2
Overview of the Government Health Care Programs

SUMMARY OF CHAPTER RECOMMENDATIONS

The six major government health care programs—Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), the Department of Defense TRICARE and TRICARE for Life programs (DOD TRICARE), the Veterans Health Administration (VHA) program, and the Indian Health Service (IHS) program—provide health care services to about one-third of Americans. The federal government has a responsibility to ensure that the more than $500 billion invested annually in these programs is used wisely to reduce the burden of illness, injury, and disability and to improve the health and functioning of the population. It is imperative that the federal government exercise strong leadership in addressing serious shortcomings in the safety and quality of health care in the United States.

RECOMMENDATION 1: The federal government should assume a strong leadership position in driving the health care sector to improve the safety and quality of health care services provided to the approximately 100 million beneficiaries of the six major government health care programs. Given the leverage of the federal government, this leadership will result in improvements in the safety and quality of health care provided to all Americans.



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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality 2 Overview of the Government Health Care Programs SUMMARY OF CHAPTER RECOMMENDATIONS The six major government health care programs—Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), the Department of Defense TRICARE and TRICARE for Life programs (DOD TRICARE), the Veterans Health Administration (VHA) program, and the Indian Health Service (IHS) program—provide health care services to about one-third of Americans. The federal government has a responsibility to ensure that the more than $500 billion invested annually in these programs is used wisely to reduce the burden of illness, injury, and disability and to improve the health and functioning of the population. It is imperative that the federal government exercise strong leadership in addressing serious shortcomings in the safety and quality of health care in the United States. RECOMMENDATION 1: The federal government should assume a strong leadership position in driving the health care sector to improve the safety and quality of health care services provided to the approximately 100 million beneficiaries of the six major government health care programs. Given the leverage of the federal government, this leadership will result in improvements in the safety and quality of health care provided to all Americans.

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality The six major government health care programs serve older persons, persons with disabilities, low-income mothers and children, veterans, active-duty military personnel and their dependents, and Native Americans. Three of these programs—Medicare, Medicaid, and the State Children’s Health Insurance Program (SCHIP)—were devised for groups for whom the health care market has historically failed to work because of their high health care needs and low socioeconomic status. The remaining three programs—DOD TRICARE, VHA, and IHS—serve particular populations with whom the federal government has a special relationship, respectively, military personnel and their dependents, veterans, and Native Americans. Many millions of Americans receive services through multiple government programs simultaneously. Low-income Medicare beneficiaries who qualify for both Medicare and Medicaid account for 17 percent of the Medicare population and 19 percent of the Medicaid population (Gluck and Hanson, 2001; Health Care Financing Administration, 2000). These “dual eligibles” account for a total of 28 percent of Medicare expenditures and 35 percent of Medicaid expenditures. Native Americans eligible to receive services through IHS may also qualify for Medicaid if they satisfy income and other eligibility requirements, and those aged 65 and older may qualify for Medicare. Nearly 45 percent of veterans are 65 years and older and also qualify for Medicare (Van Diepen, 2001b). In addition, many Americans eligible for these programs have private supplemental insurance as well. Thus, patients and clinicians would surely benefit from greater consistency in quality enhancement requirements, measures, and processes across public and private insurance programs. Table 2-1 provides a capsule summary of the six government health care programs. A more detailed description of the programs is provided in the following section. The broad trends affecting the needs and expectations of the programs’ beneficiaries are then reviewed. The final section examines some key features of the programs beyond their quality enhancement processes. MEDICARE1 Medicare provides health insurance to all individuals eligible for social security who are aged 65 and over, those eligible for social security because of a disability, and those suffering from end-stage renal disease (ESRD)—a total of about 40 million beneficiaries and growing. While 1   Unless otherwise indicated, data in this section are based on Centers for Medicare and Medicaid Services, 1998, 2000c.

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality TABLE 2-1 Government Health Care Programs and Populations at a Glance Characteristic Medicare Medicaid Beneficiaries (2001)a 40 million 42.3 million Eligibility Eligibility for social security, (age 65 and over, end-stage-renal disease, or disabled) Percent of federal poverty level and eligibility category (e.g., children, pregnant women, disabled) Benefits Basic acute care coverage, some preventive; high cost sharing, no prescription drugs Comprehensive for both acute and chronic care plus institutional long-term care for the elderly, disabled, and mentally retarded; nominal cost sharing Structure Federal Federal/state Leading diagnoses Hypertension, osteoporosis, chronic obstructive pulmonary disease, asthma, diabetes, heart disease, and stroke Childbirth, asthma, hypertension, diabetes, congenital neurological and developmental disorders, mental health and substance abuse, tuberculosis, sexually transmitted diseases, and HIV/AIDS Expenditures (2001) $242.4 billion $227.9 billion aSome individuals are eligible for more than one government program. SOURCES: Centers for Medicare and Medicaid Services, 1998, 2000a, 2000c, 2002a; Department of Health and Human Services, 1997, 2002; Indian Health Service, 2002; Medical Expenditure Panel Survey, 1998; TRICARE, 2002; Veterans Administration, 2001b. Medicare is 100 percent federally financed and operated, health care services are delivered almost entirely through the private sector. In 2002, about 87 percent of Medicare beneficiaries were covered by the Medicare fee-for-service (FFS) program; 13 percent of beneficiaries were enrolled in Medicare+Choice and cost-based health maintenance organizations (HMOs) (Centers for Medicare and Medicaid Services, 2002b). The Medicare population carries a heavy burden of chronic illness (never resolved conditions with continuing impairments that reduce the functioning of individuals)—78 percent of Medicare beneficiaries have at least one

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality SCHIP VHA DOD TRICARE IHS 4.6 million 4 million 8.4 million 1.4 million Generally up to 200% of federal poverty level and under age 19 Veterans with priority based on service discharge status and income Active-duty military, their dependents, retirees American Indians and Alaska Natives who belong to federally recognized tribes Medicaid or actuarial equivalent of largest managed care plan in state; some cost sharing Comprehensive chronic and acute care, including long-term institutional care; minimal cost sharing Acute care coverage; no cost sharing for active duty personnel in military treatment facilities; some cost sharing for purchased care in civilian sector Acute care, public health services, dental services, nutrition, community health, and other services Federal/state Federal Federal Federal/tribal Not Available Psychosis, substance abuse, heart failure, chronic obstructive pulmonary disease, pneumonia, chest pain, neuroses, arteriosclerosis, and digestive disorders Childbirth, orthopedic injuries, chest pain, pneumonia, congestive heart failure, asthma, and depression Diabetes, unintentional injuries, alcoholism, and substance abuse $4.6 billion $20.9 billion $14.2 billion $2.6 billion chronic condition and 63 percent have two or more (Anderson, 2002). The over 30 percent of the Medicare population that has a physical and/or cognitive impairment accounts for about 60 percent of expenditures (see Figure 2-1). Medicare beneficiaries with three or more chronic conditions account for the bulk of program expenditures (see Figure 2-2). The most prevalent diagnoses in persons aged 65 and over—high blood pressure, osteoporosis, chronic obstructive pulmonary disease, asthma, diabetes, heart disease, and stroke—are all chronic illnesses requiring medical management over extended time periods and multiple settings (Medical Ex-

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality FIGURE 2-1 Medicare beneficiaries with cognitive and/or physical limitations as a percentage of beneficiary population and total Medicare expenditures, 1997. NOTE: A person with cognitive impairment has difficulty using the telephone or paying bills, or has Alzheimer’s disease, mental retardation, or various other mental disorders. A person with physical impairment is someone reporting difficulty performing three or more activities of daily living. SOURCE: Reprinted with permission from Moon and Storeygard, 2001. penditure Panel Survey, 1998). The fastest-growing sectors in Medicare in terms of spending (though not the largest proportion of total program spending) have been home health, skilled nursing facilities, and hospice care, reflecting a shift in demand toward more chronic care. MEDICAID2 Medicaid serves about 42 million people who are poor and who require health care services to achieve healthy growth and development goals or meet special health care needs. The program covers low-income people who meet its eligibility criteria, such as children, pregnant women, certain low-income parents, disabled adults, federal Supplemental Security Income (SSI) recipients (low-income children and adults with severe disability), and the medically needy (non-poor individuals with extraordinary medical expenditures who meet spend-down requirements generally for long-term care). There is a good deal of variability across states in the maximum income for eligibility. 2   Unless otherwise indicated, data in this section are based on Centers for Medicare and Medicaid Services, 2000a.

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality FIGURE 2-2 Medicare beneficiaries with five or more chronic conditions account for two-thirds of Medicare spending. SOURCE: Centers for Medicare and Medicaid Services, 1999. Medicaid is administered and financed jointly by the federal government and the states, although the federal government pays for over 50 percent of aggregate program expenditures (U.S. Government Printing Office, 2002). There is a good deal of variability in methods of health care delivery and financing across states. Medicaid programs rely extensively on private-sector health care providers, managed care plans, and community health centers to deliver services and, to a lesser degree, state, county, or other publicly owned facilities or programs. Nationwide, over half of the total Medicaid population is enrolled in Medicaid managed care arrangements. Institutionalized, disabled, dually eligible, and elderly beneficiaries are most likely to receive services through FFS payment arrangements. The majority of Medicaid beneficiaries are children (54 percent), most under the age of 6 (see Figure 2-3). Each year, over one-third of all births in the United States are covered by Medicaid. While a minority of the program in terms of population (26 percent), the aged/blind/disabled account for 71 percent of program expenditures. Over half of Medicaid expenditures are for long-term care services, with the majority going to institutional long-term care providers (Centers for Medicare and Medicaid Services, 2000a). While coordinated collection of Medicaid data from the states is lacking, other data sources indicate a substantial prevalence of chronic condi-

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality FIGURE 2-3 Distribution of persons served through Medicaid and payments by basis of eligibility, fiscal year 1998. NOTE: Disabled children are included in the aged, blind and disabled category. SOURCE: Centers for Medicare and Medicaid Services, 2000a. tions in the program. These conditions include asthma, diabetes, neurological disorders, high blood pressure, mental illness, substance abuse, and HIV/AIDS (Centers for Medicare and Medicaid Services, 2001c; Medical Expenditure Panel Survey, 1996; Westmoreland, 1999). STATE CHILDREN’S HEALTH INSURANCE PROGRAM3 Designed as a joint federal-state program, SCHIP was created in 1997 to provide health insurance to poor and near-poor children through age 18 without another source of insurance. Approximately 4.6 million children were enrolled in SCHIP as of fiscal year 2001 (Centers for Medicare and Medicaid Services, 2000b). SCHIP is targeted to children with incomes that exceed Medicaid eligibility requirements but remain under 200 percent of the federal poverty level (FPL) (Rosenbach et al., 2001). Some states 3   Unless otherwise indicated, data in this section are based on Department of Health and Human Services, 1997.

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality have expanded SCHIP to children with family incomes up to 300 percent of FPL (Rosenbaum and Smith, 2001). SCHIP operates as a block grant program to the states. States have the option of creating SCHIP programs as Medicaid expansions, as separate programs, or as combined programs (i.e., Medicaid expansions for some income levels and separate programs for higher income levels). The SCHIP program has been implemented slowly and variably across states. Most states rely on managed care arrangements as their primary mechanism of service delivery for both healthy children and those with special health care needs. VETERANS HEALTH ADMINISTRATION VHA was established in 1946 as a separate division within the Veterans Administration to meet the health care needs of U.S. veterans (Veterans Administration, 2001b).4 Veterans make up 10 percent of the nation’s population, but only a minority receive care through VHA (Kizer, 1999; Van Diepen, 2001a). Eligibility is triaged according to the available budget; those with compensable, service-connected disabilities are assigned the highest priority (Veterans Administration, 2001a). VHA serves as a payer of last resort for treatment not related to service-connected disabilities that is provided through VHA facilities. Health care is delivered through 22 regional health care systems, referred to as Veterans Integrated Service Networks (VISNs). Each VISN contains 7 to 10 hospitals, 25 to 30 ambulatory care clinics, 4 to 7 nursing homes, and other care delivery units (Kizer, 1999). Most clinical and administrative staff are employees of VHA. Generally, the VHA population is older, low-income, and characterized by high rates of chronic illness (see Table 2-1). Approximately 19 percent of the total VHA population sought inpatient and outpatient mental health services (including those related to substance abuse) in 2000 (Van Diepen, 2001a). DOD TRICARE5 DOD TRICARE encompasses two health care programs operated by the Department of Defense. TRICARE provides services to active-duty military personnel, their dependents, retirees under the age of 65 and their 4   The VHA was initially established as the Department of Medicine and Surgery; it was succeeded in 1989 by the Veterans Health Services and Research Administration, and renamed the Veterans Health Administration in 1991. 5   Unless otherwise indicated, data in this section are based on TRICARE, 2002.

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality spouses, and survivors. TRICARE for Life, a recent addition to the military health program, provides supplemental coverage (e.g., for prescription drugs) to the population aged 65 and over who enroll in Medicare Part B. TRICARE is administered by the Office of the Assistant Secretary of Defense (Health Affairs). At the core of the program is a direct care system of military treatment facilities (MTFs), which provide most of the care delivered to active-duty personnel and over half of that provided to TRICARE beneficiaries overall. There is an MTF located at most major military facilities in the United States and abroad, each operated by one of the military services. TRICARE also has regional contracts with private-sector health plans to provide active-duty personnel with certain services not available through MTFs and to serve other beneficiaries. Non–active-duty beneficiaries may choose from among three program options: (1) TRICARE Prime, the lowest-cost plan, which assigns beneficiaries to a primary case manager, emphasizes preventive care, and makes use of MTFs whenever possible for specialty care; (2) TRICARE Extra, a preferred provider–type FFS discounted cost option; and (3) TRICARE Standard, the highest-cost plan, which provides maximal flexibility in selection of providers. TRICARE is intended to ensure “force health protection.” Active-duty personnel must be maintained at a level of health consistent with military demands according to a concept called “military readiness.” The TRICARE program must also be capable of providing urgent and emergency care to injured soldiers, sometimes stationed in remote areas. Lastly, since the Gulf War, a great deal of attention has been focused on early detection of risks associated with the activities and settings of deployment (e.g., exposure to biological, chemical, and nuclear hazards and combat stress) and the ongoing monitoring of health consequences and effects of treatment (Institute of Medicine, 2000). The TRICARE beneficiary population tends to be young and healthy. In addition to force health protection, the service needs of other TRICARE beneficiaries, mostly active-duty dependents, are sometimes described as basically babies and bones (Jennings, 2001). With the implementation of TRICARE for Life, TRICARE’s elderly population can be expected to present health care needs similar to those of the Medicare population. INDIAN HEALTH SERVICE6 IHS, an agency within the Department of Health and Human Services, is responsible for providing health services to members of federally 6   The discussion in this section is based on data provided by Indian Health Service, 2002.

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality recognized American Indian and Alaska Native tribes. IHS currently provides health services to approximately 1.4 million American Indians and Alaska Natives belonging to more than 557 federally recognized tribes in 35 states. The provision of these health services is based on treaties, judicial determinations, and acts of Congress that result in a unique government-to-government relationship between the tribes and the federal government. IHS, the principal health care provider, is organized as 12 area offices located throughout the United States. These 12 areas contain 550 health care delivery facilities operated by IHS and tribes, including: 49 hospitals; 214 health centers; and 280 health stations, satellite clinics, and Alaska village clinics. Almost 44 percent of the $2.6 billion IHS budget is transferred to the tribes to manage their own health care programs. Poverty and low education levels strongly affect the health status of the Indian people. Approximately 26 percent of American Indians and Alaska Natives live below the poverty level, and more than one-third of Indians over age 25 who reside in reservation areas have not graduated from high school. Common inpatient diagnoses include diabetes, unintentional injuries, alcoholism, and substance abuse. BROAD TRENDS AFFECTING THE NEEDS AND EXPECTATIONS OF BENEFICIARIES In identifying ways to improve the quality enhancement processes of government health care programs, it is important to understand both the needs and expectations of today’s beneficiaries and the trends likely to affect these needs and expectations in the future. As beneficiaries’ needs and expectations evolve over time, so, too, must the government health care programs. This section highlights two important trends: the increase in chronic care needs and expectations for patient-centered care. Chronic Care Needs Trends in the epidemiology of health and disease and in medical science and technology have profound implications for health care delivery. Chronic conditions (defined as never resolved conditions, with continuing impairments that reduce the functioning of individuals) are now the leading cause of illness, disability, and death in the United States and affect almost half the U.S. population (Hoffman et al., 1996). Most older people have at least one chronic condition, and many have more than one (Administration on Aging, 2001). Fully 30 percent of those aged 65–74, and over 50 percent of those aged 75 and older report a limitation caused by a chronic condition (Administration on Aging, 2001). The proportion

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality of children and adolescents with limitation of activity due to a chronic health condition more than tripled from 2 percent in 1960 to over 7 percent in the late 1990s (Newacheck and Halfon, 1998). Thus, the majority of U.S. health care resources is now devoted to the treatment of chronic disease (Anderson and Knickman, 2001). This trend is strongly reflected in the government health care programs. In the Medicare and VHA programs, most of the beneficiaries have multiple chronic conditions. Diseases such as asthma, diabetes, hypertension, cancer, congestive heart failure, and mental health and cognitive disorders are important clinical concerns for all or nearly all of the programs. The increasing prevalence of chronic illness challenges systems of care designed for episodic contact on an acute basis (Wagner et al., 1996). Hospitals and ambulatory settings are generally designed to provide acute care services, with limited communication among providers, and communication between providers and patients is often limited to periodic visits or hospitalizations for acute episodes. Serious chronic conditions, however, require ongoing and active medical management, with emphasis on secondary and tertiary prevention. The same patient may receive care in multiple settings, so that there is frequently a need to coordinate services across a variety of venues, including home, outpatient office or clinic setting, hospital, skilled nursing facility, and when appropriate, hospice. There is mounting evidence that care for chronic conditions is seriously deficient. Fewer than half of U.S. patients with hypertension, depression, diabetes, and asthma are receiving appropriate preventive, acute, and chronic disease management services (Clark, 2000; Joint National Committee on Prevention, 1997; Legorreta et al., 2000; Wagner et al., 2001; Young et al., 2001). Health care is typically delivered by a mix of providers having separate, unrelated management systems, information systems, payment structures, financial incentives, and quality oversight for each segment of care, with disincentives for proactive, continuous care interventions (Bringewatt, 2001). For individuals with multiple chronic conditions, coordination of care and communication among providers are major problems that require immediate attention. There are many efforts under way to develop new models of care capable of meeting the needs of the chronically ill. For example, Healthy Future Partnership for Quality, an initiative in Maine now in its fifth year, enrolls insured individuals (from leading health plans and the state Medicaid program) and uninsured individuals (covered by a 10 percent surcharge on the fee for each insured participant and paid by insurance companies) with chronic illness in an intensive care management program that provides patient education, improved access to primary care and preventive services, and disease management (Healthy Futures Partnership

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality chronic condition, as they do for someone who is healthier and likely to use no or fewer services during the year. Health plans or clinicians that develop exemplary care programs for persons with chronic conditions may, as a result, attract a disproportionate share of these individuals. Under capitated payment systems, this situation has a highly negative financial impact on the health plan and providers (Luft, 1995; Maguire et al., 1998). Persons with chronic conditions are more likely both to use services and to use a greater number of services during the year than those without chronic conditions. In 1996, for example, mean health care expenditures for a person with one or more chronic conditions were nearly 4 times the overall average ($3,546 versus $821) (Partnerships for Solutions, forthcoming). The average number of inpatient days per year is 0.2 for persons with no chronic conditions compared to 4.6 for those with five or more such conditions. Risk adjustment is a mechanism designed to ensure that payments to health plans and other capitated providers more accurately reflect the expected cost of providing health care services to the population enrolled. Capitated plans and providers caring for a population that includes less healthy, higher-cost enrollees should receive higher payments. As more states require their entire Medicaid populations, including those who are disabled and have high health care needs, to enroll in managed care, adjustment of payments becomes even more necessary to ensure quality of care for enrollees (Maguire et al., 1998). Some states have addressed this issue. Michigan, for example, has created a separately funded capitated option for children with special health care needs (Department of Health and Human Services, 2000). Numerous options exist for risk-adjusting payments, but their application in government health care programs has been limited (Ellis et al., 1996; Hornbrook and Goodman, 1996; Newhouse et al., 1997; Starfield et al., 1991). The Medicare+Choice program has initiated demonstration projects to pilot the application of capitated payments adjusted for health status (Centers for Medicare and Medicaid Services, 2000d). Regardless of whether the beneficiary is enrolled in an indemnity or capitated plan, the physicians on the front line of care delivery in the private sector are generally compensated under FFS payment methods (Center for Studying Health System Change, 2001; Institute of Medicine, 2001). FFS is the most common method of payment to physicians under Medicare, Medicaid, and SCHIP. Under FFS payment, physicians have strong financial incentives to increase their volume of billable services (e.g., visits and office-based procedures and tests). Sometimes the incentives of FFS or other physician payment methods are attenuated by incentives (e.g., bonuses) tied to performance (e.g., measures of safety, clinical quality, service), but this is not

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality the norm. In a 1998–1999 survey of a nationally representative sample of physicians, fewer than 30 percent indicated that their compensation was affected by performance-based incentives, a result similar to findings from a survey conducted in 1996–1997 (Stoddard et al., 2002). When they are used, performance-based incentives are more likely to be tied to patient satisfaction (24 percent) and quality measures (19 percent) than to measures that may restrain care, such as profiling (14 percent). The principal “reimbursable event” under FFS is a face-to-face encounter between a physician and patient, which may or may not trigger other reimbursable events, such as diagnostic tests and minor office procedures. Services such as e-mail communications, telephone consultations, patient education classes, and care coordination are important for the ongoing management of chronic conditions, but they are not reimbursable events. Moreover, physicians who communicate with patients through e-mail or telephone to emphasize patient education, self-management of chronic conditions, and to coordinate care may experience a reduction in overall revenues if these uncompensated services have the effect of reducing patient demand for or time available to devote to reimbursable face-to-face encounters. There is no perfect payment method; all methods have advantages and disadvantages. FFS contributes to overuse of billable services (e.g., face-to-face encounters, ancillary tests, procedures) and underuse of preventive services, counseling, medications, and other services often not covered under indemnity insurance programs. Overuse, especially the provision of services that expose patients to more potential harm than good, is a serious quality-of-care and cost concern. On the other hand, capitated payments may contribute to underuse—the failure to provide services from which patients would likely benefit. This is especially true when there is a good deal of turnover among plan enrollees so that the long-term cost consequences of underuse tend to be borne by another insurer. Although particular payment methods may contain a bias towards underuse or overuse, it is important to note that the quality-of-care literature contains ample evidence of both phenomena occurring in both FFS and capitated payment systems, reinforcing the notion that payment is but one, albeit an important, factor influencing care (Chassin and Galvin, 1998). The committee believes enhancements can be made in both capitated and FFS payment approaches to encourage the provision of quality health care. It should also be noted that there are some promising efforts under way to design alternative payment approaches and evaluate their impact on quality. The National Health Care Purchasing Institute, a nonprofit research institute supported by The Robert Wood Johnson Foundation, has identified various incentive models that might be effective in motivat-

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality BOX 2-1 Possible Financial Incentive Models for Rewarding Providers for Quality Improvements Quality bonuses—An additional annual payment is made to a provider (usually 5 to 10 percent of annual compensation) based on the achievement of certain performance goals. Compensation at risk—A portion of a provider’s compensation is placed “at risk” based on the provider’s performance on quality measures. Performance fee schedule—A provider’s fee schedule is linked to performance on a set of quality measures (e.g., providers achieving exemplary levels of performance might receive 115 percent of the base fee schedule, while poor performers might receive 85 percent). Variable cost sharing for patients—A patient’s deductible and copayments are linked to the provider’s performance on a set of quality measures (e.g., patients who see providers with high performance scores have lower cost sharing than those who see the poorer performing providers). SOURCE: Adapted from Bailit Health Purchasing, 2002b. ing providers to improve their performance; some of these models are highlighted in Box 2-1. Numerous efforts are under way to test some of these approaches. Examples include the following: The Buyers Health Care Action Group, an employer coalition in Minnesota, provides gold ($100,000) and silver ($50,000) awards to care systems for performance on quality improvement projects (Bailit Health Purchasing, 2002a) PacifiCare in California has developed a quality index that profiles providers on the basis of measures of clinical quality, patient safety, service quality, and efficiency. This information is used to reward providers on the basis of their performance, as well as to construct a tiered system of premiums, copayments, and coinsurance rates for enrollees that vary inversely with provider performance in terms of quality and efficiency (Ho, 2002) The Employers’ Coalition on Health in Rockford, Illinois, makes incentive payments to provider groups based on whether the group completes care flowsheets on 95 percent of its diabetic encounters and maintains hemoglobin A1c levels below 7.5 for the majority of patients. Incentive payments to medical groups have been approximately $28,000 per year ($3.60 per member per year) (Bailit Health Purchasing, 2002a)

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality Blue Shield of California has introduced a variable cost-sharing model under which patients pay either an additional $200 copayment or 10 percent of the hospital’s fee each time they are admitted to a hospital that is not on Blue Shield’s preferred list. Blue Shield rates hospitals on the basis of measures of quality, safety, patient satisfaction, and efficiency (Freudenheim, 2002) General Motors’ value-based purchasing approach rates health plans according to their performance on various clinical quality measures, patient satisfaction measures, NCQA accreditation results, and cost-effectiveness measures, and adjusts employee out-of-pocket contributions so that those choosing the best-ranked plans have the lowest contributions (Salber and Bradley, 2001). It may be hoped that much more will be known about the impact of various financial and non-financial incentive models in the near future. The Robert Wood Johnson Foundation (National Health Care Purchasing Institute, 2002) has recently announced an initiative entitled “Rewarding Results,” which will provide support for payment demonstrations that reward improvements in quality. This initiative is being evaluated under an Agency for Healthcare Research and Quality contract. Program Design and Administration Benefits coverage and payment methods are among the most important design features of the six government health care programs reviewed in this report, but they are not the only ones that influence the likelihood of patients receiving high-quality care. Other important features include delivery system and provider choices, fluctuations in eligibility and delivery system options, and administrative efficiency. In some government health care programs, consumers have multiple options in terms of delivery system and choice of providers, while in others the options are more limited. Under Medicare, 87 percent of beneficiaries have chosen to enroll in FFS arrangements, which provide extensive choice of clinicians and hospitals. Most Medicare beneficiaries who live in metropolitan areas also have the option of enrolling in Medicare+Choice plans, enrollment that historically has been associated with enhanced benefits for little or no additional out-of-pocket expense. Enrollment in managed care is mandatory for the majority of the Medicaid population in most states, and in some instances, there is little or no choice of plan. DOD TRICARE, the VHA, and IHS programs are all structured to encourage, and in some cases require, use of their own health care delivery systems, which are similar to group or staff-model health plans. Studies of the clinical quality (in terms of both medical care processes and patient outcomes) in managed care and indemnity settings consis-

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality tently find little or no difference between the two (Chassin and Galvin, 1998; Miller and Luft, 1993; Schuster et al., 1998). But it is clear that some consumers have strong preferences for one delivery system over another, and that most prefer to have choice (Gawande et al., 1998; Ullman et al., 1997). Limited choice of health plans may or may not seriously constrain the choice of clinicians and hospitals, since plan networks vary greatly in size and structure (Lake and Gold, 1999). In the private sector, there has been a pronounced trend in recent years toward larger networks of providers in response to consumer demand for more extensive choice (Draper et al., 2002; Lesser and Ginsburg, 2000). In the absence of comparative quality information on providers, consumers apparently equate choice with quality. The design and financing of some government health care programs result in frequent changes in eligibility and delivery system options that disrupt patterns of care delivery. Since the implementation of changes in Medicare payment policies stemming from enactment of the Balanced Budget Act of 1997, there has been a steady erosion of health plans participating in the Medicare+Choice program. Since 1998, 2.2 million Medicare beneficiaries have been involuntarily disenrolled from Medicare+Choice plans, affecting approximately 5 percent of beneficiaries in 2002. Of the health plans that remain, the proportion offering prescription drug coverage during the period 1999 through 2002 dropped from 73 to 66 percent, and the proportion charging zero premiums to beneficiaries from 62 to 39 percent (Gold and McCoy, 2002). Under Medicaid, beneficiaries move in and out of the program as their eligibility changes in accordance with minor fluctuations in income, causing beneficiaries to lose contact with providers and further complicating the tracking of care. For many eligible children and women, the re-enrollment process is initiated only when they present themselves at a hospital or physician’s office seeking service for an illness; this process results in adverse selection in capitated plans. Lastly, efforts must be made to reduce administrative burden. In recent years, there has been a steady growth in regulatory requirements in most if not all of the government health care programs. The Secretary’s Advisory Committee on Regulatory Reform estimates that about two regulations are published each week, resulting in the promulgation of more than 120 regulations in each of the last two years (Wood, 2002). The American Hospital Association (2002) has identified 100 new or revised regulations pertaining to hospitals that have been issued by federal agencies since 1997, of which 57 are significant. Some of these regulations relate to quality enhancement processes and data requirements, while others relate to such areas as payment, patient confidentiality and privacy, and fraud and abuse. Regulatory oversight is necessary, but it must be balanced and effi-

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality cient. The current practice of promulgating separate regulations for each type of provider (e.g., hospital, home health agency, nursing home, ambulatory care provider) has produced excessive burdens and barriers to the provision of coordinated care. Unnecessary regulations frustrate clinicians and reduce the time available to devote to patient care. They can also interfere with the movement of individuals across settings, thus hampering the transition from hospital to nursing home to home health agency, for example. Regulatory burden must also be fair. For example, the quality measurement and reporting requirements applied to Medicare+Choice plans should be applied to FFS Medicare institutional and individual providers. These issues are addressed further in Chapters 3 and 4. In summary, while technically comprising separate areas of analysis, the issues of benefits, payment, program design, and administration are inextricably linked to achieving consistent levels of high-quality care. REFERENCES Administration on Aging. 2001. “Profile of Older Americans: 2000.” Online. Available at http://www.aoa.dhhs.gov/aoa/STATS/profile/default.htm. [accessed Aug. 3, 2001]. Agency for Health Care Administration. 2002. “Florida Medicaid Program: Summary of Services.” Online. Available at http://www.fdhc.state.fl.us/Medicaid/sos.pdf [accessed Apr. 8, 2002]. American Board of Internal Medicine, ACP-ASIM Foundation, and European Federation of Internal Medicine. 2002. Medical professionalism in the new millennium: a physician charter. Ann Intern Med 136 (3). American Hospital Association. 2002. Patients or Paperwork? The Regulatory Burden Facing America’s Hospitals. Washington DC: PricewaterhouseCoopers for American Hospital Association. Anderson, G. 2002. “Testimony Before the Subcommittee on Health of the House Committee on Ways and Means Hearing on Promoting Disease Management in Medicare.” Online. Available at http://waysandmeans.house.gov/health/107cong/4-16-02/4-16ande.htm [accessed May 3, 2002]. Anderson, G., M. A. Hall, and T. R. Smith. 1998. When courts review medical appropriateness. Med Care 36 (8):1295-302. Anderson, G., and J. R. Knickman. 2001. Changing the chronic care system to meet people’s needs. Health Aff 20 (6):146-60. Arizona Health Care Cost Containment System. 2002. “2001 AHCCCS Overview: Table of Contents.” Online. Available at http://www.ahcccs.state.az.us/Publications/Overview/2001/contents.asp [accessed Apr. 8, 2002]. Bailit Health Purchasing. 2002a. Ensuring Quality Health Plans: A Purchaser’s Toolkit for Using Incentives. Washington DC: National Health Care Purchasing Institute. ———. 2002b. Provider Incentive Models for Improving Quality of Care. Washington DC: National Health Care Purchasing Institute. Berland, G. K., M. N. Elliott, L. S. Morales, J. I. Algazy, R. L. Kravitz, M. S. Broder, D. E. Kanouse, J. A. Munoz, J. A. Puyol, M. Lara, K. E. Watkins, H. Yang, and E. A. McGlynn. 2001. Health information on the Internet: accessibility, quality, and readability in English and Spanish. JAMA 285 (20):2612-21.

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Leadership by Example: Coordinating Government Roles in Improving Health Care Quality Biermann, S., G. Golladay, M. Greenfield, and L. Baker. 1999. Evaluation of Cancer Information on the Internet. Cancer 86 (3): 381-90. Braddock III, C., K. Edwards, N. Hasenberg, T. Laidley, and W. Levinson. 1999. Informed decision making in outpatient practice: time to get back to basics. JAMA 282 (24):2313-20. Bringewatt, R. 2001. Making a business case for high-quality chronic illness care. Health Aff (Millwood) 6 (20):59-60. Center for Studying Health System Change. 2001. Community Tracking Study Physician Survey 1998-1999 [United States]. Washington DC: ICPSR. Centers for Medicare and Medicaid Services. 1998. “A Profile of Medicare.” Online. Available at http://www.hcfa.gov/pubforms/chartbk.pdf [accessed Aug. 22, 2001]. Centers for Medicare and Medicaid Services. 1999. Medicare Standard Analytic File. Washington DC: U.S. Department of Health and Human Services. Centers for Medicare and Medicaid Services. 2000a. “A Profile of Medicaid: Chartbook 2000.” Online. Available at http://www.hcfa.gov/stats/stats.htm [accessed Oct. 16, 2001a]. ———. 2000b. “State Children’s Health Insurance Program (SCHIP) Aggregate Enrollment Statistics for the 50 States and the District of Columbia for Federal Fiscal Year (FFY) 2000.” Online. Available at http://www.hcfa.gov/init/fy2000.pdf [accessed Oct. 16, 2001b]. ———. 2000c. “Medicare Profile Chart Book from the 35th Anniversary Event.” Online. Available at http://www.hcfa.gov/stats/stats.htm [accessed Oct. 16, 2001c]. ———. 2000d. “Operational Policy Letter #126 re: Reconciliation of Calendar Year (CY) 2000 Payments Based on Changes in Risk Adjuster Factors/Enhanced Monthly Membership Reporting.” Online. Available at http://www.hcfa.gov/medicare/opl126.htm [accessed Apr. 10, 2002d]. ———. 2001a. “Nursing Home Compare - Home.” Online. Available at http://www.medicare.gov/NHCompare/home.asp [accessed May 6, 2002a]. ———. 2001b. “Your Medicare Benefits.” Online. Available at http://www.medicare.gov/Publications/Pubs/pdf/yourmb.pdf [accessed Apr. 8, 2002b]. ———. 2001c. “Fact Sheet: Center for Medicaid and State Operations; Medicaid and Acquired Immunodeficiency Syndrome (AIDS) and Human Immunodeficiency Virus (HIV) Infection.” Online. Available at http://www.hcfa.gov/medicaid/obs11.htm [accessed Aug. 15, 2001c]. ———. 2002a. “State Children’s Health Insurance Program: Fiscal year 2001 annual enrollment report.” Online. Available at http://www.cms.hhs.gov/schip/schip01.pdf [accessed June 28, 2002a]. ———. 2002b. “Program Information on Medicare, Medicaid, SCHIP, and other programs of the Centers for Medicare & Medicaid Services.” Online. Available at http://cms.hhs.gov/charts/series/sec3-b1.pdf [accessed Aug. 14, 2002b]. ———. 2002c. “Where the Nations’s Health Dollar Came From and Where it Went.” Online. Available at http://cms.hhs.gov/statistics/nhe/historical/chart.asp [accessed Sept. 26, 2002c]. Chassin, M., and R. Galvin. 1998. The urgent need to improve health care quality: Institute of Medicine National Roundtable on Quality. JAMA 280 (11):1000-05. Clark, C. 2000. Promoting early diagnosis and treatment of type 2 diabetes. Journal of the American Medical Association 284 (3):363-65. Connecticut Department of Social Services. 2002. “State of Connecticut Department of Social Services.” Online. Available at http://www.dss.state.ct.us [accessed Apr. 8, 2002].

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