284
TOWARD A HEALTH CARE FINANCING STRATEGY FOR THE NATION* REPORT OF THE NATIONAL HEALTH POLICY SEMINAR INTRODUCTION MMOVEMENT TOWARD A health care financing system that would cover all Americans, which made substantial gains in the decades after the Second World War, has now bogged down. Some 35 to 40 million people are entirely outside the current system of health care finance without either public or private coverage. The private-employment-based insurance structure is fragmented. Medicare for the elderly, designed a quarter of a century ago, today fails to meet current needs resulting from demographic and technological changes. Medicaid funds, intended to protect the poor, have increasingly or disproportionately been diverted to plug the gaps in the federally-funded Medicare program, thereby undermining protection for millions of low income children and their families. The private employment-based structure has contributed to an erosion of the essential social risk pool through experience-rated selectivity of coverage. At the same time it has failed to respond to changes in labor market patterns, leaving members of the increasing part-time work force without any health insurance coverage. In 1965 the Council of the New York Academy of Medicine adopted a statement asserting that a major goal of our democratic society must be to assure all Americans "an equal opportunity to obtain a high quality of comprehensive health care," and that federal, state, and local governments have a major responsibility in assuring that such an opportunity exists. In moving to meet that goal, the Academy continued, the federal government should assume the responsibility for "establishing and maintaining standards of service as well as assuring an equitable basis of financing." The principle of rights was implicit. Unlike Canada and almost all western European countries, however, the United States does not recognize access to health care as a basic right of all residents. For those ineligible for Medicare or Medicaid, access depends on one's status as an employee (and often the size of the company one works *Approved by the Committee on Medicine in Society May 16, 1988. New York Academy of Medicine May 25, 1988.
Approved by the Council of the Bull. N.Y. Acad. Med.
FINANCING STRATEGY STRATEGY285 285
FINANCING
for), rather than on principles of social insurance that govern health care in other western nations. The last 23 years have been marked by rapid advances in medical technology, the aging of the population, the pressure of the federal deficit, the erosion of employer-based insurance benefits, and the inability of muchheralded "market forces" to control costs and create a system that serves the disenfranchised. Thus, events have bypassed and overwhelmed the patchwork structure that once appeared to be evolving toward a more unified system. It is time for a thoroughgoing reassessment and for a new approach. The following problems must be addressed: The shortcomings of the traditional, employer-based insurance system have contributed to the development of a huge pool of 35 to 40 million uninsured Americans. Among the factors that have led to the erosion and fragmentation of the private sector system is a provision of the Employee Retirement Income Security Act of 1974 (ERISA) exempting from state insurance laws those firms that elect to self-insure. This loophole has promoted a trend toward self-insurance and has discouraged the development of alternatives (such as state risk pools), which may serve primarily as a means of covering those who might afford insurance but cannot purchase it because pre-existing medical conditions make them "bad risks." Within the pool of 35 to 40 million people (basically the unemployed, the working poor, and their dependents) are important subsets-including the homeless, the mentally ill, drug abusers, and other chronically ill individuals -who need special kinds of care. These groups should not be segregated into a separate system of care through ad hoc financing schemes; the overall system must be versatile enough to respond to their special health care needs and to the stresses imposed on personnel who deal with their unique problems. Concurrent with the erosion of employer-based insurance, the federal deficit has led Congress to undertake budget cuts that have seriously damaged health protection and other social programs serving the disadvantaged. The over-65 population is not only increasing in size but is, as a group, living longer. This phenomenon of a "graying America" translates into growing demands for delivering and financing a more comprehensive system of long-term care, within the community as well as in institutions. Demands for diversified long-term care also have increased, as the consequences of AIDS become more widespread. Efforts to contain health costs, dating back to wage and price controls imposed in the early 1970s, have largely failed. Although annual rates of increase no longer register in double digits, they are still outpacing inflation in Vol. 66, No. 4, July-August 1990
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the rest of the economy by a considerable margin. To some extent this relates to factors peculiar to the health care delivery system, such as the seemingly endless rise in the cost of liability insurance and lack of suitable restraint in utilizing costly medical technology. Despite the proliferation of new delivery models which were supposed to reduce the need for regulatory action, there remain severe problems in the system, including oversupply of both hospital beds* and physicians, an undersupply of nursing and other health personnel, and inefficient flow of capital. Programs that do not relate directly to health care are outside the purview of this statement. However, we must call attention to the important interrelationships between health and other programs such as housing, education, and protection against environmental and occupational hazards, and the existence of serious deficiencies in the public policies that address those areas. There is also a need for more emphasis on disease prevention and health promotion. We believe the medical profession itself has a significant role to play in drawing public attention to those issues and in educating its patients regarding them. RECOMMENDATIONS
To address the problems described above, and to strive toward equity and cost-containment in the delivery of health services, we call for immediate action to create a health care financing system that will cover all Americans, including the 35 to 40 million who have no insurance. To maintain a degree of pluralism which takes into account the complexity of our governmental structures, we envision a shared federal-state responsibility with significant involvement of the private sector in both the financing and operational aspects of the system. We believe that the federal government must assume leadership, including responsibility for setting minimum standards and ensuring that, where appropriate, the states and the private sector participate and contribute. Expanded entitlement to health care. The federal government should assume the responsibility for setting national standards and overseeing implementation of a financing system that is: a) universal in scope (so that eligibility is not dependent on occupation, age, or income); b) comprehensive (including coverage of mental illness, substance abuse, and other commonly neglected health problems); and c) transferable across states. Federal respon*In New York City unusual conditions have produced a current shortage of acute care hospital beds, a situation which runs counter to the trend generally prevalent throughout the rest of the country. Bull. N.Y. Acad. Med.
FINANCING STRATEGY
FINANCING STRATEGY
287
sibility does not necessarily translate into total federal financing. Each state should be required to participate, to the extent of its fiscal capacity, with the federal government and the private sector filling in any gaps in coverage. States should be given latitude to design programs that would rely on a variety of public and private funding sources and should assume responsibility for program administration and cost containment. A system of comprehensive coverage should be phased in and provision should be made for periodic modification of the plan based on the results of experience in the states. This is consistent with the principles endorsed by the New York Academy of Medicine in 1965. It does not depart from that statement but rather reflects the fruit of 20 years of study and discussion of these issues. Such a system would cost more money, and the Academy recognizes the competing demands for funds. To offset the need for new dollars, it is essential to minimize duplication and inefficiencies in the system, such as overlapping regulatory mechanisms, duplicate insurance coverage, surplus facilities, and unnecessary diagnostic and therapeutic procedures. This will be particularly important at a time of rapid change to assure that funds now allocated for health care are spent efficiently. The federal and state governments must hold all elements of the system accountable for achieving these goals. The private sector has a continuing and important role to play in financing insurance coverage for all Americans. One step that should be taken immediately is to amend ERISA to prohibit such inequities as occur when businesses that opt for self-insurance are exempt from participating in state efforts to improve insurance coverage and benefits. Long-term care. The current system for financing long-term care for the elderly is inadequate. Medicare-the logical program to pay for such services -provides virtually no coverage of long-term care services. Medicaid, which was designed originally to serve the poor, has become the primary payer of long-term care, to the extent that today half of the available Medicaid dollars subsidize long-term care, primarily in institutions. Although in recent years a few states and private insurers have begun developing longterm care insurance, such products still are woefully inadequate. It is time to rebalance the responsibilities of the federal government and the states and private sector for financing long-term care and, at the same time, to shift the focus from care in institutions to home and community-based care. An equitable financing approach would be a shared system, with the proportions of public (federal and state) and private (insurance and out-ofVol. 66, No. 4, July-August 1990
288
HEALTH POLICY SEMINAR SEMINAR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
pocket) funds varying with each benefit, in accordance, once again, with principles established by the federal government. Examples of this type of approach can be found in the Harvard Medicare Project and the Brookings Institution Long-Term Care Study. A shared system should require maintenance of effort by the states, but we recognize that if the states assume more of the financial burden of paying for the uninsured and the underinsured, they may have less capacity to subsidize long-term care. The system, therefore, should take into consideration various elements of each state's total contribution. We recognize that there are significant deficiencies in the quality of institutional services for long-term care and believe it is important to address those problems, but we also believe that the major emphasis should be on developing innovative approaches to home and community-based care. The financing system that is ultimately designed must incorporate home and communitybased care and an array of social services that afford the elderly a greater degree of independence. Basic long-term care benefits should be covered by the public sector (Medicare), supplemented by a mixture of compulsory and voluntary participation by private insurers. Case management programs to determine the needs of each patient and to guide patients to the appropriate sources of services would have to be put in place in each locality. Medicare should cover at least a portion of the cost of extended nursing care, although residents of long term care facilities who are financially able might be required to make copayments to cover living expenses. Supplementary private health insurance with a tax subsidy could be designed to finance the services not covered by the public sector program. Payment reforms. Given the dissatisfaction with existing physician payment arrangements, which are complex and unfair to both doctors and patients, reform of the system is clearly needed. Some of the solutions under discussion are perceived as unattractive. A promising option, however, is structured negotiation, whereby one or more groups of physicians negotiates with one or more groups of payers about the terms and conditions of payment. Moving from unilateral toward bilateral arrangements will enhance the possibilities of achieving equity for physicians and patients as well as achieving more effective cost containment. On the hospital side we see an emerging consensus that cost-based reimbursement, on a pass-through basis, is no longer appropriate. We believe that reimbursement should be increasingly related to the scope and nature of the Bull. N.Y. Acad. Med.
FINANCING STRATEGY FINANCING STRATEGY
289 289
care being rendered, and should be limited to those services which are demonstrably appropriate. Prospective payment has promising features, although there are still several potential problem areas, including inequitable reimbursement for case mix and artificial incentives for hospitals to discharge patients prematurely and to readmit patients for short stays. At this point, we have had barely four years of documented experience with the federal prospective payment program; moreover, prospective payment plans vary widely from state to state and few cover all payers. The system should be carefully monitored and evaluated. An alternative approach that shows some promise is an all-payer, global budgeting system based on agreements negotiated between individual institutions and state agencies and other payers. Each payer would be responsible for a pro rata share of the negotiated budget that reflects the cost of caring for its own subscribers or beneficiaries. These payment reform proposals begin to address the problems that occur when only one part of the system is placed under pressure. That situation is not unlike "squeezing a balloon" -when there is pressure to cut inpatient utilization, for example, the use of outpatient services increases or, when HMOs market selectively to low risk groups, providers in other settings may suffer from adverse selection. Planning, regulation, and capital allocation. Because capital financing has such a major impact on the structure and cost of the health care system, controlling the flow of capital expenditures is essential. To do that effectively, a planning process must be in place. Experience has shown that the marketplace cannot be depended on to produce a balanced, equitable distribution of resources; therefore, the federal government has an obligation to assure the underpinnings of a planning system. The system ultimately put in place should contain the following four components: 1) a competent technical assessment of needs and resources, 2) a framework for identifying problems, 3) fiscal leverage for implementation, and 4) a framework for negotiations among the various interested parties. The system should scrupulously avoid the tendency to "micro-manage," thereby preventing providers from responding with flexibility to local needs. Moving to an insurance system that covers all Americans will require a policy process that promotes coherent decisions about adequate levels of funding and the appropriate array of institutional resources needed to meet the health needs of every community. Under such a system there will be a Vol. 66, No. 4, July-August 1990
290
HEALTH POLICY SEMINAR
SEMINAR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
continued need for a structured approach to the capital requirements of the system as well as disciplined efforts to evaluate the system's response to emerging needs. In the past, the concept of health planning was based on discrete agencies such as regional HSAs, which performed a useful but limited role in convening various constituencies to deal with the long-term configuration of the health care system. As the federal role is enhanced, decisions about allocating capital should continue to be made at the state or regional level. A fixed federal budget allocation for capital and operations could give state and regional bodies discretion in allocating funds to local institutions. Addressing the serious problems in the organization of the delivery system is a task that will challenge the nation. As financing mechanisms are strengthened, the problems inherent in the design of the delivery system will need to be dealt with more directly. At the present time, however, the health care landscape is changing rapidly and it is not yet clear to what extent a competitive strategy based on managed care efforts (such as HMOs, PPOs, aggressive utilization review activities, and ambulatory care initiatives) is achieving substantial social objectives. These efforts will require continuing assessment. It is time to assure that all Americans have access to adequate health care. The recommendations set forth here represent essential steps toward achieving this national goal. SUMMARY All people in the United States have a need for access to comprehensive high quality health care. Such need is so universal and fundamental, not only to personal health, but also to equitable pursuit of all opportunity in a modem and just society, that it is viewed increasingly in the context of rights. Although the current array of health financing programs -Medicare, Medicaid, employer-based medical care insurance benefits, private medical care insurance, and other current insurance methods-have major accomplishments to their credit in providing access to care, the United States falls short in guaranteeing that conceptual right. The result is that 35 to 40 million people in the United States have no insurance coverage at all for medical care expenses, and an unknown number of people have coverage that is grossly inadequate. In addition, our current medical care system is characterized by: significant barriers to equitable access to care, apart from lack of coverage of the direct costs; major deficiencies in services for rehabilitation, long-term care, and home care; extreme variablity in the utilization and quality of care. Bull. N.Y. Acad. Med.
FINANCING STRATEGY FINANCING~~
SRTG29
291
We also must acknowledge failures in fundamental programs that directly affect the health of our people, such as health manpower, housing, education, and protection against occupational and environmental hazards. However, these matters are outside the purview of this statement. We propose a program, under the leadership of the federal government, with state and local government and the private sector having significant roles to play, that will respond to these shortcomings in our health care system. The program would finance health services comprehensively and equitably, minimize duplication, inefficiency, and the uneven quality of care, and would emphasize health promotion and disease prevention. MEMBERS OF THE SEMINAR
Peter Rogatz, M.D. (Seminar Chairman). Vice President for Medical Affairs, Visiting Nurse Service of New York, New York, N.Y.*
Lawrence D. Brown, Ph.D. Professor and Head, Division of Health Administration, Columbia University School of Public Health, New York, N.Y.*
Duncan W. Clark, M.D. Emeritus Professor, Department of Preventive Medicine and Community Health, State University of New York Health Science Center at Brooklyn, N.Y.
Raymond Fink, Ph.D. Professor, Department of Community and Preventive Medicine, New York Medical College, Valhalla, N.Y.* Spencer Foreman, M.D. President, Montefiore Medical Center, Bronx, N.Y.* David Gould. Vice President, United Hospital Fund of New York, New York, N.Y.
Stephen Joseph, M.D. Commissioner, New York City Department of Health, New York, N.Y.* James R. Knickman, Ph.D. Professor, Graduate School of Public Administration, New York University, New York, N.Y.* Irving Lewis. Emeritus Professor, Department of Epidemiology and Social Medicine, Albert Einstein College of Medicine, Bronx, N.Y.* Herbert Lukashok. Associate Professor and Vice Chairman, Department of Epidemiology and Social Medicine, Albert Einstein College of Medicine, Bronx, N.Y.* Vol. 66, No. 4, July-August 1990
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Michael R. McGarvey, M.D. Chairman, Committee on Medicine in Society, the New York Academy of Medicine; Corporate Vice President, Health Affairs, Empire Blue Cross and Blue Shield, New York, N.Y.* Howard Newman, Esq. Dean, Graduate School of Public Administration, New York University, New York, N.Y.* Mary Ann Payne, M.D. President, the New York Academy of Medicine (1987-1988), New York; Clinical Emeritus Professor of Medicine, Cornell University Medical College, New York, N.Y.*
Nora Piore. Formerly Senior Fellow, United Hospital Fund of New York, New York, N.Y.* Bernard J. Pisani, M.D. Director Emeritus, Department of Obstetrics and Gynecology, St. Vincent's Hospital and Medical Center, New York, N.Y.*
Joseph Post, M.D. Professor of Clinical Medicine, New York University School of Medicine, New York, N.Y.* David Rothman, Ph.D. Director, The Center for the Study of Society and Medicine, Columbia University College of Physicians and Surgeons, New York, N.Y.* Louise B. Russell, Ph.D. Research Professor of Economics, Institute for Health Care Policy, Rutgers University, New Brunswick, N.J.
Cecil G. Sheps, M.D., M.P.H. Taylor Grandy Distinguished Professor of Social Medicine, Emeritus, The University of North Carolina at Chapel Hill, Health Services Research Center, Chapel Hill, N.C.* William C. Stubing. Director, the New York Academy of Medicine, New York, N.Y. (ex-officio) James R. Tallon, Jr. Majority Leader, New York State Assembly, Albany, N.Y.* David P. Willis. Editor, The Millbank Quarterly, New York, N.Y.* STAFF
Marvin Lieberman, Ph.D., Executive Secretary, Committee on Medicine in Society, the New York Academy of Medicine *Approved by the Committee on Medicine in Society May 16, 1988. Approved by the Council of the New York Academy of Medicine May 25, 1988.
Bull. N.Y. Acad. Med.
TOWARD A HEALTH CARE FINANCING STRATEGY FOR THE NATION* REPORT OF THE NATIONAL HEALTH POLICY SEMINAR INTRODUCTION MMOVEMENT TOWARD A health care financing system that would cover all Americans, which made substantial gains in the decades after the Second World War, has now bogged down. Some 35 to 40 million people are entirely outside the current system of health care finance without either public or private coverage. The private-employment-based insurance structure is fragmented. Medicare for the elderly, designed a quarter of a century ago, today fails to meet current needs resulting from demographic and technological changes. Medicaid funds, intended to protect the poor, have increasingly or disproportionately been diverted to plug the gaps in the federally-funded Medicare program, thereby undermining protection for millions of low income children and their families. The private employment-based structure has contributed to an erosion of the essential social risk pool through experience-rated selectivity of coverage. At the same time it has failed to respond to changes in labor market patterns, leaving members of the increasing part-time work force without any health insurance coverage. In 1965 the Council of the New York Academy of Medicine adopted a statement asserting that a major goal of our democratic society must be to assure all Americans "an equal opportunity to obtain a high quality of comprehensive health care," and that federal, state, and local governments have a major responsibility in assuring that such an opportunity exists. In moving to meet that goal, the Academy continued, the federal government should assume the responsibility for "establishing and maintaining standards of service as well as assuring an equitable basis of financing." The principle of rights was implicit. Unlike Canada and almost all western European countries, however, the United States does not recognize access to health care as a basic right of all residents. For those ineligible for Medicare or Medicaid, access depends on one's status as an employee (and often the size of the company one works *Approved by the Committee on Medicine in Society May 16, 1988. New York Academy of Medicine May 25, 1988.
Approved by the Council of the Bull. N.Y. Acad. Med.
FINANCING STRATEGY STRATEGY285 285
FINANCING
for), rather than on principles of social insurance that govern health care in other western nations. The last 23 years have been marked by rapid advances in medical technology, the aging of the population, the pressure of the federal deficit, the erosion of employer-based insurance benefits, and the inability of muchheralded "market forces" to control costs and create a system that serves the disenfranchised. Thus, events have bypassed and overwhelmed the patchwork structure that once appeared to be evolving toward a more unified system. It is time for a thoroughgoing reassessment and for a new approach. The following problems must be addressed: The shortcomings of the traditional, employer-based insurance system have contributed to the development of a huge pool of 35 to 40 million uninsured Americans. Among the factors that have led to the erosion and fragmentation of the private sector system is a provision of the Employee Retirement Income Security Act of 1974 (ERISA) exempting from state insurance laws those firms that elect to self-insure. This loophole has promoted a trend toward self-insurance and has discouraged the development of alternatives (such as state risk pools), which may serve primarily as a means of covering those who might afford insurance but cannot purchase it because pre-existing medical conditions make them "bad risks." Within the pool of 35 to 40 million people (basically the unemployed, the working poor, and their dependents) are important subsets-including the homeless, the mentally ill, drug abusers, and other chronically ill individuals -who need special kinds of care. These groups should not be segregated into a separate system of care through ad hoc financing schemes; the overall system must be versatile enough to respond to their special health care needs and to the stresses imposed on personnel who deal with their unique problems. Concurrent with the erosion of employer-based insurance, the federal deficit has led Congress to undertake budget cuts that have seriously damaged health protection and other social programs serving the disadvantaged. The over-65 population is not only increasing in size but is, as a group, living longer. This phenomenon of a "graying America" translates into growing demands for delivering and financing a more comprehensive system of long-term care, within the community as well as in institutions. Demands for diversified long-term care also have increased, as the consequences of AIDS become more widespread. Efforts to contain health costs, dating back to wage and price controls imposed in the early 1970s, have largely failed. Although annual rates of increase no longer register in double digits, they are still outpacing inflation in Vol. 66, No. 4, July-August 1990
286
HEALTH POLICY -SEMINAR
the rest of the economy by a considerable margin. To some extent this relates to factors peculiar to the health care delivery system, such as the seemingly endless rise in the cost of liability insurance and lack of suitable restraint in utilizing costly medical technology. Despite the proliferation of new delivery models which were supposed to reduce the need for regulatory action, there remain severe problems in the system, including oversupply of both hospital beds* and physicians, an undersupply of nursing and other health personnel, and inefficient flow of capital. Programs that do not relate directly to health care are outside the purview of this statement. However, we must call attention to the important interrelationships between health and other programs such as housing, education, and protection against environmental and occupational hazards, and the existence of serious deficiencies in the public policies that address those areas. There is also a need for more emphasis on disease prevention and health promotion. We believe the medical profession itself has a significant role to play in drawing public attention to those issues and in educating its patients regarding them. RECOMMENDATIONS
To address the problems described above, and to strive toward equity and cost-containment in the delivery of health services, we call for immediate action to create a health care financing system that will cover all Americans, including the 35 to 40 million who have no insurance. To maintain a degree of pluralism which takes into account the complexity of our governmental structures, we envision a shared federal-state responsibility with significant involvement of the private sector in both the financing and operational aspects of the system. We believe that the federal government must assume leadership, including responsibility for setting minimum standards and ensuring that, where appropriate, the states and the private sector participate and contribute. Expanded entitlement to health care. The federal government should assume the responsibility for setting national standards and overseeing implementation of a financing system that is: a) universal in scope (so that eligibility is not dependent on occupation, age, or income); b) comprehensive (including coverage of mental illness, substance abuse, and other commonly neglected health problems); and c) transferable across states. Federal respon*In New York City unusual conditions have produced a current shortage of acute care hospital beds, a situation which runs counter to the trend generally prevalent throughout the rest of the country. Bull. N.Y. Acad. Med.
FINANCING STRATEGY
FINANCING STRATEGY
287
sibility does not necessarily translate into total federal financing. Each state should be required to participate, to the extent of its fiscal capacity, with the federal government and the private sector filling in any gaps in coverage. States should be given latitude to design programs that would rely on a variety of public and private funding sources and should assume responsibility for program administration and cost containment. A system of comprehensive coverage should be phased in and provision should be made for periodic modification of the plan based on the results of experience in the states. This is consistent with the principles endorsed by the New York Academy of Medicine in 1965. It does not depart from that statement but rather reflects the fruit of 20 years of study and discussion of these issues. Such a system would cost more money, and the Academy recognizes the competing demands for funds. To offset the need for new dollars, it is essential to minimize duplication and inefficiencies in the system, such as overlapping regulatory mechanisms, duplicate insurance coverage, surplus facilities, and unnecessary diagnostic and therapeutic procedures. This will be particularly important at a time of rapid change to assure that funds now allocated for health care are spent efficiently. The federal and state governments must hold all elements of the system accountable for achieving these goals. The private sector has a continuing and important role to play in financing insurance coverage for all Americans. One step that should be taken immediately is to amend ERISA to prohibit such inequities as occur when businesses that opt for self-insurance are exempt from participating in state efforts to improve insurance coverage and benefits. Long-term care. The current system for financing long-term care for the elderly is inadequate. Medicare-the logical program to pay for such services -provides virtually no coverage of long-term care services. Medicaid, which was designed originally to serve the poor, has become the primary payer of long-term care, to the extent that today half of the available Medicaid dollars subsidize long-term care, primarily in institutions. Although in recent years a few states and private insurers have begun developing longterm care insurance, such products still are woefully inadequate. It is time to rebalance the responsibilities of the federal government and the states and private sector for financing long-term care and, at the same time, to shift the focus from care in institutions to home and community-based care. An equitable financing approach would be a shared system, with the proportions of public (federal and state) and private (insurance and out-ofVol. 66, No. 4, July-August 1990
288
HEALTH POLICY SEMINAR SEMINAR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
pocket) funds varying with each benefit, in accordance, once again, with principles established by the federal government. Examples of this type of approach can be found in the Harvard Medicare Project and the Brookings Institution Long-Term Care Study. A shared system should require maintenance of effort by the states, but we recognize that if the states assume more of the financial burden of paying for the uninsured and the underinsured, they may have less capacity to subsidize long-term care. The system, therefore, should take into consideration various elements of each state's total contribution. We recognize that there are significant deficiencies in the quality of institutional services for long-term care and believe it is important to address those problems, but we also believe that the major emphasis should be on developing innovative approaches to home and community-based care. The financing system that is ultimately designed must incorporate home and communitybased care and an array of social services that afford the elderly a greater degree of independence. Basic long-term care benefits should be covered by the public sector (Medicare), supplemented by a mixture of compulsory and voluntary participation by private insurers. Case management programs to determine the needs of each patient and to guide patients to the appropriate sources of services would have to be put in place in each locality. Medicare should cover at least a portion of the cost of extended nursing care, although residents of long term care facilities who are financially able might be required to make copayments to cover living expenses. Supplementary private health insurance with a tax subsidy could be designed to finance the services not covered by the public sector program. Payment reforms. Given the dissatisfaction with existing physician payment arrangements, which are complex and unfair to both doctors and patients, reform of the system is clearly needed. Some of the solutions under discussion are perceived as unattractive. A promising option, however, is structured negotiation, whereby one or more groups of physicians negotiates with one or more groups of payers about the terms and conditions of payment. Moving from unilateral toward bilateral arrangements will enhance the possibilities of achieving equity for physicians and patients as well as achieving more effective cost containment. On the hospital side we see an emerging consensus that cost-based reimbursement, on a pass-through basis, is no longer appropriate. We believe that reimbursement should be increasingly related to the scope and nature of the Bull. N.Y. Acad. Med.
FINANCING STRATEGY FINANCING STRATEGY
289 289
care being rendered, and should be limited to those services which are demonstrably appropriate. Prospective payment has promising features, although there are still several potential problem areas, including inequitable reimbursement for case mix and artificial incentives for hospitals to discharge patients prematurely and to readmit patients for short stays. At this point, we have had barely four years of documented experience with the federal prospective payment program; moreover, prospective payment plans vary widely from state to state and few cover all payers. The system should be carefully monitored and evaluated. An alternative approach that shows some promise is an all-payer, global budgeting system based on agreements negotiated between individual institutions and state agencies and other payers. Each payer would be responsible for a pro rata share of the negotiated budget that reflects the cost of caring for its own subscribers or beneficiaries. These payment reform proposals begin to address the problems that occur when only one part of the system is placed under pressure. That situation is not unlike "squeezing a balloon" -when there is pressure to cut inpatient utilization, for example, the use of outpatient services increases or, when HMOs market selectively to low risk groups, providers in other settings may suffer from adverse selection. Planning, regulation, and capital allocation. Because capital financing has such a major impact on the structure and cost of the health care system, controlling the flow of capital expenditures is essential. To do that effectively, a planning process must be in place. Experience has shown that the marketplace cannot be depended on to produce a balanced, equitable distribution of resources; therefore, the federal government has an obligation to assure the underpinnings of a planning system. The system ultimately put in place should contain the following four components: 1) a competent technical assessment of needs and resources, 2) a framework for identifying problems, 3) fiscal leverage for implementation, and 4) a framework for negotiations among the various interested parties. The system should scrupulously avoid the tendency to "micro-manage," thereby preventing providers from responding with flexibility to local needs. Moving to an insurance system that covers all Americans will require a policy process that promotes coherent decisions about adequate levels of funding and the appropriate array of institutional resources needed to meet the health needs of every community. Under such a system there will be a Vol. 66, No. 4, July-August 1990
290
HEALTH POLICY SEMINAR
SEMINAR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
continued need for a structured approach to the capital requirements of the system as well as disciplined efforts to evaluate the system's response to emerging needs. In the past, the concept of health planning was based on discrete agencies such as regional HSAs, which performed a useful but limited role in convening various constituencies to deal with the long-term configuration of the health care system. As the federal role is enhanced, decisions about allocating capital should continue to be made at the state or regional level. A fixed federal budget allocation for capital and operations could give state and regional bodies discretion in allocating funds to local institutions. Addressing the serious problems in the organization of the delivery system is a task that will challenge the nation. As financing mechanisms are strengthened, the problems inherent in the design of the delivery system will need to be dealt with more directly. At the present time, however, the health care landscape is changing rapidly and it is not yet clear to what extent a competitive strategy based on managed care efforts (such as HMOs, PPOs, aggressive utilization review activities, and ambulatory care initiatives) is achieving substantial social objectives. These efforts will require continuing assessment. It is time to assure that all Americans have access to adequate health care. The recommendations set forth here represent essential steps toward achieving this national goal. SUMMARY All people in the United States have a need for access to comprehensive high quality health care. Such need is so universal and fundamental, not only to personal health, but also to equitable pursuit of all opportunity in a modem and just society, that it is viewed increasingly in the context of rights. Although the current array of health financing programs -Medicare, Medicaid, employer-based medical care insurance benefits, private medical care insurance, and other current insurance methods-have major accomplishments to their credit in providing access to care, the United States falls short in guaranteeing that conceptual right. The result is that 35 to 40 million people in the United States have no insurance coverage at all for medical care expenses, and an unknown number of people have coverage that is grossly inadequate. In addition, our current medical care system is characterized by: significant barriers to equitable access to care, apart from lack of coverage of the direct costs; major deficiencies in services for rehabilitation, long-term care, and home care; extreme variablity in the utilization and quality of care. Bull. N.Y. Acad. Med.
FINANCING STRATEGY FINANCING~~
SRTG29
291
We also must acknowledge failures in fundamental programs that directly affect the health of our people, such as health manpower, housing, education, and protection against occupational and environmental hazards. However, these matters are outside the purview of this statement. We propose a program, under the leadership of the federal government, with state and local government and the private sector having significant roles to play, that will respond to these shortcomings in our health care system. The program would finance health services comprehensively and equitably, minimize duplication, inefficiency, and the uneven quality of care, and would emphasize health promotion and disease prevention. MEMBERS OF THE SEMINAR
Peter Rogatz, M.D. (Seminar Chairman). Vice President for Medical Affairs, Visiting Nurse Service of New York, New York, N.Y.*
Lawrence D. Brown, Ph.D. Professor and Head, Division of Health Administration, Columbia University School of Public Health, New York, N.Y.*
Duncan W. Clark, M.D. Emeritus Professor, Department of Preventive Medicine and Community Health, State University of New York Health Science Center at Brooklyn, N.Y.
Raymond Fink, Ph.D. Professor, Department of Community and Preventive Medicine, New York Medical College, Valhalla, N.Y.* Spencer Foreman, M.D. President, Montefiore Medical Center, Bronx, N.Y.* David Gould. Vice President, United Hospital Fund of New York, New York, N.Y.
Stephen Joseph, M.D. Commissioner, New York City Department of Health, New York, N.Y.* James R. Knickman, Ph.D. Professor, Graduate School of Public Administration, New York University, New York, N.Y.* Irving Lewis. Emeritus Professor, Department of Epidemiology and Social Medicine, Albert Einstein College of Medicine, Bronx, N.Y.* Herbert Lukashok. Associate Professor and Vice Chairman, Department of Epidemiology and Social Medicine, Albert Einstein College of Medicine, Bronx, N.Y.* Vol. 66, No. 4, July-August 1990
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Michael R. McGarvey, M.D. Chairman, Committee on Medicine in Society, the New York Academy of Medicine; Corporate Vice President, Health Affairs, Empire Blue Cross and Blue Shield, New York, N.Y.* Howard Newman, Esq. Dean, Graduate School of Public Administration, New York University, New York, N.Y.* Mary Ann Payne, M.D. President, the New York Academy of Medicine (1987-1988), New York; Clinical Emeritus Professor of Medicine, Cornell University Medical College, New York, N.Y.*
Nora Piore. Formerly Senior Fellow, United Hospital Fund of New York, New York, N.Y.* Bernard J. Pisani, M.D. Director Emeritus, Department of Obstetrics and Gynecology, St. Vincent's Hospital and Medical Center, New York, N.Y.*
Joseph Post, M.D. Professor of Clinical Medicine, New York University School of Medicine, New York, N.Y.* David Rothman, Ph.D. Director, The Center for the Study of Society and Medicine, Columbia University College of Physicians and Surgeons, New York, N.Y.* Louise B. Russell, Ph.D. Research Professor of Economics, Institute for Health Care Policy, Rutgers University, New Brunswick, N.J.
Cecil G. Sheps, M.D., M.P.H. Taylor Grandy Distinguished Professor of Social Medicine, Emeritus, The University of North Carolina at Chapel Hill, Health Services Research Center, Chapel Hill, N.C.* William C. Stubing. Director, the New York Academy of Medicine, New York, N.Y. (ex-officio) James R. Tallon, Jr. Majority Leader, New York State Assembly, Albany, N.Y.* David P. Willis. Editor, The Millbank Quarterly, New York, N.Y.* STAFF
Marvin Lieberman, Ph.D., Executive Secretary, Committee on Medicine in Society, the New York Academy of Medicine *Approved by the Committee on Medicine in Society May 16, 1988. Approved by the Council of the New York Academy of Medicine May 25, 1988.
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