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Part III Jose Luis Pelaez/Iconica/Getty Images Resource Allocation and Community Responsibilities in Health Care Chapter 7 Expenditures, Cost Containment, and Quality of Care Chapter 8 Ethical Resource Allocation Chapter 9 Health Disparities and Social Justice The ideal of the health care system is to maximize patient access to high-quality care at a cost that is afford - able to individuals as well as to society. Each of these elements has ethical components and is driven and constrained by the legal environment in which health care is planned, provided, paid for, and evaluated. The chapters in Part III explore different facets of the access/quality/costs challenge on the level of both indi - vidual patients and society. We also analyze failures in attempting to equitably reconcile the tension among these distinct but clearly interrelated facets in a real world of limited resources but infinite need. 139 iStockphoto/Thinkstock Expenditures, Cost Containment, and Quality of Care 7 Learning Objectives 1. Investigate the need for cost containment to ensure a sustainable health care system. 2. Explore the depth and breadth of inefficiency, waste, and cost overruns in American health care. 3. Outline the legal methods used to control, monitor, and remedy cost and quality problems in American health care today. 4. Identify the ways in which the Affordable Care Act of 2010 attempts to resolve the ethical and legal problems associated with cost containment and quality assurance. 5. Examine process improvement methods used by health care facilities that are designed to eliminate redundancy and waste. 140 CHAPTER 7 During the past century or so, medical care in the United States has shifted from individual doctor- patient interactions, typically within an office setting, to interactions in health care facilities that continue to grow ever larger and more complex. Modern American health care has become more highly specialized, technology centered, and fragmented—a phenomenon that has been antici- pated since the mid-19th century. The English sociologist Herbert Spencer (2004) observed that as society increases in complexity, so do its social institutions. The bureaucratic explosion within health care, therefore, seems less a symptom of inefficiency and institutionalized excess and more a part of the necessary, long-term development of specialized sectors within advanced industrial - ized society (Toulmin, 1990).

Today early 20th-century forecasts seem to aptly describe the current state of affairs. Physicians increasingly work in large, complex medical centers and practice settings and tend to see their scope of professional discretion minimized and finitely defined. The fear of going beyond those clear limits frequently causes physicians to practice medicine defensively, sometimes forgoing the ends of patient care to do so. Practicing under such constraints has its advantages but can also distract physicians from their professional duties. For many patients, medical care has become akin to conveyer-belt production. Continuity of care once meant having the same health care pro- fessionals in a lifelong relationship with the patient. In the new era of medicine, care is more likely to involve patients being scuttled between sometimes dozens of different caregivers, very few of whom will even remember the patient’s name or, in some cases, even meet with the patient one on one. As a result, patients may become suspicious of their caretakers, sometimes even assum - ing an adversarial stance where once there would have been warm acceptance (Phillips & Benner, 1994).

Most health care administrators and managers enter the profession with clear priorities on patient care but soon feel incessant economic and regulatory pressures to protect their institu- tion’s finances and public image. This is certainly part of any good health care administrator’s job description, but too often the loyalty to this side of the job wins out over the ultimate aim of health care—caring for patients. “No margin, no mission” has become a popular refrain among modern health care leaders, and the statement is certainly true. However, what often gets misun- derstood in this pithy slogan is that margin should exist only to further the mission. No mission, no health care organization.

In this chapter we will look at how modern American health care has succumbed to bureaucracy and how the resulting unsustainable costs have not translated into proportionately better quality of care. The chapter will also show how the constraints of institutionalization upon the moral prac - tice of medicine should be a major concern for health care professionals. Finally, we will examine what American society has done to address this major issue of ethical concern. 141 CHAPTER 7 Section 7.1 The Current State of Affairs 7.1 The Current State of Affairs A merican health care continues to be at the leading edge of discovery and innovation. How- ever, in order to get a realistic picture of the current state of affairs, its performance must be examined in comparison to that of other health care systems. That is when the paradoxi - cal success-failure story of American health care comes to light. In this section we will investigate how American health care compares to that of other countries and consider the impact of expen - ditures on quality of care. Do Expenditures Equate to Quality of Care?

The United States spends approximately 20% of its annual gross domestic product on health care, four times the average expenditure of other countries, and twice as much as the next biggest spender (Davis, Schoen, & Stremikis, 2010). Such expenditures could be viewed as a good thing. For example, they could be evidence of the importance that American society places on a human right to the best health care avail - able or on the value and necessity of good health for everyone. Paradoxically, the United States also remains the only leading industrial nation that chooses not to guarantee health care for all its citizens (Davis et al., 2010). This fact does not mean that such a large expen- diture is not well spent or that individuals in the United States do not receive a commensurately greater ben- efit than anyone else. Combined with other indicators, however, it becomes apparent that American health care dollars are not well spent, nor do these dollars afford individuals a greater benefit for this massive investment. When compared to five other developed nations (Canada, the United Kingdom, New Zealand, Australia, and Germany), the United States comes in first in health care dollars spent per person, but last on nearly every other criterion, including access, patient safety, efficiency, and equity (Furrow, Greaney, John - son, Jost, & Schwartz, 2008). The United States also lags behind the five other comparison countries in adopting information technology and quality- improvement systems and policies—despite the fact that many of these innovations are American (Furrow et al., 2008). (See Figure 7.1 for a comparison of health care expenditures as a percentage of the GDP of five countries.) Cusp/SuperStock The United States spends four times what the average prosperous country spends on health care. However, studies have shown that this extra spending does not lead to superior care. 142 CHAPTER 7 Section 7.1 The Current State of Affairs Figure 7.1: Health care expenditures as a percentage of GDP, selected countries, 1961–2009 Over the past 50 years, the amount of money countries spend on health care for their citizens has consistently risen. However, the increase is exceptionally high in the United States. What do you think has caused the country to spend so much of its GDP on health care?

Source: Mauersberger, B. (2012). Tracking employment-based health benefits in changing times. Chart. Retri\ eved from ht tp://www.bls.gov/opub/cwc /cm20120125ar01p1.htm Additionally, many Americans lack access even to basic health care, while much of the remainder of the population has spotty or insufficient health care coverage (Davis et al., 2010; Emanuel, 2008). (See Figure 7.2 for a breakdown of the number of Americans without health insurance.) Rampant expenditures continually threaten to wreak economic havoc, and exorbitant administra - tive costs further emphasize the unsustainability of the current system. Consumer satisfaction continues to dwindle as trust erodes amidst constant news reports of health care professionals and organizations committing malfeasance. Meanwhile, health care professionals have resorted to practicing medicine behind a defensive barricade against malpractice lawsuits from one side and economic pressures from the other. 143 CHAPTER 7 Section 7.1 The Current State of Affairs Figure 7.2: Americans under age 65 without health insurance coverage, January–June 2011 A significant number of Americans are currently without health insurance, with the largest group being men between the ages of 25 and 34. This figure shows the percentage of persons in the United States under age 65 without health insurance coverage at the time of the interview, broken down by age group and sex.

Source: CDC, 2011. ht tp://www.cdc.gov/nchs/data/nhis/earlyrelease/insur201112.htm Do Standards Ensure Quality?

One of the ways that health care has attempted to identify and resolve areas of low performance and compromised quality is to develop and promote practice guidelines. Professional organiza- tions review the medical literature, undertake empirical surveys of current standards of care, and debate among their members and the public what minimal standards of acceptable care and pro- fessional performance should be expected from their field. These standards of acceptable care can be influential as public assurances of minimal competencies and thresholds of quality. They also can be used to help determine when negligence has taken place. Because standards of care are important for everyday clinical practice, practitioners must keep up-to-date about them. Why, then, do some ethicists and health care practitioners question the morality of using professional standards?

When managed care organizations (MCOs), including health maintenance organizations and preferred provider organizations, first gained prominence in the American health care system, many felt that the guidelines proposed by various medical entities for clinical care amounted to little more than an institutionalized means to limit treatment and maximize profit for providers and insurers (La Puma, 1995). In some instances, compliance with specific practice guidelines 144 CHAPTER 7 Section 7.1 The Current State of Affairs influenced physician compensation, thereby creating financial incentives and disincentives for physicians’ clinical decisions. For example, physicians participating in a specific MCO might receive a bonus at the end of the year if reduced patient use of expensive medical services contributed to a positive financial bottom line for the MCO that year (Miles, 2005). (See Figure 7.3 for a break- down of medical care participants by plan type.) Figure 7.3: Percentage of medical care participants by plan type, private industry, 2010 Sixty-two percent of medical care participants receive insurance through preferred provider organizations (PPO). Health maintenance organizations were the second most popular plan. What do you think creates the interest in PPOs?

Source: Mauersberger, B. (2012). Tracking employment-based health benefits in changing times. Chart. Retri\ eved from ht tp://www.bls.gov/opub/cwc /cm20120125ar01p1.htm Stop and Clarify: Managed Care Organizations Managed care organizations take many different forms. The common characteristic of all MCOs, how - ever, is that they combine the insurer and provider functions into the same corporate (for-profit or nonprofit) structure. This combination of functions creates a financial incentive for the MCO and its participating physicians to deliver care as efficiently and cost-effectively as possible. MCOs have been developed in reaction to the traditional third-party payment system, in which the health insurer, the patient, and the provider all had their own, often inconsistent, incentives—an inconsistency that inevi - tably resulted in escalating health care costs. (continued) 145 CHAPTER 7 Section 7.1 The Current State of Affairs Another potential problem with practice guidelines is that they may be applied inflexibly. There is no guarantee that strict adherence will always result in better care. For example, a physician following earlier guidelines that recommended annual mammography screening for older women might subject patients to radiation and the risk of false positive results, leading to unnecessary and even harmful anxiety, follow-up testing, or even aggressive surgical intervention—all without a meaningful corresponding benefit for the patient in terms of longer and enhanced quality of life.

Medical practice requires careful discernment and discrimination; it takes many years for a prac- titioner to develop genuine expertise. Professionals in any field know the value of guidelines but also realize that true experts know when to judiciously disregard them. On the other hand, when standards of practice were vague and totally individualistic, physicians often tended to provide costly and unnecessary care either under the guise of “thoughtful, careful medical practice” (La Puma, 1995) or in accordance with the ethical principle of respect for autonomy since patients requested it. This total discretion in treatment resulted in spiraling health care costs, waste, and often less than optimal health care outcomes. It was not long before the public began asking for a different kind of accountability to be sought through MCOs and for a way to distinguish good health care from bad. Stop and Clarify: Managed Care Organizations (continued) One type of MCO is the health maintenance organization (HMO). In return for the prepayment of a prospectively set monthly or annual premium, a closed-panel HMO provides comprehensive health services to an enrolled patient through physicians who are either employees of the HMO (staff model) or employees of a private physician group that contracts with the HMO (group model). In a closed- panel HMO, the patient must receive care from the HMO’s employed or contracted physicians; other- wise they must pay a non-HMO physician directly out of pocket. In an open-panel HMO (independent practice association), medical care is provided by privately practicing physicians who, in addition to treating their other patients and billing insurance companies for that treatment, also participate in the HMO’s network. When a network physician treats a patient who is enrolled in the independent prac - tice association, the association pays that physician for the treatment according to a predetermined methodology that varies considerably among independent practice associations.

The other main type of MCO is the preferred provider organization (PPO). Like the HMO, a PPO prom- ises comprehensive coverage to enrolled patients in return for a monthly or annual prepaid premium.

The PPO contracts with a network of physicians and other providers (such as hospitals) to serve its patients; to participate in the PPO, the provider must agree in advance to accept an amount of pay - ment for specific services that the PPO is willing to pay. In return for receiving the provider’s best price, the PPO makes the provider “preferred” by informing patients that the full cost of their care will only be covered if the patient uses one of the preferred providers. Otherwise, the patient will have to pay all or part of the provider’s fee directly out of pocket.

In a point of service plan, the patient gets to choose at the time of service whether to use a pro - vider inside or outside the patient’s MCO. The patient then accepts the financial consequences of that choice. 146 CHAPTER 7 Section 7.1 The Current State of Affairs What Defines Quality?

Though many would agree that quality is not mere compliance with practice guidelines, it is much more difficult to come up with a positive definition of the term. Furthermore, quality is inherently difficult to measure.

To help answer the question of what constitutes quality, the Rand Corporation conducted its Med- ical Outcomes Study in the 1990s (La Puma, 1995). Health outcomes are defined as “a change in the health status of an individual, group, or population that is attributable to a planned interven- tion or series of interventions, regardless of whether such an intervention was intended to change health status” (Definition of Wellness, n.d.) In this study, Rand researchers came up with seven dif - ferent components: financial accessibility, organizational accessibility, continuity, comprehensive - ness, coordination, intrapersonal accountability, and technical accountability (Rand Corporation, 1990). This enumeration of factors constituting health outcomes is useful because it conforms to the common belief that health care assessments should focus on both the technical as well as the interpersonal dimensions of care. The Rand project built upon the seminal work of Avedis Donabedian, a leader in the theory of health care assessment. Donabedian proposed that tech - nical care is “the application of the science and technology of medicine, and of the other health sciences, to the management of a personal health problem” (1982, p. 4). He added that the “man - agement of the social and psychological interaction between client and practitioner” (1982) is also a part of technical care, although it makes up the art of medicine facet of the term. To define what quality in technical care is, Donabedian (1980) acknowledged:

At the very least, the quality of technical care consists in the application of medi - cal science and technology in a manner that maximizes the benefits to health without correspondingly increasing its risks. The degree of quality is, therefore, the extent to which the care provided is expected to achieve the more favorable balance of risks and benefits.

For Donabedian, quality in health care’s interpersonal dimensions was more difficult to define. Yet together with excellence in the medical-technical aspects, quality of care is “that kind of care which is expected to maximize an inclusive measure of patient welfare, after one has taken account of the balance of expected gains and losses that attend the process of care in all its parts” (Donabe - dian, 1980). In other words, measuring quality of care must ultimately focus on the impact of care on patients’ quality of life.

Donabedian’s definition of quality remains one of the earliest and most influential holistic attempts to clarify what is now more commonly referred to as health outcomes—that is, the actual impact of care on patients’ quality of life. Later definitions—such as the IOM’s “degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge” (IOM, 1990)—offer a clearer focus on desired results but also incorporate the idea that professional standards should still play a role in deciding what constitutes quality care. This is because achieving a desired result may not be indicative of the quality of the care received. It may be a coincidence that things turned out the way the patient or health care provider wanted; the result may have been good despite a poor quality of care; or the result, while desired or even good, may still pale in comparison to the result that might have occurred had better-quality care been rendered. The IOM definition also judges care that does not conform to current professional knowledge to be of poor quality, despite the health outcomes 147 CHAPTER 7 Section 7.2 Causes of Overspending obtained. For instance, while unnecessary care that causes harm is obviously of low quality, it is not clear that unnecessary or even futile care will be considered low quality if the patient or clini- cian are pleased with the results. However, under the IOM definition, these types of wasteful and potentially harmful therapies are excluded from the definition of quality care, regardless of their outcome.

As the foregoing discussion indicates, the concepts of quality of care and quality of life are related, but not synonymous. The former is concerned primarily with professionally determined measures of the process or inputs of service provision. Quality of life, by contrast, is concerned, from the patient’s perspective, with the impact of the process or inputs of care on the patient’s function - ing and enjoyment. So, for instance, a surgery performed according to state-of-the-art standards and techniques might be judged by professionals to constitute excellent quality of care, but the quality of life evaluation would be poor if, despite the excellent process, the surgery resulted in pain, other side effects, and poor function on the part of the patient. The quality of care/quality of life distinction is illustrated by the old saying “The operation was a success, but the patient died.” 7.2 Causes of Overspending T he value of health care is a function of comparing the quality of life achieved for patients by providing them with good quality of care with the costs of achieving desired quality of life outcomes. Value can be enhanced by improving outcomes; that is, the impact of care on patients’ quality of life. Value may also be enhanced by controlling the costs incurred in pursuing desired outcomes. Hence, we must consider the question of health care costs.

Overspending on health care threatens Americans’ and health care organizations’ financial well- being, as well as the sustainability of any health care delivery and payment model. Apart from these very important economic concerns, overspending is a moral issue, due to the central impor - tance of health care to human well-being. The fact that the United States currently does not pos- sess the resources to meet the demand for beneficial health care means that some people do not receive the care they need and want. This constitutes an ethical tragedy that wasteful spending, greed, inefficiencies, and fraud exacerbate by making it less likely that the United States can maxi - mize the health benefits and minimize the harms for its people. In this section, we will analyze the most prevalent and important causes of overspending in our health care system and investigate the different legal avenues developed to keep costs at acceptable levels. (See Figure 7.4 for a breakdown of U.S. health care expenditures.) 148 CHAPTER 7 Section 7.2 Causes of Overspending Figure 7.4: Percentage of United States health care expenditures by source, 2008 The majority of the health care expenditures in the United States came from private insurance companies (34%). Medicare and Medicaid combined also comprised 34% of the nation’s health care expenditures. The remaining came from other public sources and out-of-pocket payments.

Source: Mauersberger, B. (2012). Tracking employment-based health benefits in changing times. Chart. Retri\ eved from ht tp://www.bls.gov/opub/cwc /cm20120125ar01p1.htm Differing Regional Practices and Medical Cultures In his 2009 New Yorker essay, “What a Texas Town Can Teach Us About Health Care,” Dr. Atul Gawande told a story of two similar counties in Texas. Both counties rest on the border with Mexico and have very similar patient demographics and socioeconomic characteristics. In Hidalgo County, where the city of McAllen sits nestled between the rugged deserts of Mexico and Texas vacation destinations on the Gulf of Mexico, Medicare spends more per capita than nearly any - where else in the country—about $15,000 per enrollee in 2006 (Gawande, 2009; Dartmouth Insti- tute for Health Policy & Clinical Practice & Commonwealth Fund, 2010).

There is nothing particular about El Paso County, which lies farther up the Rio Grande, that would lead observers to expect Medicare spending there to be much different than in McAllen. However, while Medicare enrollee patient outcomes were virtually the same in El Paso as they were in McAl- len, Medicare spent only half as much in El Paso to achieve them (Gawande, 2009).

Wondering what might account for such a poor return on investment in McAllen versus other parts of the country, Gawande went to Texas to investigate. He did not find health care execu- tives, professionals, and organizations willfully defrauding Medicare. He did not find large-scale unscrupulous behavior or collusion to run up costs or other nefarious conduct. What he found 149 CHAPTER 7 Section 7.2 Causes of Overspending Fuse/Thinkstock In studying two border cities in Texas, researchers found that overspending on health care was due to a culture of overtreatment and lack of effective caregiver assessments. was a culture in health care organiza - tions and among professionals to test, treat, and spend at a demonstrably higher rate than elsewhere. Without comparative effectiveness assessments to keep them in check, relatively insular systems like McAllen tend to overtreat patients and hence waste scarce health care resources and tax dollars.

It is unclear whether communities such as McAllen outspend other communities in an effort to provide the best possible patient care or if its clinicians have suc- cumbed to the financial incentives that overtreatment and waste provide in fee- for-service health care. What is clear is that the unnecessary care rendered in places such as McAllen means there is less to spend on necessary care every - where. Besides overtreating some people at the expense of providing the basic minimum of care to others, unnecessary treatment can also present unnecessary risks to patients. Web Field Trip: Statistical Comparisons The purpose of this exercise is to demonstrate and emphasize to students the wide variations among different parts of the United States in health care practices, and therefore in health expenditures, and to have students think about potential explanations for these wide variations. 1. Locate a reputable online source for comparative statistical data related to health care costs or health outcomes (see Table 7.1 for sample sources to help get you started). 2. Choose one index of health care cost or quality represented in the data sets you choose.

This can be anything for which data are available (try to find data collected no more than 6 years ago), and need not be from the United States. Some possible indices include:

• Median Medicare costs per enrollee for specific regions in the United States. • What percentage of the total population accounts for 50% of federal health care reimbursements? • Infant death rate by populations • Rate of emergency department use as primary and preventive care outlets • Patient perceptions of quality care 3. Compare the measurement rates of total, average, and median incidence outcomes with the same figures from a different geographic location, patient population, or time period. If you cannot find a valid comparison group, then look at different statistics for comparison. 4. Are the statistics noticeably different between the two groups? Do they, for instance, differ by more than you would have expected?

(continued) 150 CHAPTER 7 Section 7.2 Causes of Overspending Fraud and Abuse In addition to regional differences in how health care professionals manage particular patient cases, another reason for the exorbitant cost of health care in the United States is inappropriate billing conduct by health care organizations and practitioners. In any health care financing system, competing financial incentives and disincentives will always create a potential for fraud and abuse.

In some of the more public and egregious cases, major health care organizations have engaged in broad, systematic fraud. For example, some hospital corporations have billed Medicare and Medicaid for patient services that were never provided, and a few notorious nursing homes have billed those government programs for the care of patients long after those patients had died. Web Field Trip: Statistical Comparisons (continued) 5. If the statistics do not differ appreciably, look for a starker contrast in health care costs or quality measures elsewhere. 6. If the statistics differ by an amount that surprises you, attempt to find plausible explanations that would account for these differences by investigating the statistical reports and articles that accompany the results. If these do not account for the difference, do an Internet search (on PubMed, for example) for journal articles that attempt to explain the statistical variation you found (or an explanation of a variation that is close enough to the phenomenon you have witnessed that its findings might be generalizable to your findings). 7. Write a short (less than one page) paper that explains the variation you found. Write your essay with an eye toward identifying possible ethical issues. For example, does the variation amount to a justice issue? If it is found that the statistical variation cannot be explained by observed differences between the two groups, can it be explained by differential access, disparate treatment, or illegitimate discrimination? Use the ethics framework from Chapter 1 to help you organize your essay and spot the potential ethical issues. Table 7.1: Sample online sources for comparative statistical data related to health care cost and quality Title Source “Data, Statistics & Tools” Agency for Health Care Research and Quality ht tp://www.ahrq.gov “Health-Care Costs: A State-by-State Comparison” Wall Street Journal ht tp://www.wsj.com “Snapshots: Health Care Spending in the United States & Selected OECD Countries” Kaiser Family Foundation ht tp://www.kff.org “Interactive Map: Health Care Costs Vary Widely Across U.S.” NBC News ht tp://www.nbcnews.com “Why American Health-Care Costs So Much” Washington Post ht tp://www.washingtonpost.com “The Dartmouth Atlas of Health Care” Dartmouth, the Commonwealth Fund ht tp://www.dartmouthatlas.org 151 CHAPTER 7 Section 7.2 Causes of Overspending Associated Press/LM Otero W. Rick Copeland, director of the Medicaid Fraud Control Unit of the Office of the Texas Attorney General, outlines a medical fraud scheme. The FBI estimates that medical fraud costs upward of $80 billion per year. Such conduct removes finite financial resources (more than $80 billion per year, according to Federal Bureau of Investigation estimates (FBI, n.d.) from a system that could put those resources to much better use purchasing care for individuals otherwise lacking access to health services. To counter this sort of fraudulent and abusive provider con- duct, the United States has compiled an array of statutes, regulations, and case decisions. The three main legal avenues for combating health care fraud and abuse are discussed in the sections that follow.

Stark Law on Physician Self-Referral The Ethics in Patient Referrals Act, or Stark law, governs physician referrals for Medicare- and Medicaid-reimbursed services in which the physician (or close family member) has a financial conflict of interest. Faced with increasing evidence that health care practitioners were referring patients to other businesses owned or co-owned by the referring physician or a close family member, Representative Fortney Stark introduced a bill that would make these “self-referrals” illegal. Self-dealing by physicians had become common and was a major source of unnecessary testing and treatment, as well as adding risk for patients. The law covers 11 designated health services; namely, laboratory tests, physical or occupational therapy, imaging services, radiation treatment, home health care, pharmaceuti- cals, medical devices and supplies, and hospital services. The Stark law provides a nearly complete ban on any Medicare or Medicaid payments for services falling under the statute in which the referring physician has a close, personal financial stake.

While some of the other fraud and abuse laws require that the offending conduct be knowing and willful, the Stark law does not require knowledge, unlawfulness, or intent to defraud. To help providers distinguish prospectively between illegal and permissible conduct, the Centers for Medi- care and Medicaid Services has published a nonexhaustive list of “safe harbors” illustrating per - missible conduct.

For more information on the Stark law, including the text of the act and detailed commentary, see ht tp://w w w.starklaw.org. 152 CHAPTER 7 Section 7.2 Causes of Overspending False Claims Estimates from 2009 by the Centers for Medicare and Medicaid Services put the bill for improper payments of false claims at more than $24 billion. False claims are claims submitted to the govern- ment for payment that is not really deserved by the provider submitting the claim, usually because the service for which the claim was made was not actually provided to an eligible beneficiary.

Several federal and state false claim statutes make the knowing and willful submission of a false claim or statement to Medicare or a state Medicaid program a felony (Medicare and Medicaid Antifraud and Abuse Act, 1977). Submission of multiple false claims by a business (a health care organization or an independent contractor) engaged in interstate commerce may additionally be prosecuted under the Racketeer Influenced and Corrupt Organizations statute commonly used against organized crime families (RICO, 1970). Violation of the Civil False Claims Act carries a pen - alty from between $5,500 to $11,000 per claim plus damages equaling three times the amount of the false claim or claims (Civil False Claims Act, 1863). Further, the Medicare and Medicaid Anti- fraud and Abuse statute, in addition to prohibiting false claims and representations, forbids know - ing and willful solicitation or receipt of any illegal remunerations, including kickbacks, bribes, or unlawful rebates, as well as self-referrals (Medicare and Medicaid Antifraud and Abuse Act, 1977).

States have adopted their own versions of the federal Civil False Claims Act. The Civil False Claims Act allows states to recover damages plus a bonus in a federal fraud case involving Medicaid claims if the state’s law facilitates the bringing of qui tam actions by the public. Qui tam actions allow private citizen whistleblowers, suing either individually or through the state, to bring legal actions against entities and individuals who break a federal law. The qui tam initiators (“relators”) are allowed to keep a portion of the damages, with the rest going to the state. Qui tam legal actions are meant to facilitate the policing of false claims by providing financial incentives for those citizens who witness the illegal conduct to blow the whistle.

While overpayments by Medicare and Medicaid for false claims result from federal and state crimes that can be seen as outright theft, a few well-meaning health care professionals character - ize their intentional overbilling or falsified claims as motivated by their devotion to the moral prac - tice of medicine (Jost, Davies, & Gosfield, 2007). Given that standardized rates of reimbursement by Medicare and Medicaid often fail to cover the treatment expenses of enrollees and claims for rendered care are sometimes denied by Medicare fiscal intermediaries and state Medicaid Stop and Clarify: Reporting Fraud and Abuse There are several ways to report fraud and abuse.

Medicare Fraud Call Medicare at 1-800-633-4227 or search for “reporting fraud” at ht tp://www.medicare.gov.

Another site with reporting information is Stop Medicare Fraud (ht tp://www.stopmedicarefraud.gov).

Stark Law Violations Report a Stark violation to the Office of the Inspector General (OIG). Go to the OIG website (ht tps:// oig.hhs.gov) and select “Report Fraud” to report a Stark violation online. Or call the OIG hotline at 1-800-447-8477. The OIG accepts any tips on Stark violations. 153 CHAPTER 7 Section 7.3 Cost Containment agencies, some health care professionals knowingly falsify reimbursement claims in order to receive the reimbursements to which these physicians feel they are otherwise entitled. It is diffi- cult to say what percentage of false claims are motivated by greed and amount to theft, and what percentage amounts to a health care practitioner trying to maximize reimbursement to make ends meet and provide continuing service to Medicare and Medicaid patients who could not otherwise afford their services.

Anti-kickback Provisions A third approach to trying to prevent fraud and abuse is found in the Medicare anti-kickback statute, 42 United States Code section 1320a–1327b(b). This statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward refer - rals of items or services reimbursable by a federal health care program. Certain “safe harbors” of permissible activity are defined in 42 Code of Federal Regulations section 1001.952. Violation of this law subjects the payer or recipient of the illicit kickback to criminal penalties consisting of fines and/or imprisonment.

7.3 Cost Containment E scalating health care expenditures pose a variety of ethical and legal challenges when they are the result of legitimate services, but especially when they are the product of fraudulent or abusive conduct by providers. Thus, it is a social imperative to contain those escalating costs so that finite resources can be used more efficiently and equitably.

Modern American biomedicine, like every other major segment of the economy, is very much concerned with keeping costs at manageable levels and providing reasonable returns on invest - ment in addition to maintaining a financially sustainable business model. However, the successes of some of the other major sectors of the economy in keeping costs within acceptable parameters have thus far proved unattainable in health care. The enormous amount of waste and inefficiency in the American medical system; excessive spending on services, drugs, and technologies that provide little or no additional benefit over less-expensive treatments; unnecessary care; and lav - ish compensation in some health care professional sectors all contribute to the runaway costs in medicine.

Each of these factors provides tremendous financial rewards for various parties who then have enormous incentives to continue the status quo. For example, physicians are often rewarded financially for the quantity of medical services they render. The typically high incomes earned by physicians also make possible one of the most powerful and well organized special-interest lobbies in American history (Starr, 1982). While American physicians and health care executives are generally highly motivated to have a well-functioning and sustainable health care system that provides the best quality care, these groups can also find it difficult to rally behind cost-control reforms when doing so would likely mean cutting their incomes.

Medical practices also are often immune to the factors found in most markets that keep prices for services and salaries in check. Although private commercial sectors are usually good at self- controlling their costs, the American health care system is by no means a typical market system.

American medicine is set up so that the costs of medical services and products are often hidden from consumers and the health care staff that render them. Consumers are typically removed from purchasing decisions, although it is reasonable to expect the cost of a proposed treatment 154 CHAPTER 7 Section 7.3 Cost Containment to be discussed with the patient as part of the informed consent process. That rarely happens, however—due at least in part to the pervasive myth, when the direct payment comes from an insurer or other third-party payer, that the service is somehow “free of charge” to patients. The third-party payment system conspires to thwart whatever the invisible hand of market econom- ics otherwise might do to reduce waste and inefficiency, since reducing costs likely would impact provider incomes negatively (Hoffman, 2010).

American employers, who often end up paying for increasing insurance costs or services directly, have belatedly become a major force for cost containment, as exemplified by the Washington Business Group on Health. Until recently, though, employers generally opted to pass rising costs on to the American workforce in the form of lower wages, smaller cost-of-living raises, and flat hiring trends.

All of these factors contribute to a cost-containment problem that has proved relatively immune to large-scale reform. Yet relatively recent changes have given some health policy experts hope.

The biggest change involves the Affordable Care Act.

The Affordable Care Act The Patient Protection and Affordable Care Act (ACA) of 2010 contains several provisions aimed at health care cost containment. First, the ACA is aimed at curbing the incentives that encourage work- ers and employers to use health insurance policies as a means to grow tax-free investments. The so-called Cadillac tax is a means to address the fact that, while the federal government taxes employ - ees’ earnings, it does not tax the money used by employers or unions to pay for their insurance.

This policy has the unintended result of allowing employees to use health insurance as a shelter to avoid paying income taxes on a large piece of their compensation package.

Not only does the federal government lose tax revenue that it would otherwise receive were it not for this provision, but the advantage gets disproportionately bigger the wealthier the wage earner is.

This means that bigger health insurance tax breaks go to help the richest people buy health insurance, which in turn encourages more unnecessary health care spending. Over time, the Cadillac tax included in the ACA will attempt to counteract the negative effects of this subsidy. In theory, taking away the use of health insurance as a means to compen- sate workers tax-free should both con - trol health insurance costs and increase wages for American workers.

Another provision in the ACA concerns formation of insurance exchanges at the state level. For Americans who lack employer-provided insurance and do not qualify for government insurance programs, the opportunity to shop around for health insurance in a new system with more con - trols against abuse comes close to approximating a competitive market environment. For possibly Associated Press/Jacquelyn Martin In 2010 President Barack Obama signed the Affordable Care Act into law, which contains several provisions aimed at health care cost containment. 155 CHAPTER 7 Section 7.3 Cost Containment the first time, Americans will be given the tools to become the kind of rational consumers that market theory envisions.

The ACA will also create the Independent Payment Advisory Board (IPAB), which will bring some needed oversight to Medicare spending. Partly in response to Gawande’s 2009 story on the dis- proportionately high Medicare and Medicaid spending in McAllen, Texas, a nonpartisan group of experts will be convened and tasked with improving health care quality and efficiency while con- trolling costs for Medicare beneficiaries. ACA advocates hope that the IPAB, assuming it survives significant legal challenges to Congress’s delegation of law-making authority to a private body, will be more successful in controlling costs that the Medicare Payment Advisory Commission has been.

Possibly the most important cost-control measure that the ACA introduces will be a new agency formed to fund research on the comparative effectiveness of different clinical approaches to par - ticular medical problems. The Patient-Centered Outcomes Research Institute (PCORI) is funded by a new fee imposed on health insurers and plan sponsors. The PCORI will be an essential part of a market approach because it will sponsor the production of data needed to discriminate between effective and ineffective treatments, along with their relative costs. It has been difficult to use the small amount of existing data to effectively reduce waste and unnecessary care, even when damning information about the relative costs, risks, and benefits of popular modes of treatment, drugs, and technologies surfaces. Powerful interest groups and skillful public relations have often proved more effective at perpetuating the underperforming treatments than the research has been at changing practice habits. However, the research sponsored by the PCORI and the fact that the ACA forbids health insurers from using PCORI research to restrict health insurance benefits are expected to aid health care consumers and physicians make more informed decisions about what treatments work. For treatments that fall within the gray area of discretion, the cost-comparison data is intended to help consumers and physicians make finer distinctions and better health care choices.

Utilization Review Another important mechanism in cost containment is utilization review. Utilization review strate- gies include various methods used by health care organizations to verify the necessity and appro - priateness of services provided to patients and the expenditures related to their care. Utilization review has been an everyday part of health care administration since it was mandated by the Medicare law as a prerequisite for reimbursement.

Many health care organizations and larger physician practices have internal utilization review pro - cesses, sometimes known as case management. While unable to unilaterally change a patient’s treatment plan or order a patient’s discharge or transfer, these internal processes play a vital role in the ethical management and financial stewardship of the organization. This strategy for ensur - ing medically necessary and appropriate care and limiting the risk of waste is included in the work of quality-improvement organizations. These set benchmarks for the reduction of inappropriate care and investigate potential deviations. Quality-improvement organizations have the authority to deny Medicare payment for unnecessary or inappropriate claims (Showalter, 2012).

An additional cost-containment strategy contained in the ACA is the creation of Accountable Care Organizations (ACOs). The ACA authorizes the Centers for Medicare and Medicaid Services to con - tract with ACOs in the Medicare Shared Savings Program. ACOs will be coordinated groups of health care providers who join together to provide comprehensive health care to Medicare beneficiaries 156 CHAPTER 7 Section 7.4 Current Quality-Improvement Methods in return for bundled payments that financially incentivize the various provider participants to deliver cost-effective health care as efficiently as possible. It remains to be seen whether ACOs are any more successful in this endeavor than MCOs have been in the past.

7.4 Current Quality-Improvement Methods W hile the strategies we have investigated in this chapter have dealt with the issue of cost containment, some strategies are more specifically aimed at maintaining and improving the quality of care. In this section, we will take a closer look at some of these strategies. Error Reporting and Surveillance Since the publication of the 1999 IOM report To Err Is Human (see Chapter 6), numerous initia - tives for error tracking have been instituted through regulatory and professional oversight. The Joint Commission enforces a sentinel event policy that encourages the reporting of errors to the Joint Commission, as well as to patients. A sentinel event is any “unexpected occurrence involv - ing death or severe physical or psychological injury, or the risk thereof ” (Joint Commission, 2013).

The Joint Commission’s sentinel event policy requires that patients—and when appropriate, their families—be informed about sentinel events, as well as whenever “outcomes differ significantly from the anticipated outcomes” (Joint Commission, 2013).

Lean Methodologies Apart from complying with requirements imposed by influential accreditation agencies, lean methodologies taught in popular management texts have also proved influential in promoting health care management cultures and policies that foster quality improvement. Although there is a general lack of empirical comparative effectiveness research on many of these business management–improvement methods, they have spawned some welcomed attention to con - tinuing quality improvement and waste and cost reduction. The lean methodologies common in today’s health care systems are based on reducing waste originating from practices of overpro - duction (that is, overproducing inventory that goes to waste); motion and transportation inef - ficiencies (when health care workers spend too much time and energy moving themselves from place to place as part of their job); static inventory (having too much inventory on hand); and any processes or costs that do not produce patient benefit or some other recognized value to the organization (Rubino, Esparza, & Chassiakos, 2014). Lean methodologies, though primarily con - cerned with trimming the fat from health care organizations to help them more swiftly and nimbly navigate the realities of modern health care, are supposed to define value from the perspective of health care consumers (Longest & Darr, 2008). This allows the creation of lean processes that are less likely to promote some secondary or instrumental end (or the arguably illegitimate end of profit maximization) over the primary goal of patient care and benefit.

Coupled with the lean philosophy, Six Sigma, a popular efficiency maximization method, focuses on producing the best possible products and services as measured through outcomes and improved consumer satisfaction (Rubino et al., 2014). The Six Sigma methodology focuses on the reduc- tion of errors, or defects per million opportunities. These programs have become comprehensive and complex systems whose suggestions and guidelines, when implemented judiciously and not overzealously, can prove a useful adjunct to the other quality-improvement and cost-reduction strategies we have looked at so far. 157 CHAPTER 7 Section 7.5 Chapter Highlights Like other well-meaning methodologies intended to ease the hard work of judiciously managing health care, lean philosophies lend themselves to being misused. Taiichi Ohno, who developed a production system at Toyota that is now the basis for most lean approaches used in health care, saw the first task of any cost-containment and quality-improvement strategy to be a thorough, ongoing study of the underlying system (Seddon, 2005). The resulting practical wisdom is more likely to ensure that the tough decisions regarding cost containment and quality assurance are effective and sustainable.

A successful cost-containment and quality-improvement strategy requires careful crafting and imple- mentation. The good health care leader needs an awareness of the limits of tools such as Six Sigma, as well as a practical wisdom that comes from a deep familiarity with the culture of the specific health care organization and an unwavering orientation toward the organization’s mission and vision.

7.5 Chapter Highlights • Waste, inefficiencies, inflated costs, fraud, and abuse not only have an effect on the eco - nomic stability and sustainability of the American medical system, but they also compro- mise the quality of care received by patients. • The inertia of the current system makes change difficult because the current system ben - efits politically powerful and influential interest groups. This, however, does not mean that strides toward improvement cannot be made. • There are a variety of complicated and fragmented ways in which health care policy makers attempt to mitigate and remedy issues of quality and cost. Among the various legislative, administrative, regulatory, professional oversight, and managerial methods used to try to control costs and pursue the best quality possible, the Affordable Care Act of 2010 is most prominent in introducing several outcomes-based initiatives that target and control cost and quality.

Web Field Trip: The Group Health Cooperative of Puget Sound and the University of Pittsburgh Medical Center For this web field trip, you will investigate two large health care organizations that have somewhat different approaches to utilization review and assess their relative merits.

The University of Pittsburgh Medical Center (UPMC) Health Plan can be characterized by a laissez- faire quality-improvement philosophy. The UPMC Health Plan’s quality-improvement statement says, in part, “We believe that if we give doctors the right information, they will make the right decisions.

We supply a continuous flow of clinical education tools and guidelines to help doctors streamline costs while delivering top-quality care” (UPMC Health Plan, 2011). While the UPMC Health Plan uses clini - cal guidelines, they are used only as educational tools rather than strict rules for determining medical necessity or appropriateness. Clinical decisions are left to the wide discretion of practitioners. There are lists of specific products and services that are covered by the health plan, but discretion is given to physicians and other health care professionals such that coverage decisions can be made by the plan on an ad hoc basis, as long as the practitioner makes a reasonable argument for why a service that is not ordinarily covered is indicated for the particular patient. The UPMC Health Plan emphasizes trust in the medical expertise of physicians and instills fiduciary duties that are seen as the only needed safeguard of appropriate and efficient health care utilization. (continued) 158 CHAPTER 7 Section 7.5 Chapter Highlights Critical Thinking and Discussion Questions 1. Why is health care so expensive in the United States? 2. Can health care costs be controlled without sacrificing quality of care or access to care? 3. How effective do you think the Affordable Care Act will be in achieving its health care access and affordability objectives? 4. Whose responsibility is it to control health care expenditures? 5. Do you think other countries do a better (more ethical) job of balancing health care access, quality, and affordability?

Web Field Trip: The Group Health Cooperative of Puget Sound and the University of Pittsburgh Medical Center (continued) In contrast, the Group Health Cooperative of Puget Sound (GHCPS) is characterized by much tighter controls over utilization, using empirically based, prescriptive guidelines for medical treatment. This approach emphasizes trust in health outcomes evidence. The GHCPS Group Health Roadmaps are prescriptive guidelines reflecting the latest in outcomes research. However, the GHCPS is aware that overly strict constraints on the practice of medicine can fail to be responsive to a patient’s individual needs and disrespectful of professional expertise. This is why the GHCPS, although driven by statistical data and outcomes research, allows some flexibility in individual cases. 1. Explore the online presence of both the GHCPS Health Plan (ht tp://www.ghc.org) and the UPMC Health Plan (ht tp://www.upmchealthplan.com), as well as other online resources that might help you better understand their respective utilization review philosophies. 2. Write a short analysis paper (less than one page) in which you compare and contrast the utilization review philosophies of both organizations. Identify any ethical problems that you anticipate under both systems and answer the following questions.

Under which health plan would you prefer to be: a. A patient? Why? b. A health care provider? Why? c. A health plan administrator? Why? d. An investor? Why? e. An employer? Under which model would the employer feel premium dollars were best spent? 159 CHAPTER 7 Section 7.5 Chapter Highlights Key Terms bureaucracy An administrative system largely made up of a hierarchy of (usually nonelected) managers who govern a complex organization or institution. case management A health care organiza- tion’s internal utilization review process that reviews treatments for medical necessity and appropriateness. Case management depart - ments cannot unilaterally change a physician’s orders or dictate a patient’s discharge or trans- fer, but their recommendations can be influen- tial in administrative and performance reviews. false claims Demands for government pay - ments for the provision of goods or services when those payments are not deserved.

Patient-Centered Outcomes Research Insti- tute (PCORI) The Affordable Care Act estab- lished this institute to fund research on the comparative effectiveness of different medical treatments. The comparative effectiveness research will be funded by a fee on health insurers and plan sponsors. qui tam Legislative authorization for private citizen whistleblowers to bring suits, either individually or through the government, against entities and individuals who have col - lected monies from the government based on the filing of false claims. The citizen plaintiffs are allowed to keep a portion of the damages, with the rest going to the government. Qui tam legal actions are meant to facilitate the policing of false claims by providing financial incentives for private citizens who witness illegal conduct to blow the whistle. sentinel event policy The Joint Commission policy that encourages health care organiza- tions to report any incidents that involve death or severe physical or psychological injury or the risk thereof (“sentinel events”) to the Joint Commission and to patients. Patients (and when appropriate, their families) are also supposed to be notified anytime an out - come is significantly different from what was anticipated. Six Sigma An efficiency maximization philoso - phy and method that focuses on producing the best possible products and services as measured through outcomes and improved consumer satisfaction. The Six Sigma process focuses on the reduction of errors in an orga- nization’s everyday operations to levels that maximize efficiency and consumer value. Stark law The Ethics in Patient Referrals Act, more commonly known as the Stark law, outlaws physician referrals of patients for Medicare- and Medicaid-reimbursed services to facilities in which the physician (or a close family member) has a financial conflict of interest. The law prohibits self-referrals for 11 designated health services, including labora- tory tests, physical or occupational therapy, imaging services, radiation treatment, home health care, pharmaceuticals, medical devices and supplies, and hospital services. utilization review The various methods used by health care organizations to verify the necessity and appropriateness of services pro- vided to patients. Utilization review has been an everyday part of health care administration since it was mandated by the original Medi - care law as a prerequisite for reimbursement.