The cost of healthcare in the U.S. has skyrocketed in the past five decades. The federal budget for health care has exceeded $3.65 trillion, which is a significant percentage relative to the Gross Domestic Product (GDP) of the country ( Altman and Mechanic, 2018 ). The amount of money spent in health care services is higher compared to the GDP of developed economies such as Canada, Spain, and U.K. Shockingly, the U.S. ranks lowly in the world healthiest nations. Federal programs such as Medicare and Medicaid are consuming a vast amount of financial resources allocated for the health service sector. Specifically, Medicare has been in existence since 1965 ( Altman and Mechanic, 2018 ). The continued sustainability and viability of Medicare is attributed to the cost containment strategies that have been enacted. Some of the cost containment strategies have facilitated the efficacy of the programs while others have impeded its progress. Understanding the history of cost containment in Medicare is vital in the formulation of future policies that will ensure the health status of the country is enhanced.
Literature Review
For many years, the federal government has relentlessly worked toward the reduction of healthcare cost. As such, regulatory bodies have been established to formulate policies that will reduce the cost of funding healthcare. Whereas some of the cost containment strategies have facilitated considerable success in pinning down the cost, new challenges have invariably emerged (Holahan & McMorrow, 2019). It means that a cost containment strategy can only work for a few years before it is rendered inept and ineffective. The health professionals and other service providers are continually devising ways of increasing their incomes by providing more units of services or using few resources per unit of service. The resultant effect of these reactionary measures by health professionals and institution is a compromise in the quality of health services provides, which arguably leads to low health ranking of the U.S.
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During the period between the 1960s and 1970s, the increase in the cost of the Medicare program was attributed to the use of cost and charged-based reimbursement. The hospitals were reimbursed based on the reasonable reported cost while the doctors were paid according to customary or actual charges. These methods of reimbursement were spectacularly inflationary. For example, in five years between 1967 and 1982, a payment that was made to the hospital to cover the Medicare program increased from $2.8 billion to $30.9 (Holahan & McMorrow, 2019). Similarly, the payment made to physicians and related services increased exponentially from $ 0.43 billion to $ 12 billion. To contain the increasing cost of Medicare, Congress responded by enacting a Diagnosis-Related-Group Prospective Payment System (DRG-PPS). DRG-PPS implied that hospitals would have products to sell to the clients. For example, if a patient is diagnosed with kidney failure or heart attack, there is a treatment for this particular product. In other words, the DRG-PPS will pay the hospital a standard amount for the prospectively determined health condition. However, other factors such as the location of the hospital, capital cost and labor costs of the area are also factored in during the reimbursement process.
Containing the cost charged by the physicians took significant time. The first considerable measure by Congress was the implementation Deficit Reduction Act in 1984. Conversely, in 1986, the Omnibus Budget Reconciliation Act (OBRA) was enacted (Orszag, 2016). These two pieces of legislation were aimed at freezing and constraining the growth and expansion of physicians’ reimbursement. Again, the laws were necessary for curtailing the extent to which the doctors would charge beneficiaries of Medicare more money relative to the Medicare rate of service. The efforts to contain the physicians’ payments were futile as the cost increased tremendously. Research shows that the growth was influenced by the increase in the intensity and volume of physician services that Medicare beneficiaries received.
The next cost containment strategy that was formulated and ratified by the Congress was the Resource-based Relative value physician fee schedule (RB-RVS). Implementation of RB-RVS implied that the doctors would be paid according to the amount of resources used to produce a particular predetermined service (Stadhouders et al ., 2018). Factors including malpractice premiums, practice expenses, and the amount of labor involved are also considered when reimbursing the physicians. Other alternatives to cost control have been encouraged in the healthcare system. Specifically, Health Maintenance Organizations (HMOs) are playing an imperative role in the reduction of cost for Medicare beneficiaries.
All the cost containment initiatives that have in action have created an enclave society where only a fraction of the people enjoy the benefits of Medicare (Stadhouders et al ., 2018). The hospitals and physicians are becoming increasingly aggressive in a bid to increase income. Currently, the U.S. is performing dismally, when it comes to the health care system in comparison to its contemporaries. The health policies that have been adopted in nations like Taiwan, Japan, Sweden, and Germany are sustainable making the healthcare a universal imperative. On the contrary, millions of people in the U.S are uninsured. In another effect, some of the insured people are still left bankrupt when their insurance policies fail to cover for treatment of specific conditions.
Discussion
Analyzing cost containment in Medicare from a health economics perspective is critical as it unearths the fundamental issues that are affecting the efficacy and growth of Medicare. Many people are opting to register with private insurance companies. As much as Medicare is a federally funded program, it needs to operate sustainably (Gogineni et al ., 2015). In other words, evidence of financial burden must be resolved expeditiously. Despite an increase in the number of people enrolling in this program, the growth rate is minimal. The resultant effect is increased spending in the program. The issue of increased spending in the healthcare system has been hotly debated with various political affiliations introducing measures that are aligned to the party’s goals and policies. Tussle affects healthcare significantly. For instance, when more money is channeled to Medicare, some other essential sectors may experience deficit.
The motivation of the doctors is also attributed to wages that they receive from offering their services to the clients. The primary role of cost containment is to reduce the inflationary costs of the physicians. A critical question that should be asked is whether the measures have a direct impact on the job satisfaction of the physicians in the U.S. In reality, doctors would prefer to work in economies where their financial mobility is guaranteed. Cost containment in Medicare confines doctors within a certain financial boundary (Gogineni et al ., 2015). This has led to an increased number of doctors who are venturing in private practices to maximize profitability. The indirect effect of doctors’ new trajectory is that only people who can afford the expensive health services will enjoy the freedom and basic right of health. The remaining populace with low income is forced to seek services in the overcrowded medical facilities that are operating with insufficient resources.
The main parties involved in this issue include the government, patients, and private institutions. The main player in the cost containment policies in Medicare is the government. The federal government is the creator and patron of the program meaning it holds absolute power of determining how it is run. Medicare and all the laws affecting its operation are the creation of the executive in collaboration with Congress. It means that the decision to contain cost is a matter of political goodwill. Congress has played a major role in determining the course of cost containment in Medicare. As mentioned earlier, various legislations have been enacted in a bid to impede the inflationary costs of physician services and health institutions. The immense power of the government has worked effectively with profound effects.
The cost of containment strategies also affects patients. When the government implements the strategies, the direct impact is premised on the patients’ perception and reaction toward the changes. The health institutions were reacting toward the changes by either increasing the number of unit services or charging high per unit service. The responses to the legislation affect the patients. It must be noted that cost containment must ensure that the quality of health services is standard. In many institutions, a reduction in the budgetary allocations affects the quality of services or products offered to the clients (Gogineni et al ., 2015). Healthcare services are delicate meaning that a slight mistake can lead to detrimental consequences. For example, low-quality health services may increase the morbidity and mortality rate, all of which reduces the economic growth and development of the country. The private sector is occupying a major role in the cost containment of Medicare. The private institutions are protected from the cost containment regulations that have been implemented. In this context, the unrestricted operations of the private institutions are competitive advantages to the organizations operating in the capitalist economy. A significant number of people have resorted to obtaining health insurance cover from private insurers.
Cost containment is affected by the market forces including competition, high demand, and supply. In the perfect market setting, the level of competition is intense. The healthcare system in the U.S. is highly competitive, attracting both big and small corporations. It implies that the survival and sustainability of the organization depend on the types and quality of services that are offered to the clients. Private entities are competing aggressively with the Medicare program. Statistics show that many people with stable sources of income are considering private entities that offer comprehensive health coverage (Duchman et al., 2016). The increasing cost of healthcare services implies that there is high demand. Conversely, the supply of health services is also high. The supply is met by several health practitioners who are churned out of the institutions. The surplus supply is created by specialized immigrants who come to the U.S. annually. Supply and demand affect the cost containment of Medicare. The demand for Medicare coverage is attributed to increasing demographics. The population of the U.S. has increased tremendously over the past fifty years. With an increasing population, social challenges are emerging. In effect, the rate of ailments and diseases have also increased (Blumenthal, Abrams, & Nuzum, 2015). For example, the number of people who are battling chronic diseases has increased. As such, these patients have enrolled in large numbers in the Medicare program hence increasing the demand. The health institutions are filling the market niche by expanding their operations.
Affordable Care Act (ACA) has impacted cost containment in Medicare by increasing the scope of the program. Through ACA, a beneficiary can get more care without incurring an additional cost (Bauchner, 2016). It means that the health institutions must offer services to the patients regardless of their conditions. This is reciprocated through high deductibles. The viability of the ACA has been questioned in the past especially by the current administration that deems it as highly unsustainable.
Health disparities are demonstrated in the cost containment of Medicare by the migration of people into private insurers. Most of the people with high incomes prefer private insurers than the Medicare and Medicaid programs. The health disparities are premised on the income inequalities that are prominent in the U.S. In other global markets cost containment has been improved by the introduction of robust strategies that ensure the cost and quality of the health services are sustainable. The main methods that are used by countries such as the U.K., Canada, Germany, and France include budget shifting, population coverage, cost coverage, service coverage, budget setting, and provider payments.
Recommendation
The introduction of a budget cap can sustain cost containment in the Medicare program. The amount of money that is currently spent on the Medicare program is becoming an economic burden. The Congress in collaboration with other stakeholders should formulate viable financial policies that will ensure the budgetary allocations are manageable and effective in the long term.
Conclusion
Cost containment in Medicare affects two aspects including the availability and quality. The history of cost containment in the healthcare program shows that the progress that has been made is also affected by the emerging challenges and trends. The average health consumer in the U.S. has dynamic tastes and preferences. As such, it is incumbent upon the government to create an environment where health outcomes are unparalleled.
References
Altman, S. and Mechanic, R. (2018). Health Care Cost Control: Where Do We Go from Here? Retrieved from https://www.healthaffairs.org/do/10.1377/hblog20180705.24704/full/
Bauchner, H. (2016). The Affordable Care Act and the future of US health care. JAMA , 316 (5), 492-493.
Blumenthal, D., Abrams, M., & Nuzum, R. (2015). The Affordable Care Act at 5 Years .
Duchman, K. R., Pugely, A. J., Martin, C. T., Bedard, N. A., Gao, Y., & Callaghan, J. J. (2016). Medicare’s Hospital-Acquired Conditions Policy: A Problem of Nonpayment After Total Joint Arthroplasty. The Journal of Arthroplasty , 31 (9), 31-36.
Gogineni, K., Shuman, K., Chinn, D., Weber, A., Cosenza, C., Colten, M. E., & Emanuel, E. J. (2015). Making cuts to Medicare: the views of patients, physicians, and the public. Journal of Clinical Oncology , 33 (8), 846-853.
Holahan, J., & McMorrow, S. (2019 ). Slow Growth in Medicare and Medicaid Spending per Enrollee Has Implications for Policy Debates .
Orszag, P. R. (2016). US health care reform: cost containment and improvement in quality. JAMA , 316 (5), 493-495.
Stadhouders, N., Kruse, F., Tanke, M., Koolman, X., & Jeurissen, P. (2018). Effective healthcare cost-containment policies: A systematic review. Health Policy
