HHS Research Initiative Regarding Transformations in Health and Human Services: Report of the Working Group. Transformations in Financing, Organization, and Availability of Health Services


The principal force driving contemporary changes in health-services systems is the desire of purchasers to obtain greater value for their health-care expenditures while containing costs -- a reaction to the long-standing upward trend in health-care costs that far exceeds what the economy reasonably can accommodate for the long term. The quest to obtain more and better health-care per dollar has spawned a host of initiatives to slow, if not arrest or reverse, the growth in the costs of particular medical procedures, drugs, and other services; to establish tighter control over the range and volume of services that enrollees can receive; and, within the private sector, to set stricter eligibility criteria for health-insurance coverage and membership in prepaid health plans. The Department is active both in fostering the movement toward increased health-care economies and in assessing the impacts of the changes.

New Financing Modalities

Foremost among the contemporary changes is the rapid proliferation in the numbers and types of managed-care organizations, with the attendant transfer of financial risk from purchasers to providers. Corporations and other private-sector organizations that purchase health insurance for their employees increasingly are contracting with capitated plans. Several states have obtained waivers from the Department under Section 1115 of the Social Security Act to implement demonstrations that, as a central feature, enlist managed-care organizations to provide health services to Medicaid enrollees. An ever-growing number of individuals are opting for membership in health maintenance organizations or other managed-care plans in lieu of traditional insurance coverage for fee-for-service health care. And managed-care arrangements in connection with Medicare are growing, albeit more slowly than with Medicaid.

In the context of managed care, institutional purchasers are exploring a variety of specific approaches to cost containment. Examples are competitive bidding by providers, new risk-sharing and risk-adjustment models, and bundling of payments for high-cost, acute-care procedures. Also, new variants of managed care are appearing -- e.g., point-of-service networks, which give enrollees limited discretion to obtain services from providers outside the managed-care plan.

Nor is managed care the only arena for innovative financing. Bundling of payments is a prevalent trend for fee-for- service providers as well. Variations on the concepts of "preferred provider" and "participating provider" continue to emerge. Another emerging strategy is the establishment of financial incentives for fee-for-service providers whose billed costs fall below levels predicted from experience. These efforts build upon the now well-established practices of insurance companies and other institutional purchasers to establish fee schedules or dollar caps for commonly used services.

Increased Emphasis on Quality

Complementing the burgeoning new modalities for financing health care is heightened attention to quality. Purchasers in both the private and public sectors are increasing the scope and intensity of their efforts to determine the comparative effectiveness of alternative procedures and practice patterns, to promote wider adoption of those that work well, and to discourage use of those that yield unsatisfactory outcomes. Disorders characterized by high costs resulting from the need for episodic or chronic care are among the primary topics for this increased emphasis - - e.g., cardiovascular diseases, diabetes, behavioral disorders, severe physical disabilities, and end-stage renal disease.

The intensified focus on quality, in turn, has stimulated efforts to improve the methodology base. Individuals, institutional purchasers, and providers all have a stake in the search for new and improved performance measures for health-services systems -- outcome measures (e.g., percentage of low-birth-weight infants), process measures (e.g., percentage of pregnant women undergoing prenatal examination during the first trimester), and measures of beneficiary satisfaction. The array of current initiatives spans the spectrum from incremental refinement of long- accepted performance measures and quality indicators to definition of entirely new ones. In this arena, the Department actively supports research on quality measures and encourages national collaborative ventures such as the Health Plan Employer Data and Information Set (HEDIS) and activities of private-sector accrediting bodies such as the National Committee for Quality Assurance (NCQA), the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the Foundation for Accountability (FACCT), and others.

Meeting the Challenge of Change

Programs of DHHS agencies not only are contributing to the current transformations in financing, organization, and availability of health services; they also are being affected by them, albeit in ways and to degrees that are not yet well understood in most instances. This presents significant challenges for policy-makers, who require accurate, up- to-date information relevant to a wide range of issues, such as those embodied in the following questions:

  • Has the nation's progress toward the goals expressed in "Healthy People 2000" been facilitated or retarded by the transformations to date? What are the prospects regarding the effects of further transformations?
  • Are the Department's programs of health care for vulnerable populations performing more or less effectively?
  • Is preventive health-care becoming more or less commonplace?
  • Are core public-health functions and the associated infrastructure ( e.g., child immunizations, disease screening, environmental health-services, and emergency-response capability) receiving more or fewer resources -- especially at the community level?
  • Are academic health-centers playing a more or less prominent role in clinical research? In graduate medical education? In providing health services to vulnerable populations?
  • Will the proliferation of managed-care arrangements along with other changes in health-care financing have a positive or negative influence upon the rate at which new pharmaceuticals, vaccines, and medical devices become available?

If these questions and related ones are to be answered in a timely fashion, the Department must support pertinent research, program evaluations, and associated data acquisitions. The activities summarized in Section A of Appendix 1 provide a strong substratum for the requisite inquiries.