Additional Learning Exercises and Applications
Alternative 3: Require the vaccination series but share the cost between the student and the school
Advantage: Decreased cost to students. All students would be vaccinated.
Disadvantage: Costs and limited choice.
Decision packages and zero-based budgeting are advantageous because they force managers to set priorities and to use resources most efficiently. This rather lengthy and complex method also encourages participative management because information from peers and subordinates is needed to analyze adequately and prioritize the activities of each unit.
Flexible Budgeting
Flexible budgets are budgets that flex up and down over the year depending on volume. A flexible budget automatically calculates what the expenses should be, given the volume that is occurring. This works well in many health-care organizations as a result of changing census and manpower needs that are difficult to predict despite historical forecasting tools.
Performance Budgeting
The fourth method of budgeting, performance budgeting, emphasizes outcomes and results instead of activities or outputs. Thus, the manager would budget as needed to achieve specific outcomes and would evaluate budgetary success accordingly. For example, a home health agency would set and then measure a specific outcome in a group, such as diabetic patients, as a means of establishing and justifying a budget.
LEARNING EXERCISE
10.4
Developing a Decision Package
G
iven the following objective, develop a decision package to aid you in fiscal priority setting.Objective: To have reliable, economic, and convenient transportation when you enter nursing school in 3 months.
Additional information: You currently have no car and rely on public transportation, which is inexpensive and reliable but not very convenient. Your current financial resources are limited, although you could probably qualify for a car loan if your parents were willing to co-sign the loan. Your nursing school’s policy states that you must have a car available to commute to clinical agencies outside the immediate area.
You know that this policy is not enforced and that some students do carpool to clinical assignments.
A S S I G N M E N T:
Identify at least three alternatives that will meet your objective. Choose the best alternative based on the advantages and disadvantages that you identify. You may embellish information presented in the case to help your problem solving.
Critical Pathways
Critical pathways (also called clinical pathways and care pathways) are a strategy for assessing, implementing, and evaluating the cost-effectiveness of patient care. These pathways reflect relatively standardized predictions of patients’ progress for a specific diagnosis or procedure. For example, a critical pathway for a specific diagnosis might suggest an average length of stay of 4 days, with certain interventions completed by certain points on the pathway (much like a PERT flow diagram; see Fig. 1.5). Patient progress that differs from the critical pathway prompts a variance analysis.
Critical pathways are predetermined courses of progress that patients should make after
admission for a specific diagnosis or after a specific surgery.
First developed in the 1980s as a tool to reduce length of stay, critical pathways also provide a useful tool for monitoring quality of care. Once the cost of a pathway is known, analyzing the cost-effectiveness of the pathway as well as the associated cost variances is possible. By using clinical and cost variance data, decisions on changing the pathway can be made with both clinical and financial outcome projections.
The advantage of critical pathways is that they do provide some means of standardizing care for patients with similar diagnoses. Their weakness, however, is the difficulties they pose in accounting for and accepting what are often justifiable differentiations between unique patients who have deviated from their pathway.
Critical pathway documentation also poses one more paperwork and utilization review function in a system already burdened with administrative costs. Despite these challenges, research suggests that critical pathways can standardize care according to evidence-based best practices, leading to improved patient outcomes.
Health-Care Reimbursement
Historically, health-care institutions used incremental budgeting and placed little or no emphasis on budgeting. Because insurance carriers reimbursed fully on virtually a limitless basis, there was little
motivation to save costs and organizations found it unnecessary to justify charges. Reimbursement was based on costs incurred to provide the service plus profit (fee-for-service [FFS]), with no ceiling placed on the total amount that could be charged. Indeed, under FFS, the more services provided, the greater the amount that could be billed, encouraging the overtreatment of clients.
The end result of uncontrolled FFS reimbursement is skyrocketing health-care costs with health care increasingly assuming a greater percentage of gross domestic product (GDP) each year. Currently, the United States spends more of its GDP on medical care than any other nation, almost 18% for 2016, and costs are expected to rise (Usgovernmentspending.com, 2016). In 2016 alone, medical costs will increase for most medical plans, with FFS plans expected to rise 10.4%, and high deductible and preferred provider organization plans rising about 8% (Baugh, 2015). Prescription drug costs are also expected to jump by double digits (Baugh, 2015).
The United States spends more of its GDP on medical care than any other nation in the world.
Medicare and Medicaid
The US federal government became a major insurer of health care with the advent of Medicare and Medicaid in the mid-1960s. Medicare is a federally sponsored health insurance program for individuals older than 65 years and for certain groups of people with catastrophic or chronic illness regardless of age. Medicare currently provides coverage for items and services for more than 49 million beneficiaries, approximately 16%
of the US population (Kaiser Family Foundation, 2016c). Approximately 81% of enrollees are elderly, 19%
are disabled, and less than 1% have end-stage renal disease (Kaiser Family Foundation, 2016a).
Between 2000 and 2010, Medicare spending grew as fast as or faster than increases in private expenditures.
But Medicare enrollment increased, whereas private health insurance coverage fell and participation in Medicare is expected to increase dramatically in the coming years as the result of the aging population.
Indeed, Sahadi (2013) suggests that the number of Medicare beneficiaries who will enroll in the program will grow by 36%, or an estimated 18 million people, between 2012 and 2023. That trend is likely to continue, given that the number of baby boomers turning 65 years is projected to grow from an average of about 7,600 per day in 2011 to more than 11,000 per day in 2029 (Sahadi, 2013).
Part A Medicare is the hospital insurance program. Part B Medicare is the supplementary medical insurance program that pays for outpatient care (including laboratory and X-ray services) and physician (or other primary care provider) services. Part C Medicare (now called Medicare Advantage) allows patients more choices for participating in managed care plans. And the newest, Medicare Part D, which became
effective January 1, 2006, allows Medicare patients to purchase at least limited prescription drug coverage, either through stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans. Approximately 16.8 million beneficiaries (31%) participated in Medicare Advantage in 2015 (Kaiser Family Foundation, 2016b), and more than 39 million participated in Medicare Part D (Hoadley, Cubanski, &
Neuman, 2015). Out-of-pocket costs for Medicare beneficiaries as of 2016 are shown in Table 10.1.
Medicaid is a federal-state cooperative health insurance plan created primarily for low income children and adults, although it also provides medical and long-term care coverage for people with disabilities and
assistance with health and long-term care expenses for low-income seniors. Over the past 15 years, Medicaid enrollment increased substantially during two major recessions, reflecting the countercyclical nature of the program (Rudowitz, Snyder, & Smith, 2015). During economic downturns, when individuals lose their jobs and incomes decline, more people qualify and enroll in Medicaid, which in turn drives increases in total Medicaid spending. Increases in overall Medicaid spending will continue to be driven by enrollment growth largely because of the Affordable Care Act. Both Medicare and Medicaid are coordinated by the Centers for Medicare & Medicaid Services (CMS).
The Prospective Payment System
With the advent of Medicare, Medicaid, and FFS reimbursement, health-care costs skyrocketed as large segments of the population that previously had no or limited coverage began accessing services. In addition, health-care providers saw the government as having “deep pockets,” which suggested almost limitless reimbursement and began providing services accordingly. As a result of rapidly escalating costs, the government began establishing regulations requiring organizations to justify the need for services and to monitor the quality of services. Health-care providers were forced for the first time to submit budgets and justify costs. This new surveillance and existence of external controls had a tremendous effect on the health- care industry.
The advent of diagnosis-related groups (DRGs) in the early 1980s added to the need for monitoring cost containment. DRGs were predetermined payment schedules that reflected historical costs for treatment of specific patient conditions. Medicare Severity DRGs were implemented in 2007 and have been updated annually since.
With DRGs, hospitals joined the PPS, whereby they receive a specified amount for each Medicare patient’s admission regardless of the actual cost of care. Exceptions to this occur when providers can demonstrate that a patient’s case is an outlier, meaning that the cost of providing care for that patient justifies extra payment. PPS and consequent cost-containment efforts lead to decreased length of stays for most patients.
As a result of the PPS and the need to contain costs, the length of stay for most hospital admissions has decreased greatly.
Many argue that quality standards have been lowered as a result of the PPS and that patients are being discharged before they are ready. It is the nurse-leader’s responsibility to recognize when cost containment is impinging on patient safety and to take appropriate action to guarantee at least a minimum standard of care.
Chapter 23 further discusses the PPS and its impact on quality control.
In addition, hospitals use the ICD to code diseases, signs and symptoms, and abnormal findings. Currently in its 10th revision, ICD-10 provides significantly more coding options for treatment, reporting, and payment processes, including more than 68,000 clinical modification codes as compared with 15,000 in ICD-9 (CMS, 2016b).
The government again deeply affected health-care administration in the United States in 1997 with the passage of the Balanced Budget Act (BBA). This act contained numerous cost-containment measures, including reductions in provider payments for traditional FFS Medicare program participants. The bulk of the savings resulted from limiting the growth rates for hospital and physician payments. A second major source of savings derived from restructuring the payment methods for rehabilitation hospitals, home health agencies, skilled nursing facilities, and outpatient services. The BBA also, for the first time, authorized payments to nurse practitioners for Medicare-provided services at 85% of the physician-fee schedule.
The ever-increasing impact of the federal government on how health care is delivered in the United States must be recognized. Accompanying this funding is an increase in regulations for facilities treating these patients and a system that rewards cost containment. Health-care providers are encountering financial crises as they attempt to meet unlimited health-care needs and services with limited fiscal reimbursement. Competition has intensified, reimbursement levels have declined, and utilization controls have increased. In addition, rapidly changing federal and state reimbursement policies make long-range budgeting and planning very difficult for health-care facilities.
Managed Care
Managed care has been a significant factor affecting health-care delivery and reimbursement since the early 1990s. Broadly defined, managed care is a system that attempts to integrate efficiency of care, access, and cost of care. Common denominators in managed care include the use of primary care providers as
“gatekeepers,” a focus on prevention, a decreased emphasis on inpatient hospital care, the use of clinical practice guidelines for providers, and selective contracting (whereby providers agree to lower reimbursement levels in exchange for patient population contracts). Managed care typically uses formularies to manage pharmacy care and focuses on continuous quality monitoring and improvement.
Utilization review is another common component of managed care. Utilization review is a process used by insurance companies to assess the need for medical care and to assure that payment will be provided for the care. Utilization review typically includes precertification or preauthorization for elective treatments, concurrent review, and, if necessary, retrospective review for emergency cases.
Another frequent hallmark of managed care is capitation, whereby providers receive a fixed monthly payment regardless of services used by that patient during the month. If the cost to provide care to someone is less than the capitated amount, the provider profits. If the cost is greater than the capitated amount, the provider suffers a loss. The goal, then, for capitated providers is to see that patients receive the essential services to stay healthy or to keep from becoming ill but to eliminate unnecessary use of health-care services.
Critics of capitation argue that this reimbursement strategy leads to undertreatment of patients. A summary of managed care characteristics is found in Display 10.5.