classification systems by which the Medicare
PPS determines payment. Each of the
495 DRGs represents a particular case type.
3.Managed care.Managed care is a system of
health care that combines the financing and
delivery of health services into a single entity.
Currently, more than 75% of people with pri-
vate health insurance are enrolled in managed
care plans. Managed care plans are seen as cost-
saving alternatives to traditional fee-for-service
delivery systems. Through provider networks
and selective provider contracting, they attempt
to control resource use and health-care costs
(Chang, Price, & Pfoutz, 2001). Figure 10.2
depicts the current factors increasing and
containing health-care costs.
4.Cost sharing.With rising health-care costs,
employers purchasing health plans have begun
to shift some of the increase cost in premiums,
prescriptions, and specialty services to employ-
ees. Higher cost for consumers and shifting
financial burdens have left more Americans
without health-care coverage.
5.Medical savings accounts (MSA).As a regula-
tory tool, MSAs are a cost-sharing method for
incentivizing consumers to plan and share in
the cost of their own health-care expenditures.
Money that would normally be spent on
health-care premiums by the employer-
consumer is deposited into an MSA. Accounts
created under the Medicare Modernization
Act of 2003 are the property of the employee-
consumer, giving more choice into how and
where the money is spent. The account is tax-
deferred until it is used for allowable health-
related spending as in high-deductable health
plans and tax-deferred plans. Other types of
consumer-directed plans exist, such as the
flexible spending account, health reimburse-
ment account, and medical saving accounts, all
of which have stipulations for use.Factors Increasing Costs
- Expansion of national economy
- General inflation
- Aging population
- Growth of third-party payments
- Employer-provided health insurance
- Tax deduction for medical expenses
- Increased costs of labor and equipment
- Expansion of medical technology
and products - Malpractice insurance and litigation
Factors Containing Costs
- Federal economic stabilization program
- Voluntary effort hospital regulation program
- State-level health-care payment programs
- Medicare prospective payment system (PPS)
with payments of fixed amount per admission - Diagnostic-related groups (DRGs) for
hospital payments - Resource-based relative value scale (RBRVS)
for physician payments - Managed care plans
Figure 10.2Factors affecting the cost of health care.
(From Chang, C.F., Price, S.A., & Pfoutz, S.K. [2001].
Economics and Nursing: Critical Professional Issues.
Philadelphia: FA Davis, p. 79.)