CHAPTER 1
A Distinctive System of Healthcare Delivery
THE PRIMARY OBJECTIVES OFA HEALTHCARE DELIVERY SYSTEM
2. To deliver services that are cost-effective and meet certain preestablished standards of quality.
THE COMPLEXITY OF HEALTHCARE DELIVERY
• Education/Research
• Suppliers
• Insurers
BASIC COMPONENTS OF A HEALTHCARE SYSTEM: THE QUAD-FUNCTION MODEL
Functional components of healthcare delivery:
• Financing—to purchase insurance, or to pay for healthcare services consumed
MANAGED CARE
A system of health care delivery that (1) seeks to achieve efficiencies by integrating the
basic functions of healthcare delivery, and (2) employs mechanisms to control utilization of
1. Capitation—For one set fee per member per month (PMPM), the MCO promises to deliver all
needed healthcare services.
2. Discounted fees
Insurance—MCO assumes risk and acts as an insurance carrier.
Delivery—MCO arranges to provide healthcare services to the enrollees, either directly
PRIMARY CHARACTERISTICS OF THE US HEALTHCARE SYSTEM
• No central agency—global budgeting becomes impossible
• Partial access—a large segment of the population (roughly 16%) is uninsured
• Imperfect (quasi) market—consequences include moral hazard and supplier-induced demand
• Third-party insurers and multiple payers—Insurance (commercial insurance companies or
system
IMPLICATIONS FOR HEALTH SERVICES MANAGERS
• Help understand change (shifts occurring in the system)
HEALTHCARE SYSTEMS OF OTHER COUNTRIES
Other developed and even some developing countries have national healthcare programs
providing universal access—theoretically, no uninsured. Universal access is provided by a
Three models of national systems:
1. National health insurance (NHI)—a tax-supported national healthcare program in which
services are financed by the government but are rendered by private providers (Canada, for
example).
3. Socialized health insurance (SHI)—health care is financed through government-mandated
contributions by employers and employees. Health care is delivered by private providers (for
example, Germany, Israel, and Japan).
Attributes to compare:
1. Ownership
3. Reimbursement
4. Consumer co-payment
THE SYSTEMS FRAMEWORK
• System foundation
• System resources
• System processes
ACA Takeaway
• In March 2011, the ACA was signed into law.
• The ACA requires that all individuals must be covered by either public or private insurance and
that insurance companies cover all applicants regardless of pre-existing conditions or sex.
TERMINOLOGY
• Access—Refers to the ability of an individual to receive healthcare services when needed,
which is not the same as having health insurance.
• Administrative costs—Incidental to the delivery of health services. These costs are not only
associated with the billing and collection of claims for services delivered, but also include
numerous other costs, such as time and effort incurred by employers for the selection of
• Demand—The quantity of health care demanded by consumers based solely on the price of
those services. Enabling services, such as transportation or translation services, facilitate access
when an individual already has health insurance coverage.
• Enrollee—An individual enrolled in a health plan and therefore entitled to receive health
services the plan provides.
(manage) utilization of medical services, and (3) determines the price at which the services are
purchased and, consequently, how much the providers get paid.
• Medicaid—The government insurance program for the indigent.
• Medicare—The government insurance program for the elderly and certain disabled individuals.
• Moral hazard—The term used to explain the increased utilization of healthcare services when
services.
• Package pricing—The bundling of related services into a package, and charging one flat fee for
the package.
• Phantom providers—Practitioners who generally function in an adjunct capacity. The patient
does not receive direct services from them. They bill for their services separately, and the
be billed for reimbursement. The same registered nurse working as a nurse practitioner in private
practice could be a provider if he or she can bill for services.
• Provider-induced demand – Health care services generated based on providers’
recommendations. Since doctors typically serve as patients’ agents, their views are often
followed without challenge. Therefore, if providers suggest that patients receive certain services,
is delivered by private providers.
• Standards of participation—Minimum quality standards established by government regulatory
agencies to certify providers for delivery of services to Medicare and Medicaid patients.
• System—A network of interrelated components that have been designed to work together
coherently.
• Third party—An intermediary between patients and providers. Third parties carry out the
REVIEW QUESTIONS
1. Why does cost containment remain an elusive goal in US health services delivery?
The US healthcare system is not subject to standard methods of cost control through global
2. What are the two main objectives of a health care delivery system?
3. Name the four basic functional components of the US healthcare delivery system. What
role does each play in the delivery of health care?
The four basic components are financing, insurance, delivery, and payment. Financing pays for
the purchase of health insurance. Insurance protects the buyers of health coverage against
4. What is the primary reason for employers to purchase insurance plans to provide health
benefits to their employees?
The United States does not have a universal healthcare system covering all citizens. Health
insurance is primarily employer-based. Employers purchase health insurance plans as a fringe
5. Why is it that despite public and private health insurance programs, some US citizens are
without health care coverage? How will the ACA change this?
Health insurance is offered voluntarily by employers as a fringe benefit. Some employers,
especially small businesses, cannot afford to provide health insurance to their employees. The
unemployed generally cannot participate in an employer-sponsored program. Under current laws,
6. What is managed care?
Managed care is a system of healthcare delivery that seeks to achieve efficiencies by integrating
7. Why is the US health care market referred to as “imperfect?”
(a) The health plans acting as intermediaries for the patients typically function as buyers
of healthcare services.
(b) Patients lack the information necessary to make prudent decisions. Patients generally
do not know which new diagnostic methods, intervention techniques, and drugs are available.
8. Discuss the intermediary role of insurance in the delivery of health care.
The delivery of health care should be viewed as a transaction between the patient and the
9. Who are the major players in the US health services system? What are the positive and
negative effects of the often-conflicting self-interests of these players?
The key players in the system are the physicians, administrators of health service institutions,
insurance executives, large employers, and the government. Each player has economic self-
10. What main roles does the government play in the US health services system?
The government is a major financier of healthcare delivery through the Medicare, Medicaid, and
S-CHIP programs. The government determines eligibility criteria as to who can receive services
11. Why is it important for healthcare managers and policymakers to understand the
intricacies of the health care delivery system?
An understanding of the healthcare system has specific implications for health services managers
and policymakers.
12. What is the difference between national health insurance (NHI) and national health
system (NHS)?
National health insurance is a tax-supported mechanism in which the government guarantees a
basic package of health services to all citizens. The government finances health care through tax
13. What is socialized health insurance (SHI)?
14. What is the potential impact of ACA once fully implemented?
ACA is expected to expand health insurance coverage by 25-28 million people, reducing the
number of uninsured by about half. The ACA promises to change health care delivery in the US,