Government spending on health services has increased continuously since the 1960s. The increases in spending have resulted primarily from inflation, technology changes, and increases in the volume of services that providers deliver; extensions of coverage to new population groups or improvements in benefits have accounted for a relatively minor proportion of the increase. In the last decade alone, federal health expenditures increased from 12 percent of the federal budget in 1980 to 15 percent in 1990. The increasing cost of Medicaid has resulted in severe problems for states and has occasioned difficult searches at the state level for means of containing (or shifting to the federal level) expenditures for health services.

The providers of health services—physicians, hospitals, other institutional and individual professions—are in a period of transition. The funds easily available for health care in the 1960s and 1970s, as Medicare, Medicaid, and private health insurance coverage paid charges as billed with few controls over services or rates, are now more constrained. Limits on Medicare and Medicaid reimbursement rates, the increasing reliance of private insurance plans on various types of managed care and administrative constraints on physician practice decisions, and new attention to areas such as medical devices and equipment are fundamentally changing the practice of medicine. Physicians are almost uniformly frustrated and angry over the loss of control they once exercised. The nation's 7,000 hospitals are similarly facing painful transitions, both as a result of Medicare rate limits and the explosion of new types of competitive delivery systems, such as ambulatory surgical centers and hospices. The growth in for-profit hospital chains in the 1970s and 1980s has deprived community hospitals of many privately insured, middle-class patients and further concentrated uninsured, multiproblem patients in public or inner-city voluntary hospitals.

The state of the U.S. health care system as it enters the 1990s has been described as a "paradox of excess and deprivation" (Enthoven and Kronick, 1989:29). As is discussed below and in the New York study (Chapter 9), the impact of the AIDS epidemic on the confederation of health care providers and insurers has been as varied as the system itself. Major portions of the financing and delivery systems have been largely untouched by the epidemic, others have made marginal changes, and those institutions that serve the populations at highest risk have been profoundly affected.

To simplify its task of describing the impact of the HIV/AIDS epidemic on the nation's health care system and the response of that system to the epidemic, the panel adopted four descriptive categories of the system: a provider of services, an employer of professional and other personnel, a marketplace for goods and services, and a major financial sector of the economy. Clearly, the health care system is far more complex and subtle than these gross categories suggest, but they provide a means of organizing and delimiting our analysis.

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