Question

Suppose you meet an extraterrestrial alien. The alien is doing a research project on the health care

system in the United States since the 1960’s. The alien understands that disease exists and that

resources are scarce. Explain to the alien the foundational parts of our health care system AND how our

health care system has evolved since the 1960’s and why.

Answer 1

Today's health care system is not only complex, it is significantly different from "what it used to be." The changes are many and represent the major shifts involved in moving from an indemnity plan, based primarily on what the patient wanted, to a managed care system. The American health care system has not only undergone drastic changes within two generations but also continues to evolve. What are the factors that are driving the changes? How is health care delivered differently than in the past? How are the changes impacting families, both in Michigan and across the nation? What can be done? What does the future hold? All of these are important questions as our population continues to age, as health care costs continue to increase, as treatments become more costly, and as increasing numbers of people are without health care coverage. This article will address these five questions in order to improve awareness of the evolving reality of health care in the U. S. in a way that may help individuals and families better navigate the system.

What Factors Are Driving the Change?

Weiss and Lonnquist (2000) wrote about the key factors that shape a culture's approach to health and to its health care delivery system. In addition to cultural beliefs and values, there are important economic and situational factors. Many of the changes that have led to a managed care system are rooted deeply within economic realities. The spiraling cost of health care in the United States is evidenced by both per capita expenditures, and also by measuring health care expenditures in relationship to the Gross Domestic Product (GDP).

According to the Health Care Financing Administration (1998) increases in U. S. Health Expenditures are as follows:

National Health Care Expenditures: 1960 – 1996

Year	Billions	Per Capita
1960	$26.9	$141
1970	$73.2	$341
1980	$247.2	$1051
1990	$699.5	$2689
1996	$1035.1	$3708

In reviewing cross-cultural data, Weiss and Lonnquist (2000) described the United States as having the most expensive health care system in the world. During the last four decades, health care spending has grown more rapidly than any other sector of the economy.

Another way to view the rapid growth in expenditures, is to examine national health care expenditures in relationship to the GDP. According to Levit, Lazenby, and Braden (1998), for the past 40 years Americans have seen steady cost increases in excess of the growth of the rest of the economy. Health care's share of GDP went from 5 percent in 1960 to nearly 14 percent in 1990. Though stabilizing somewhat, the figure is anticipated to reach 15.6 percent or higher in 2010.

A variety of factors have influenced this rapid and significant growth. They include:

• Growth in the U. S. population, as well as an increasing number and percentage of elderly people in the population;
• Increases in key health care technologies and related costs;
• Growth of allied health care professions;
• Increased reliance on drugs and related pharmaceutical costs;
• Rising cost of individual and family health care insurance; and
• Higher malpractice insurance, case settlements, and jury awards.

Data on rising costs indicate the need for some type of action. The action taken by a health care system seeking correction and balance has been to look for ways to contain costs.

How Has Health Care Delivery Changed?

Dranove (2000) traces the economic evolution of American Health Care using the phrase "from Marcus Welby, M. D. to managed care." While it could appear a bit simplistic, it accurately defines the kinds of changes that the population has been experiencing over the years, some of which are confusing to many people and reflect very different ways of doing business in health care.

Marcus Welby was a fictional T. V. physician, played by Robert Young, who operated an office out of his home. In each episode, he displayed sincere caring and concern for each of his patients, following them from the examining room, to the hospital, and home. He had time for everyone and frequently spent a great deal of effort in helping them address not only physical concerns but also their overall life situations. Few of the episodes addressed who was paying the bill: the physician's bill, the hospital bill, the bill for the lab work, the bill for prescription medication, and—in today's world—the bill for home health care or nursing home care.

For most of the twentieth century the traditional U. S. health care system, according to Dranove (2000) had three defining features:

1. patients relied on autonomous physicians to act as their agents;
2. patients received complex care from independent, non profit hospitals; and
3. insurers did not intervene in medical decision making and reimbursed physicians, hospitals, and other providers on a fee-for-service basis.

Clearly, it was a situation that easily resulted in significant spiraling cost increases. Managed care—on the other hand—reflects a significant change in doing business that has gradually reached most areas of the health care arena. Dranove (2000) describes managed care as beginning with Health Maintenance Organizations (HMOs) as focusing on the following:

• optimizing health through preventive care;
• reducing overutilization and unnecessary utilization of expensive services; and
• standardizing and controlling the widely varying quality of care offered by traditional fee-for-service providers.

While many variations of managed care exist, Bodenheimer and Grumbach (1998) defined it quite simply as "organizations that foot the bill for a patient's care have taken the role of managing the patient's care. Payers and insurers no longer simply write checks; they become involved in decisions about how much care a patient receives, what kind, and by which providers" (p. 78).

The Institute for the Future (2000) described the growing influence of managed care as a system where future internal managers in provider organizations as well as external managers working for intermediaries and insurance plans will assume increasing authority in managing physicians' behavior and patient compliance. Good bye, Marcus Welby.

Managed care is not new however. Dranove (2000) traces its origins to the 1890s, when physicians agreed to provide prepaid medical care to lodges, fraternal orders, unions and other associations of workers. These groups already supplied members with social benefits such as life insurance, so paying for health care was a natural extension for them. Prepaid group practice also traces its beginnings to the early twentieth century when industrial medicine and health care began to be provided for a prepaid monthly fee. Currently, a significant portion (55 percent) of American health care insurance is provided by employers who now, along with employees, are responsible for paying the bill. Understandably, insurers who could offer to reduce or contain costs as much as possible appealed to many and have kept health insurance "more affordable."

Managed care advanced rapidly in the 1990s. According to a survey conducted by Business & Health Magazine (Employer Sponsored Health Benefits Survey, 1997), in 1990,62 percent of health benefit plans were of a "conventional" indemnity nature, and only 38 percent were characterized as managed care. In 1997 the ratio had shifted dramatically with only 18 percent defined as conventional and 82 percent as managed care. The Institute for the Future (2000) reported that employment-related health plans are being quickly converted to managed care plans or being discontinued. Other health insurance programs, such as Medicare and Medicaid as well as privately purchased plans (25 percent of the health care insurance total), also are covered increasingly by managed care programs.

In Michigan, the Access to Health Care Coalition (2002) estimates that for the current year the increase in health insurance costs will be 16 percent, or an average of $6,230 per employee. Such increases further widen the gap between the insured and the uninsured, with employers and employees struggling to keep up. In addition, the situation is worsened for families not covered under employment health insurance plans who struggle to pay their own health care and health insurance costs.

Hospital Admissions, Out-patient Surgeries & Home Health Care

The number of hospitals increased each year from the mid-1940s through 1979 when it began to decline (Weiss & Lonnquist, 2000). The following table from a publication by the American Hospital Association (1997) illustrates the fluctuation over four decades in the availability of hospitals, beds, and admissions:

American Hospital Trends: 1950 – 1996

Year	Hospitals	Beds	Admissions
1950	6,788	1.46 million	18.48 million
1960	6,876	1.66 million	25.03 million
1970	7,123	1.62 million	31.76 million
1980	6,965	1.37 million	38.89 million
1990	6,649	1.21 million	33.77 million
1996	6,201	1.06 million	33.31 million

In Michigan, the Access to Health Care Coalition (2002) recently reported similar decreases in the number of hospitals and beds available in the state. For example, in 2001 and 2002, two of the largest health care systems in southeastern Michigan (i.e., Metropolitan Detroit) were hit with significant losses that resulted in hospital and clinic closures. These closures result in additional strains on remaining hospitals, creating even greater stresses for an already fragile system.

While hospital closings and mergers create many issues and concerns, both the declining number of beds and the declining number of admissions is related to a significant decline in the number of in-patient surgeries. In 1985, in-patient surgeries totaled 82 percent and out-patient surgeries totaled 18 percent of all hospital surgical procedures (Weiss & Lonnquist, 2000). By 1995, the respective percentages of in-patient and out-patient surgeries were 42 percent and 58 percent. While the cost savings to insurers is real, although difficult to calculate, the impact on formal and informal after-care services and in home health care is equally difficult to estimate. Now many more patients return home on the same day of their surgeries. For individuals with familial and social supports this reality may not be as challenging as for patients who live alone and have little if any family or social network on which to depend.

Quality & Trust

Most research indicates that HMO enrollees and indemnity insurance enrollees are about equally satisfied with the quality of care in their plans—even patients who were sick when they were surveyed (Dranove, 2000; Weiss & Lonnquist, 2000). Trust however is another issue. Mechanic's elements of trust (cited in Dranove, 2000) are as follows:

• Patients trust that providers will act unselfishly, putting the patients' interest above their own
• Patients trust that providers have the technical competence necessary for proper diagnosis and treatment, and
• Patients trust that providers can control and coordinate the resources necessary to deliver quality care.

Survey results indicated that only 30 percent of patients in managed care plans trusted that their plan would do the right thing for their care, while 55 percent in traditional plans trusted their plans. Also, fewer than 30 percent of patients trusted their HMOs to control costs without adversely affecting quality of care (Dranove, 2000). Managed care has a long way to go in persuading the public that managed care is actually care management, although they frequently advertise high quality at a reasonable cost.