The Health Care System: Financing and Structure

Over the past 50 years, the structure and financing of health care has changed in many ways: medical care once rendered by a personal physician is now parceled out among many specialists and often takes place in vast, impersonal institutions. Its costs, once paid out of pocket by the patient or even provided gratuitously by the physician, are now paid by insurers or by government. In many respects, these changes are beneficial: specialists may provide more skilled care, institutions may supply more sophisticated technology, insurers may pay what the individual could not. At the same time, these changes pose threats to the features of human life that we have designated as ethical, such as individual rights, dignity, liberty, and fairness.

The American hospital began as a charitable institution for the sick poor and evolved into an institution that, relying on community support, made its facilities available to those who could pay and those who could not on a nonprofit basis. This was accomplished by philanthropy and the widely accepted practice of cost-shifting, by which those able to pay subsidized those unable to do so. However, by the 1970s, the need to control rising health care costs and pressure from third-party payers to do so forced hospitals to assume an increasingly business-like mentality. One important third-party payer was the government, which administered Medicare. As hospital costs escalated, payers and providers resisted the financial burden of those who could not afford to pay or had inadequate or no insurance. Determinants of hospital economic viability, like occupancy and proper payer mix (i.e., the proper percentage of patients covered by third-party payers), set the stage for concerns about fair access and about conflicts of interest between hospitals' economic health and patients' physical health.

Financial and organizational systems also vary greatly among institutions: some are wealthier than others, resulting in differential availability of care. Sometimes institutions located in the same city, and staffed by the same specialty teams, operate according to widely variant standards of care. For example, a major county hospital in an urban center might offer dialysis to patients only when symptomatic uremia has progressed to a critical stage, because the hospital cannot afford more dialysis capacity. At a major private teaching hospital in the same city, patients may be dialyzed at lower symptomatic levels (perhaps even before they feel ill from renal failure), since reimbursement and private resources allow it.

Insurance companies have adjusted to the changing environment by segmenting the market, leaving more and more of those outside the work force without insurance and health care. Insurers have also attempted to cut costs by excluding innovative, expensive therapies from coverage on the grounds that they are experimental. This means that those with the



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