THE STRUCTURE OF THE STRUCTURE OF HEALTH CARE HEALTH CARE

SYSTEMSSYSTEMS

Elements of a Health Care Elements of a Health Care SystemSystem

HHealth care system consists of the organizational ealth care system consists of the organizational arrangements and processes through which a society arrangements and processes through which a society makes choices concerning the makes choices concerning the production, production, consumption, and distribution of health care consumption, and distribution of health care servicesservices. .

How a health care system is structured is important How a health care system is structured is important because it determines who actually makes the because it determines who actually makes the choices concerning the basic questions, such as what choices concerning the basic questions, such as what medical goods to produce and who should receive medical goods to produce and who should receive medical care. At one extreme, the health care medical care. At one extreme, the health care system might be structured such that choices are system might be structured such that choices are decided by a centralized government, or authority, decided by a centralized government, or authority, through a single individual or an appointed or elected through a single individual or an appointed or elected committee. At the other extreme, the health care committee. At the other extreme, the health care system might be decentralized. For example, system might be decentralized. For example, individual consumers and health care providers, individual consumers and health care providers, through their interaction in the marketplace, may through their interaction in the marketplace, may decide the answers to the basic questions.decide the answers to the basic questions.

From a societal point of view, it is difficult to From a societal point of view, it is difficult to determine whether a determine whether a centralized or decentralized centralized or decentralized health care systemhealth care system is superior. is superior.

A normative statement of that kind entails value A normative statement of that kind entails value judgments, and trade-offs are inevitably involved. judgments, and trade-offs are inevitably involved. On the one hand, a centralized authority with On the one hand, a centralized authority with complete and coordinated control over the entire complete and coordinated control over the entire health care system may be more capable of health care system may be more capable of distributing output more uniformly and have a distributing output more uniformly and have a greater ability to exploit any large-sized greater ability to exploit any large-sized economies. At the same time, a single centralized economies. At the same time, a single centralized authority may lack the competitive incentive to authority may lack the competitive incentive to innovate or respond to varied consumer-voter innovate or respond to varied consumer-voter demands.demands.

AA health care system with a decentralized health care system with a decentralized decision-making process, such as the decision-making process, such as the marketplace (or a system of local marketplace (or a system of local governments), may provide more alternatives governments), may provide more alternatives and innovation but may result in high costs in and innovation but may result in high costs in the presence of economies of size, the presence of economies of size, nonuniformity, or lack of coordination. nonuniformity, or lack of coordination. Determining the best structure for a health Determining the best structure for a health care system involves quantifying the value care system involves quantifying the value society places on a number of alternative and society places on a number of alternative and sometimes competing outcomes, such as sometimes competing outcomes, such as choice, innovation, uniformity, and production choice, innovation, uniformity, and production efficiencyefficiency, among other things. , among other things.

Health care systemsHealth care systems::

huge, complex, and constantly huge, complex, and constantly changing as they respond to economic, changing as they respond to economic, technological, social, and historical technological, social, and historical forces. For example, the structure of forces. For example, the structure of the U.S. health care system involves a the U.S. health care system involves a seemingly endless list of participants, seemingly endless list of participants, some of which were foreign to us only some of which were foreign to us only a decade ago, such as preferred a decade ago, such as preferred provider organizations. provider organizations.

CanadaCanada has a compulsory national health insurance (NHI) has a compulsory national health insurance (NHI)

program administered (somewhat differently) by program administered (somewhat differently) by each of its 10 provinces. The NHI program provides each of its 10 provinces. The NHI program provides first-dollar coverage, and no limit is imposed on the first-dollar coverage, and no limit is imposed on the level of medical benefits an individual can receive level of medical benefits an individual can receive during his or her lifetime. First-dollar coverage during his or her lifetime. First-dollar coverage means complete health insurance coverage; the means complete health insurance coverage; the health insurer reimburses for the first and every health insurer reimburses for the first and every dollar spent on medical services (that is, there is no dollar spent on medical services (that is, there is no deductible or copayment amount). For all practical deductible or copayment amount). For all practical purposes, taxes finance the NHI program in each purposes, taxes finance the NHI program in each province. Three provinces charge insurance province. Three provinces charge insurance premiums that are related to family size rather than premiums that are related to family size rather than risk. These premiums are not compul sory for risk. These premiums are not compul sory for coverage and will be paid by the province if coverage and will be paid by the province if individuals are unable to pay. individuals are unable to pay.

GermanyGermany The socialized health insurance (SI) program in The socialized health insurance (SI) program in

Germany Germany is based on is based on government-mandated government-mandated financing by employers and employeesfinancing by employers and employees. The . The premiums of unemployed individuals and their premiums of unemployed individuals and their dependents are paid by former employers or come dependents are paid by former employers or come from various public sources (from various public sources (the Federal Labor the Federal Labor Administration and public pension fundsAdministration and public pension funds). Private ). Private not-for-profit insurance companies, called Sickness not-for-profit insurance companies, called Sickness Funds, are responsible for collecting funds from Funds, are responsible for collecting funds from employers and employees and reimbursing employers and employees and reimbursing physicians and hospitals. The statutory medical physicians and hospitals. The statutory medical benefits are comprehensive, with a small benefits are comprehensive, with a small copayment share for some services. Affluent and copayment share for some services. Affluent and self-employed individuals are allowed to go outside self-employed individuals are allowed to go outside the system and purchase private health insurance the system and purchase private health insurance coverage.coverage.

United KingdomUnited Kingdom Mechanic (1995) and others refer to the health care system Mechanic (1995) and others refer to the health care system

in thein the United Kingdom United Kingdom as a as a public contracting model public contracting model because the government contracts with various providers of because the government contracts with various providers of health care serviceshealth care services on behalf of the people. on behalf of the people.

The U.K. health care system, under the auspices of the The U.K. health care system, under the auspices of the National Health Service (NHS), offers universal health National Health Service (NHS), offers universal health insurance coverage financed through taxation. The NHS insurance coverage financed through taxation. The NHS provides global budgets to district health authorities (DHAs). provides global budgets to district health authorities (DHAs).

Each DHA is responsible for assessing and prioritizing the Each DHA is responsible for assessing and prioritizing the health care needs of about 300,000 people and then health care needs of about 300,000 people and then purchasing the necessary health care services from public purchasing the necessary health care services from public and private health care providers.and private health care providers.

Hospital services are provided by nongovernmental trusts, Hospital services are provided by nongovernmental trusts, which compete among themselves and with private which compete among themselves and with private hospitals for DHA contracts. Community-based primary care hospitals for DHA contracts. Community-based primary care givers also contract with the DHAs. In addition, general givers also contract with the DHAs. In addition, general practitioner (GP) fundholders apply for budgets from the practitioner (GP) fundholders apply for budgets from the DHAs, and, with the budgets, service a minimum group of DHAs, and, with the budgets, service a minimum group of 5,000 patients by providing primary care and purchasing 5,000 patients by providing primary care and purchasing elective surgery, outpatient therapy, and specialty nursing elective surgery, outpatient therapy, and specialty nursing services on their behalf. There is some limited competition services on their behalf. There is some limited competition among GP fundholders for patientsamong GP fundholders for patients..

Risk Management, Reimbursement, and Risk Management, Reimbursement, and

Consumer Cost SharingConsumer Cost Sharing

important element of a health care important element of a health care system concerns the manner in system concerns the manner in which health care providers are which health care providers are reimbursed and the share of medical reimbursed and the share of medical costs paid by consumers. costs paid by consumers. Reimbursement is important because Reimbursement is important because some payment methods shift much some payment methods shift much more financial risk onto health care more financial risk onto health care providers than others. providers than others.

IInsurersnsurers

may reimburse health care providers with may reimburse health care providers with either a fixed or variable payment, although in either a fixed or variable payment, although in practice the payment methods are sometimes practice the payment methods are sometimes combined.combined.

A fixed payment is set independent of the A fixed payment is set independent of the amount of medical services actually provided amount of medical services actually provided to patients for a given and defined treatment to patients for a given and defined treatment episode. If the actual costs of delivering episode. If the actual costs of delivering services to patients are less than the level of services to patients are less than the level of the fixed payment, health care providers are the fixed payment, health care providers are normally allowed to keep the surplus. normally allowed to keep the surplus.

SSome financial risk is shifted to health care ome financial risk is shifted to health care providers when reimbursement takes place providers when reimbursement takes place on a fixed-payment basis. on a fixed-payment basis.

A prospectively set fixed annual budget to a A prospectively set fixed annual budget to a hospital or nursing home or a fixed annual hospital or nursing home or a fixed annual salary for an employee are examples of salary for an employee are examples of fixed-payment systemsfixed-payment systems. .

Regardless of how many resources a Regardless of how many resources a hospital or nursing home employs, or the hospital or nursing home employs, or the number of hours an employee works during number of hours an employee works during a given period, the payment remains the a given period, the payment remains the same.same.

The cost of additional medical services immediately subtracts The cost of additional medical services immediately subtracts from the fixed payment and puts the health care provider at from the fixed payment and puts the health care provider at risk for cost overruns. In contrast, for the variable-payment risk for cost overruns. In contrast, for the variable-payment schemes, health care providers do not absorb the financial schemes, health care providers do not absorb the financial risk of the higher costs associated with additional services.risk of the higher costs associated with additional services.

A major current concern of health care policy A major current concern of health care policy makers is that a variable reimbursement system, makers is that a variable reimbursement system, when combined with a modest consumer out-of-when combined with a modest consumer out-of-pocket plan, results in excessive medical services pocket plan, results in excessive medical services that provide low marginal benefits to patients but that provide low marginal benefits to patients but come at a high marginal cost to society. come at a high marginal cost to society.

For example, medical care providers may offer For example, medical care providers may offer expensive diagnostic tests to low-risk patients. The expensive diagnostic tests to low-risk patients. The tests come at a high marginal cost to society but tests come at a high marginal cost to society but yield only small marginal benefits to patients given yield only small marginal benefits to patients given their low-risk classification. Small marginal medical their low-risk classification. Small marginal medical benefits coincide with the “flat-of-the-curve” benefits coincide with the “flat-of-the-curve” medicine observed in several empirical studiesmedicine observed in several empirical studies

Table 4-1 provides a capsulized Table 4-1 provides a capsulized summary of the current national health summary of the current national health care systems in the three countries we care systems in the three countries we have been discussing. Each national have been discussing. Each national health care system is differentiated health care system is differentiated according to the degree of health according to the degree of health insurance coverage, type of financing, insurance coverage, type of financing, reimbursement scheme, consumer out-reimbursement scheme, consumer out-ofpocket price, mode of production, ofpocket price, mode of production, and degree of physician choice. and degree of physician choice.

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