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Health Care Management

Defining Events

In the history of any industry, there are milestones—decisions and laws that change the road down which the industry is traveling, improving and regulating its providers and protecting its consumers. The health care system is no different. In the 20th and early 21st centuries, the health care industry made the largest jumps, when the Hill-Burton Act, Joint Commission on Accreditation of Hospitals, Medicare, Medicaid, and The Patient Protection and Affordable Care Act changed the way we receive health care (although Congress has repealed some of its mandates—such as the individual mandate, which required individuals to purchase health insurance or face a tax penalty).

The Hill-Burton Act

The Hill-Burton Act (The Hospital Survey and Construction Act of 1946) provided federal funds for the first time for hospital construction. The purpose of the act was to address the shortage of hospitals resulting from limited construction during the Depression and World War II. The program was a partnership between the federal government and individual states, in which a state received a grant to survey hospital needs. Federal grants were provided to meet identified needs for additional hospital beds, in rural areas for example, which were supplemented by state and local funding.

An amendment to Hill-Burton in 1954 provided grants for construction throughout the country based on lack of availability of existing health facilities for nursing homes, rehabilitation facilities, diagnostic and treatment centers, and chronic disease hospitals. A second amendment in 1964 authorized funds for modernization and replacement of facilities, with priority given to urban areas.

The Hill-Burton program resulted in more rapid growth of hospitals and other health care facilities than at any previous time in history. From 1947 to 1974, more than 11,000 projects were approved, creating more than 490,000 hospital and nursing home beds. In addition, 3,450 outpatient centers and other health care facilities were opened.

The Hill-Burton Act was a major step in government financing and regulation of health care facilities. It not only provided funding for construction, but stimulated the development of standards for design, construction, and operation. Architects, engineers, and hospital administrators were recruited to help design the facilities. The act also mandated maintenance and an operational standard for facilities constructed with program funds. In addition, facilities receiving funding were required to provide community service in the form of free care to those individuals unable to pay.

Comprehensive health planning first appeared as a result of Hill-Burton. In 1964, further amendments to the act established health planning councils throughout the country. These evolved into the state comprehensive health planning agencies established by the 1966 Comprehensive Health Planning and Public Health Services amendments. The purpose of these agencies was to coordinate and control the growth of health care facilities and services.

Joint Commission on Accreditation of Hospitals

The Joint Commission on Accreditation of Hospitals (JCAH) was established in 1951 when the American College of Physicians, the American Hospital Association, the American Medical Association, and the Canadian Medical Association joined the American College of Surgeons to form an organization. Its purpose was to improve safety and the quality of care provided by hospitals through the accreditation process. The 1965 Social Security amendments included a provision that stated that hospitals accredited by JCAH were deemed to meet the conditions for participation (an extensive set of requirements and standards related to care, patient safety, record-keeping, and other areas) in the Medicare and Medicaid programs. Today the entity is known as The Joint Commission, and it accredits and certifies nearly 21,000 hospitals, long-term care facilities, psychiatric facilities, community mental health agencies, ambulatory care facilities, home care services, and freestanding laboratories.

The JCAH fostered the growth of performance improvement. Initially known as quality assurance, then quality improvement, this is a systematic approach to data collection and analysis, and the identification and patterns, trends, problems, and issues with subsequent corrective action and follow-up. If, for example, an increase in the number of medication errors is observed an analysis would be performed. This would include the times, shifts, and days of the errors, the personnel involved, the types of medication involved, and how the medication was administered. The system for dispensing, administering, and recording the medication would also be reviewed. In another example of this process, an increase in patient falls would prompt a thorough investigation of the when, how, where, and why the falls occurred, and a review of policies and procedures to prevent falls as well as the need for additional staff training. A new set of health care professionals arose to implement and manage this important function, performance improvement process. Clinicians, nurses, and physicians are at the forefront of a comprehensive review process, and are assisted by managers and staff members in every department and function of an organization.

Title 18, Medicare, and Medicaid

Another major milestone in the history of health care was Title 18 of the Social Security Act of 1965. This created the Medicare program, providing health insurance for those 65 and older. Part A of Medicare insurance covers hospital stays, post-hospital care, and home health care. Medicare Part B, which is voluntary for those eligible for Medicare and which one may elect or not elect to receive as a benefit, covers physician care and outpatient services. The enactment of Medicare enabled older individuals to receive more health care services. As a direct consequence of Medicare, hospital admissions increased substantially, as did the number of admissions to nursing homes and related facilities.

The Medicare program was also responsible for the development of the utilization review process to eliminate unnecessary hospitalization, thereby reducing the cost of care. Hospitals established utilization review committees for this purpose and to educate physicians through peer review and discussions at clinical department meetings and medical staff meetings regarding proper utilization of resources and medical care. In effect, these committees—comprised of physicians, nurses, and other clinicians—also began to examine and improve the quality of care provided to patients. Adherence to these standards is determined through a survey by the federal agency administering the Medicare program, a division of the Department of Health and Human Services, which is today known as the Centers for Medicare and Medicaid Services.

Medicaid was created by Title 19 of the Social Security Act of 1965, the purpose of which was to provide funding for the medical care of needy and indigent people. Medicaid is a state-administered program, with the federal government paying up to 50 percent of its cost. Medicaid, as did Medicare, greatly increased demand for health care services, thus driving up cost. Medicaid is a major source of reimbursement to nursing homes, as it pays for the care of needy elderly individuals in these facilities after Medicare, which only pays for 100 days, is exhausted.

Managed Care: The Birth of HMOs

A major development in the history of health care was the emergence of managed care. In response to escalating costs and overutilization of services, a new form of health care delivery, the health maintenance organization (HMO) appeared. The HMO sought to integrate and coordinate all levels of health care services, from physician office visits to hospital care, and to promote preventive and primary care. All services were provided for a fixed monthly fee per enrollee, often called capitation, to the providers of care. Because of the fixed payment, the HMO provided an incentive to doctors and hospitals to avoid unnecessary services and to reduce the cost of care. In 1973, the federal government passed the Health Maintenance Organization Act to stimulate the growth of HMOs.

HMOs were the precursor to other forms of managed care. Many different models and variations have appeared in an attempt to reduce unnecessary utilization of services, lower costs, and improve quality of care. Preferred provider organizations (PPOs) and point of service (POS) plans are two widely used models. Today the vast majority of physicians, other health care providers, and almost all hospitals have contracts with managed care organizations. These contacts specify covered services, the pre-authorization process for certain procedures, fees, and payment terms. The complexity of the arrangements with the managed care organizations, the different managed care products, the large number of these organizations, and relationships among providers led to the creation of a new management role, the director of managed care. In many hospitals and health care organizations, these individuals negotiate and interpret managed care contracts and develop business relationships among providers of health care services. The managed care organizations also employ managers and staff members to negotiate and administer contracts with providers of care. Consultants with backgrounds in finance and insurance assist hospitals in obtaining the reimbursement they are due from the managed care organizations with whom they contract.

The Patient Protection and Affordable Care Act

The Patient Protection and Affordable Care Act (often referred to as the Affordable Care Act, ACA) was signed into law by President Obama on March 23, 2010, after heated debate between Congressional Democrats (who mostly voted for the proposed law) and Republicans (all of whom voted against it or abstained from voting). It is the most significant regulatory overhaul of the U.S. health care system since the passage of Medicare and Medicaid. Major goals of the ACA include:

  • Improving quality of medical care and the reduction of health care costs
  • The establishment of consumer protections (e.g., insurance companies can no longer deny coverage to people with pre-existing medical conditions, nor can they put a lifetime limit on payouts)
  • Increasing the number of people (based on their annual earnings) who received coverage through Medicare
  • The creation of a health insurance marketplace
  • Holding insurance companies more accountable for pricing (insurers must justify any premium increase of 10 percent or more before the new rate takes effect)
  • Increased access to health insurance for young people; children can receive health insurance under their parents’ polices until age 26

The ACA required that all Americans who were not already insured purchase health insurance, receive an exemption, or pay a tax penalty on their federal income taxes (this mandate was repealed by Congress in 2017).

In June 2012, the U.S. Supreme Court upheld the ACA and ruled most of its provisions constitutional, but stipulated that the expansion of Medicare (which would increase the number of people who are insured) is an option for states, not a mandate (as previously indicated in the ACA).

The ACA remains highly controversial, with some believing that it puts undue expectations on people to purchase health insurance, in some cases paying for levels of coverage they don't want or need, and to meet other new rules. The Republican-led Congress repeatedly tried to repeal the ACA in 2017, without success, but did manage to repeal the individual mandate (which required individuals to purchase health insurance or face a tax penalty) and other elements that were unpopular with some Americans.

Despite the ongoing controversies, the ACA has increased the number of people with access to health care. According to the U.S. Census Bureau, approximately 48.6 million (or 15.7 percent of the U.S. population) were uninsured before the passage of the ACA in 2010. A 2016 study by the Centers for Disease Control found that the uninsured rate had fallen to 9 percent under the ACA (the lowest uninsured rate in 50 years). An obstacle to success for the ACA has been the sharp rise of costs to consumers in some regions and health exchange, with premiums increasing much faster then projected year to year. Also, insurance companies have withdrawn from some markets to avoid profit losses, leaving consumers with few options.

As the number of insured Americans has grown, demand has increased for health care managers, physicians, nurses, and allied health professionals. The law has also created new opportunities for accountants, lawyers, and consultants. If Congress continues to cut provisions in the ACA, more people will become uninsured and the number of health care professionals could decline.

Some states legislatures have attempted to re-introduce discontinued aspects of the ACA or pass other laws that protect consumers (such as the individual mandate or banning the sale of short-term health insurance that provides very low levels of coverage to patients). “Without question, I think we’re going to see a natural experiment in the states and a growing divergence in outcomes,” said Sabrina Corlette, a research professor at Georgetown University’s Health Policy Institute.