Exploring The U.S. Healthcare System 1710190663

Exploring the U.S.
Healthcare System
EXPLORING THE U.S.
HEALTHCARE SYSTEM
KAREN VALAITIS
University of West Florida Pressbooks

Pensacola, FL
Exploring the U.S. Healthcare System Copyright © 2023 by Karen Valaitis is
licensed under a Creative Commons Attribution-NonCommercial-ShareAlike
4.0 International License, except where otherwise noted.
CONTENTS
Introduction 1
Acknowledgements 4
Chapter 1: Overview of the U.S.

Healthcare System
1.1 Historical Background 9

1.2 Organization & Regulation 27
1.3 Health Status 49
1.4 Health Disparities 67
1.5 Chapter Summary 84
1.6 References & Attributions 87
Chapter 2: Delivery Systems
2.1 Inpatient Care 109

2.2 Outpatient Care 119
2.3 Post-Acute & Long-Term Care (PALTC) 130
2.4 Palliative & Hospice Care 153
Chapter 3: Health Insurance
3.1 Basic Concepts 179

3.2 Private Health Insurance 194
3.3 Public Health Insurance & Systems 210
3.4 Insurance Coverage & Trends 231
Chapter 4: Access, Quality & Cost
4.1 Basic Concepts 259

4.2 Access to Care 267
4.3 Quality of Care 281
4.4 Cost of Care 302
Chapter 5: Current Issues in Healthcare

Policy
5.1 Government Policy 343

5.2 Patient Protection and Affordable Care Act 353
5.3 Value-Based Contracting in Healthcare 367
Chapter 6: Technology in Healthcare
6.1 Health Information Technology 399

6.2 Health Information Legislation 419
6.3 Developing Technology in Healthcare 431
Glossary 469
INTRODUCTION | 1
INTRODUCTION
Welcome to Exploring the U.S. Healthcare System. This

open educational resource (OER) introduces students to
foundational characteristics of the U.S. healthcare system. It
begins with an overview of the healthcare system that includes
a brief history and a description of the current state of health
in the U.S. The second chapter describes health delivery
systems, including inpatient, outpatient, post-acute, long-
term, palliative, and hospice care. An introduction to health
insurance in the third chapter will include an overview of basic
concepts, private insurance, public insurance, and recent
trends. The fourth chapter presents issues related to the triple
aim of improving access to care, increasing the quality of care,
and lowering the cost of care. The fifth chapter reviews how
the government intervenes in healthcare and presents current
policy issues related to the Patient Protection and Affordable
Care Act and value-based contracting. The final chapter on
the topic of technology in healthcare provides an overview of
health information technology, health information legislation,
emerging technologies, and the future of health information
technology. Chapter content is supplemented with additional
material such as reports, briefs, figures, infographics,
definitions, and key terms. Chapters two through six end with
2 | INTRODUCTION
a “knowledge check” exercise to actively engage students with

the content. While this OER book was curated and created for
undergraduate students in the field of healthcare, it is my hope
that it will continue to be customized to other programs and
shared again.
Karen Valaitis, MBA, Ed.D.
kvalaitis@uwf.edu
Book Citation:
Valaitis, K. (2023). Exploring the U.S. healthcare system.
University of West Florida Pressbooks.
https://pressbooks.uwf.edu/ushealthcaresystem/
***Other formats available upon request
Open Educational Resources

(OER)
This book is an adaptation of Introduction to the U.S.
Healthcare System by Thomas A. Clobes with revisions and
additions in text for clarification and flow. It is licensed under
a Creative Commons Attribution 4.0 International License
and in the spirit of OPEN education we have licensed this
OER with the same license.
It is also adapted with permission from United States:
Health system review 2020 by Thomas Rice, Pauline Rosenau,
Lynn Y. Unruh, and Andrew J. Barnes.
INTRODUCTION | 3
Book Citations:
Clobes, T. A. (2022). Introduction to the U.S. healthcare system.

https://scholarworks.calstate.edu/downloads/9g54xq32m. is
licensed under CC BY-NC-SA 4.0

Rice, T., Rosenau, P., Unruh, L. Y., & Barnes, A. J. (2020).
United States: Health system review. Health Systems in
Transition, 22(4), 1-441.
Click here to view the

Acknowledgments.
4 | ACKNOWLEDGEMENTS
ACKNOWLEDGEMENTS
Thanks and Gratitude To:

Thomas A Clobes, of California State University Channel
Islands for creating the OER book, Introduction to the U.S.
Healthcare System, from which this book was based.
Thomas Rice, Pauline Rosenau, Lynn Y. Unruh, and
Andrew J. Barnes for creating the book United States: Health
System Review, from which this book was also based.
Stephanie Clark, Dean of Libraries at the University of
West Florida, for encouraging faculty to create and use OER
materials in their courses and for establishing a relationship
with Pressbooks.
Cindy Gruwell, Asst. Librarian/Coordinator of Scholarly
Communication and Health Sciences Librarian at the
University of West Florida, for all of her support, assistance,
and guidance through the process of publishing this OER
book.
Angela Hahn, Chair of the Health Sciences and
Administration Department at the University of West Florida,
for her unceasing support of faculty to lessen textbook costs
for students.
Andrea Nelson, Clinical Assistant Professor in the Health
ACKNOWLEDGEMENTS | 5
Sciences and Administration Department at the University of

West Florida, for her role as mentor and for leading the way
by publishing the first OER book at the University of West
Florida (Medical Terminology).
Charli Swanson, University of West Florida student, for
serving as an Instructional Designer through the Office of
Undergraduate Research Works! program. Charli is a quick
study who helped to not only provided design ideas and
standardization but also created the “knowledge checks” at the
end of each chapter to actively engage students.
Abigail Coalson, Adjunct Instructor for the University of
West Florida, for her dedication to students and constructive
and detailed peer review of the draft to improve clarification of
key points, expand content, and correct writing errors.
Kristina Robison, Adjunct Instructor for the University
of West Florida and for her dedication to students,
constructive and detailed peer review of the draft to improve
clarification of key points, expand content, and correct writing
errors.
Click here to move on to Chapter

1: Overview of the U.S. Healthcare
System.
6 | ACKNOWLEDGEMENTS
CHAPTER 1: OVERVIEW OF THE U.S. HEALTHCARE SYSTEM | 7
CHAPTER 1:
OVERVIEW OF THE
U.S. HEALTHCARE
SYSTEM
Learning Objectives
• Outline the historical background and basic

structure of the U.S. healthcare system.
• Discover the role of public and private
regulation.
• Examine concepts related to individual health
and public health.
• Describe vulnerable populations and the
overarching goals initiated to reduce health
disparities.
8 | CHAPTER 1: OVERVIEW OF THE U.S. HEALTHCARE SYSTEM
Chapter Sections:
1.1 Historical Background
1.2 Organization & Regulation
1.3 Health Status
1.4 Health Disparities
1.5 Chapter Summary
1.6 References & Attributions
1.1 HISTORICAL BACKGROUND | 9
1.1 HISTORICAL
BACKGROUND
Sections:
1.1.1 Medical Training
1.1.2 Hospitals
1.1.3 Health Insurance
1.1.1 Medical Training

In the early years of the United States (U.S.) being a formal
country, medical care largely lacked a firm foundation in
scientific knowledge and principles. As a result, many
treatments caused more harm than benefit to the patients
(Rothstein, 1987). For example, physicians frequently used
techniques now considered barbaric: bleeding, induced
10 | 1.1 HISTORICAL BACKGROUND
vomiting, and treatment with harmful agents such as mercury

(Parascandola, 1976).
Before the mid 1800s, medical training was much less
formal than the large academic institutions of today, with most
physicians being trained as apprentices (Rothstein, 1972). By
the mid-1850s, physicians started opening medical schools in
affiliation with nearby universities, increasing the number of
formal medical schools from only a small number to more
than 40 by the mid-1850s (Rothstein, 1972). However,
though the number of formal medical schools increased, the
quality of education needed to be improved, and many medical
schools needed more resources for medical education (Starr,
1982).
Through most of the nineteenth century, many different
types of practitioners in the U.S. competed to provide care,
much of which was of poor quality (Starr, 1982). In addition,
physicians typically had neither particularly high incomes nor
social status. This situation changed only gradually towards
the beginning of the twentieth century with the confluence of
various factors. These factors included a more scientific basis
for medicine, improvements in medical training,
improvements in the quality of hospitals, and consolidation
of competing physician interests under the auspices of local
(county) and state medical societies and nationally through the
American Medical Association (AMA).
The 1910 publication of the Flexner Report represented
a turning point in U.S. health policy. Commissioned by the
Carnegie Foundation, the report provided a detailed account

of the poor quality of most U.S. medical schools at the
time. The report eventually led to improved medical school
curricula, increased length of training, and stringent admission
to training – as well as the closure of some of the worst medical
school facilities. As a result, individuals faced higher barriers to
entering the field.
Today, besides requiring a bachelor’s degree, physicians and
surgeons typically need either a Medical Doctor (M.D.) or a
Doctor of Osteopathic Medicine (D.O.) degree. No specific
undergraduate degree is required to enter an M.D. or D.O.
program. However, applicants to medical school usually have
studied subjects such as biology, physical science, or healthcare
and related fields. Some medical schools offer combined
undergraduate and medical school programs that last six to
eight years. Schools may also offer combined graduate degrees,
such as dual Doctor of Medicine-Master of Business (M.D.-
M.B.A.), dual Doctor of Medicine-Master of Public Health
(M.D.-M.P.H.), or dual Doctor of Medicine-Doctor of
Philosophy (M.D.-Ph.D.). After medical school, almost all
graduates enter a residency program in their specialty of
interest. A residency usually takes place in a hospital or clinic
and varies in duration, typically lasting from three to nine
years, depending on the specialty. Subspecialization, such as
infectious diseases or hand surgery, includes additional
training in one to three years of a fellowship. (Bureau of Labor
Statistics, 2022). According to the Association of American
Medical Colleges (2021), as of 2020, there were 155 accredited

MD-granting institutions and 41 accredited DO-granting
institutions in the U.S.1.1.2
1.1.2 Hospitals
Hospitals in the early years were actually almshouses.
Almshouses were simply housing facilities for chronically ill,
older adults, those with severe mental illness, individuals with
cognitive disabilities, and orphans (Rothstein, 1987). Later,
pest houses were created to isolate healthy individuals from
those infected with smallpox and other communicable
diseases. Caring for the sick was a secondary goal of the pest
houses, the primary goal being the isolation of healthy
individuals (Rothstein, 1987). Due to the insufficient care
provided by almshouses, physicians started calling for
independent hospitals to be established in large cities. This
call resulted in the establishment of Pennsylvania Hospital in
Philadelphia, Massachusetts General Hospital in Boston, and
New York Hospital in New York City. For example,
Pennsylvania Hospital in Philadelphia was founded in 1751
as the nation’s first institution to treat medical conditions.
Unfortunately, though, these first hospitals fell short of their
goals and merely supplemented the work of the almshouses
rather than replacing them (Rothstein, 1987). During the early
part of the nineteenth century, only poor, isolated, or socially
disadvantaged individuals received medical care in hsopital
institutions. When middle- or upper-class became sick or

needed surgery, they were routinely taken care of in their own
home (Rosenberg, 1987).
Hospitals changed dramatically during the latter part of the
nineteenth century and the first part of the twentieth century.
Previously their reputation was poor; they were places to be
avoided by those who had alternatives (i.e., people who could
afford it received care in their homes), and they mainly served
the poor. However, as the scientific basis of medicine
improved, facilities were enhanced and physicians became
better trained – the hospital was transformed. The modern
hospital evolved into a not-for-profit organization wherein
physicians were granted clinical privileges to treat their
patients.
Definition: Clinical privileges are permissions

to provide medical and other patient care
services in the granting institution, within
defined limits, based on the individual’s
education, professional license, experience,
competence, ability, health, and judgment
(Military Health System, 2013).
This model was particularly appealing to the medical

community because physicians could avail themselves of the

latest technology and a cadre of trained nurses free of charge
– which has been dubbed a ‘rent-free workshop’ (Gabel &
Redisch, 1979). The following infographics from the
American Hospital Association (2022) includes statistics
regarding the number of hospitals by type as of the year 2020:
Link to infographic: AHA – Fast Facts on U.S. Hospitals,

2022
1.1.3 Health Insurance

According to the U.S. Census Bureau (2021a), private health
insurance is coverage by a health plan provided through an
employer or union, purchased by an individual from a private
health insurance company, or coverage through TRICARE.
Public health insurance includes plans funded by governments
at the federal, state, or local levels. The major categories of
public health insurance are Medicare, Medicaid, the
Children’s Health Insurance Program (CHIP), Veterans
health care program, state-specific plans, and the Indian
Health Service (IHS).
Private sector
Key Term
The U.S. healthcare system
developed largely through the
private sector. The first health
Insurance.
plan started in 1929 to serve
There is no
teachers. This model served as the
universal
blueprint for the first Blue Cross
agreement on a
plans available in the U.S. (Raffel,
definition of
1980). However, the concept of insurance.
insurance coverage began as However, most
workers’ compensation,
providing pay to workers who lost
work due to job-related injuries or
illness. By 1912, many countries

in Europe had started national
health insurance plans. The U.S.
definitions have
resisted this with its entry into
these two key
World War I as national insurance
elements:
was considered social insurance,
1) Risk is
strongly affiliated with German
transferred –
ideals (Starr, 1982).
An uncertain,
possibly large, Private health insurance in the
loss is U.S. began around the early
transformed by
1930s, with the establishment of
an insurance
non-profit Blue Cross plans for
company into a
hospital care and soon after that
certain, small
Blue Shield plans for physician
cost or
care. The genesis of Blue Cross
premium for
was a desire for hospital coverage
the insured, and
on the part of workers and
an individual or
employers on the one hand, and
entity transfers
risk to an
on the other, the need for a steady
insurance stream of revenues on the part of
company. hospitals mired in the Great
Purchasing Depression. The first hospital
insurance is a insurance plan began in 1929 in
common Dallas, Texas (Braveman &
Metzler, 2012). In other parts of
the country, hospitals banded
together to provide this coverage

under the auspices of Blue Cross,
allowing enrollees to have the example of
freedom to choose their hospital. transferring risk

from an
These arrangements were non-
individual or
profit and did not require the cash
entity to an
reserves typical of private
insurance
insurance because hospitals
company.
guaranteed the provision of
2) Risk is
services, which was possible
spread – An
because of empty beds during the
insurer spreads
Depression (Starr, 1982). Near
risk over a large
the end of the 1930s, Blue Shield enough group
plans that covered physicians’ for the law of
services were established under large numbers
similar principles: non-profit to predict both
status and free choice of provider. total losses and
Blue Cross and Blue Shield the probability
plans began encountering of a single loss
competition from commercial with some
(for-profit) insurers, particularly accuracy. The
after the Second World War. large losses
While the Blues had, until that experienced by
time, used ‘community rating’ a few members
(where all contracting groups pay of the group
the same price for insurance),
commercial insurers employed
‘experience rating’ (where

premiums vary based on the past
are distributed health status of the insured
through an group), allowing them to charge
insurer to a
lower prices to employer groups
large number of
with lower expected medical
premium
expenses. Eventually, the Blues
payers, each of
had to follow suit and switch to
whom pays a
experience rating to remain
relatively small
competitive, blurring the
amount.
distinction between the non-
(U.S. profit and for-profit insurers
Government
(Law, 1974; Starr, 1982). As a
Accountability
result, by 1951 more Americans
Office, 2006)
obtained hospital insurance from
commercial insurers than Blue
Cross (Law, 1974).
The number of Americans with private health insurance
coverage grew dramatically from 1940 to 1960 (Figure 1-1).
While only six million had some type of health insurance
coverage in 1939, this had risen to 75 million people or half
the population by 1950 which was only about 10 years (Health
Insurance Institute, 1961). By the time Medicare and
Medicaid were enacted in 1965, insurance coverage (public
and private) had further expanded to 156 million – 80% of
the population (Jost, 2007). The tremendous growth rate in
private insurance during this period was partly because
employer contributions to employee private health insurance

plans were not considered taxable income for the employee
(Gabel, 1999; Helms, 2008).
Figure 1-1
Number of Persons with Health Insurance

(thousands), 1940-1960
(Health Insurance Institute, 1961)

However, there were other reasons for expanding private
insurance through employment. Unions negotiated for
coverage for their members, which was considered an
important benefit because healthcare costs were rising at the
time (Jost, 2007). There are also economies of scale involved in
purchasing through a group, and premiums tend to be lower
since there is less concern about adverse selection. These
factors, coupled with rising incomes with the onset and

conclusion of the Second World War and new organizational
forms to provide coverage, also help explain the growth
(Cunningham, 2000). With no systematic government
program for providing coverage until the mid-1960s, this
demand was partly satisfied through the employment-based
system, at least for many of those in the workplace.
As a non-profit organization, the Blues gave communities
access to medical care and protection against personal financial
ruin by accepting all individuals regardless of health status. By
the 1970s and ’80s, however, Blue plans were losing market
share to for-profit insurance companies marketing to healthier
populations and charging lower premiums. In 1994, the Blue
Cross and Blue Shield Association’s Board of Directors voted
to eliminate the membership standard that requires member
Plans to be organized as not-for-profit companies. As a result,
several Blue Cross and Blue Shield plans reorganized into for-
profit organizations.
Public sector
No major government health insurance programs operated

until the mid-1960s, and most government involvement until
then was through state rather than federal regulations. Then,
in 1965, the first major federal health insurance programs,
Medicare and Medicaid, were established. Before their
creation, various indigent and charity care programs existed
for low-income patients. In one such program, begun in 1950,

the federal government matched state payments to medical
providers for those receiving public assistance. In another, the
Kerr-Mills Act of 1960 provided assistance to states to help
seniors who were not on public assistance but who required
help with their medical bills (U.S. Department of Health and
Human Services [DHHS], 2000). Aside from the Affordable
Care Act, the creation of Medicare and Medicaid is likely the
most significant health policy to date.
Medicare covered Americans aged 65 and older, and
Medicaid covered about half of those with low incomes. In
1972, Medicare coverage was expanded to include the disabled
population and those with end-stage renal disease. Before the
enactment of Medicare, it was common for elderly Americans
to be without health insurance. For example, over half of
Americans aged 65 and older had hospital coverage before
1963, with far fewer insured for surgery or outpatient care
(DHHS, 2010a). Moreover, hospital coverage among seniors
before 1963 varied by region, from a low of 43% to a high
of 68% (Finkelstein, 2007). However, since Medicare was
enacted, almost all Americans aged 65 and over are covered
for hospital and physician care. At its inception, Medicare was
divided into two parts. Part A: Hospital Insurance was social
insurance in that it was funded by payroll taxes on the working
population. Part B: Supplemental Medical Insurance covered
outpatient and physician visits and, although voluntary, was
purchased by nearly all seniors since 75% of the premiums
were paid from general federal revenues. Medicaid, in contrast,

reflected a welfare model in that only those who met both
income and certain categorical eligibility requirements (e.g.,
children under the age of 18 and female adults with children)
could receive the coverage, which was largely provided free of
patient charges.
Passage of the Medicare legislation (i.e., Title XVIII of the
Social Security Act) was difficult. Proposals to cover seniors
had been before Congress for more than a decade but did
not make headway in part due to opposition from organized
medicine. As a result, passage of the legislation did not occur
until several compromises were made, including payments to
hospitals based on their costs, payments to physicians based on
their charges, and the use of private insurers to administer the
program. Eventually, the federal government moved to enact
payment reforms to control Medicare costs. In 1983, Congress
adopted the diagnosis-related groups (DRGs) system for
Medicare, which changed hospital reimbursement from a
retrospective system based on costs to a fixed prospective
payment based on the patient’s diagnosis. Then in 1989,
Congress enacted a Medicare fee schedule for physicians in the
form of a Resource-Based Relative Value Scale (RBRVS) to
replace the previous charge-based system, with further controls
being put on annual rates of increase in aggregate program
payments. The RBRVS system also aimed to reduce the gap in
payments for the provision of primary care services compared
to specialist services.
One notable gap in Medicare benefits was outpatient

prescription drug coverage. In 1988 the Medicare
Catastrophic Coverage Act was signed into law. The law added
drug coverage and other provisions related to long-term care,
but Congress repealed it just a year later. One reason was that
the new benefit would be funded entirely by Medicare
beneficiaries. Many of them, however, already had
supplemental prescription drug coverage through a former
employer. There was also tremendous confusion about what
the law did and did not cover (Rice et al., 1990). Almost two
decades later, in 2003, a drug benefit was successfully added
to Medicare, effective January 2006. Beneficiaries obtain their
drug coverage by purchasing it from private insurers, who
compete for subscribers among Medicare beneficiaries. The
benefit is subsidized in the order of 75% by general federal
revenues.
In March 2010, the U.S. enacted major healthcare reform.
The Patient Protection and Affordable Care Act (ACA)
expanded coverage to the majority of uninsured Americans
through:
1. Subsidies aimed at lower-income individuals and families

to purchase coverage;
2. A mandate that most Americans obtain insurance or
face a penalty; (Note: Legislation passed in late 2017
ended federal penalties beginning with the 2019 tax year;
however, individual states can still impose a penalty.)
3. A requirement that firms with over 50 employees offer

coverage or pay a penalty;
4. A major expansion of Medicaid;
5. Regulating health insurers by requiring that they
provide and maintain coverage to all applicants and not
charge more for those with a history of illness, as well as
requiring community rating, guaranteed issue, non-
discrimination for pre-existing conditions, and
conforming to a specified benefits package.
Most of the major provisions went into effect in 2014.
Concept Review
An interactive H5P element has been

excluded from this version of the text. You
can view it online here:
https://pressbooks.uwf.edu/
ushealthcaresystem/?p=3144#h5p-1
Click here to move on to 1.2

Organization & Regulation.
1.2 ORGANIZATION & REGULATION | 27
1.2 ORGANIZATION &

REGULATION
Sections:
1.2.1 System Organization
1.2.2 System Regulation
1.2.1 System Organization

The U.S. healthcare system is not a fully coordinated
system. Merriam-Webster’s (2023) dictionary
definition of a system is “a regularly interacting or
interdependent group of items forming a unified
whole.” However, the healthcare system in the U.S. is
made up of loosely structured insurance, delivery,
payment, and financing networks. According to Lübbeke et
al. (2019), five key stakeholders comprise the U.S. healthcare
28 | 1.2 ORGANIZATION & REGULATION
system: the healthcare consumers, insurers and payers,

healthcare providers, medical suppliers, and policy-makers and
regulators (Fig. 1-2).
Figure 1-2
Components of the U.S. Healthcare System
(Lübbeke et al., 2019)
I. Consumers
Healthcare consumers are the individuals who receive

healthcare services (Institute of Medicine, 2010). They are also
referred to as patients. Although consumers play a major role
in healthcare decision-making, consumers typically depend on

the advice of healthcare professionals for medical decisions.
However, they may be unaware of the underlying financial
obligations. For example, a patient may elect to undergo a
medical procedure with an in-network provider, a provider
who has negotiated rates with the insurance company to
provide specific services at a designated rate (Institute of
Medicine, 2010). However, unbeknownst to the consumer,
the provider may have an out-of-network staff, for instance,
an anesthesiologist, that charges full prices for the services
provided, leaving the consumer with an expensive, out-of-
pocket bill. Therefore, the consumer must be completely
aware of their medical decisions and inquire about fully in-
network providers and options.
II. Insurers and Payers
Healthcare financing depends on collecting money for

healthcare services and the reimbursement of health providers
for the rendered services. The payers include the private sector
(insurance companies), the public sector (government and
state agencies), and the consumers (out-of-pocket expenses)
that share responsibility for the financing functions (National
Conference of State Legislatures, 2020). The third-party payer
is any organization that pays or insures healthcare expenses for
the healthcare consumer. Each service provided to a consumer
has a designated fee called a charge (set by the provider) or
a rate (set by a third-party payer). Healthcare providers often

rely on the patient’s insurance to obtain payment for rendered
services which controls how much the provider is paid for
his/her services. Financing makes access to healthcare easier,
thereby increasing the demand for healthcare services. The
U.S. is a multi-payer financing system. Unlike most developed
countries with a single-payer system, where national health
insurance programs are run by the government and financed
through taxes, the U.S. healthcare system is comprised of a
complicated mix of public and private, for-profit and non-
profit insurance and providers (Donnelly et al., 2019).
III. Providers
Healthcare providers include all individual providers

and organizations providing healthcare services to
consumers.
Individual providers
Healthcare providers include practitioners, group medical

practices, hospitals, nursing homes, and ambulatory facilities
(rehabilitation, surgery, imaging, etc.). Because healthcare is a
complex set of services provided in various settings, it is not
surprising that the human resources needed to provide these
services are also varied and complex. The U.S. Bureau of Labor
Statistics (2018a, 2018b) categorizes healthcare personnel into

two main categories:
1) Healthcare practitioners and technical
occupations: This first category is further divided into a)
practitioners with diagnostic and treatment capabilities and
b) healthcare technologists and technicians. The practitioners
with diagnostic and treatment capabilities include
chiropractors, dentists, optometrists, pharmacists, physicians,
physician assistants, podiatrists, and registered nurses (RNs),
as well as a large grouping of therapists such as occupational,
physical, respiratory, speech-language, and others. In their
specialized care, these therapists consult and practice with
other health professionals. Healthcare technologists and
technicians include clinical laboratory technologists and
technicians, dental hygienists, licensed practical (vocational)
nurses (LPNs), and medical record technicians. The
distinction between technologist and technician involves the
level of education, which is longer for technologists, and work
roles, which are more complex and analytical for technologists.
In addition, technologists may supervise the work of
technicians.
2) Healthcare support occupations: The category of
healthcare support occupations includes several types of aides
(e.g., nursing, psychiatric, and home health aides) and dental
assistants.
Definition: Aides are “individuals that provide

routine care and assistance to patients under the
direct supervision of other health care
professionals and/or perform routine
maintenance and general assistance in health
care facilities and laboratories” (National Center
for Educational Statistics, 2010).
Review webpage (National Library of Medicine, n.d.): Types

of Healthcare Providers
Review webpage (National Library of Medicine,
2017): Health Occupations
Organizations
The physical facilities for healthcare in the U.S. can be placed

into several categories. Primary and ambulatory care facilities
include doctors’ and dentists’ offices, and community and
public health buildings. Hospitals and ambulatory surgical
centers are two important types of specialized ambulatory and
inpatient care facilities. Institutional forms of long-term care
facilities include nursing homes, while non-institutional forms
include home healthcare agencies, hospices, and end-stage
renal facilities. There are several other types of facilities in each
of these categories. Healthcare facilities may be under public or

private ownership. They may be licensed by state governments,
certified by the Centers for Medicare and Medicaid Services
for the Medicare (CMS) program, and/or accredited by private
agencies. Hospitals and nursing homes, for example, are
licensed by each state and may receive certification from the
CMS and accreditation by the Joint Commission (formerly
the Joint Commission on Accreditation of Healthcare
Organizations), a private not-for-profit organization.
Licensing and certification require that the facility meets
standards for the physical structure and the quality and safety
of services provided by the facility. In addition, new building
construction may be regulated by a state’s certificate of need
(CON) law.
Review webpage (Joint Commission, 2023): Healthcare
Settings
IV. Suppliers
Healthcare suppliers are the companies that supply and

distribute medical supplies and medicine, including
pharmaceutical and medical equipment companies.
Healthcare suppliers play a major role in the healthcare system
by providing medical supplies, such as wheelchairs, CPAP
machines, oxygen, and medication that people need to live
a high-quality life. Insurance companies often cover a large
portion of the cost of medical supplies and prescriptions.
V. Policy-Makers and Regulators
The delivery of healthcare services is regulated by the federal,

state, and local authorities that establish rules to protect the
population’s health. The Centers for Medicare and Medicaid
Services provide government-subsidized medical coverage and
set reimbursement standards that regulate how healthcare
services are organized and delivered to ensure the safety,
security, and quality of healthcare services (CMS, 2022). The
U.S. Department of Health and Human Services is the
government agency responsible for protecting patient privacy,
combating fraudulent claims, and ensuring healthcare agencies
comply with federal laws (Straube, 2013; DHHS, 2013). State
medical boards are the agencies that license medical doctors
and ensure medical professionals are competent, properly
trained, and adhere to the highest standards of excellence
(Carlson & Thompson, 2005). Agencies such as the Joint
Commission monitor the quality of services by implementing
a system that examines healthcare organizations based on
compliance and improvement activities (Joint Commission,
2022a; Wadhwa & Huynh, 2022). The Joint Commission
grants compliant healthcare organizations a seal of approval
after the organization earns accreditation. These seals are
important to healthcare organizations because Medicare
considers these seals when determining reimbursement (Joint
Commission, 2022a; Wadhwa & Huynh, 2022). The
government is central to all aspects of healthcare delivery,
including licensing requirements, standards for participation

in government-run programs, security and privacy laws
regarding patient health information, and setting standards for
patient safety and quality transparency standards of healthcare
organizations (Straube, 2013).
1.2.2 System Regulation

Regulation in the U.S. healthcare system may be imposed by
private or public entities at the federal, state, local county, and
city levels as a response to “the constant need to balance the
objectives of enhancing quality, expanding access, and
controlling the cost of care” (Field, 2007). As a result, all actors
in the healthcare system are subject to regulation, often from
multiple government and nongovernment agencies.
I. Regulation of Third-Party Payers
In the U.S., the regulation and governance of private insurers,

or third-party payers is shared by federal and state agencies.
The current regulatory environment facing third-party payers
has arisen primarily from three pieces of legislation: the
McCarran-Ferguson Act, The Employee Retirement Income
Security Act, and the Patient Protection and Affordable Care
Act (ACA). In reaction to a Supreme Court ruling that the
business of insurance was interstate commerce and therefore
subject to Congressional regulation and federal antitrust laws,
the McCarran-Ferguson Act was passed by Congress in 1945

to counteract the Supreme Court decision and reaffirm the
power of states to regulate and tax insurance products of third-
party payers (U.S. Government Accountability Office
[GAO], 2005). This Act essentially reserved authority to
regulate third-party payers for state authorities. Many, if not
all, states have provisions in their codes to prohibit insurers
from engaging in unfair or deceptive acts or practices in their
states (GAO, 2005). However, in 2011, as part of the ACA,
the CMS – a federal agency – took over the review of health
insurance rates increasing in excess of 10% annually from some
states due to a lack of or inadequate state regulation of health
insurance products sold to individuals and small businesses
(CMS, 2010).
The other key piece of legislation regarding the regulation
of third-party payers is The Employee Retirement Income
Security Act (ERISA), enacted by Congress in 1974
(Congressional Research Service Report for Congress, 2009).
ERISA is a federal law that sets minimum standards for most
voluntarily established retirement and health plans in private
industry to provide protection for individuals in these plans
(U.S. Department of Labor, n.d.). ERISA regulations fall
under the Department of Labor in the federal government,
in contrast to McCarran-Ferguson’s focus on state-level
regulation. They set minimum standards to protect
individuals participating in most voluntarily established
pension and health insurance private sector employee benefit
plans (i.e., self-insured employers). ERISA does not require

private employers to offer health insurance but governs the
administration of these plans if employers self-insure, and
defines how disputes are handled. Group health plans
established by government or church organizations and plans
that only apply to workers’ compensation or disability, or
unemployment are not governed by ERISA (U.S. Department
of Labor, 2019).
The ACA was initiated in 2010 to reform the U.S.
healthcare system and expand health insurance to cover the
large number of uninsured individuals. The ACA required
all U.S. citizens and legal residents be covered by public or
private insurance. Failure to do so would require the uninsured
to pay a tax, with some exemptions, such as religious beliefs
and financial hardships. However, the individual mandate was
removed in 2019, and the tax penalty has been repealed. The
ACA also requires insurance plans to cover young adults under
their parent’s policy until they are 26 years of age (National
Conference of State Legislatures, 2016). There are three key
tenets of the ACA: 1) Enables states to expand Medicaid
coverage to individuals with incomes 138% below the
federal poverty level; 2) Establishes state-based insurance
marketplaces to keep prices competitively low; 3) Emphasizes
prevention and wellness efforts.
II. Regulation of Providers
Healthcare professionals
Physicians, nurses, and many allied health professionals are

accredited by licensing boards in the state in which they
practice. State licensing boards issue new licenses to healthcare
professionals with the requisite educational credentials, renew
licenses and enforce basic standards of practice through their
power to suspend or revoke licenses to practice (Field, 2007).
In addition to state-level regulation, the CMS regulates
physicians at the federal level by imposing criteria for
reimbursing providers for services rendered. For example,
Medicare requires physicians to meet certain requirements,
many overlapping with state-licensing requirements (CMS,
2011a). Since Medicare patients make up a significant portion
of many physicians’ payer mix, the requirements for
reimbursement serve as a form of provider regulation.
Definition: Payer mix is a listing of the

individuals and organizations that pay for a
provider’s services, along with each payer’s
percentage of revenues (Williams & Torrens,
2002). Example: Managed Care 41%, Medicare
32%, Medicaid 9%, Self-pay 7%, Commercial 6%,
Other 5%
Furthermore, the CMS does

not reimburse physicians for self-
referred services. The Ethics in Key Terms
Patient Referrals Act (also known
as the Stark Law), was passed in
1989 to prohibit payment to
Capitation. A
physicians for referrals to services
fixed sum of
in which they or their family
money paid to
members have a financial interest
the provider per
(CMS, 2011b). Managed care
time unit
organizations also regulate
(usually
physicians. Managed care
monthly) for
organizations are integrated and each patient
coordinated to provide care to a being treated
specific patient population. by the provider
Managed care organizations (Bureau of
regulate physician behavior Labor Statistics,
through various mechanisms for n.d.).
controlling costs (e.g.,
Gatekeeping.
capitation, gatekeeping, pre- The
authorization) and improving
quality (e.g., disease
management). Managed care
organizations also give credentials

to physicians in their network,
requirement to again ensuring providers can
visit a general demonstrate basic requirements
practitioner,
to practice similar to those
family
required by state licensing boards
practitioner,
and the CMS.
general internal
Hospitals at which physicians
medicine
practice also regulate physicians
physician, or
through credentialing. Hospitals
general
oversee physician practice
pediatrician in
through review boards and can
an ambulatory
discipline physicians for
setting and to
obtain a referral substandard care by requiring
prior to additional medical education or
accessing supervision by colleagues, or
specialist care suspending clinical privileges
(Garrido et al., (Field, 2007). Hospital regulation
2011). in the U.S. occurs primarily via
certification requirements (e.g.,
Pre-
authorization.
The Joint Commission, Det
A decision by a Norske Veritas Healthcare, the
health insurer Center for Improvement in
or plan that a Healthcare Quality, and the
healthcare Healthcare Facilities
Accreditation Program), federal
law on who must be treated at
hospitals, and eligibility for

reimbursement criteria imposed
by the CMS. Some of the most service,
important hospital oversight treatment plan,

prescription
results from the self-policing role
drug or durable
of accreditation by the Joint
medical
Commission. This organization is
equipment is
a nongovernmental regulatory
medically
body that collaborates with more
necessary
than 4000 hospitals in the U.S.
(Bureau of
(Joint Commission, 2022b).
Labor Statistics,
Auditors from the Joint
n.d.).
Commission survey hospitals
Disease
unannounced and evaluate
managemen
compliance with Joint
t. A
Commission standards by tracing
comprehensiv
care delivered to patients,
e, integrated
acquiring documentation from
approach to
the hospital, tracking hospital
care and
quality measures, and on-site
reimbursemen
observation.
t based on a
The Emergency Treatment and
disease’s
Active Labor Act (EMTALA),
natural course
passed in 1986, requires that all
(Zitter, 1997).
hospitals participating in
Medicare provide a medical
screening examination when a
request is made for examination or treatment for an emergency

medical condition, including active labor, regardless of an
individual’s ability to pay (CMS, 2011c). After screening,
hospitals are required to stabilize patients with emergency
medical conditions or, if they cannot stabilize a patient (e.g.,
due to capacity constraints), transfer the patient for
stabilization. As a result of EMTALA, the emergency
department has become an access point commonly used by
patients with limited access to primary care, such as the
uninsured.
In 1946 Congress enacted the Hospital Survey and
Construction Act, permitting State-Federal cooperation in
providing needed community health facilities. This law,
sponsored by Senators Lister Hill and Harold H. Burton, came
to be known as the Hill-Burton Act. It authorized matching
Federal grants, ranging from one-third to two-thirds of the
total cost of construction and equipment, to public and
nonprofit private health facilities (U.S. Commission on Civil
Rights, 1965). As a result of the Hill-Burton Act, many U.S.
hospitals are required to take Medicare and Medicaid patients.
They are, therefore, subject to CMS eligibility criteria for
reimbursement through conditions of participation (CoPs)
and conditions for coverage (CoCs). As a result, the CMS is
able to regulate hospital care by ensuring facilities receiving
CMS reimbursement meet minimum quality and safety
standards (CMS, 2011d). These conditions for participation
and coverage also apply to many other health services delivery
organizations, such as nursing homes and psychiatric

hospitals. The conditions laid out by the CMS cover most of
the essential components of hospitals or other health services
facilities, including requirements for staffing, patients’ rights,
and medical records.
III. Regulation of Pharmaceuticals and

Medical Devices
Pharmaceuticals in the U.S. are primarily regulated at the

federal level by the Food and Drug Administration (FDA).
The present-day FDA evolved from legislation adopted in
1906 in response to public health epidemics resulting from
unsafe foods and drugs. The FDA approval process for new
drugs or biological products consists of animal testing, and
then four phases of testing in humans, three of which are
completed before the drug can go on the market. The fourth
phase of testing continues after the drug has been released. The
clinical trials stage often takes several years, with costs largely
borne by the drug manufacturer. However, for biological
products, the ACA included a new statutory provision to
expedite the FDA approval process for drugs that are
‘biosimilar’ with an FDA-approved biological product (FDA,
2012). The use of biosimilars is estimated to save the U.S.
healthcare system approximately $44 billion between 2014 and
2024 (Boccia et al., 2017). The FDA also regulates
pharmaceutical advertising through its labeling requirements
and ability to penalize drug companies conducting advertising

that it deems excessive or misleading. From the 1990s, drug
companies started advertising directly to consumers. Among
the high-income countries, the U.S. is one of the few to permit
direct-to-consumer advertising of prescription-only drugs
(Magrini, 2007). While no laws in the U.S. prevent drug
companies from advertising prescription drugs directly to
consumers, the FDA can prosecute manufacturers for false or
misleading advertising.
In addition to regulating pharmaceuticals, the FDA is the
principal regulator of medical devices and radiation-emitting
products used in the U.S. The FDA’s Center for Devices and
Radiological Health (CDRH) regulates firms that
manufacture, repackage, relabel, and/or import medical
devices and radiation-emitting electronic products (medical
and non-medical), such as lasers, X-ray systems, ultrasound
equipment, microwave ovens, and color televisions (FDA,
2011a). The Medical Device Amendments of 1976 to the
Federal Food, Drug and Cosmetic Act established three
regulatory classes for medical devices. The three classes are
based on the degree of control necessary to assure the various
types of devices are safe and effective (U.S. Food and Drug
Administration, 2017).
Class I – These devices present minimal potential for harm
to the user and are often simpler in design than Class II or
Class III devices. Forty-seven percent (47%) of all medical
devices fall under this category. Examples include enema kits
and elastic bandages. The majority of Class I devices (i.e., 95%)

are exempt from FDA notification before marketing.
Examples of exempt devices are manual stethoscopes, mercury
thermometers and bedpans. If a device falls into a generic
category of exempted Class I devices, a premarket notification
application and FDA clearance is not required before
marketing the device in the U.S. However, the manufacturer
is required to register their establishment and list their generic
product with FDA.
Class II – Most medical devices are considered Class II
devices. Examples of Class II devices include powered
wheelchairs and some pregnancy test kits. Forty-three percent
(43%) of medical devices fall under this category. Section
510(k) of the Food, Drug and Cosmetic Act requires those
device manufacturers who must register to notify FDA their
intent to market a medical device. This is known as Premarket
Notification (PMN). Under PMN, before a manufacturer
can market a medical device in the United States, they must
demonstrate to FDA’s satisfaction that it is substantially
equivalent (as safe and effective) to a device already on the
market. If FDA rules the device is substantially equivalent,
the manufacturer can market the device. Most Class II devices
require Premarket Notification.
Class III – These devices usually sustain or support life,
are implanted, or present potential unreasonable risk of illness
or injury. Examples of Class III devices include implantable
pacemakers and breast implants. Ten percent (10%) of medical
devices fall under this category. A primary safeguard in the

way FDA regulates medical devices is the requirement that
manufacturers must submit to FDA a Premarket Approval
(PMA) application if they wish to market any new products
that contain new materials or differ in design from products
already on the market. A PMA submission must provide valid
scientific evidence collected from human clinical trials
showing the device is safe and effective for its intended use.
Most Class III devices require Premarket Approval from the
FDA.
The FDA also monitors reports of adverse events and other
problems with medical devices and alerts health professionals
and the public when needed to ensure the proper use of
devices and the health and safety of patients (FDA, 2011b).
IV. Regulation of Patient Privacy and

Human Subjects
Regulations regarding the privacy of health information in the

U.S. were initiated in the Health Insurance Portability and
Accountability Act (HIPAA) privacy and security rules passed
by Congress in 1996. The privacy component of the law
provides federal protection for personal health information
and gives patients rights with respect to that information
(DHHS, 2011). The security portion has administrative,
physical, and technical safeguards to ensure the confidentiality
of patient information. The Office of Civil Rights enforces
HIPAA privacy and security rules under the DHHS. The

Patient Safety and Quality Improvement Act of 2005 (PSQIA)
establishes a voluntary reporting system to enhance the data
available to assess and resolve patient safety and healthcare
quality issues. PSQIA provides federal privilege and
confidentiality protections for patient safety information to
encourage the reporting and analysis of medical errors
(DHHS, 2011). The PSQIA requires disclosure of medical
errors to affected patients while protecting those who report
the errors by not allowing voluntary admissions by providers
to be used against them in a court of law (Howard et al., 2010).
The Office for Human Research Protections (OHRP)
within the DHHS regulates the protection of human subjects
used in clinical and non-clinical research. Its purview “applies
to all research involving human subjects conducted, supported
or otherwise subject to regulation by any federal department
or agency, and includes research conducted by federal civilian
employees or military personnel and research conducted,
supported, or otherwise subject to regulation by the federal
government outside the United States” (OHRP, 2011). Since
the vast majority of the research on health in the U.S. is funded
by various government grant mechanisms or regulated by
some federal agency, OHRP regulations regarding human
subjects research affect much of the research involving people.
In addition to the OHRP, many individual research
institutions, such as universities, also have departments that
verify whether human subjects research is warranted and will

be conducted safely, effectively, and with dignity.
Knowledge Check for sections 1.1

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Status.
1.3 HEALTH STATUS | 49
1.3 HEALTH STATUS
Sections:
1.3.1 Health and Wellness
1.3.2 Public Health
1.3.1 Health and Wellness
I. Definitions
Definitions: Health is “a state of complete

physical, mental and social well-being and not
merely the absence of disease or infirmity, and
wellness is the optimal state of health of
50 | 1.3 HEALTH STATUS
individuals and groups, expressed as a positive

approach to living” (World Health Organization,
1948).
While health is the outcome of an interest or a goal, wellness

includes the process needed to achieve health. However, there
may be social or cultural challenges to supporting wellness
and upholding a prevention approach. In addition to cultural
challenges, behavior change is complex, and compliance with
wellness habits and programs is poor (Reif et al., 2020).
Therefore, a culture that empowers employees or patients to
make wellness a part of their routine and builds awareness
of the multidimensional value of wellness may encourage
progress.
To achieve wellness, a person must be healthy in six
interconnected dimensions of wellness (Fig. 1-3): emotional,
occupational, physical, social, intellectual, and spiritual
(National Wellness Institute [NWI], 2022). Learning about
these Six Dimensions of Wellness can help a person choose
how to make wellness a part of everyday life. In addition,
wellness strategies are practical ways to start developing healthy
habits that can positively impact physical and mental health.
According to NWI (2022), The six dimensions of wellness are:
1. Emotional: The degree to which one feels positive and

enthusiastic about oneself and life. In this dimension, it is

important to be aware of and accept one’s feelings & take
an optimistic approach to life.
2. Occupational: Satisfaction in one’s work. In this

dimension, it is important to seek out a career whichis
consistent with one’s personal values, interests, and beliefs.
Individuals are encouraged to develop functional,
transferable skills through structured involvement
opportunities, and to remain active and involved.
3. Physical: A focus and emphasis on movement, fitness,

sleep, relaxation, and maintaining a healthy lifestyle,
including the consumption of foods and beverages that
enhance rather than impair good health.
4. Social: Making contributions to the common welfare of

one’s community and thinking of others. In
this dimension, it is important to live in harmony with
others and the environment.
5. Intellectual: Life-long learning that stretches one’s
thinking and challenge one’s mind in both intellectual and
creative pursuits, in addition to Identifying potential
problems and choosing appropriate courses of action
based on available information.
6. Spiritual: Being true to oneself, living each day in a
way that is consistent with one’s values and beliefs, going
beyond faith and religion to ponder the meaning of life,
and be tolerant of the beliefs of others.
Figure 1-3
Six Interconnected Dimensions of Wellness
(NWI, 2022)
Review fact sheet (NWI, n.d.): Six Dimensions of Wellness
Model
Then, download and take (NWI, 2022): The NWI_Six-
Dimensions-of-Wellness-Self-Assessment_2022
II. Investment in Health
Everyone prefers being healthy to being sick. The demand for

healthcare is, in part, an expression of this preference. One
thing that makes healthcare different from most other goods
and services is that it is simultaneously an investment. The

money a person spends on being healthy today will also benefit
them in the future. The impact of our healthcare choices can
be seen in terms of mortality rate and productivity.
Mortality rate
Mortality rate is a measure of the frequency of death among

a defined population during a specified time interval (Centers
for Disease Control and Prevention [CDC], 2012). According
to the CDC (2021), the ten leading causes of death in 2020
were:
1. Heart disease
2. Cancer
3. COVID-19
4. Accidents (unintentional injuries)
5. Stroke (cerebrovascular diseases)
6. Chronic lower respiratory diseases
7. Alzheimer’s disease
8. Diabetes
9. Influenza and pneumonia
10. Nephritis, nephrotic syndrome, and nephrosis
These ten leading causes accounted for 74.1% of all deaths in

the United States (U.S.) in 2020. The following report from
the National Center for Health Statistics presents 2020
mortality data on deaths and death rates by demographic and

medical characteristics.
Review report (CDC, 2021): NCHS Data Brief – Mortality
in the United States, 2020
Productivity
Being healthy also means that a person can work and earn
wages. One of the costs of poor health is lost days at work.
Many employers are unaware of the linkages between health
and productivity. While employers understand that investing
in human capital improves the company’s bottom line, they
are only beginning to understand the impact health has on
worker productivity. Indirect costs of poor health, including
absenteeism, disability, or reduced work output may be several
times higher than direct medical costs (Partnership for
Prevention, 2005). According to the Integrated Benefits
Institute (2019), “poor worker health costs U.S. employers
$575 billion a year from lost productivity due to worker
absence and chronic conditions to injuries leading to workers
compensation. For every dollar an employer spends on
healthcare benefits, another $0.61 is spent on illness-related
absence, disability, and reduced work output.”
Review infographic (Integrated Benefits Institute, 2019):
The Cost of Poor Health
Workplace health programs can increase productivity. In
general, healthier employees are more productive (CDC,
2016):
• Healthier employees are less likely to call in sick or use

vacation time due to illness.
• Companies that support workplace health have a greater
percentage of employees at work every day.
• Because employee health frequently carries over into
better health behavior that impacts both the employee
and their family (such as nutritious meals cooked at
home or increased physical activity with the family),
employees may miss less work caring for ill family
members.
• Similarly, workplace health programs can reduce
presenteeism — the measurable extent to which health
symptoms, conditions, and diseases adversely affect the
productivity of individuals who choose to remain at
work.
The cost savings of providing a workplace health program can

be measured against absenteeism among employees, reduced
overtime to cover absent employees, and costs to train
replacement employees (CDC, 2016).
III. Health Indicators
Definition: Health indicators are “summary

measures that capture relevant information on

different attributes and dimensions of health
status and performance of a health system” (Pan
American Health Organization, 2018).
“Health indicators attempt to describe and monitor a

population’s health status. The reason indicators are used in
public health is to drive decision-making for health. The
ultimate objective is to improve the health of the population
and reduce unjust and preventable inequalities” (Pan
American Health Organization, 2018). Three common health
indicators include life expectancy, deaths from cancer, and
infant mortality.
Life expectancy
Definition: “Life expectancy is defined as the

average number of years that a person could
expect to live if he or she experienced the age-
specific mortality rates prevalent in a given
country in a particular year” (Organization for
Economic Cooperation and Development [OECD],
2011).
Overall, compared to other high-income countries, life

expectancy in the U.S. is lower and mortality is higher. The
following report provides data and trends on the performance
of the U.S. compared to health systems in OECD countries
and key emerging economies:
Review report (OECD, 2021): Health at a Glance 2021:
OECD Indicators – Highlights for the United States
However, there is disagreement over whether or not this
relatively poor performance on mortality is due to structural
problems with the healthcare system. According to the CDC
(2022a):
Life expectancy at birth in the United States declined

nearly a year from 2020 to 2021, according to new
provisional data from the CDC’s National Center for
Health Statistics. That decline – 77.0 to 76.1 years – took
U.S. life expectancy at birth to its lowest level since 1996.
The 0.9 year drop in life expectancy in 2021, along with a
1.8 year drop in 2020, was the biggest two-year decline in
life expectancy since 1921-1923. More specifically:
• In 2021, life expectancy at birth was 76.1 years,

declining by 0.9 years from 77.0 in 2020.
• Life expectancy at birth for males in 2021 was 73.2
years, representing a decline of 1.0 years from 74.2
years in 2020.
• For females, life expectancy declined to 79.1 years,
decreasing by 0.8 years from 79.9 years in 2020.
• Excess deaths due to COVID-19 and other causes in
2020 and 2021 led to an overall decline in life
expectancy between 2019 and 2021 of 2.7 years for
the total population, 3.1 years for males, and 2.3 years
for females.
• The declines in life expectancy since 2019 are largely
driven by the pandemic. COVID-19 deaths
contributed to nearly three-fourths or 74% of the
decline from 2019 to 2020 and 50% of the decline
from 2020 to 2021.
• An estimated 16% of the decline in life expectancy
from 2020 to 2021 can be attributed to increases in
deaths from accidents/unintentional injuries. Drug
overdose deaths account for nearly half of all
unintentional injury deaths.
• Other causes of death contributing to the decline in
life expectancy from 2020 to 2021 include heart
disease (4.1% of the decline), chronic liver disease and
cirrhosis (3.0%), and suicide (2.1%).
Review report (CDC, 2022a): Provisional Life Expectancy

Estimates for 2021
Deaths from cancer
Cancer was the second leading cause of death in the U.S. in

2020. In 2020, there were 602,350 cancer deaths; 284,619 were
among females and 317,731 among males. In the past 20 years,
from 2001 to 2020, cancer death rates decreased 27%, from

196.5 to 144.1 deaths per 100,000 population (CDC, 2022b).
Advancing age is the most important risk factor for cancer
overall and for many individual cancer types, although cancer
can be diagnosed at any age (National Cancer Institute, 2021).
Lung cancer was the leading cause of cancer death, accounting
for 23% of all cancer deaths. Other common causes of cancer
death were cancers of the colon and rectum (9%), pancreas
(8%), female breast (7%), prostate (5%), and liver and
intrahepatic bile duct (5%). Other cancers individually
accounted for less than 5% of cancer deaths. Bone cancer is
most frequently diagnosed in children and adolescents (i.e.,
people under age 20), with about one-fourth of cases occurring
in this age group (National Cancer Institute, 2021). Previous
research suggests that trends in cancer death rates reflect
population changes in cancer risk factors, screening test use,
diagnostic practices, and treatment advances (CDC, 2022b).
Review report (CDC, 2022b): CDC – An Update on
Cancer Deaths in the United States
Infant mortality
Definition: Infant mortality is the death of an

infant before his or her first birthday.
The infant mortality rate is the number of infant deaths for

every 1,000 live births. In addition to giving us key
information about maternal and infant health, the infant
mortality rate is an important marker of the overall health of
a society. In 2020, 19,578 infant deaths were reported in the
U.S., a decline of 3% from 2019. The infant mortality rate
was 5.42 deaths per 1,000 live births in 2020, a decline of 3%
from the 2019 rate of 5.58 and the lowest rate reported in U.S.
history (CDC, 2022c).
In 2020, the five leading causes of all infant deaths were
the same as those in 2019: congenital malformations (21% of
infant deaths), disorders related to short gestation and low
birth weight (16%), sudden infant death syndrome (7%),
unintentional injuries (6%), and maternal complications (6%).
By state, infant mortality ranged from a low of 3.92 infant
deaths per 1,000 births in California to a high of 8.12 in
Mississippi. Geographically, infant mortality rates in 2020
were highest among states in the south (CDC, 2022c). The
following report from the National Center for Health
Statistics presents infant mortality statistics from 2020:
Review report (CDC, 2022c): Infant Mortality in the
United States, 2020
1.3.2 Public Health
I. Key Terms:
• Clinical care: prevention, treatment, and management

of illness and preservation of mental and physical well-
being through services offered by medical and allied
health professions, also known as healthcare.
• Determinant: a factor that contributes to the
generation of a trait.
• Epidemic: an increase, often sudden, in the number of
cases of a disease above what is normally expected in that
population in that area.
• Health outcome: the result of a medical condition that
directly affects the length or quality of a person’s life.
• Intervention: action or ministration (i.e., the act or
process of ministering) that produces an effect or is
intended to alter the course of a pathologic process.
• Pandemic: denoting a disease affecting or attacking the
population of an extensive region, country, or continent.
• Population health: an approach to health that aims to
improve the health of an entire population.
• Prevention: action to avoid, forestall, or circumvent a
happening, conclusion, or phenomenon (e.g., disease).
(Centers for Disease Control and Prevention, n.d.)

II. Public Health Defined
Definition: Public health is “the science and

art of preventing disease, prolonging life and
promoting health through the organized efforts
and informed choices of society, organizations,
public and private, communities, and individuals”
(Winslow, 1920).
There are clear distinctions between the practice of medicine

and public health. The science, diagnostics, and treatment of
diseases are at the center of the practice of medicine. Advances
in medical science have created areas of practice specialization
such as pediatrics, obstetrics, oncology, and geriatrics. Medical
practitioners follow an ethos based on social responsibility,
beneficence, gratitude, confidentiality, and humility to
preserve human life and do no harm (Indla & Radhika, 2019).
Dating back to 400 B.C., the Hippocratic Oath was the gold
standard that physicians and medical auxiliaries followed;
however, current practitioners must also consider bioethics.
Medical practitioners treat individual patients and teach
people how to take care of themselves. Whereas, public health
professionals work to prevent the spread of communicable
diseases, manage public health hazards, and respond to natural
or man-made disasters.
III. Public Health Services
Control of communicable diseases is carried out by local and

state health agencies in collaboration with the CDC (Salinsky,
2010). Local and state agencies conduct surveillance of
communicable diseases and collect and analyze the data. Both
private and state labs analyze specimens. Examples of
communicable diseases of public health concern for becoming
epidemics or pandemics are meningitis, West Nile Virus,
Hanta Virus, influenza strains such as H1N1, the plague, and
most recently the coronavirus. The CDC is notified of unusual
or alarming outbreaks or trends. Control and prevention
measures are then implemented by the CDC in collaboration
with the affected area(s). Local public health departments offer
both screening and treatment for endemic communicable
diseases, such as STDs and tuberculosis (Salinsky, 2010).
Environmental hazards (i.e., non-infectious, non-
occupational) are prevented, detected, and corrected by
federal, state and local public health agencies or in some states
by an environmental agency. At the federal level, the National
Center for Environmental Health plans and directs an overall
program of environmental harm reduction (CDC, 2019a).
Also, the Agency for Toxic Substances and Disease Registry
evaluates the risk of hazardous substances in the environment,
identifies people at risk of exposure to hazardous substances,
and prevents or minimizes the effects on health. The types
of hazards typically controlled are air pollution, contaminated
food and water, chemical spills, radon gas, mosquitoes, and

other disease vectors (CDC, 2019b; Salinsky, 2010).
Efforts to prepare for emergencies, disasters, and terrorism
are led by the CDC and the U.S. Department of Health &
Human Services, Office of the Assistant Secretary for
Preparedness and Response, which publish protocols for
action for state and local government agencies (CDC, 2019a;
Salinsky, 2010). However, each local public health agency is
responsible for developing a customized plan based on CDC
protocols. State governments play a key role by devoting
resources to local preparedness planning (Salinsky, 2010).
Preparedness and response efforts include surveillance,
laboratory testing, outbreak investigation, and the treatment
and quarantine of the population. In addition, plans must
have a coordinated emergency medical response. In the event
of an incident, state and local agencies are responsible for
implementing the plan in collaboration with the CDC.
Federal and state governments fund health promotion and
disease prevention services, while local health departments and
community health centers provide the services. Most local
public health departments provide screening and treatment for
communicable diseases such as sexually transmitted diseases
and tuberculosis. Many also provide services to high-risk
women and children (i.e., low-income, special healthcare
needs). Services may include perinatal home visits, well-child
clinics, developmental screening, and nutrition counseling for
women, infants, and children (WIC).
Some other prevention services include adult and childhood

immunizations; screening for diabetes, cardiovascular, and
other chronic diseases; smoking prevention and cessation; and
prevention of HIV/AIDs, unintended pregnancy, obesity,
inactivity, substance abuse, injuries, and violence. Supported
educational activities include media campaigns, outreach to
high-risk groups, and general population education. Some
activities are conducted in partnership with non-governmental
organizations, nonhealthcare-related local government
agencies, or state health agencies. The amount of resources
devoted to health promotion and disease prevention activities
and the engagement of agencies vary by state and locality.
Larger local health departments are more likely to provide a
comprehensive set of services (Salinsky, 2010). Other public
health services include the promotion of occupational health,
surveillance of population health and well-being, screening
programs, as well as mental, correctional, and child health
services.
Knowledge Check


Disparities.
1.4 HEALTH DISPARITIES | 67
1.4 HEALTH DISPARITIES
Sections:
1.4.1 Health Disparities Defined
1.4.2 Vulnerable Populations
1.4.3 Social Determinants of Health
1.4.1 Health Disparities Defined
Definition: Health disparities are preventable

differences in the burden of disease, injury,
violence, or in opportunities to achieve optimal
health experienced by socially disadvantaged
racial, ethnic, and other population groups and
68 | 1.4 HEALTH DISPARITIES
communities (Centers for Disease Control and

Prevention [CDC], 2017).
Health disparities exist in all age groups, including older

adults. Even though life expectancy and overall health have
improved in recent years for most Americans, not all older
adults benefit equally because of factors such as economic
status, race, and gender (CDC, 2017).
According to the 2018 United States (U.S.) Census report,
the year 2030 marks a demographic turning point for the
United States. The nation’s population is projected to age
considerably and become more racially and ethnically diverse.
The population of people who are more than one race is
projected to be the fastest-growing racial or ethnic group over
the next several decades, followed by Asian Americans and
Hispanic/Latino Americans (CDC, 2022d).
1.4.2 Vulnerable Populations

“Vulnerable populations include patients who are elderly,
racial or ethnic minorities, elderly, socioeconomically
disadvantaged, uninsured, or those with certain medical
conditions. Members of vulnerable populations often have
health conditions exacerbated by unnecessarily inadequate

healthcare” (Waisel, 2013).
I. The Elderly
According to the U.S. Census Bureau (2018), although

declining fertility plays a role, the baby boomers are the driving
force behind America’s aging. As one of the largest generations
in the country, boomers leave a substantial imprint on the
population. They swelled the ranks of the young when they
were born and then the workforce as they entered adulthood.
Now, boomers will expand the number of older adults as they
age. Starting in 2030, when all boomers will be older than
65, older Americans will make up 21% of the population, up
from 15% today. By 2060, nearly one in four Americans will be
65 years and older, the number of 85-plus will triple, and the
country will add a half million centenarians (Fig. 1-3). For the
older population, the biggest increase is expected in the decade
from 2020 to 2030, when the population aged 65 and over
is projected to increase by 18 million, from 56 million to 74
million (U.S. Census Bureau, 2018).
Figure 1-4
A Growing Population of Older Adults
(U.S. Census Bureau, 2018)

With this swelling number of older adults, the country
could see greater demands for healthcare, in-home caregiving,
and assisted living facilities. In addition to the direct
relationship between age and the prevalence of chronic
conditions, nearly 82% of Medicare beneficiaries have at least
one chronic condition, and 64% have multiple conditions
(Anderson & Horvath, 2002; Wolff, 2002). Treating these
conditions may require daily medications, specialized
equipment, or care coordination (U.S. Department of Health

and Human Services, 2010b).
II. Race and Ethnicity
Though health indicators such as life expectancy and infant

mortality have improved for most Americans, some people
from racial and ethnic minority groups experience a
disproportionate burden of preventable disease, death, and
disability compared with non-Hispanic White people (CDC,
2022d).
Despite decades of effort, disparities persist, and changes
in the racial and ethnic composition of the population have
important consequences for the nation’s health (CDC, 2020).
Moreover, these disparities sometimes persist even when
accounting for other demographic and socioeconomic factors,
like age or income. For example, according to the U.S.
Government Accountability Office (2021):
• Between March 2020 and June 2021, Hispanic or

Latino and non-Hispanic Black people were
hospitalized with COVID-19 at a rate 2.8 times
higher than non-Hispanic White people when taking
age into account.
• From 2011–2016, Black women living in rural
counties experienced 59.3 deaths per 100,000 live
births, compared to 19.7 for White women in the
same counties, according to CDC data.
• In 2018, the diabetes age-adjusted mortality rate was
higher among Black people (49.7 deaths per 100,000

people) and American Indian/Alaska Native people
(40.0 deaths) than White people (24.8 deaths).
• Black veterans with cancer and cardiovascular-related
illnesses had lower survival rates than White veterans.
III. Socioeconomic Status
The interconnectedness of health and socioeconomic status

cannot be overstated. A person’s income and other measures
of social status affect health directly and indirectly by impeding
access to care (Barr, 2019; Khullar & Chokshi, 2018).
Individuals with low socioeconomic status have greater rates
of behavioral risk factors such as substance use, smoking,
insufficient physical activity, and obesity (Khullar & Chokshi,
2018). People with lower socioeconomic status also experience
worse care than higher-income individuals (AHRQ, 2022;
Khullar & Chokshi, 2018; Ndugga & Artiga, 2021).
Disparities exist in access to health insurance, general access
to healthcare, and timely access to services (AHRQ, 2022).
Approximately 9% of the population is uninsured (Khullar
& Chokshi, 2018), creating barriers to routine preventative
healthcare and challenges in coordinating care, which may
result in increased visits to the emergency department by this
population.
In the U.S., income-based health disparities are among the
largest in the world, where adults living in poverty are five
times as likely to report being in fair or poor health (Khullar
& Chokshi, 2018). Poverty affects approximately 43 million

Americans and is associated with an increased risk of diseases
and premature death (Office of Disease Prevention and Health
Promotion [ODPHP], n.d.). The distribution of wealth in
the U.S. is even more unequal than income, which plays a
crucial role in intergenerational health disparities (Khullar &
Chokshi, 2018). During the last two decades, the income of
poor and middle Americans has decreased (Thorpe et al.,
2017). The widening income gap and the percentage of
children experiencing poverty are crucial socioeconomic status
challenges that impact health.
Inequitable access to resources and opportunities can be
caused by a variety of reasons, leading to poverty (ODPHP,
n.d.). For example, according to Givens et al. (2020), counties
that were among the least healthy had greater rates of poverty,
uninsured people, and unemployment than the rest of the
country (Fig. 1-4):
Figure 1-5
Gaps in Health Factors in the Year 2020
(Givens et al., 2020)
Review the full report (Givens et al., 2020): 2020 County

Health Rankings Key Findings Report
IV. The Uninsured
In the U.S., access to healthcare is often synonymous with

having health insurance (Kirby et al., 2022). Although the rate
of uninsured Americans decreased under the Affordable Care
Act (Uberoi et al., 2016), there has been a recent rise in the
uninsured rate again (Morenz, 2021). This increase began
prior to the COVID-19 pandemic, although the virus did not
help matters. From 2017 to 2019, the uninsured rate rose by
1.7%, most likely due to various policy changes to the Patient
Protection and Affordable Care Act (ACA) and Medicaid
(Finegold et al., 2021). Since 2016, there has been a disturbing

increasing trend in uninsured children in the U.S. The number
of children who lacked consistent private or public insurance
coverage increased between 2016 and 2019 (Yu et al., 2021).
According to Finegold et al. (2021), when compared to other
Americans, the uninsured are disproportionately likely to be
African American or Latino, be young adults, have low
incomes, and/or live in states that have not expanded
Medicaid. Some of the other variations were due to states
which decided not to expand their Medicaid under the ACA
(Larson et al., 2020). Some of it is due to the variation in the
availability of employer-sponsored coverage (particularly for
low-wage workers) from state to state (Dworsky et al., 2022).
In 2019, 14.5% of adults aged 18–64 were uninsured.
Among uninsured adults aged 18–64, the most common
reasons for being currently uninsured were they perceived that
they could not afford the cost of coverage, followed by not
being eligible, not wanting coverage, the process of signing up
was too difficult or confusing, they could not find a plan that
meets their needs, or they signed up for coverage but the plan
has not started yet. In 2019, the percentage of adults who were
uninsured due to cost was higher among women, adults aged
50–64, and adults in fair or poor health. The percentage of
adults who were uninsured due to ineligibility did not vary
by age but was higher among women and adults in fair or
poor health. In contrast, the percentage of adults who were
uninsured because coverage was not needed or wanted was
higher among men, adults aged 18–29, and adults with

excellent, very good, or good health (Cha & Cohen, 2020).
Individuals without health insurance experience barriers to
health care, such as not having a usual source of care and
postponing or forgoing care due to cost, which may lead to
negative health outcomes (Freeman et al., 2008; Tolbert et al.,
2022).
Review the full data brief (Cha & Cohen, 2020):
Reasons for Being Uninsured Among Adults Aged 18–64 in
the United States, 2019
1.4.3 Social Determinants of

Health
Definition: Social determinants of health

are “the conditions in which people are born,
grow, live, work, and age. These circumstances
are shaped by the distribution of money, power,
and resources at global, national, and local levels”
(World Health Organization, 2012).
Social determinants of health (SDOH) is a relatively new term

in healthcare. Social determinants of health (SDOH) have a
major impact on people’s health, well-being, and quality of
life. Unfortunately, SDOH also contribute to wide health

disparities and inequities. For example, people who don’t have
access to grocery stores with healthy foods are less likely to
have good nutrition which raises their risk of health
conditions like heart disease, diabetes, and obesity. This
situation even lowers life expectancy relative to people with
access to healthy foods. Just promoting healthy choices won’t
eliminate these and other health disparities. Instead, public
health organizations and their partners in sectors like
education, transportation, and housing must take action to
improve the conditions in people’s environments (U.S.
Department of Health and Human Services [DHHS], n.d.)
Healthy People 2030
In 1979, the Surgeon General issued a landmark report titled

“Healthy People: The Surgeon General’s Report on Health
Promotion and Disease Prevention” (ODPHP, 2021). A year
later, in 1980, the Office of Disease Prevention and Health
Promotion (ODPHP) released Healthy People 1990, which
was followed in later decades by new iterations of the Healthy
People initiative, each building on the last. This initiative
provides 10-year, measurable public health objectives and tools
to help track progress toward achieving them (ODPHP, 2021).
Healthy People 2030, launched in August 2020, is the fifth
and most current iteration of the Healthy People initiative. It
builds on knowledge gained over the last 4 decades and has an
increased focus on health equity, social determinants of health,

and health literacy with a new focus on well-being (ODPHP,
2021).
Five Key Areas of Social Determinants

of Health
SDOH are one of three priority areas for Healthy People

2030, along with health equity (i.e., the attainment of the
highest level of health for all people) and health literacy (i.e.,
the ability to navigate, understand, and use health
information and services). Healthy People 2030 sets data-
driven national objectives in the five key areas of SDOH (Fig.
1-5): economic stability, education access and quality,
healthcare access and quality, neighborhood and built
environment, and social and community context (CDC,
2022e).
Figure 1-6
Five Key Areas of Social Determinants of Health
(CDC, 2022e)
I. Economic Stability
In the U.S., 1 in 10 people live in poverty, and many cannot

afford healthy foods, healthcare, and housing (Semega et al.,
2019). Healthy People 2030 focuses on helping more people
achieve economic stability. People with steady employment are
less likely to live in poverty and more likely to be healthy, but
many people have trouble finding and retaining a job. People
with disabilities, injuries, or conditions like arthritis may be
especially limited in their ability to work. In addition, many
people with steady work still do not earn enough to afford the
things they need to stay healthy. Employment programs, career
counseling, and high-quality childcare opportunities can help
more people find and retain jobs. In addition, policies to help
people pay for food, housing, healthcare, and education can
reduce poverty and improve health and well-being. The goal of
this key area is to help people earn steady incomes that allow
them to meet their health needs (DHHS, n.d.).
II. Education Access and Quality
People with higher levels of education are more likely to be

healthier and live longer. Healthy People 2030 focuses on
providing high-quality educational opportunities for children
and adolescents and helping them do well in school. Children
from low-income families, children with disabilities, and
children who routinely experience forms of social
discrimination — like bullying — are more likely to struggle
with math and reading. They are also less likely to graduate
from high school or attend college. As a result, they are less
likely to get safe, high-paying jobs and more likely to have
health problems like heart disease, diabetes, and depression. In
addition, some children live in places with poorly performing
schools, and many families cannot afford to send their children
to college. The stress of living in poverty can also affect
children’s brain development, making it harder for them to do
well in school. Interventions to help children and adolescents
do well in school and help families pay for college can have
long-term health benefits. The goal of this key area is to
increase educational opportunities and help children and
adolescents do well in school (DHHS, n.d.).
III. Healthcare Access and Quality
Many people in the U.S. don’t get the healthcare services they
need (CDC, 2021b). Healthy People 2030 focuses on
improving health by helping people get timely, high-quality
healthcare services. About 1 in 10 people in the U.S. don’t
have health insurance (Berchick et al., 2018). People without
insurance are less likely to have a primary care provider, and
they may be unable to afford the healthcare services and
medications they need. Strategies to increase insurance
coverage rates are critical for making sure more people get
important healthcare services, like preventive care and
treatment for chronic illnesses. Sometimes people don’t get
recommended healthcare services, like cancer screenings,
because they don’t have a primary care provider. Other times,

it’s because they live too far away from healthcare providers
who offer them. Interventions to increase access to healthcare
professionals and improve communication — in person or
remotely — can help more people get the care they need. The
goal of this key area is to increase access to comprehensive,
high-quality healthcare services (DHHS, n.d.).
IV. Neighborhood and Built Environment
The neighborhoods people live in have a major impact on their

health and well-being (CDC, 2018). Healthy People 2030
focuses on improving health and safety in the places where
people live, work, learn, and play. Many people in the U.S.
live in neighborhoods with high rates of violence, unsafe air
or water, and other health and safety risks. Racial/ethnic
minorities and low-income people are more likely to live in
places with these risks. In addition, some people are exposed
to things at work that can harm their health, like secondhand
smoke or loud noises. Interventions and policy changes at the
local, state, and federal levels can help reduce these health and
safety risks and promote health. For example, providing
opportunities for people to walk and bike in their
communities — like by adding sidewalks and bike lanes —
can increase safety and help improve health and quality of
life. The goal of this key area is to create neighborhoods and
environments that promote health and safety (DHHS, n.d.).
V. Social and Community Context
People’s relationships and interactions with family, friends, co-

workers, and community members can have a major impact on
their health and well-being. Healthy People 2030 focuses on
helping people get the social support they need in the places
where they live, work, learn, and play. Many people face
challenges and dangers they can’t control — like unsafe
neighborhoods, discrimination, or trouble affording the things
they need. These challenges can have a negative impact on
health and safety throughout life. Positive relationships at
home, work, and in the community can help reduce these
negative impacts. But some people — like children whose
parents are in jail and adolescents who are bullied — often
don’t get support from loved ones or others. Interventions
to help people get the social and community support they
need are critical for improving health and well-being. The goal
of this key area is to increase social and community support
(DHHS, n.d.).
Knowledge Check


Click here to move on to the Chapter

Summary.
84 | 1.5 CHAPTER SUMMARY
1.5 CHAPTER SUMMARY
The United States (U.S.) healthcare system is highly complex,

not only due to the country’s large population and size but
also because there are multiple insurers and delivery systems.
Regulatory systems are divided between federal, state, and
local governments and many private organizations. Key private
organizations, particularly most health insurers, operate on a
for-profit basis. The key federal agency is the Department of
Health and Human Services, which oversees the Medicare and
Medicaid programs through its Centers for Medicare and
Medicaid Services. Other key agencies include the National
Institutes of Health, the Centers for Disease Control and
Prevention, the Veterans Health Administration, and the Food
and Drug Administration. In addition, private sector
stakeholders play a strong role in the system. The private sector
led the development of the health system before the Second
World War, with the major federal government health
insurance programs, Medicare and Medicaid, only arriving in
the mid-1960s. Medicare provides coverage for seniors and
some of the disabled, and Medicaid covers healthcare services
for some of the poor and near-poor. Nevertheless, most
Americans receive coverage from private insurance, which is
mostly provided through the workplace. A key, relatively
1.5 CHAPTER SUMMARY | 85
recent reform was the Patient Protection and Affordable Care

Act of 2010. Its major provisions were implemented in 2014
and included both publicly and privately funded insurance
coverage expansions.
Achieving wellness requires a person to have physical,
emotional, intellectual, spiritual, social, and environmental
health. The impact of our healthcare choices can be seen in
terms of mortality rate and productivity. For example, the top
leading cause of mortality in 2020 was heart disease, and being
unhealthy can lead to absenteeism, disability, or reduced work
output. Health indicators are used to describe and monitor a
population’s health status. Three common health indicators
include life expectancy, deaths from cancer, and infant
mortality. In 2020, life expectancy at birth in the United States
was 77.0 years, cancer was the second leading cause of death,
and the infant mortality rate was 5.42 deaths per 1,000 live
births. In terms of healthcare, there are clear distinctions
between medical practitioners and public health professionals.
Medical practitioners treat individual patients and teach
people how to care for themselves. In contrast, public health
professionals work to prevent the spread of communicable
diseases, manage public health hazards, and respond to natural
or man-made disasters.
Even though life expectancy and overall health have
improved in recent years for most Americans, not all older
adults benefit equally. Vulnerable populations include
patients who are elderly, racial or ethnic minorities, elderly,
socioeconomically disadvantaged, uninsured or those with

certain medical conditions. By 2060, nearly one in four
Americans will be 65 years and older creating greater demands
for healthcare, in-home caregiving, and assisted living facilities.
Health disparities still exist for some people from racial and
ethnic minority groups. The least healthy counties in the U.S.
have greater poverty rates, uninsured people, and
unemployment than the rest of the country. Social
determinants of health, or the conditions in which people are
born, grow, live, work, and age, are one of three priority areas
for Healthy People 2030, along with health equity and health
literacy.
Key terms included in this chapter are also listed in the
Glossary at the end of the book.
Click here to view the references and

attributions from Chapter 1.
1.6 REFERENCES & ATTRIBUTIONS | 87
1.6 REFERENCES &

ATTRIBUTIONS
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Attribution
Selected content from:
1. “Introduction to the U.S. Healthcare

System” by Thomas A. Clobes is licensed under CC BY-
NC-SA 4.0 . Chapters 1, 4, 9, 16.

https://scholarworks.calstate.edu/concern/
educational_resources/nk322m064?locale=en
2. Reprinted from United States: Health System Review
2020 , Vol 22(4), Ewout van Ginneken (ed.), Health
Systems in Transition / Chapter 2 (pgs. 30-39, 83-84,
86-91); Chapter 4 (pgs. 176-177, 202); Chapter 5 (pgs.
238-241)/ Copyright 2020. Accessed January 30, 2023.
https://eurohealthobservatory.who.int/publications/i/
united-states-health-system-review-2020
3. “Economics – Theory Through Applications” by Saylor
Academy is licensed under CC BY-NC-SA 3.0
. Chapter 16. https://socialsci.libretexts.org/

Bookshelves/Economics/Book%3A_Economics_-
_Theory_Through_Applications/
16%3A_A_Healthy_Economy/
16.02%3A_Supply_and_Demand_in_Health-
Care_Markets

2: Delivery Systems.
CHAPTER 2: DELIVERY SYSTEMS | 107
CHAPTER 2:
DELIVERY
SYSTEMS
Learning Objectives
• Examine the scope of services and the facility

classifications for inpatient care.
• Examine the scope of services and the models
for outpatient care.
• Explain the unique characteristics of post-
acute care and differentiate it from other
parts of the healthcare continuum.
• Summarize the continuum of long-term care.
• Describe the objectives of both hospice and
palliative care.
108 | CHAPTER 2: DELIVERY SYSTEMS
Chapter Sections:
2.1 Inpatient Care
2.2 Outpatient Care
2.3 Post Acute & Long-Term Care (PALTC)
2.4 Palliative & Hospice Care
2.5 Chapter Summary
2.1 INPATIENT CARE | 109
2.1 INPATIENT CARE
Sections:
2.1.1 Definition & Services
2.1.2 General Hospital Classifications
2.1.3 Community Hospitals
2.1.4 Emergency Care
2.1.1 Definition & Services
I. Definition
Inpatient care refers to medical care that occurs when a patient

is admitted to the hospital. According to the American
Hospital Association (AHA), hospitals are licensed
institutions with at least six beds whose primary function is to
provide diagnostic and therapeutic patient services for medical
110 | 2.1 INPATIENT CARE
conditions; they have an organized physician staff, and they

provide continuous nursing services under the supervision of
registered nurses (Centers for Disease Control and Prevention
[CDC], 2022a). The World Health Organization (WHO)
considers an establishment a hospital if it is permanently
staffed by at least one physician, can offer inpatient
accommodation, and can provide active medical and nursing
care (CDC, 2022a).
II. Services
Inpatient services are services that involve an overnight stay or

prolong the stay of a patient in a licensed healthcare facility.
Historically, in the United States (U.S.), inpatient services are
provided by hospitals. As the healthcare system evolved,
hospitals became the backbone of healthcare delivery (Shi &
Singh, 2012). Although the original focus for hospitals was
inpatient services, the need for cost containment and more
patients preferring services outside the hospital led to more
outpatient services being offered by hospitals. Hospitals have
advanced in the types of care offered and the technology
utilized. Inpatient services typically focus on acute care, which
includes secondary and tertiary care levels. Secondary care is
“specialist care provided on an ambulatory or inpatient basis,
usually following a referral from primary care” (World Health
Organization, 2023). Tertiary care includes “highly specialized
services in ambulatory and hospital settings or in a facility that
has personnel and facilities for advanced medical investigation

and treatment” (World Health Organization, 2023).
Inpatient care is very expensive and, throughout the years,
has been targeted for cost containment measures. Hospitals
have begun offering more outpatient services that do not
require an overnight stay and are less financially taxing on the
healthcare system. U.S. healthcare expenditures have increased
as part of the gross domestic product, and consequently, more
cost-containment measures have evolved. Outpatient services
have become more popular because they are less expensive and
are preferred by patients.
Hospitals, the most common healthcare facility for
inpatient services, are very distinctly divided into well-defined
spaces known as units (Dean et al., 2021). Each hospital is
comprised of a wide range of services and functional units.
These include diagnostic and treatment functions, such as
clinical laboratories, imaging, emergency rooms, and surgery.
This diversity is reflected in the breadth and specificity of
regulations, codes, and oversight that govern hospital
construction and operations. In addition to the wide range of
services that must be accommodated, hospitals must serve and
support many different users and stakeholders.
2.1.2 General Hospital

Classifications
Hospitals may be classified by type of service (e.g., Children’s
hospital), ownership (for profit or not for profit), size (number

of beds), and length of stay (e.g., long‑term care hospitals). The
AHA uses a typology of hospital classifications that combines
these classifications. AHA designates, firstly, whether the
hospital is federal or non-federal, then whether the non-federal
hospital is community or non-community, and then lists the
type of community hospitals based on the services provided
(National Center for Health Statistics [NCHS], 2017).
“The American Hospital Association conducts an annual
survey of hospitals in the U.S. The infographic below,
published in 2022, presents some of the data from the 2020
AHA Annual Survey” (American Hospital Association,
2022).
Review Infographic (American Hospital Association,
2022): Fast Facts on U.S. Hospitals – 2022
Federal hospitals are those operated by the federal
government and include hospitals in the Veterans Affairs and
Indian Health Service. Non-federal hospitals are divided into
community and non-community hospitals. Community
hospitals are non-federal short stay hospitals that are open to
the local public. Short stay means that the average length of
stay is less than 30 days. Community hospitals form the bulk
of hospitals and hospital beds in the U.S. providing both
general and specialty services. General community hospitals
provide a broad range of services and do not specialize in any
type of service. Specialty community hospitals provide only
a specific type of service, such as obstetrics and gynecology;
orthopedics; pediatrics; psychiatric care; and cardiovascular

services. Non-community hospitals are those not open to the
local public. Examples of non-community hospitals are prison
hospitals and state mental hospitals.
2.1.3 Community Key Terms

Hospitals
The AHA classifies all
community hospitals by For-Profit. A
ownership: nonprofit, for-profit, for-profit
and state and local government organization
(NCHS, 2017). Nonprofit operates with
hospitals are controlled by the goal of
nonprofit organizations such as making money.

Most
religious organizations and
businesses are
fraternal societies. For-profit
for-profits that
hospitals are owned by
serve their
individuals, partnerships, or
customers by
corporations. State and local
selling a
hospitals are controlled by state
product or
and local governments. The AHA
service. The
also places all community
business owner
hospitals into eight categories of earns an
size by the number of beds,
ranging from 6–24 beds in the
smallest category to 500 or more
beds in the largest category

(NCHS, 2017). A government or
nonprofit community hospital
income from
can also be designated as
the for-profit
‘teaching’ or not. Teaching
and may also
pay
hospitals educate and train
shareholders medical professionals, conduct
and investors medical research, provide care for
from the the most serious conditions, and
profits. care for the uninsured and
indigent (AHA, 2015). Two other
Nonprofit. A
categories of of community
nonprofit
hospitals are the critical access
organization
qualifies for
hospital and the specialty
tax-exempt hospital.
status by the
IRS because its I. Critical Access
mission and Hospitals
purpose are to
further a social The critical access hospital
cause and (CAH) serves rural
provide a public communities that have no
benefit. other close access to
Nonprofit inpatient care. To be
organizations designated as a CAH, a
hospital must have no more
than 25 acute care beds, be
located 35 miles from

another hospital (or 15 miles
in mountainous terrain), and include
have an average length of hospitals,

universities,
stay of 96 hours or less per
national
patient (Joynt et al., 2011).
charities, and
These hospitals receive
foundations.
retrospective cost-based
reimbursement rather than
prospective reimbursement,
which has helped them stay financially solvent (Joynt
et al., 2011). Under cost-based reimbursement, the
payer agrees retrospectively to reimburse the
provider for the costs incurred in providing services to
the insured population. A Prospective Payment
System (PPS) is a method of reimbursement in which
Medicare payment is made based on a
predetermined, fixed amount. The CAH designation
was established so that small rural hospitals would
continue to provide basic inpatient and emergency
services close to home for the rural population. The
program has helped maintain access to inpatient care
for rural communities (Joynt et al., 2011), but since
many rural hospitals do not have this status, more
remains to be done to provide access in rural
communities.
II. Specialty Hospitals
Specialty hospitals provide a narrow set of services

in a specialty area (Siddiqui et al., 2014). A broad
grouping of specialty hospitals includes non-surgical
hospitals providing care for cancer, psychiatric
illnesses, rehabilitation, long-term needs (excluding
nursing homes and skilled nursing facilities), children
and women, and surgical hospitals serving cardiac,
orthopedic, or general surgical patients (Al-Amin et
al., 2010). Small orthopedic, cardiac, and general
surgical specialty hospitals are a newer phenomenon
(Siddiqui et al., 2014). Many specialty hospitals are
physician-owned (Siddiqui et al., 2014).
2.1.4 Emergency Care
Definition: The National Hospital Ambulatory

Medical Care Survey, (NHAMCS) defines an
emergency department as a hospital facility
that is staffed 24 hours a day, 7 days a week, and
provides unscheduled outpatient services to
patients whose condition requires immediate
care (CDC, 2022b).
Emergency departments are a major part of the US healthcare

safety-net (Mortensen, 2014; Rhodes et al., 2013). Emergency
departments in hospitals that receive payment from Medicare
are required by the Emergency Medical Treatment & Labor
Act (EMTALA) to provide care to anyone needing emergency
treatment. This legislation allows underinsured and uninsured
persons access to the emergency department for emergency
conditions. Hospitals must care for the individuals until they
are stable, which could include inpatient admission and
surgery. Legally, individuals are responsible for paying for care
not covered by insurance. However, they may be unable to
do so and the hospital may write off the payment as charity
care or bad debt, which are two accounting terms for
uncompensated care. Hospitals make up for some of the
revenue loss through Medicare funds earmarked for safety-net
care and through higher charges to other payer groups.
Emergency departments tend to be overused for non-urgent
and serious problems that could have been prevented with
better primary and specialty care (Adams, 2013; Kangovi et al.,
2013). When patients do not have regular or readily accessible
primary care, they may go to the emergency department to
seek primary care services (Kangovi et al., 2013; Morley et al.,
2018; Rhodes et al., 2013). They may also wait until they
are seriously ill and then appear in an ED. Uninsured and
underinsured patients who have difficulties obtaining access
to specialist outpatient services also seek care in emergency
departments for specialist services (Nourazari et al., 2016).
Emergency departments are also used for urgent, but not

emergent, problems that could be seen in urgent care centers
(Borkowski, 2012).
Knowledge Check

Click here to move on to 2.2 Outpatient

Care.
2.2 OUTPATIENT CARE | 119
2.2 OUTPATIENT CARE
Sections:
2.2.1 Primary Care
2.2.2 Ambulatory Surgical Care
2.2.3 Urgent Care
Outpatient services occur in a facility or setting where there

is no need for an overnight stay. The types of procedures and
tests offered might include wellness and prevention services,
such as annual exams; diagnostic services, such as lab tests and
imaging scans; treatment, such as day surgeries or
chemotherapy; and rehabilitation, such as physical therapy or
addiction treatment. Because no overnight stay is involved,
outpatient services usually cost less (George et al., 2021). Some
facilities specialize in one kind of treatment or procedure, such
as an orthopedic surgery center, although many can be
120 | 2.2 OUTPATIENT CARE
provided in one place. Three types of outpatient care include

primary care, ambulatory surgical care, and urgent care.
2.2.1 Primary Care
I. Description
Definition: Primary care is “the provision of

integrated, accessible health care services by
clinicians who are accountable for addressing a
large majority of personal health care needs,
developing a sustained partnership with
patients, and practicing in the context of family
and community” (Institute of Medicine [IOM],
1994, p. 15).
Primary care is the entry point into the healthcare system and
is one of the most utilized outpatient services. Primary care
clinics are the point of delivery of individual care based on care
over time and are not disease-oriented but focus on preventive
and sick visits. Primary care providers see patients who do not
require immediate medical care for life-threatening conditions.
Primary care services cover a range of prevention, wellness,
and treatment for common illnesses. Primary care providers
include doctors, nurses, nurse practitioners, and physician

assistants. They often maintain long-term relationships with
you and advise and treat you on a range of health-related issues.
They may also coordinate your care with specialists.
The four pillars of primary care, represented in Figure 2-1,
are (Starfield, 1998):
1. A patient’s first contact with the healthcare system

2. Continuity of care over time
3. Comprehensiveness (i.e., concern for the whole patient
rather than a disease or part of the patient)
4. Coordination of care
Figure 2-1
The Four Pillars of Primary Care
(Starfield, 1998)
II. Venues
There are several venues for the delivery of primary care. A

major one is the private clinic of physicians. Another primary
care venue is the public or non-profit community health
center, which provides access to primary care for low-income,
uninsured, and minority populations (Bodenheimer & Pham,
2010). Other government settings include clinics for the
military (such as those run by the Veterans Health
Administration), prisons, the Indian Health Service, and
centers for migrants and the homeless (Bodenheimer & Pham,
2010). Urban public and teaching hospitals may also have
outpatient clinics for primary care services, typically serving
underserved populations (Bodenheimer & Pham, 2010). In
addition, many integrated care systems, such as Kaiser
Permanente and Geisinger Health System, provide primary
care as part of their integrated systems, which cover primary,
specialty, emergency, and hospital care (Bodenheimer & Pham,
2010). Finally, workplace wellness programs and retail clinics
provide some primary care services by providing screening,
health promotion, and basic prevention services (Baicker et al.,
2010; RAND Corporation, 2010).
Retail clinics located in pharmacies, general stores, and
department stores, have emerged as alternative sites for
primary care (Hoff & Prout, 2019). These clinics are operated
mainly by pharmacy chains, such as CVS Health and

Walgreens, and department stores, such as Target and
Walmart, where the clinics are also located, but hospitals and
large healthcare systems are also beginning to offer healthcare
at such sites (Hoff & Prout, 2019). Companies known more
for their technology services, like Amazon and Apple, are
either planning to enter the retail clinic market or have already
done so. A positive feature of retail clinics is that they have
walk-in availability, extended hours compared to physicians’
offices, and convenient access points (Hoff & Prout, 2019).
They tend to be staffed by non-physician practitioners, such as
NPs or PAs. Retail clinics treat a limited number of conditions
and needs, such as skin conditions, sore throats, pregnancy
testing, infections, diabetes screening, and immunizations
(Hoff & Prout, 2019).
The following two models of care are being employed to
increase efficiencies in primary care delivery: patient-centered
medical homes and accountable care organizations.
1. Patient-centered medical homes (PCMHs) have

several characteristics that should positively impact the
delivery of primary care: (1) each patient has an ongoing
relationship with a primary care provider; (2) the
primary care provider directs the medical team; (3) the
primary care provider has responsibility for caring for all
the patient’s health needs through all stages of the
patient’s life; (4) patient care is coordinated across all
healthcare settings; (5) services are safe, evidence-based

and of high quality, with patients actively participating
in decision-making; (6) patients have access to care; (7)
payment systems recognize the added value of PCMHs
(Rittenhouse et al., 2011). The Affordable Care Act has
promoted PCMHs by paying state Medicaid programs
to shift patients into medical homes, funding new
PCMH models of care, and supporting the information
technology needed for care coordination in PCMHs
(Hoff et al., 2012).
2. Accountable care organizations (ACOs) are groups of
providers in an area including primary and specialty care
physicians, hospitals, and others who coordinate and
integrate their care for patients (Centers for Medicare &
Medicaid Services [CMS], 2023). ACOs aim to ensure
patients receive the proper care at the right time without
duplication of services and medical errors. ACOs differ
from PCMHs in that payment is tied to the
performance of the ACO, thus conferring financial risk
for members. In contrast, PCMHs have no direct
relationship between payment and membership. When
an ACO succeeds in both efficiency and high quality, it
will share in the savings. ACOs were initiated by the
Patient Protection and Affordable Care Act (ACA).
They were first implemented in the Medicare shared
savings program, but the ACA also supports pilot
programs to extend the model to private payers and
Medicaid.
2.2.2 Ambulatory Surgery Centers
Definition: An ambulatory surgical center is

an outpatient facility that operates primarily to
provide surgical services to patients who do not
require overnight hospital care.
Improvements in surgical equipment, techniques, and

anesthesia have led to more and more surgeries being
performed on an outpatient basis in the United States.
Compared to inpatient surgery, outpatient surgery has the
advantage of convenient hours and locations, a lower risk of
infection, and recovery from surgery at home (Plotzke &
Courtemanche, 2011). The disadvantage is that reduced
professional oversight during the recovery period can lead to
complications. Ambulatory surgery can be performed in either
hospital same-day surgery departments or free-standing
ambulatory surgical centers (Munnich & Parente, 2014). In
2014, 66% of all surgeries were in the outpatient (i.e.,
ambulatory) setting (Rechtoris, 2017). This number increased
significantly from 1981, when outpatient surgeries were only
19% of all surgeries (Munnich & Parente, 2014). Common
surgeries and procedures performed in the ambulatory setting

include those for back problems, cataracts, cancers,
colonoscopy, diverticula, inguinal hernia repair, gallstones, and
many orthopedic problems (Cullen et al., 2009). Surgeries not
done on an outpatient basis are those with high risk, long
duration, or serious physical or mental limitations for the
patient during recovery. An example is open-heart surgery.
More serious surgeries are being performed on an
outpatient basis as improvements in drugs and techniques
reduce the surgical time, the invasiveness of the procedure,
and the length of the recovery period. Knee replacement is an
example of a complex surgery that used to take several hours
to perform, was extremely invasive, and required a long,
supervised physical recovery period, but that is now primarily
an outpatient procedure (Meissner, 2015). Even hip
replacements are performed on an outpatient basis (Cluett,
2023).
Compared to hospital-based surgical centers, ambulatory
surgical centers (ASCs) are perceived to be more conveniently
located and to have better scheduling for both physician and
patient, greater physician and patient satisfaction, similar
quality, and lower costs (Munnich & Parente, 2014; Plotzke
& Courtemanche, 2011). For example, there is some evidence
that ASCs have lower costs and similar health outcomes, such
as mortality rates (Chukmaitov et al., 2008; Hollenbeck et al.,
2015; Munnich & Parente, 2014). Disadvantages of ASCs
include physician self-referral patterns and a concern that
ASCs serve the less sick, more profitable patients, leaving the
sicker, less profitable patients in hospital-based centers
(Hollenbeck et al., 2010; Koenig & Gu, 2013; Plotzke &
Courtemanche, 2011).
2.2.3 Urgent Care

Outpatient clinics and urgent care facilities often serve as
alternative places to receive healthcare when individuals
cannot get to a hospital. During a public health emergency,
these settings may see an increase in the number of patients
they treat.
Urgent care is provided outside the emergency department
setting in urgent care centers (UCCs) that provide care on a
walk-in basis, have extended hours into the evening Monday to
Friday and at least one day over the weekend, and have on-site
laboratories and radiology (American College of Emergency
Physicians [AECP], 2017; Le & Hsia, 2016). The scope of
services in these centers is broader than those in many primary
care offices or retail clinics and falls somewhere between that
of a primary care practitioner’s office and an emergency
department (ACEP, 2017; Le & Hsia, 2016). Services focus
on acute episodic care including care for minor illnesses and
emergencies such as upper respiratory infections, urinary tract
infections, backaches, sprains, strains, lacerations, burns, and
minor fractures (Corwin et al., 2016; Stoimenoff & Dunn,
2018). Medical care is typically performed by primary care
physicians, APRNs, and PAs (ACEP, 2017; Le & Hsia, 2016).

UCCs have expanded rapidly over the past few years with
around 400–500 new centers opening each year (Stoimenoff
& Dunn, 2018). This expansion has been in response to
difficulties in seeing primary care practitioners on an urgent
basis and after hours, high emergency department costs, and
long emergency department waiting times (Stoimenoff &
Dunn, 2018; Villasenor & Krouse, 2016). The ability to get
same-day test results and medications also makes them
popular. Some individuals (around 30–40% of UCC
admissions) use UCCs because they do not have a regular
source of primary care (Stoimenoff & Dunn, 2018). Studies
have shown that areas with more urgent care alternatives to
emergency departments have lower emergency department use
for low acuity diagnoses (Llovera et al., 2019).
Knowledge Check
Match each statement to the correct center to complete the
sentences.


Post-Acute & Long Term Care (PALTC).
130 | 2.3 POST-ACUTE & LONG-TERM CARE (PALTC)
2.3 POST-ACUTE &

LONG-TERM CARE
(PALTC)
Sections:
2.3.1 Definitions
2.3.2 Post-Acute Care
2.3.3 Long-Term Care
2.3.1 Definitions
According to The Society for Post-Acute and Long-Term Care
Medicine (2022), the following terms are associated with the
post-acute and long-term care (PALTC) continuum:
Assisted living is a living environment focused on

maintaining independence in a supervised setting. Many
2.3 POST-ACUTE & LONG-TERM CARE (PALTC) | 131
assisted living residents live in communities with

apartments and amenities such as group dining and
medication assistance. Assisted living is not regulated by
the Federal government.
Geriatrics is the branch of medicine dealing with the
care of patients 65 and older.
Hospice care is focused on providing comfort and pain
control versus extending one’s life for patients expected to
live six months or less.
Inpatient rehabilitation facility is a specialized
hospital or unit focused on delivering intensive
rehabilitative services to patients with medically complex
diagnoses. It is intended for those likely to benefit from
and who can tolerate a plan of care that includes more than
three hours of therapy each day.
Long-term care is traditionally provided in nursing
homes, providing patients who can no longer be cared for
at home or in assisted living with support for both daily
living activities and complex medical problems.
Long-term care hospital is an inpatient facility for
those demonstrating a great deal of medical complexity
and requiring an extended period of medical care and
hospitalization. These patients are contending with
multiple acute and/or chronic comorbidities, necessitating
a higher level of care.
Palliative care focuses on managing the chronic
conditions of a patient with the goal of providing comfort
and the highest quality of life possible.
Post-acute care typically refers to care provided to
patients recently released from the hospital and can take
place in many settings, including nursing homes and
rehabilitation centers.
Skilled nursing facility care is care ordered by a

physician, delivered by skilled nursing or therapy staff, and
paid for by Medicare Part A for a fixed period of time (up
to 100 days). Skilled care takes place in a nursing home and
may or may not be the same as post-acute care.
The two sections below (2.3.2 and 2.3.3) review two levels of
care: Post-acute care and long-term care. Examine how some
facilities, such as a skilled nursing facility, can be utilized in
both levels of care.
2.3.2 Post-Acute Care

Post-acute care (PAC) is a broad term that covers a wide
variety of service offerings and settings. In a review of post-
acute practices, Wang et al. (2019) noted that in the United
States the Joint Commission on Accreditation of Healthcare
Organizations (JCAHO), and the American Healthcare
Association (AHA) consider PAC to be:
Integrated inpatient care is directed at persons with all

acute illnesses, accidental injuries, or serious diseases. It
involves goal-directed treatment, does not depend on
advanced technology, testing, or complex diagnostic
procedures, and provides patients with alternatives to acute
inpatient treatment after their acute conditions have
stabilized by dealing with one or more specific, complex
medical conditions or providing complex technical
treatment.
The goal of returning patients back to the highest level of

function possible is what sets PAC apart from treatment in
other phases of the continuum. This goal requires integration
or partnership with other acute and post-acute providers to
ensure patients are placed in the proper care setting based on
their individual needs. These needs are primarily defined as
rehabilitative or palliative in nature following a stay in an acute
care setting (Medicare Payment Advisory Commission
[MedPAC], 2020). As with health services in general, PAC
services exist along a continuum defined by the medical
necessity for care the patients require. Post-acute care services
are delivered in long-term acute care hospitals,
rehabilitation facilities, skilled nursing facilities, and
home and outpatient settings.
I. Long-Term Care Acute Care

Hospitals
Most people who need inpatient hospital services are admitted

to an acute‑care hospital for a relatively short stay. However,
some people may need a longer hospital stay. Long-term
acute care hospitals (LTACH) are certified as acute‑care
hospitals, but LTACHs focus on patients who, on average,
stay more than 25 days. Many of the patients in LTACHs
are transferred there from an intensive or critical care unit.
LTACHs specialize in treating patients with more than one
serious condition but who may improve with time and care
and return home. LTACHs generally provide services like

respiratory therapy, head trauma treatment, and pain
management (Centers for Medicare & Medicaid Services
[CMS], 2019).
The goals for the LTACH setting are to rehabilitate patients
to a sufficient extent so they may be transitioned to another
level of PAC or to provide long-term services (potentially into
perpetuity) for those requiring it. Therefore, admission is
based on the complexity of the patient’s needs. Specifically,
patients must have a level of medical or respiratory complexity
requiring daily physician oversight and intervention. Typically,
patients in this setting are ventilator dependent and receive
various types of intravenous therapies (e.g., dialysis,
antibiotics), nutritional support, external telemetry
monitoring, and wound care management. Due to this
complex mix of care, patients receive 24-hour nursing care,
and all providers are required to have advanced cardiovascular
life support (ACLS) training. Given all the potential medical
and physical challenges for patients admitted to LTACHs, the
average length of stay is typically greater than 25 days.
II. Rehabilitation Facilities
Rehabilitative care aims to cure, improve, or prevent a

worsening of a condition. Examples are physical, occupational,
speech, and other therapies following a stroke or physical
therapy following orthopedic replacement surgeries such as
hip or knee. Rehabilitation settings include outpatient centers,

inpatient rehabilitation departments, freestanding
rehabilitation hospitals, departments in subacute care facilities
and nursing homes, and home care (Shi & Singh, 2019).
However, the proportion of rehabilitation services that occurs
in each of these settings is unknown.
Inpatient rehabilitation facilities (IRFs) are specialized

hospitals or units focused on the delivery of intensive
rehabilitative services to patients with medically complex
diagnoses. It is intended for those who are likely to benefit
from, and can tolerate, a plan of care that includes more than
three hours of therapy each day. IRF teams focus on returning
patients to their highest level of function following a major
illness, accident, or injury. IRF care is delivered by
multidisciplinary teams and includes physical therapists,
speech-language pathologists, and occupational therapists who
work together with physicians, nurses, pharmacists, and other
care team members to achieve this goal. Patients in IRFs
require 24-hour medical and nursing observation during their
stay. Attending physicians specializing in physical medicine
and rehabilitation (e.g., Physiatrists) lead the IRF care teams
and are on hand to manage any unforeseen medical issues that
arise during a patient’s stay.
III. Skilled Nursing Facilities
Skilled nursing facilities (SNFs) provide services similar to

IRFs but do so in a more home-like, less intensive setting.
These facilities are licensed by the states to ensure a safe and
suitable environment is maintained for those receiving care.
SNF patients typically require more mild or moderate levels of
care and receive one to two different types of therapy during
their stay. Before admission, SNF patients must also complete
a minimum three-night stay in an acute care facility. The key
criteria for choosing a SNF is for caregivers to assess whether a
patient is ready to return to a more independent environment.
They may no longer require the services of an inpatient
hospitalization, but they are not yet ready to take on their
own care at home. For example, following a stroke or
musculoskeletal injury, a patient (and their caregiver) may not
feel confident in their ability to complete activities of daily
living (e.g., dressing, stair climbing, medication management).
They don’t necessarily require daily physician or nursing care,
but they still need some clinical support and additional
therapeutic support before they are ready for their return
home. A stay in a skilled nursing facility is designed to assist
the patient as they gain the functional capability they need for
a successful return to more independent living. The treatment
received in the SNF serves as a means to bridge the gaps in
function that remain.
Upon admission to a SNF, patients receive a physical
evaluation from an attending physician and therapists. From

this evaluation, a treatment plan is established. Like IRFs, the
care is delivered in a multidisciplinary fashion, but it may not
be as comprehensive and likely does not include the same level
of technology. Patients work on activities of daily living to
prepare them for their ultimate return to their home setting.
Dressing, bathing, eating, and other routine activities are
simulated to help patients compensate for any long-term
deficits they may be experiencing due to their illness.
Table 1 compares the description, treatment, providers, and
length of service for three types of post-acute care facilities:
Table 1 Post-Acute Care Facilities

Long-Term Skilled
Inpatient
Acute Care Nursing
Rehabilitation
Hospital Facility
Facility (IRF)
(LTACH) (SNF)
Patients with
moderate
impairment
Medically requiring
Resource-intensive
complex skilled
inpatient
patients who: nursing
environment
-are unable to services and
Patients receive
participate in limited
Description intensive
functional therapy
rehabilitation
therapy services
therapy
-with care, Requires a
Interdisciplinary
may be able to minimum
care
return home stay in an
acute care
setting prior
to admission
Regular
medical
management,
Upwards of 3
24-hour such as:
hours daily
medical -IV therapy
Therapy focuses
management, -dialysis
on function for
such as: support
Treatment daily activities,
-wound care -infectious
such as:
-IV antibiotics disease
-mobility
-frequent -management
-memory
suctioning -less intense/
-speech
frequent
-rehabilitation
services
Long-Term Skilled
Inpatient
Acute Care Nursing
Rehabilitation
Hospital Facility
Facility (IRF)
(LTACH) (SNF)
Non-daily
physician
Physician supervision
Physician/
24-hour RN coverage
physiatrist
ACLS-certified 8 hours every
24-hour RN
Providers RNs 24-hour
coverage
Specialty period
Interdisciplinary
therapists CNAs
therapy team
Case manager provide
nursing
support
Length of
10-15 days 20-30 days 14-21 days
Service
IV. Home and Outpatient Settings
The PAC phase of the larger continuum of care goes beyond

inpatient admissions to IRFs, LTACHs, and SNFs. Patients
often continue to need care to help them maintain the gains
they have achieved and to continue making functional
improvements. Following discharges to SNFs, the largest
volume of PAC patients receive some level of service in their
homes through a Home Health Agency (HHA). This group
includes patients returning home following a stay in a clinical
setting (e.g., hospital, LTCH, IRF, SNF) but who still require
additional follow-up and treatment. Many patients accessing
home healthcare might also have received care in ambulatory
(i.e., outpatient) surgical settings. Since 2012, many

orthopedic procedures have transitioned from traditional
hospital surgical departments to ambulatory surgical centers.
As a result, many patients find themselves completing their
post-surgical recovery and associated therapy outside a
traditional clinical environment. Home health providers are
available to ensure these patients achieve the desired outcomes.
According to a recent study published by United Health
Group (2020), it is estimated that more than 50% of all
orthopedic hip and joint replacements will be performed in an
ambulatory setting, which increases the utilization of services
provided by HHAs. This level of care is offered for more than
post-surgical patients, and more than 11,300 HHAs provide
support for homebound patients requiring wound treatment/
management, help with assistive devices, IV drug therapies,
and many other conditions (MedPAC, 2021).
Like the other levels of PAC, the amount of care a patient
receives from an HHA is driven by their unique needs. HHAs
typically provide service from one to three times per week for
those who need it. Services are provided by therapists, nurses,
personal care technicians, social workers, and even physicians
in some cases. The primary goals for care from an HHA are to
educate the patient to care for themselves and to feel confident
with their functional independence following an illness,
accident, or injury.
Non-hospitalized patients who can to travel from their
homes, and require one to two different treatment modalities,
can receive care in an outpatient or ambulatory setting. These

encounters typically involve either therapy (e.g., physical
therapy, occupational therapy, speech-language pathology),
diagnostic imaging, pain management, joint protection, injury
prevention, or some combination of services. Outpatient
therapy is provided across a wide variety of venues, including
nursing homes, hospital outpatient departments, physicians’
offices, and comprehensive outpatient rehabilitation facilities,
and by HHA and private practice therapists (MedPAC, 2021).
2.3.3 Long-Term Care

Long-term care (LTC) involves a variety of services designed
to meet a person’s health or personal care needs during a short
or long period of time. These services help people live as
independently and safely as possible when they can no longer
perform everyday activities independently. Long-term care is
provided in different places by different caregivers, depending
on a person’s needs. Most long-term care is provided at home
by unpaid family members and friends. However, it can also be
given in a facility such as a nursing home or in the community,
for example, in an adult day care center (National Institute on
Aging, 2017a).
The Patient Protection and Affordable Care Act uses the
term long-term services and supports (LTSS) and defines
the term to include home and community-based services
and facility-based settings. This broad range of personal,
social, and medical services is provided in a multitude of

locations, including private homes, adult day-care settings,
residential care/assisted living facilities, and nursing homes.
Most LTSS is delivered by unpaid family or friends, many of
whom struggle to balance their care activities with
employment and other family responsibilities (Spillman et al.,
2014). This type of care is typically referred to as informal (i.e.,
unpaid) care.
However, paid LTSS provided by paraprofessionals is
becoming increasingly important as the availability of family
caregivers shrinks. Coming generations of older adults will
have fewer children to provide care for, and more women in
their 50s and 60s, who provide much of the care received by
older adults, will work outside the home. LTSS encompasses a
variety of health, health-related, and social services that assist
individuals with functional limitations. LTSS includes
assistance with activities of daily living (ADLs) such as eating,
bathing, and dressing and instrumental activities of daily living
(IADLs) such as housekeeping and money management over
an extended period. The goal of LTSS is to facilitate
functioning among people with disabilities.
I. Home and Community-Based

Services
Home and community-based services (HCBS) are types of

person-centered care delivered in the home and community.
HCBS allow people with significant physical and cognitive

limitations to live in their home or a home-like setting and
remain integrated with the community. Services include skilled
care, personal care (dressing, bathing, toileting, eating,
transferring to or from a bed or chair, etc.), home-delivered
meals, transportation and access, supported employment,
home repairs and modifications, home safety assessments, and
information and referral services (CMS, 2021). Three types
of home and community-based services include home
healthcare, adult day care, and the elderly nutrition
program.
Home healthcare
Home healthcare is a formal, regulated program of

care delivered in the home. It can include a range
of services provided by skilled medical professionals,
including skilled nursing care, physical therapy,
occupational therapy, and speech therapy. In
addition, home healthcare can also include skilled,
non-medical care, such as medical social services
or assistance with daily living from a highly qualified
home health aide. To be eligible for the home health benefit
under Medicare, the patient must be under a doctor’s care,
with a plan of care that the doctor regularly reviews. The
recipient must be homebound and unable to leave the home
unaided without the possibility of risk. Sources for home
healthcare funding include Medicare, Medicaid, the Older

Americans Act, the Veterans Administration, and private
insurance.
Adult day care
Adult day care is a group program designed to meet the needs

of functionally and/or cognitively impaired adults and provide
respite for family caregivers. Adult day care centers offer a wide
array of services that range from basic health services, meals,
and activities to intensive health services for those who might
otherwise have to be in a skilled nursing center. In general,
there are three main types of adult day care centers: those that
focus primarily on social interaction, those that provide
medical care, and those dedicated to Alzheimer’s care.
Medicare does not cover adult day care. Medicaid will pay
some amount toward adult day care in nearly every state,
though the amount is often limited. Long-term care insurance
may cover adult day programs, and some financial assistance
may be available through a federal or state program like the
Older Americans Act or Veterans Health Administration.
The elderly nutrition program
The Elderly Nutrition Program (ENP) was designed

specifically to address problems of inadequate dietary intake
and social isolation among the elderly. ENP is authorized by
and receives funding under the Older Americans Act
Nutrition Program (Congressional Research Service [CRS],

2014). Additional funding is provided through block grants,
Medicaid waivers, and private donations. Services include both
home-delivered meals (commonly referred to as Meals on
Wheels) and healthy meals served in group settings, such as
senior centers and faith-based locations for people aged 60 and
older (CRS, 2014). In addition, the programs provide a range
of services, including nutrition screening, assessment,
education, and counseling. Nutrition services also provide an
important link to other supportive in-home and community-
based supports such as homemaker and home-health aide
services, transportation, physical activity, and chronic disease
self-management programs, home repair, and fall prevention
programs.
II. Facility-Based Settings
At some point, support from family, friends, and local

programs may not be enough. People who require help full-
time might move to a residential facility that provides many or
all of the long-term care services they need. Facility-based long-
term care services include: board and care homes, assisted
living facilities, nursing homes, and continuing care
retirement communities. Some facilities have only housing
and housekeeping, but many also provide personal care and
medical services. Many facilities offer special programs for
people with Alzheimer’s disease and other types of dementia

(National Institute on Aging, 2017b).
Board and care homes
Board and care homes, also called residential care facilities or

group homes, are small private facilities, usually with 20 or
fewer residents. Rooms may be private or shared. Residents
receive personal care and meals and have staff available around
the clock. Nursing and medical care usually are not provided
on-site (National Institute on Aging, 2017b).
Assisted living
Assisted living is for people who need help with daily care
but not as much help as a nursing home provides. Assisted
living facilities range in size from as few as 25 residents to
120 or more. Typically, a few levels of care are offered, with
residents paying more for higher levels of care. Assisted living
residents usually live in their own apartments or rooms and
share common areas. They have access to many services,
including up to three meals a day; assistance with personal
care; help with medications, housekeeping, and laundry;
24-hour supervision, security, and on-site staff; and social and
recreational activities, with exact arrangements varying from
state to state (National Institute on Aging, 2017b).
Although assisted living costs less than nursing home care,
it is still fairly expensive. Because there can be extra fees for
additional services, it is very important for older persons to

find out what is included in the basic rate and how much other
services will cost. Primarily, older persons or their families pay
the cost of assisted living. Some health and long-term care
insurance policies may cover some of the costs associated with
assisted living. In addition, some residences have their own
financial assistance programs. The federal Medicare program
does not cover the costs of assisted living facilities or the care
they provide. However, according to Koop (2022):
Most states do offer some degree of financial assistance for

assisted living through Medicaid programs. However, it’s
important to note that Medicaid does not cover the cost
of basic room and board the way it does for residents of
nursing homes. The exact services that Medicaid covers
within assisted living vary by state and the specific program
a senior applies for. All states offer assistance paying for
some degree of personal care services (ADLs), but the ways
in which those services are administered differ widely. For
example, some state Medicaid programs provide eligible
seniors with personal care assistance but not in an assisted
living residence. The fundamental services that most
Medicaid programs will pay for in an assisted living facility
include:
• Case management
• Personal Care services
• Homemaker services (e.g., meal preparation, laundry,
light housekeeping)
• Transportation
• Personal emergency response systems
Nursing homes
Nursing homes provide a wide range of health and personal

care services. Their services focus on medical care more than
most assisted living facilities. These services typically include
nursing care, 24-hour supervision, three meals a day, and
assistance with everyday activities. Rehabilitation services,
such as physical, occupational, and speech therapy, are also
available. Some people stay at a nursing home for a short time
after being in the hospital. After they recover, they go home.
However, most nursing home residents live there permanently
because they have ongoing physical or mental conditions that
require constant care and supervision (National Institute on
Aging, 2017b).
Rehabilitation is a key component for short-term stays
funded primarily through Medicare or commercial insurers.
Medicare does not pay for long-term or permanent stays in
nursing homes. On the other hand, Medicaid covers both
short-term stays and extended stays for seniors with limited
assets and low income who have a medical need for this high
level of care. This coverage and the eligibility requirements
vary by state. Nursing homes may provide only long-term care,
only short-term care for rehabilitation purposes, or both. In
order to be certified by the Centers for Medicare & Medicaid
Services, these facilities must meet strict criteria and are subject
to periodic inspections to ensure that quality standards are
being met.
Murphy (2021) states, “overall, there is a fair degree of

overlap between skilled nursing facilities and nursing homes.
However, the differences between them can be especially
confusing, considering that skilled nursing is available in a
nursing home setting. In general, a SNF is a short-term
facility with medical specialists dedicated to various
forms of rehabilitation, while a nursing home focuses on
long-term care.”
Continuing care retirement communities
Continuing care retirement communities (CCRCs), also

called life care communities, integrate different levels of service
in one location. Many offer independent housing (i.e., houses
or apartments), assisted living, skilled nursing care, and
memory care all on one campus. Residents can move from
one area to another based on the level of service needed and
stay within the CCRC. For example, residents who can no
longer live independently move to the assisted living facility
or sometimes receive home care in their independent living
unit. If necessary, they can enter the CCRC’s nursing home or
memory care unit. A CCRC is a good option for seniors who
want to age in place but might not have the support system to
do so.
CCRCs are paid for through private financing unless services

are received in a Medicare-certified skilled nursing facility.
“The chief benefit of CCRCs is that they provide a wide range
of care, services and activities in one place, offering residents

a sense of stability and familiarity as their abilities or health
conditions change. But that comes at a cost as most
communities charge a substantial entry fee” (AARP, 2022).
“The average initial payment is about $402,000, but the fees
can range widely, from $40,000 to more than $2 million,
according to National Investment Center for Seniors Housing
& Care, which tracks costs at some 1,100 CCRCs in 99 major
U.S. markets” (AARP, 2022). In addition to this entrance fee
(which can be nonrefundable should the resident move out or
pass away), residents are required to pay a monthly fee based
on amenities and the type of contract. If a community isn’t
financially stable, there is a risk of losing the entire investment,
possibly leaving aging residents financially and medically
exposed at the end of their lives.
Knowledge Check

Click here to move on to 2.4 Palliative

& Hospice Care.
2.4 PALLIATIVE & HOSPICE CARE | 153
2.4 PALLIATIVE &

HOSPICE CARE
Sections:
2.4.1 Palliative Care
2.4.2 Hospice Care
2.4.3 Palliative Care vs. Hospice Care
2.4.1 Palliative Care

According to the National Institute on Aging (2021), many
Americans die in facilities such as hospitals or nursing homes,
receiving care inconsistent with their wishes. All adults,
especially older adults, need to plan ahead and let their
caregivers, doctors, or family members know their end-of-life
preferences in advance. For example, suppose an older person
wants to die at home, receiving end-of-life care for pain and
154 | 2.4 PALLIATIVE & HOSPICE CARE
other symptoms, and makes this known to healthcare

providers and family. In that case, it is less likely he or she
will die in a hospital receiving unwanted treatments. If the
person can longer make healthcare decisions for themselves, a
caregiver or family member may have to make those decisions.
Caregivers have several factors to consider when choosing end-
of-life care, including the older person’s desire to pursue life-
extending treatments, how long he or she has left to live, and
the preferred setting for care. The tension involved in making
these decisions can be relieved from the caregiver if the ill
person has their wishes in writing.
Definition: Palliative care is specialized

medical care for people living with a serious
illness, such as cancer or heart failure.
Patients in palliative care may receive medical care for their

symptoms to provide comfort, along with treatment intended
to cure their serious illness. Palliative care is meant to enhance a
person’s current care by focusing on the quality of life for them
and their family. Palliative care is a resource for anyone living
with a serious illness, such as heart failure, chronic obstructive
pulmonary disease, cancer, dementia, Parkinson’s disease, and
many others. Palliative care can be helpful at any stage of illness
and is best provided soon after a person is diagnosed. In
addition to improving quality of life and helping with

symptoms, palliative care can help patients understand their
choices for medical treatment. Finally, the organized services
available through palliative care may be helpful to any older
person having a lot of general discomforts and disabilities very
late in life (National Institute on Aging, 2021).
A palliative care team comprises multiple professionals that
work with the patient, family, and the patient’s other doctors
to provide medical, social, emotional, and practical support.
The team comprises palliative care specialist doctors and
nurses, and others such as social workers, nutritionists, and
chaplains. A person’s team may vary based on their needs and
level of care. To begin palliative care, a person’s healthcare
provider may refer him or her to a palliative care specialist. If
he or she doesn’t suggest it, the person can ask a healthcare
provider for a referral. Palliative care can be provided in
hospitals, nursing homes, outpatient palliative care clinics, and
certain other specialized clinics, or at home. Medicare and
Medicaid may cover palliative care. Veterans may be eligible
for palliative care through the Department of Veterans Affairs.
Private health insurance might pay for some services (National
Institute on Aging, 2021).
2.4.2 Hospice Care
Definition: Hospice is a program that gives

special care to people who are near the end of
life and have stopped treatment to cure or
control their disease.
Hospice offers patients and their families physical, emotional,

social, and spiritual support. The main goal of hospice care is
to control pain and other symptoms of illness so patients can
be as comfortable and alert as possible. It is usually given at
home but may also be given in a hospice center, hospital, or
nursing home (National Cancer Institute, n.d.).
Increasingly, people are choosing hospice care at the end of
life. Hospice care focuses on the care, comfort, and quality of
life of a person with a serious illness who is approaching the
end of life. At some point, it may not be possible to cure a
serious illness, or a patient may choose not to undergo certain
treatments. Hospice is designed for this situation. The patient
beginning hospice care understands that their illness is not
responding to medical attempts to cure it or to slow the
disease’s progress (National Institute on Aging, 2021).
Medicare pays hospice agencies a daily rate for each day a
patient is enrolled in the hospice benefit. Medicare makes this
daily payment regardless of the number of services provided

on a given day, including days when the hospice provides no
services. (The hospice Medicare benefit, however, does not
cover expenses related to room and board when a patient is in a
nursing home or hospice inpatient facility.) The daily payment
rates only cover the hospice’s costs for providing services
included in patient care plans. Examples of hospice-covered
services include doctors service’s, nursing and medical services,
durable medical equipment for pain relief and symptom
management, medical supplies, drugs for pain management,
aide and homemaker services, physical therapy services, etc.
Medicare makes daily payments based on one of four levels
of hospice care (Centers for Medicare and Medicaid Services,
2022):
1. Routine home care: A day the patient elects to get

hospice care at home and isn’t getting continuous home
care. A patient’s home might be a home, a skilled
nursing facility (SNF), or an assisted living facility.
Routine home care is the level of care provided when the
patient isn’t in crisis.
2. Continuous home care: A day when both of these
apply:
◦ The patient gets hospice care in a home setting that

isn’t an inpatient facility (hospital, SNF, or hospice
inpatient unit)
◦ The care consists mainly of continuous nursing

care at home. Patients can also get hospice aide,
homemaker services, or both on a continuous basis.
Hospice patients can get continuous home care
only during brief periods of crisis and only as
needed to maintain the patient at home.
3. Inpatient respite care: A day the patient elects to get

hospice care in an approved inpatient facility for up to 5
consecutive days to give their caregiver a rest.
4. General inpatient care: A day the patient elects hospice
care in an inpatient facility for pain control or acute or
chronic symptom management, which can’t be managed
in other settings.
Like palliative care, hospice provides comprehensive comfort

care and support for the family, but in hospice, attempts to
cure the person’s illness are stopped. Hospice is provided for
a person with a terminal illness whose doctor believes he or
she has six months or less to live if the illness runs its natural
course. Therefore, it is important for a patient to discuss
hospice care options with their doctor. Sometimes, people
don’t begin hospice care soon enough to take full advantage of
the help it offers. Perhaps they wait too long to begin hospice
and are too close to death. Or some people are not eligible for
hospice care soon enough to receive its full benefit (National
Institute on Aging, 2021).
In the United States, people enrolled in Medicare can receive

hospice care if their healthcare provider thinks they have less
than six months to live should the disease take its usual course.
Doctors have a hard time predicting how long an older, sick
person will live. Health often declines slowly, and some people
might need a lot of help with daily living for more than six
months before they die. What happens if someone under
hospice care lives longer than six months? If the doctor
continues to certify that that person is still close to dying,
Medicare can continue to pay for hospice services. It is also
possible to leave hospice care for a while and then return later
if the healthcare provider still believes the patient has less than
six months to live (National Institute on Aging, 2021).
2.4.3 Palliative Care vs. Hospice

Care
Review infographic (CMS, n.d.): Palliative Care vs. Hospice
Care
Then, test your understanding by taking the following
Knowledge Check quiz.
Knowledge Check
Select the type of care that the statement represents.


Summary.
2.5 CHAPTER SUMMARY
Healthcare providers and administrators need to view care

delivery as occurring along a continuum with distinct phases
marked by changing levels of intensity of care. Delivery
systems include inpatient, outpatient, post-acute, long-term,
palliative, and hospice care. Inpatient services are services that
involve an overnight stay or prolong the stay of a patient in
a licensed healthcare facility. Historically, in the United States
(U.S.), inpatient services are provided by hospitals. Hospitals
are the most common healthcare facility for inpatient services.
Hospitals may be classified by type of service, ownership, size
(in terms of the number of beds), and length of stay.
Community hospitals form the bulk of hospitals and hospital
beds in the U.S. The AHA categorizes community hospitals
by ownership, number of beds, and whether it is a teaching,
critical access, or specialty hospital. Emergency departments
are a major part of the US healthcare safety-net (Mortensen,
2014; Rhodes et al., 2013). Emergency departments in
hospitals provide care to anyone needing emergency
treatment, but tend to be overused for non-urgent and serious
problems that could have been prevented with better primary
and specialty care.
Outpatient services occur in a facility or setting where there
is no need for an overnight stay. Primary care is the entry point

into the healthcare system and is one of the most utilized
outpatient services. The four pillars of primary care include a
patient’s first contact with the healthcare system, continuity of
care over time, comprehensiveness, and coordination of care.
Venues for the delivery of primary care are private physician
clinics, public or non-profit community health centers,
outpatient clinics in hospitals, workplace wellness programs,
and retail clinics. Two models of care are being employed to
increase efficiencies in primary care delivery include patient-
centered medical homes and accountable care organizations.
An ambulatory surgical center is a outpatient facility that
operates primarily to provide surgical services to patients who
do not require overnight hospital care. Compared to hospital-
based surgical centers, ambulatory surgical centers are
perceived to be more conveniently located and to have better
scheduling for both physician and patient, greater physician
and patient satisfaction, similar quality, and lower costs. Lastly,
urgent care is provided outside the emergency department
setting in urgent care centers that provide care on a walk-in
basis, have extended hours into the evening Monday to Friday
and at least one day over the weekend, and have on-site
laboratories and radiology.
Recognition of how PAC fits within the continuum can
help to ensure patients achieve the greatest value possible from
those delivering their care. PAC serves as a bridge to help
patients regain the functional capabilities they need to return
to as normal a life as possible following an illness, accident, or

injury. Long-term care is another continuum of institutional
and community-based services. This broad range of personal,
social, and medical services is provided in many locations,
including private homes, adult day-care settings, residential
care/assisted living facilities, and nursing homes. Lastly, while
the objective of both hospice and palliative care is pain and
symptom relief, the prognosis and care goals tend to differ.
Hospice is comfort care without curative intent; the patient
no longer has curative options or has chosen not to pursue
treatment because the side effects outweigh the benefits.
Palliative care is comfort care with or without curative intent.
Click here to view the references

and attributions for Chapter 2.
2.6 REFERENCES &

ATTRIBUTIONS
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Attribution

NC-SA 4.0 . Chapters 3, 9, 10.

Systems in Transition / Chapter 5 (pgs. 243, 246,
250-251, 254-260, 279) / Copyright 2020. Accessed
January 30, 2023.

3: Health Insurance.
CHAPTER 3: HEALTH INSURANCE | 177
CHAPTER 3:
HEALTH
INSURANCE
Learning Objectives
• Review the terms and economic issues

associated with health insurance.
• Examine the role of the private insurance
sector in healthcare financing.
• Discuss the development and reimbursement
methods commonly associated with managed
care delivery models.
• Summarize the role of public programs in
healthcare financing and the delivery of
healthcare.
• Examine the newest managed care models:
ACOs and PCMHs.
178 | CHAPTER 3: HEALTH INSURANCE
Chapter Sections:
3.1 Basic Concepts
3.2 Private Health Insurance
3.3 Public Health Insurance & Systems
3.4 Insurance Coverage & Trends
3.5 Chapter Summary
3.1 BASIC CONCEPTS | 179
3.1 BASIC CONCEPTS
Sections:
3.1.1 Key Terms
3.1.2 Adverse Selection
3.1.3 Moral Hazard
3.1.4 Adverse Selection vs. Moral Hazard
3.1.1 Key Terms

The following is a glossary of health insurance terms (Bureau
of Labor Statistics, n.d.; Bureau of Labor Statistics, 2021).
The sections that follow will cover the important concepts of
adverse selection and moral hazard.
180 | 3.1 BASIC CONCEPTS
I. Plan Networks
In-network. Healthcare providers (e.g., specialists, hospitals,

laboratories) that have accepted contracted rates with the
insurer are considered in-network. As a result, the insured
person typically pays a lower price for using services within the
network.
Out-of-network. Healthcare providers who have not
accepted contracted rates with the insurer are considered out-
of-network. As a result, services received outside the network
of healthcare providers with contracted rates typically carry a
higher cost to the insured person.
II. Types of Plans
Conventional indemnity plan. An indemnity that allows

the participant the choice of any provider without effect on
reimbursement. These plans reimburse the patient and/or
provider as expenses are incurred.
High deductible health plan (HDHP). This type of plan
typically features a higher deductible and lower insurance
premiums than traditional health plans. Normally the plan
includes catastrophic coverage to protect against large medical
expenses, but the insured is responsible for routine out-of-
pocket expenses until they meet the plan deductible.
Managed care plans. Managed care plans generally provide
comprehensive health services to their members and offer
financial incentives for patients to use the providers who

belong to the plan. Four examples of managed care plans
include:
• Health maintenance organization (HMO). A

healthcare system that assumes both the financial risks
associated with providing comprehensive medical
services (insurance and service risk) and the
responsibility for healthcare delivery to HMO members
in a particular geographic area, usually in return for a
fixed, prepaid fee. Financial risk may be shared with the
providers participating in the HMO.
• Preferred provider organization (PPO). An
indemnity plan where coverage is provided to
participants through a network of selected healthcare
providers (such as hospitals and physicians). The
enrollees may go outside the network but would incur
more out-of-pocket costs in the form of higher
deductibles, higher coinsurance rates, or non-discounted
charges from the providers.
• Exclusive provider organization (EPO). A more
restrictive type of preferred provider organization plan
under which employees must use providers from the
specified network of physicians and hospitals to receive
coverage; there is no coverage for care received from a
non-network provider except in an emergency.
• Point-of-service (POS) plan. A POS plan is an HMO/
PPO hybrid, sometimes referred to as an “open-ended”

HMO when offered by an HMO. POS plans resemble
HMOs for in-network services. Services received outside
of the network are usually reimbursed in a manner
similar to conventional indemnity plans (e.g., provider
reimbursement based on a fee schedule or usual,
customary, and reasonable charges).
Physician-hospital organization (PHO). Alliances between

physicians and hospitals for the purpose of helping providers
attain market share, improve bargaining power and reduce
administrative costs. These entities sell their services to
managed care organizations or directly to employers.
Self-insured plan. A plan offered by employers who
directly assume the major cost of health insurance for their
employees.
III. Payment Terms
Capitation. A fixed sum of money is paid to the provider per

time unit (usually monthly) for each patient being treated by
the provider.
Coinsurance. This form of medical cost-sharing requires
an insured person to pay a stated percentage of medical
expenses after the deductible amount, if any, is paid. After any
deductible amount and coinsurance are paid, the insurer is
responsible for the rest of the reimbursement for covered
benefits, up to the maximum allowed charges. The individual

is responsible for any charges in excess of what the insurer
determines to be “usual, customary, and reasonable.”
Coinsurance rates may differ between services received from an
approved provider and those received from providers not on
the approved list.
Copayments. The fixed dollar amount that an insured
person must pay when a service is received before the insurer
pays any remaining charges.
Coverage limits. Payment limits may be set in terms of
a dollar or per-day ceiling on benefits. For example, a
requirement that the participant pays a percentage of costs
(coinsurance), or a requirement that the participant pays a
specific amount (deductible or copayment) before
reimbursement begins or services are rendered. For example, a
$250 copayment for hospital room and board.
Deductible. The deductible is a dollar amount that an
insured person pays during the benefit period–usually a
year–before the insurer starts to make payments for covered
medical services. Plans may have both individual and family
deductibles. Some plans have separate deductibles for specific
services. For example, a plan may have a hospitalization
deductible per admission. Deductibles may vary between
services received from an approved provider (i.e., a provider
with whom the insurer has a contract or an agreement
specifying payment levels and other requirements) and those
received from providers not on the approved list or as part of a
different tier of benefits. Some deductibles vary based on other

factors (aside from plan network), such as employee length of
service, salary range, or enrollee age.
Disease management. A comprehensive, integrated
approach to care and reimbursement based on a disease’s
natural course. The goal of disease management is to address
the illness or condition with maximum effectiveness and
efficiency regardless of treatment setting(s) or typical
reimbursement (Zitter, 1997).
Fee-for-service. A method of payment in which doctors
and other healthcare providers are paid for each service
performed. Examples of services include tests and office visits.
Gatekeeping. The requirement to visit a general
practitioner, family practitioner, general internal medicine
physician, or general pediatrician in an ambulatory setting and
to obtain a referral prior to accessing specialist care (Garrido et
al., 2011).
Maximum out-of-pocket expense. The annual dollar
amount limit a participant or family is required to pay out-of-
pocket in addition to the plan deductible. Until it is met, the
plan and the member share the cost of covered expenses. Once
reached, covered expenses are fully reimbursed for the rest of
the year.
Overall limits. Restrictions that apply to all or most
benefits under the plan, as opposed to selected individual
benefits. An example of an overall limit is a $300-per-year
deductible that must be paid before medical expenses become
eligible for reimbursement. Another example is an 80-percent

coinsurance that applies to all categories of care except
outpatient surgery.
Pre-authorization. A decision by a health insurer or plan
that a healthcare service, treatment plan, prescription drug or
durable medical equipment is medically necessary. Sometimes
called prior authorization, prior approval or precertification.
Some insurance plans require preauthorization that the item/
service/treatment is medically necessary before it will be
covered.
Premium. Agreed upon fees paid for coverage of medical
benefits for a defined benefit period. Premiums can be paid by
employers, unions, employees, or shared by both the insured
individual and the plan sponsor.
Reinsurance. The acceptance by one or more insurers
called reinsurers or assuming companies, of a portion of the
risk underwritten by another insurer contracted with an
employer for the entire coverage.
Stop-loss coverage. A form of reinsurance for self-insured
employers that limits the amount the employers will have to
pay for each person’s healthcare (individual limit) or the
employers’ total expenses (group limit).
Usual, customary, and reasonable (UCR) charges.
Conventional indemnity plans operate based on usual,
customary, and reasonable (UCR) charges. UCR charges
mean that the charge is the provider’s usual fee for a service
that does not exceed the customary fee in that geographic area
and is reasonable based on the circumstances. Instead of UCR

charges, PPO plans often operate based on a negotiated (fixed)
fee schedule that recognize charges for covered services up to a
negotiated fixed dollar amount.
IV. Outpatient Prescription Drugs
Formulary drugs. These are both generic and brand-name

drugs approved by the healthcare provider. Drugs not
approved by the healthcare provider are nonformulary drugs
for which enrollees receive less generous benefits, such as a
higher copayment per prescription.
Brand-name drugs. These are drugs that once were or still
are under patents.
Generic drugs. These are drugs that are not under any
patents. Once a drug’s patent has expired, some plans provide
more generous coverage for same-formula generic drugs than
for name-brand drugs; the practice is adopted as a cost
containment measure.
Mail-order drugs. These are drugs that can be ordered
through the mail. Some plans use mail-order pharmacies that
typically provide a 3-month supply of maintenance drugs as a
cost-containment measure.
3.1.2 Adverse Selection
Definition: Risk is the chance of loss or the

perils to the subject matter of an insurance
contract; also: the degree of probability of such
loss (Merriam-Webster, 2022).
Definition: Indemnification is the payment for

losses actually incurred (U.S. Government
Accountability Office, 2006).
There is no universal agreement on a definition of insurance.

However, most definitions have these two key elements related
to risk (U.S. Government Accountability Office, 2006):
1. Risk is transferred – An uncertain, possibly large, loss is

transformed into a certain, small cost or premium for the
insured, and an insured transfers risk to another entity.
2. Risk is spread – An insurer spreads risk over a large

enough group for the law of large numbers to predict both
total losses and the probability of a single loss with some
accuracy.
One complication of health insurance markets is that those

who demand insurance are the ones who are more likely to
need insurance. This fact in itself might not be a problem,
except that individuals also know more about their own health
than the companies that are insuring them.
“Selection bias” is a major issue in the U.S. health insurance
market. There are two types of bias: favorable selection and
adverse selection. These terms are defined from the
perspective of the insurer. When there is favorable selection,
the insurer enjoys healthier enrollees. Conversely, with adverse
selection their enrollees are less healthy. In other words, adverse
selection occurs when someone can purchase insurance only
after knowing they need it, implying differences in health
status or expected expenditures that the insurer cannot detect.
In practice, insurance companies often cannot classify
people into precise risk groups or offer such targeted policies
to low- and high-risk individuals. As a result, when lower-risk
individuals opt out of the insurance market, leaving only high-
risk individuals in the market (i.e., the selection is adverse),
there is an information problem that is a source of market
failure: the insurer will lose (or make less) money, and
insurance is unavailable to low-risk individuals at a reasonable
price.
3.1.3 Moral Hazard

Another complicating element for insurance is the moral
hazard: the idea that, after purchasing insurance, individuals

may behave in riskier ways. For example, think about your
likelihood of being in a car accident. The probability that you
will have an accident depends on many things: road
conditions, the actions of other drivers, luck, and many others.
It also depends on the actions you take as a driver of the car.
There are many things we do that influence our likelihood
of having an accident, including (but not limited to) the
following:
• Properly maintaining the car

• Paying attention when driving
• Driving when tired
• Driving after consuming alcohol
These items are influenced by the decisions that we make. The

link back to insurance is that, if we are insured, we may make
different choices about the condition of our car, how we drive,
and our physical state when we drive. The analogous idea with
health insurance is that we may choose to live a less healthy
lifestyle or engage in riskier behavior if we know that we have
health insurance to cover our expenses if we become sick or
injured.
Insurance companies understand very well that their
policies influence people’s choices. Their response is to design
insurance contracts that provide insurance without affecting
individuals’ incentives too much. For example, in the case of
automobile insurance, you will not receive full coverage for

your loss in case of an accident. Instead, insurance contracts
typically include: (1) a deductible, which is the amount of a
loss you have to cover before any insurance payment occurs,
and (2) a copayment, which is the share of the loss for which
you are responsible. The same applies to medical insurance. In
the event you are ill, health insurance will typically cover a wide
variety of medical costs, but there will usually be a deductible
and often a copayment. As with property or automobile
insurance, the deductible incentivizes you to take actions that
make you less likely to claim against the policy.
There are two main moral hazard issues with healthcare:
First, healthcare is an individual investment. Although no
one wants to get sick, the more you pay for your own
treatment, the more likely you will invest in your own health.
Choices pertaining to exercise, diet, and preventive care can all
depend on the insurance payments we anticipate if we need
healthcare. The more insurance we have, the less incentive we
have to take care of ourselves. In addition, the less we take care
of ourselves, the more likely we are to present the insurance
company with a sizable health bill.
Second, the size of the health bill also depends on your
choices about treatment. You will meet with your doctor to
jointly decide on treatments when you are ill. Although your
doctor will probably talk to you about various treatment
options, their price will not be the focus of the discussion.
Eventually, you will meet with someone else in the office to
discuss how your treatment will be paid for and, in particular,

how much will be covered by your insurance. In the end, you
have a menu of treatments and a menu of prices that you have
to pay. You will then choose the option from these menus that
is in your best interest.
The insurance company pays some of your bill, so the
amount you pay is lower than the actual treatment price.
However, by the law of demand, you purchase more than you
would if you had to pay the full price. For example, you might
be much more inclined to get second and third opinions if you
don’t have to pay the full price for these.
Even if you are not ill but are instead going to see your
doctor for a checkup, incentives still come into play. Many
insurance policies include funding for an annual checkup with
a small copayment. We respond to those incentives by going
for the annual checkups covered under the policy. We don’t go
for checkups every month because most policies do not cover
such visits. The insurance company deliberately designs the
incentives so you will be more likely to find engaging in basic
preventive care worthwhile.
3.1.4 Adverse Selection vs. Moral

Hazard
Adverse selection and moral hazard are closely related
problems in the health insurance industry that have unique
differences (Mass, 2016):
• Both are caused by information asymmetry:

◦ Adverse selection is caused by asymmetry in
information before insurance is purchased,
such as when individuals/patients who know
they are more likely to require care tend to
choose more generous insurance plans.
◦ Moral hazard is caused by asymmetry in
actions after insurance is purchased, such as
when a buyer of insurance is incentivized to use
more services because they will bear a smaller
share of their medical care costs.
• The cost of managing both problems can be
decreased by reducing uncertainty (i.e., gathering
more information).
Table 1 Adverse Selection vs.

Moral Hazard
Common
Adverse Selection Moral Hazard
Issues
Information Resulting from Resulting from

Asymmetry hidden information hidden actions
Occurs before a Occurs after a
transaction: lower-risk transaction: buyer of
Related to
individuals opt out of the insurance has
the
insurance market, leaving incentives to engage in
Transaction
only high-risk individuals undesirable activities
in the market or use more services
Management The cost of managing both problems can be

of the reduced by reducing uncertainty (gathering more
Problem information)
(Mass, 2016)
Knowledge Check

Click here to move on to 3.2 Private

Health Insurance.
194 | 3.2 PRIVATE HEALTH INSURANCE
3.2 PRIVATE HEALTH

INSURANCE
Sections:
3.2.1 Employer-Sponsored Insurance
3.2.2 Individual Insurance
3.2.3 Managed Care
3.2.1 Employer-Sponsored
(Group) Insurance
Before 2010, the percentage of workers receiving employer-
sponsored insurance ranged from 60%-69%, while post-2021,
the range has held within the mid-50% range (Kaiser Family
Foundation, 2021). The employer-sponsored insurance
journey is similar to that of hospitals and physicians. Initially,
3.2 PRIVATE HEALTH INSURANCE | 195
medical insurance was what we categorize as catastrophic

indemnity insurance, with copays ranging from 10%-20%.
Catastrophic indemnity insurance pays only for significant
expenses over a certain amount, such as hospitalization, similar
to automobile insurance. Gradually more services were offered
as part of medical insurance until any service, including
preventive care, might be included in an employer-sponsored
plan.
Initially, medical insurance was only for the employee and
not the employee’s family. The growth in family coverage
occurred following the 1949 Supreme Court ruling allowing
benefits to become a part of labor negotiations and increasing
the cost of medical insurance to employers. Medical (health)
insurance cost escalation occurred in conjunction with the
escalating cost of medical care to a point where executives
found continued medical insurance price increases
unsustainable. As a result, employers began to demand more
for their money and their employees.
Executives pursued three lines of action to reduce escalating
medical insurance costs. First, in the 1980s, they began shifting
employer-sponsored insurance to managed care plans, which
were developed to increase efficiency and cost controls of
healthcare by combining financing, insurance, and service
provision. Second, in the 1990s, employers demanded
improved health outcomes, initiating the healthcare quality
movement. Third, they began to require their employees to
pay a portion of the premium and insisted upon other funding
mechanisms such as copays and deductibles. After 1990,

managed care plans became the dominant employer-sponsored
insurance model. Limitations on patient choice in managed
care led to a shift towards a hybrid approach. The most
popular plan currently is the preferred provider organization
(PPO) with elements of managed care and patient choice.
Since 2010, high deductible PPO plans coupled with a health
savings account, where employees are responsible for a large
deductible before medical services are covered, are on a
trajectory to become the most popular plan.
Review webpage (Kaiser Family Foundation, 2021):
Employer Health Benefits Survey 2021
Several factors drive the demand for coverage, including the
size of the employed population and subsidies available to
employers to provide coverage. One of the main drivers is the
cost of insurance. As healthcare costs rise, insurance becomes
more costly to both the employer and the employee, depressing
both offer and take-up rates. Moreover, coverage becomes less
comprehensive through increases in patient cost-sharing
requirements. Blavin et al. (2014) concluded that declines in
employer-sponsored coverage are due almost entirely to the
fact that per capita health spending rose more quickly than
personal income.
Another driver is the changing nature of employment in
the United States (U.S.). More specifically, there has been a
gradual decline in manufacturing jobs and the increase in retail
jobs. There has also been a transition from larger to smaller
employers and from full-time to part-time jobs. One result was

fewer union workers; traditionally, those in unions are more
likely to have health insurance (Swartz, 2006).
3.2.2 Individual (Non-Group)

Insurance
The individual health insurance markets are comprised of
plans purchased directly from the insurer. Individual
insurance plan rates are typically higher than the employer’s
group rates. The individual insurance market has been
around for about as long as the group market,
accounting for about 4% to 6% of the total market.
Individuals purchasing medical (health) insurance
through the individual market include those employed
by small employers (fewer than 50 employees) or
professionals such as physicians or lawyers in solo or
small practices. Individuals and families without an entry
into the employer insurance market and those not eligible for
Medicare and Medicaid seek coverage individually.
Prior to implementation of the major parts of the Patient
Protection and Affordable Care Act (ACA), individual
coverage had several disadvantages over employer-group
coverage and, therefore, would typically have been purchased
only if the alternative was unavailable. It was rarely subsidized;
administrative costs tended to be high (25–40%); health
examinations were often necessary; cost-sharing requirements
were, on average, higher; fewer types of services tended to be

covered (e.g., maternity care may have been excluded); and
frequently the insured person was put in an actuarial group
characterized by poor or uncertain health (Whitmore et al.,
2011). The ACA changed much of this: it provides significant
subsidies, prohibits high administrative costs, has no health
restrictions on enrollment, and requires that people of the
same age be charged the same premiums regardless of health
status. In addition, the ACA rearranged the individual
market providing a federal government sliding scale
subsidy for individuals between 100% to 400% of the
federal poverty level. Plans purchased through the
Marketplace are required to meet the ACA criteria of
a quality plan.
Review webpage (Kaiser Family Foundation, 2019a):
Changes in Enrollment in the Individual Health Insurance
Market through Early 2019
3.2.3 Managed Care
I. The Triple Aim
Despite nearly one out of five dollars in the U.S. being spent
on healthcare, the U.S. consistently ranks among the worst
out of industrialized countries for health outcomes, and it has
only been exacerbated by COVID (Hartman et al., 2022). The
ACA borrowed heavily from the concept of the Triple Aim
(Fig. 3-1): simultaneously improving the patient experience

of care, improving population health, and reducing the per
capita costs of care (Institute for Healthcare Improvement,
n.d.).
However, the U.S. stands out internationally for unusually
high costs and poor outcomes among industrialized countries
(Schneider et al., 2021). As a result, the Centers for Medicare
and Medicaid Services (CMS) were authorized to specify
quality measures that would best advance the National
Quality strategic objective and build upon the Hospital
Inpatient Quality Reporting infrastructure. This framework
also helped lead to the more formal establishment and
proliferation of different types of managed care organizations
(Aroh et al., 2015).
Figure 3-1
The Triple Aim
(Institute for Healthcare Improvement, n.d.)
II. Types of MCOs
Managed care organizations (MCOs) are integrated and

coordinated organizations designed to provide care to a
specific patient population. The main overreaching goals are
to keep costs down while providing high-quality patient care
(Heaton & Tadi, 2020). There are four main types of MCOs:
Health Maintenance Organization (HMO), Preferred
Provider Organization (PPO), Point of Service (POS), and
Exclusive Provider Organization (EPO).
Health maintenance organizations ( HMOs)
Two features typically define health maintenance

organizations: 1) the requirement of a designated gatekeeper
and 2) the restriction to in-network providers under normal
circumstances. A gatekeeper is a Primary Care Provider (PCP)
responsible for preventative care screenings, routine physicals,
and other primary care services. They are called a gatekeeper
because the patient must first see the gatekeeper to obtain
referrals to specialists. The idea is to keep the more expensive
specialists reserved for conditions that cannot be handled by
a primary care practitioner. The second restriction is that
healthcare is only covered by the insurance plan if given by a
hospital or provider who is in-network; otherwise, the patient
is completely financially responsible. The only exception is
typically for emergency room care, where a patient cannot be
reasonably expected to verify in-network status. As a result,
HMOs are generally the cheapest MCO (Falkson &
Srinivasan, 2022). There are four common models of HMO
organizations: group, independent practice association (IPA),
network, and staff.
1. Group Model – In the group model, the HMO

contracts with a single, multispecialty entity for
providers to provide care to its members. The HMO
likely contracts additionally with a hospital in order to
be able to provide comprehensive care to its members.
The HMO pays the medical group a negotiated per
capita rate, which the group distributes among its

physicians, usually on a salaried basis.
2. Independent Practice Association (IPA) Model –
This set-up is closest to the original pre-paid plans
mentioned above. An IPA is a group of independent
practitioners and group providers who decide to form a
legal contract with a separate legal entity known as the
IPA. This IPA then contracts with the HMO to
negotiate the administrative and logistical details of any
arrangement, as well as some of the financial risk. That is
part of why this model is so appealing to providers
(Gold, 1999).
3. Network Model – In this model, the HMO contracts
with multiple provider groups, either single or
multispecialty, to provide services to its members.
4. Staff Model – This model involves the HMO directly
employing providers on a salary basis. Typically, the
HMO employs physicians in a range of specialties in
order to more fully serve its patients in its own facilities.
HMOs often find this appealing because they exert a
great deal of control directly over the physicians. This
model is also known as a closed-panel HMO.
On the patient side, there are premiums which are fees that
must be paid on an annual or monthly basis. The premium
enrolls the patient in the plan. When incurring medical costs,
the first portion of the medical bill goes towards the
deductible, which is the first portion of the medical bills

sustained, which the patient must pay out-of-pocket before
the insurance will pay for anything. The next fee possibly
encountered is the copay. The copay is a flat fee (e.g., $35
for every primary care visit) paid out of pocket by the patient
for a set service. The final out-of-pocket expenditure is
coinsurance. Coinsurance is a percentage of the remaining
balance that the patient must pay (e.g., the HMO will pay
80% of the procedure, and the patient must pay the remaining
20%).
The HMO pays providers typically through salary or
capitation. Capitation is when a fixed sum of money is paid
per time unit (usually monthly) per patient being treated by
the provider. For example, a physician in the HMO with 100
patients designating her as their Primary Care Provider would
receive a fixed sum for each of those 100 patients each month.
Preferred provider organizations (PPOs)
Preferred provider organizations provide patients with quite a

bit more choice. There is no gatekeeper in a PPO. The next
differential is that there are different coverage tiers, with
patients allowed to go in-network and out-of-network to
providers and still receive insurance coverage. However, by
going out-of-network, they would incur larger costs, such as
higher deductibles or higher coinsurance rates. These features
make PPOs open-panel plans. In an open panel plan, the
MCO provides incentives for the patients to use participating
(i.e., in-network) providers but also allows patients to use out-

of-network providers.
Local PPOs have a small service area and are open to
beneficiaries who live in specified counties, much like most
HMOs. Regional PPOs are much larger and contract with
an entire region. Regional PPOs are required to serve areas
defined by one or more states with a uniform benefits package
across the service area. Regional PPOs have gained limited
traction nationally because employers prefer local PPOs,
although they are somewhat popular in the smaller states
(Jacobson et al., 2017). Instead of paying providers with a
capitation fee schedule, PPOs typically negotiate fee discounts
with providers. Within the same hospital, the same procedure
may be up to 31% cheaper than the average cost depending on
the insurer (Craig et al., 2021).
Point of service (POS)
In the evolution of MCOs, point of service organizations are

essentially trying to combine the costs saving aspects of the
HMOs with the increased flexibility of choice of provider in
a PPO. Under this structure, the patient has a gatekeeper,
usually a primary care provider, who is an initial point of
service for the patient. The patient is also responsible for
getting referrals to specialists from this gatekeeper.
Exclusive provider organizations (EPO)
Exclusive provider organizations are somewhat like HMOs in

that they only pay for in-network costs, and all out-of-network
costs are the patient’s responsibility. However, unlike HMOs,
they do not require a gatekeeper, and patients are not required
to get referrals to see other in-network providers (Table 2).
Table 2 A Comparison of
Traditional MCOs
Type of MCO HMO PPO POS EPO

Gatekeeper X X
Out-of-Pocket Costs are Patient's

X X
Responsibility
(HealthCare.gov., n.d-a)
III. Utilization Review
Utilization review (UR) is one of the primary tools utilized

by MCOs to control over-utilization, reduce costs, and
manage care. It can also be done to keep costs down or to
ensure that proper protocols are being used in a fair and
equitable way (Bohan et al., 2019). Utilization review can be
required by hospitals, Worker’s Compensation, and insurance
companies (Appelbaum & Parks, 2020; Bean et al., 2020;

Siyarsarai et al., 2020). In addition to ensuring quality care,
UR can be used to prevent fraud, waste, and inappropriate
care from being provided to patients (Bean et al., 2020). There
are three main types of utilization reviews:
• Prospective Utilization Review

• Concurrent Utilization
Review
Key Term • Retrospective Utilization
Review
When looking at these three

Prior
types, the biggest difference in
Authorizati
how they are conducted is
on. A
when the review is done.
decision by a
Prospective UR, such as with
health insurer
prior authorization, is done
or plan that a
prior to the medical services or
health care
procedures being delivered
service,
treatment
(Giardino & Wadhwa, 2022).
plan, Concurrent UR is conducted
prescription while the medical services are
drug, or ongoing. Concurrent UR is
durable often required by providers
and can be used to validate the
consumption of resources
during a hospital stay, such as for

inpatient case management where
continuous review is necessary
medical
(Namburi & Tadi, 2022; Olakunle
equipment is
et al., 2011). It is also frequently
medically
associated with discharge planning necessary.
to help ensure continuity of care Sometimes
(Smith et al., 2020). Finally, called prior
retrospective UR is done after the approval or
services are provided and the bill is precertificatio
delivered (Giardino & Wadhwa, n, a health
2022). insurance or
plan may
While there are some differences require prior
between these three methods, authorization
because of when they are before care is
conducted, there are many provided,
similarities between the basic except in an
procedures of these three emergency.
approaches. The first step is to Prior
check eligibility with the insurance authorization
plan and/or ensure that the isn’t a
requested service is appropriate. If promise the
checking for appropriateness, health
typically, the insurer or plan will use insurance or
nationally developed clinical
guidelines for standards of care
(Giardino & Wadhwa, 2022).

The next step is to gather
clinical information to
plan will
determine if the criteria are
cover the cost
met for the service. It is very
of care.
(HealthCare.g
important that the clinical staff
ov., n.d-b) document everything,
including the absence of
things, for this step to succeed.
It may be common for clinical
staff to fail to note things that look normal (i.e., “charting by
exception”), but this can result in denials and delays during the
UR process and is strongly discouraged. The provider will be
notified If the reviewer determines that the criteria are met. If
not, the provider and the patient will be notified of the denial,
and they can appeal, usually by providing more information.
Knowledge Check

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Health Insurance & Services.
210 | 3.3 PUBLIC HEALTH INSURANCE & SYSTEMS
3.3 PUBLIC HEALTH

INSURANCE & SYSTEMS
Sections:
3.3.1 Medicare Federal Insurance Program
3.3.2 Medicaid & CHIP Joint Insurance Programs
3.3.3 Public Health Systems
3.3.1 Medicare Federal Insurance

Program
Medicare was established in 1965 as Title XVIII of the Social
Security Act (Center for Medicare and Medicaid Services
[CMS], 2021). It was legislated as a complement to Social
Security retirement, survivors, and disability benefits. It
originally covered people aged 65 and over, but in 1972 the
3.3 PUBLIC HEALTH INSURANCE & SYSTEMS | 211
program expanded to cover certain people with disabilities and

people with end-stage renal disease (ESRD) under 65 years
of age. In 2001, legislation was passed to add amyotrophic
lateral sclerosis (ALS), also known as Lou Gehrig’s Disease,
as a qualifying condition for Medicare coverage. People under
age 65 who receive Social Security Disability Insurance (SSDI)
payments generally become eligible for Medicare after a two-
year waiting period, while those diagnosed with end-stage
renal disease (ESRD) and amyotrophic lateral sclerosis (ALS)
become eligible for Medicare with no waiting period.
The Medicare program was further expanded in 2003 with
the Medicare Prescription Drug, Improvement, and
Modernization Act, which included a prescription drug
benefit for all Americans with Medicare beginning January
1, 2006 (CMS, 2021). Medicare routinely processes over one
billion fee-for-service (FFS) claims annually, accounting for
approximately 11% of the federal budget. Since 1966,
Medicare enrollment has increased from 19 million to 63
million individuals (CMS, 2022a). In summary, the Medicare
program provides health insurance coverage to nearly all
Americans aged 65 and older, disabled Americans under 65
who have received federal disability payments for two or more
years, as well as people with ESRD and ALS under 65 years of
age (CMS, 2021). The following Medicare timeline provides
an overview of changes that have shaped the Medicare program
over the past five decades.
Review timeline (Kaiser Family Foundation, 2015):

Medicare Timeline
I. Breadth of Coverage
Medicare is a combination of the following four programs:
• Hospital Insurance (Part A)

• Supplementary Medical Insurance (Part B)
• Medicare Advantage (Part C)
• Medicare Prescription Drug Benefit (Part D).
Part A – Hospital insurance
Medicare Part A is hospital coverage that all Medicare

recipients receive at no cost. It was initially developed based
on the 1960 Blue Cross plan. Part A includes hospital care
and some post-acute nursing home, home health, and
hospice care. Over time, Part A expanded to include not only
the aged but also individuals certified as disabled and people
with end-stage renal disease. In addition, individuals and their
spouses aged 65 and older who worked for at least ten years,
during which time they contributed federal payroll taxes that
supported both Social Security (the United States statutory
retirement pension system) and Medicare, are entitled to Part
A coverage.
Initially, Part A was paid on a cost-plus fee-for-service basis
with minimal oversight. Hospitals found this a rich source

of income and quickly embraced Medicare as a payment
mechanism. This rich payment method and rapid adoption by
hospitals fueled a rapid rise in medical inflation that a number
of administrative and legislative actions has unsuccessfully
addressed. Two of the most significant cost-control actions
have been the implementation of prospective (rather than
retrospective) payment systems known as Diagnostic-Related
Groups (DRGs) and Ambulatory Payment Classification
(APC). The development of DRG and APC codes was based
upon an extensive examination of normal time and payment
for diagnoses in the inpatient (DRGs) and outpatient (APC)
arenas. Current Procedural Terminology (CPT) codes
followed a similar developmental course focused on medical
and surgical procedures. Lastly, ICD stands for
the International Classification of Disease. The ICD provides
a method of classifying diseases, injuries, and causes of death.
The World Health Organization (WHO) publishes the ICDs
to standardize the methods of recording and tracking instances
of diagnosed disease all over the world, making it possible to
conduct research on diseases, their causes, and their treatments
(National Cancer Institute, 2018).
According to H1 (2023):
DRG, ICD, and CPT are all codes used with Medicare
and insurers, but they communicate different things. ICD
codes are used to explain the diagnosis, and CPT codes
describe procedures that the healthcare provider performs.
Both diagnosis (i.e., ICD codes) and procedure (i.e.,

CPT codes) are used to determine DRG. The DRG
determines the single payment the hospital will receive for
treating the patient — not for each syringe, swab, X-ray
image, room supply, or pill, but one cost that covers the
entire care episode. If a patient could be classified
according to two DRGs, the hospital will receive the higher
reimbursement amount.
The significant evolution since the onset of Medicare started

with payment for services plus capital costs, then shifted to
payment for services based on diagnosis, and has now moved
to payment for service outcomes. The Patient Protection and
Affordable Care Act (ACA), passed in 2010, “was designed
to improve healthcare quality and patient experience by
leveraging financial carrots and sticks to encourage hospitals to
follow established best clinical practices and improve patient
satisfaction scores through the development of several Pay for
Performance (P4P) programs” (NEJM Catalyst, 2018). In
2012, these P4P programs began reimbursing hospitals based
on the quality of health care they deliver (i.e., payment for
service outcomes), rather than the quantity of services
delivered (James, 2012). Medicare generally pays about 60% of
the charges. While this is a higher payment than Medicaid, it is
still a low payment that places a significant financial strain on
hospitals and health systems.
Definition: Current Procedural

Terminology (CPT) is a uniform coding
system primarily used to describe tests,
surgeries, evaluations, and any other
medical procedure performed by a
healthcare provider on a patient (CMS,
2023).
Definition: Diagnostic-Related Group

(DRG) is a method of paying hospitals
prospectively for inpatient services by relating
the type of patients a hospital treats (i.e., its
case mix) to the resource demands and
associated costs incurred by the hospital
(CMS, n.d.-a).
Definition: Ambulatory Payment

Classification (APC) is a method of paying
facilities prospectively for outpatient
services (i.e., significant outpatient surgical

procedures, radiology, and other diagnostic
services, medical visits, and partial
hospitalizations). The key data in
determining the fixed APC payment rate is
the coding and classification of services
reported by CPT codes (Medpac, 2021).
Part B – Supplementary medical

insurance
Medicare Part B is a voluntary program with the same

eligibility requirements as Part A. However, this coverage is
optional for Medicare recipients and comes with a small fee
that is automatically deducted from the recipient’s Social
Security check. Also known as Supplementary Medical
Insurance (SMI), this program is voluntary and available to
nearly all people aged 65 and over, people with disabilities, and
people with ESRD. Medicare Part B (i.e., SMI) helps cover
doctors’ services and outpatient care. The SMI program
pays for physician care, outpatient hospital services, some
home healthcare, laboratory tests, durable medical equipment,
designated therapy, some outpatient prescription drugs, and
other services not covered by Part A, such as some of the
services of physical and occupational therapists. SMI helps pay
for these covered services and supplies when they are medically
necessary (CMS, 2021).
Part C – Medicare advantage
The Balanced Budget Act of 1997 established the

Medicare+Choice program, now known as Part C or the
Medicare Advantage Program, to provide more healthcare
coverage choices for individuals with Medicare (CMS, 2021).
Therefore, Part C is an alternative to Parts A and B.
Enrollment is voluntary. It provides coverage for the same
services and, at the discretion of the organization offering
coverage, sometimes additional benefits such as vision,
hearing, and/or dental care. One of the main differences
between Part C and Parts A and B (which are sometimes called
‘traditional Medicare’) is that Part C coverage is offered
through private organizations such as health maintenance
organizations, rather than through a public insurer (i.e.,
Medicare).
When a beneficiary receives a service under Part A or B,
the Medicare program pays the provider directly for services,
though payments are processed through private organizations
called Medicare Administrative Contractors (MACs). In
contrast, under Part C, Medicare pays the Medicare Advantage
plan a fixed amount per month for each enrollee based on
the characteristics (e.g., demographics, medical diagnoses) of
the particular enrollees in the plan. Those who are eligible
because of age (65 or older) or disability may choose to join
a Medicare Advantage (MA) plan servicing their area if they

are entitled to Part A and enrolled in Part B. Those who are
eligible for Medicare because of ESRD could join a MA plan
beginning January 1, 2021. Many MA plans offer additional
services such as prescription drugs, vision, and dental benefits.
MA plans may also cover some or all of an enrollee’s out-
of-pocket costs. MA plans assume full financial risk for care
provided to their Medicare enrollees (CMS, 2021).
Part D – Prescription drug benefit
Part D prescription drug coverage began in 2006 and

is also voluntary. Prior to that, Medicare did not
provide coverage for prescription drugs received
outside the hospital. Similar to Part C, Part D benefits
are provided through private organizations such as
private insurers, health maintenance organizations,
or preferred provider organizations. In 2018, there
were approximately two dozen choices among Part
D plans in each state. Like Part C, premiums and
benefits vary by plan, with competition occurring
based not only on premium differences but also on
differences in benefits. In particular, drugs included
a plan’s formulary are listed as ‘preferred’ drugs and
are subject to lower or zero patient co-payments.
Review issue brief (Kaiser Family Foundation [KFF],
2019b): An Overview Of Medicare
II. Scope of Coverage
In general, Medicare covers most medically necessary services

as determined by providers. Unlike many private health
insurance plans, pre-authorization is not required for
hospitalizations. With the onset of coverage of outpatient
prescription drugs in 2006 and the gradual increase in coverage
for preventive services in recent years, the main services not
covered are extended long-term care and dental care. There are
a few other explicit exclusions: cosmetic surgery, acupuncture,
hearing aids, and glasses, except in limited circumstances.
Some of these services, however, are covered under selected
Medicare Advantage plans.
The largest of these excluded services is extended long-term
care. Precisely which services are covered by Medicare is rather
complex because the program does include some coverage for
nursing home and home healthcare. This coverage, however,
is aimed at acute-care illnesses needing skilled care (e.g.,
rehabilitation). Skilled care must be deemed medically
necessary by a physician; custodial care is not covered.
Moreover, nursing home care can only be covered by Medicare
if it follows an inpatient hospital stay of at least three days and
coverage is provided for a maximum of 100 consecutive days.
Definition: Custodial care is non-medical care

that can be safely provided by non-licensed
caregivers. It can take place at home or in a
nursing home and involves help with daily
activities like bathing and dressing. In some
cases where care is received at home, care can
also include help with household duties such as
cooking and laundry. It may be covered by
Medicaid if care is provided in a nursing home
setting and not at home (CMS, n.d.-b).
Medicare is not involved in determining whether a particular

service to a specific beneficiary is covered. Rather, these
decisions are generally made by private organizations that
contract with Medicare. This process is a result of a
compromise between legislators and providers to assuage
provider concerns about the government making coverage
decisions, dating back to the mid-1960s when the Medicare
legislation was being debated in Congress. Under Parts A and
B, Medicare contracts with Medicare Administrative
Contractors (MACs). Coverage decisions are made directly by
the private health plan under Parts C and D. The Medicare
program has a formal appeals process when disputes occur.
Review infographic (CMS, 2022a): Medicare Beneficiaries

at a Glance: Who’s Covered by Medicare – 2020
Review infographic (CMS, n.d.-b): Custodial Care Vs.
Skilled Care
3.3.2 Medicaid & CHIP Joint

Insurance Programs
I. Medicaid
Enacted in 1965 as Title XIX of the Social Security

Act, Medicaid is administered by CMS in partnership
with the states (CMS, 2021). Although the federal
government establishes certain parameters for all
states to follow, each state administers its Medicaid
program differently, resulting in variations in Medicaid
coverage across the country. States have flexibility in
determining Medicaid benefit packages within federal
guidelines; however, states are required to cover
certain mandatory benefits. In addition, states have
additional options for coverage and may choose to
cover other groups, such as individuals receiving
home and community-based services (HCBS) and
children in state-funded foster care. States and the
federal government jointly fund the Medicaid
program. CMS provides matching payments to the
states and territories for Medicaid program

expenditures and related administrative costs.
Medicaid provides access to comprehensive health
coverage that may not be affordable otherwise for
millions of Americans, including eligible low-income
adults, children, pregnant women, elderly adults, and
people with disabilities. Medicaid is the primary
source of healthcare for more than 83 million
individuals. Over 10 million people are dually eligible
for both Medicare and Medicaid (CMS, 2021).
Review fact sheet (CMS, 2020a): Dually Eligible
Individuals
The main population groups covered by Medicaid are:
• low-income children
• low-income pregnant women
• low-income disabled persons
• low-income senior citizens
• low-income parents of dependent children.
Medicaid is a federal / state cooperative agreement, with the

state needing to vote into law the agreement to provide
Medicaid for its residents. States agreeing to provide Medicaid
for their residents agree to administer the program and provide
a minimum set of healthcare services based upon income
eligibility (less than 133% of the federal poverty level with
expanded Medicaid, less than 100% in states that did not
expand Medicaid) and demographic characteristics such as

female, pregnant female, child, disabled, and poor older adult.
The federal government provides a sliding scale level of
support for the program ranging from 50% – 78% based on
the state per capita income, with states with the lowest per
capita income getting the highest matching level. Providers
are often reluctant to take patients on Medicaid due to the
low payment rate of approximately 40% of billed charges. To
control administrative costs, most states moved their Medicaid
populations to Medicaid Managed Care contracts during the
1990s (Medicaid.gov, n.d.-a).
The passage of the ACA in 2010 increased eligibility for
Medicaid coverage to a variety of demographic groups, with
the largest group being single men and the next group being
older adults (KFF, 2023). As of 2023, “40 states (including
DC) have adopted the Medicaid expansion, and 11 states have
not adopted the expansion” (KFF, 2023). As often stated, to
be eligible for Medicaid pre-ACA, a person had to be poor
plus something (e.g., female, child, old, disabled); post-ACA, a
person just had to be poor. According to Norris (2023):
States will never be responsible for more than 10% of the

cost of expansion. The federal government paid the full
cost of expansion for the first three years (2014 through
2016). The federal government’s portion gradually
dropped to 90% by 2020. For perspective, under
traditional Medicaid (i.e., the non-expansion Medicaid
population), states can pay up to 50% of the cost.
For states that expand Medicaid, the federal funding they

receive will always dwarf the amount that the state has to
spend. And although states have to cover 10% of the cost of
Medicaid expansion, their net spending can be much less than
that — even negative in some cases
Medicaid provides healthcare payments for eligible
recipients. The four largest healthcare expenditure categories
are: hospitals, physicians and clinics, retail prescriptions, and
long-term care. Long-term care (nursing homes) is a unique
area of Medicaid expenditures where individuals requiring
long-term care initially enter long-term care facilities under
Medicare (e.g., for short-term skilled care), private insurance,
or self-pay. Once an individual has exhausted these private
funding options and only has minimal remaining personal
assets (i.e., house, car, and minimal savings) and are therefore
considered impoverished, they transition to Medicaid for the
remainder of their long-term care stay.
II. Children’s Health Insurance Program
The Children’s Health Insurance Program (CHIP) was

created through the Balanced Budget Act of 1997 and
provides low-cost health coverage to children in families that
earn too much money to qualify for Medicaid (Rudowitz et
al., 2014). In some states, CHIP covers pregnant women.
Household income eligibility for CHIP varies by state and
ranges from 133% to 400% of the federal poverty level. To be
eligible for this benefit program, applicants must live in the

state in which they apply and meet all of the following criteria
(Benefits.gov., n.d.; Medicaid.gov, n.d.-b):
• Either 18 years of age and under or a primary caregiver

with a child(ren) 18 years of age and under, and
• A United States (U.S.) Citizen, National, or a Non-
Citizen legally admitted into the U.S., and
• Uninsured (and ineligible for Medicaid).
Like Medicaid, CHIP is administered by the states but is

jointly funded by the federal government and states. The
Federal matching rate for state CHIP programs is typically
about 15 percentage points higher than the Medicaid
matching rate for that state (i.e., a State with a 50% Medicaid
FMAP has an enhanced CHIP matching rate of 65%). Every
state administers its own CHIP program with broad guidance
from CMS. States have the flexibility to design their own
CHIP program within federal guidelines, so benefits vary by
state and by the type of program. States may choose between
a Medicaid expansion program, a separate CHIP, or a
combination of both programs. Regardless of the type of
separate CHIP coverage a state elects, all states must provide
well-baby and well-child care, dental coverage, behavioral
healthcare, and vaccines (Benefits.gov, n.d.; Medicaid.gov, n.d.-
b).
3.3.3 Public Health Systems

In addition to the Medicare, Medicaid, and CHIP public
insurance programs, there are four public health systems that
provide comprehensive health services to unique populations.
These systems include the Indian Health Service, Military
Health Service, Veterans Affairs Health Services, and the
prison healthcare system.
As of 2021, the U.S. federal government provides health
services for approximately 21.2 million Americans within
unique populations, or 2.7% of the US population, through
the Indian Health Service, Military Health Service, and
Veterans Affairs Health Services (CMS, 2020b). These three
services are generally provided through a comprehensive,
integrated health system administered by the Department of
Health and Human Services (Indian Health Services),
Department of Defense (Military Health Services), and
Department of Veterans Affairs (U.S. military veterans). These
services provide complete medical, surgical, dental, vision,
hearing, and mental health inpatient and outpatient services in
facilities owned by the sponsoring agency through healthcare
professionals employed by the same sponsoring agency. Even
though these services are comprehensive, individuals covered
under these services may be treated in the private sector when
geographic or treatment barriers exist.
The final area of government provision of healthcare
services is the prison healthcare system. Correctional health,
provided by the prison healthcare system, encompasses all

aspects of health and well-being for adults and juveniles who
are justice syste from their arrest, during detention or
incarceration, and through the time they return to their
community (called reentry). Correctional health also includes
the health of families and communities of persons who are
justice system-involved and of the administrators and staff who
work in facilities (Centers for Disease Control and Prevention,
2023).
I. Indian Health Service
The Indian Health Service (IHS) provides health services to

American Indians and Alaskan Natives. It is a byproduct of
the tribal governments to federal government relationships
reaching back to the U.S. Constitution Article I, Section 8
(National Indian Health Board, 2015). The relationships
between the tribal and federal governments are complex and,
while constitutional, are also contractual and moral
agreements with tribal governments due to land displacement
through the early years of the United States. Comprehensive
and integrated IHS healthcare services are provided through
the Department of Health and Human Services (HHS), with
the HHS acting as the owner of all facilities and employer of all
personnel.
II. Military Health Service
The military provides healthcare services wherever military

personnel are deployed. It is considered a moral obligation of
society to care for the healthcare needs of those protecting and
defending our country. These services can vary from medic-
provided care in the field to complex medical or surgical care in
state-of-the-art hospitals. It is unlikely that civilian healthcare
professionals will interact with individuals in the military
health system unless there is the need for an extremely rare
medical or surgical intervention that cannot be provided
within the system. TRICARE is an option of the military
health system that provides healthcare services worldwide for
uniformed service members, retirees, and service family
members through a system that is very similar to the options
available in the private insurance market. The Defense Health
Agency manages TRICARE under the leadership of the
Assistant Secretary of Defense (Health Affairs).
III. Veterans Affairs Healthcare System
The Veterans Affairs Healthcare System (VAHS) is a national

system of clinics and hospitals that provides healthcare services
for military veterans. The Department of Veterans Affairs
administers the VAHS and, as with the military health system,
is considered a moral obligation for the nation to provide for
those who have served to protect and defend our country. As
with the IHS and military healthcare systems, the VAHS is

an integrated, comprehensive healthcare system that prefers
to have its members receive services from VAHS facilities and
providers. However, treatment may be authorized in more
convenient private settings in recognition of patient
geographic barriers or specialized treatment needs.
IV. Prison Healthcare System
Federal, state, and local governments have an obligation to care

for the healthcare needs of inmates and do so through clinics
and hospitals provided by the Department of Corrections.
However, depending upon the severity of the healthcare
condition and prison resources available, treatment may also
be authorized through private facilities and providers. Inmates
cared for in private settings are always accompanied by a guard
to ensure the safety of the private facilities and providers
delivering care.
Knowledge Check

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Coverage and Trends.
3.4 INSURANCE COVERAGE & TRENDS | 231
3.4 INSURANCE
COVERAGE & TRENDS
Sections:
3.4.1 Insurance Coverage
3.4.2 Insurance Trends
3.4.1 Insurance Coverage (Private

and Public)
1. Current Highlights according to

Keisler-Starkey & Bunch (2022):
• In 2020, 8.6% of people, or 28.0 million, did not have
health insurance at any point during the year.
• The percentage of people with health insurance
coverage for all or part of 2020 was 91.4%.
232 | 3.4 INSURANCE COVERAGE & TRENDS
• In 2020, private health insurance coverage remained

more prevalent than public coverage at 66.5% and
34.8%, respectively. Of the subtypes of health
insurance coverage, employment-based insurance was
the most common, covering 54.4% of the population
for some or all of the calendar year, followed by
Medicare (18.4%), Medicaid (17.8%), direct-purchase
coverage (10.5%), TRICARE (2.8%), and
Department of Veterans Affairs (VA) or Civilian
Health and Medical Program of the Department of
Veterans Affairs (CHAMPVA) coverage (0.9%).
• Between 2018 and 2020, the private health insurance
coverage rate decreased by 0.8 percentage points to
66.5%, driven by a 0.7 percentage-point decline in
employment-based coverage to 54.4%.
• Between 2018 and 2020, the public health insurance
coverage rate increased by 0.4 percentage points to
34.8%.
• In 2020, 87.0% of full-time, year-round workers had
private insurance coverage, up from 85.1 percent in
2018. In contrast, those who worked less than full-
time were less likely to be covered by private insurance
in 2020 than in 2018 (68.5% in 2018 and 66.7% in
2020).
• More children under the age of 19 in poverty were
uninsured in 2020 than in 2018. Uninsured rates for
children under the age of 19 in poverty rose 1.6
percentage points to 9.3%.
II. Reports (for further exploration)
1. Source: United States Census Bureau (Keisler-Starkey &

Bunch, 2022)
◦ Health Insurance Coverage in the United States

2021
◦ Percentage of People by Type of Health Insurance

Coverage and Change From 2020 to 2021
2. Source: National Health Statistic Report (Cha &

Cohen, 2022)
◦ Demographic Variation in Health Insurance

Coverage: United States, 2020
3.4.2 Insurance Trends

Two insurance trends developed to reduce total health
expenditures and health services utilization are the
Accountable Care Organization and the Patient-Centered
Medical Home.
I. Accountable Care Organizations
Definition: Accountable Care Organizations

(ACOs) are groups of doctors, hospitals, and

other healthcare providers, who partner
voluntarily to give coordinated high-quality care
to the Medicare patients they serve. Coordinated
care helps ensure that patients, especially the
chronically ill, get the right care at the right time
to avoid unnecessary duplication of services and
prevent medical errors. When an ACO succeeds
in delivering high-quality care and spending
healthcare dollars more wisely, it will share in the
savings it achieves for the Medicare program
(CMS, 2022a).
Accountable Care Organizations (ACOs), also known as

Medical Neighborhoods, are a relatively new type of managed
care organization. While most ACOs are Medicare plans, there
are some private ACOs. As with all managed care, the goal
is to coordinate care. Since 2012, ACOs have saved Medicare
$13.3 billion in gross savings (National Association of ACOs,
n.d.). ACOs allow physicians, hospitals, and other clinicians
or healthcare organizations to work more effectively together
to improve quality and slow spending growth by allowing for
coordination of care among all the different providers needed
to fully care for the whole person.
There are three core principles of Accountable Care

Organizations:
1. Provider-led organizations with a strong base of primary

care that is accountable for healthcare quality and per
capita costs.
2. Payments linked to improvement in quality and reduced
costs.
3. Reliable and increasingly sophisticated measurement of
performance to support improvement and provide
confidence care is improved, and cost savings occur
(Moy et al., 2022).
The Patient Protection and Affordable Care Act (ACA)

created the Medicare Shared Savings Program (MSSP) in
part to help address the fragmented nature, lack of
coordination, and confusion that multiple payors can create
(Berwick, 2011). Under the ACA, the ACO is accountable
for the cost and quality of care. As of January 2022 (Table
3), there were 483 ACOs, with over half a million clinicians
providing care to 11 million beneficiaries participating in the
MSSP (Physicians Advocacy Institute, n.d.). There are
multiple tracks in the MSSP program that ACOs can choose,
with increasing levels of risk/reward, depending on how
confident the ACO is that it can improve the health of the
population it is serving. In general, if the ACO can save money
by improving the health of the population for both themselves
and Medicare, the ACO will get to share in a percentage of

the saved costs. However, if the ACO fails to reach these goals,
it will receive a penalty by having its reimbursement cut by
a certain, agreed-upon percentage. Because this strategy
reimburses for clinical outcomes, it is an example of a Pay for
Performance strategy.
Another form of reimbursement ACOs can receive is
bundled payments (Navathe et al., 2020). The Center for
Medicare and Medicaid Innovation (Innovation Center)
created the Bundled Payment Care Initiative (BPCI) as a
new way of linking payments for an episode of care (Agarwal et
al., 2020). Instead of taking the payments from each individual
provider separately, it links the various providers together for
one single payment. One of the differences with bundled
payments is that it shifts the clinical and financial
responsibility on providers to a single care episode for an
individual instead of the current setup of making
reimbursement tied to ongoing outcomes. For example, the
ACO would simply bill for a single bundled payment for all
providers involved in a knee replacement instead of billing each
provider separately. Suppose the providers are able to
coordinate care effectively and keep the total care costs for the
knee replacement below the bundled payment reimbursement
amount. In that case, they are able to generate and share in
a profit. However, if the total care costs exceed the bundled
payment amount, they all incur a financial loss. Studies show
that bundled payment reimbursements maintain or improve
quality and lower the cost of caring for lower extremities.

However, this payment method does not seem to be as
effective with other conditions or procedures (Agarwal et al.,
2020).
Table 3 Shared Savings Program

Information: Program Statistics
(as of January 1st of each year)
Performance Year # ACOs # Assigned Beneficiaries
2022 483 11.0 million
2021 477 10.7 million

2020 517 11.2 million
2019 487 10.4 million

2018 561 10.5 million
2017 480 9.0 million
2016 433 7.7 million

2015 404 7.3 million
2014 338 4.9 million

2012/2013 220 3.2 million
(Centers for Medicare and Medicaid Services, 2022b)

II. Patient-Centered Medical Home
The Patient-Centered Medical Home (PCMH) concept

was originally introduced in 1967 by the American Academy
of Pediatrics. In 2007, the concept was further refined into a
set of principles by four primary care physician organizations,
including the: American Academy of Family Physicians,
American Academy of Pediatrics, American College of
Physicians, and American Osteopathic Association. PCMHs
are sometimes confused with ACOs, but they are quite
different. PCMHs are a multidisciplinary approach to primary
care delivery (Hong et al., 2018). The ACA allowed special
funding avenues for state medical homes with Medicaid
beneficiaries (Davis et al., 2011). The PCMH focuses on
providing meaningful, holistic care of the patient, both
physical and mental, via an interdisciplinary team of providers
under one roof (Bresnick, 2019). Today there are several
medical home models of care with corresponding
certifications, accreditations, or recognition programs.
Although consensus exists around the basic components of
the medical home, not all models look alike or use the same
approaches to improve healthcare quality and control costs.
According to the Agency for Healthcare Research and Quality
(2022), the attributes of a PCMH are:
1. Comprehensive Care
2. Patient-Centered
3. Coordinated Care
4. Accessible Services
5. Quality and Safety
PCMHs were believed to hold great promise to address

longstanding inequities in the quality of primary care
experienced among socially and economically marginalized
populations. However, a study by Bell et al. (2021) of the
geographic distribution of the country’s medical homes
indicated that medical homes are more likely to emerge within
communities that have more favorable health and
socioeconomic conditions. Despite the wide adoption of
PCMHs, the evidence about effectiveness remains mixed in
terms of spending and outcomes. One potential explanation
for these mixed findings is the wide variation in how practices
implement the model. For example, significant reductions in
emergency department utilization, outpatient care, laboratory
services, and imaging services distinguish those practices that
emphasized the adoption of (or expanded use of) health
information technology (Saynisch et al., 2021). The major
ways in which PCMHs are financed are: increased fee-for-
service (FFS) payments, traditional FFS payments with
additional per-member-per-month (PMPM) payments, and
traditional FFS payments with PMPM and pay-for-
performance payments (Basu et al., 2016).
Review infographic (Primary Care Collaborative, 2022):
What is a Patient-Centered Medical Home?
Knowledge Check


Summary.
3.5 CHAPTER SUMMARY
This chapter provided a glossary of insurance terms and

presented the basic concepts of adverse selection and moral
hazard. Adverse selection occurs when the insured (i.e., the
patient) knows of medical or surgical needs that are not shared
with the insurer, allowing the insured to gain coverage below
the actual cost of their risk. In healthcare insurance, moral
hazard is encountered by individuals who go to the doctor as
often as they wish because their visit is “free” with no out-
of-pocket cost. Funding of healthcare services in the United
States has evolved from an arrangement between patients and
physicians to a mixed public/private system where hardly any
end users of services make direct payments to providers for
the full amount charged for those services. All providers
document the services provided that are then paid for by a
third-party payer. Hardly anyone receiving those services
understands the true cost of health care in the United States,
nor do they understand how much or why providers are paid
what they are paid. Types of private insurance include
employer-sponsored or group insurance, individual or non-
group insurance, and managed care plans which package
insurance, care provision, and payment into one organization.
Types of government or public insurance include Medicare,
Medicaid, the Children’s Health Insurance Program (CHIP),

and other public health services. While Medicare provides
public insurance primarily for the elderly, Medicaid and the
Children’s Health Insurance Program, provide public
insurance primarily for the poor. In addition, four public
health systems provide comprehensive health services to
unique populations. These systems include the Indian Health
Service, Military Health Service (TRICARE), Veterans Affairs
Health Services, and the prison healthcare system. Only about
one-third of Americans have government-sponsored coverage.
Insurance through the employment sector is more common.
However, it does not comprise the majority of spending
because those with government-sponsored coverage – the
elderly, disabled, and poor – are more expensive to insure.
About one in 10 Americans is uninsured, which is
considerably lower than before the major elements of the
Patient Protection and Affordable Care Act (ACA) were
implemented. New trends in health insurance include
Accountable Care Organizations and Patient-Centered
Medical Homes. Accountable Care Organizations (ACOs) are
interdisciplinary teams of providers who come together
voluntarily to give coordinated, high-quality care. The focus
of the Patient-Centered Medical Home (PCMH) is to provide
care with a multidisciplinary approach to primary care
delivery.

and attributions from Chapter 3.
3.6 REFERENCES &

ATTRIBUTIONS
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Attribution

NC-SA 4.0 . Chapters 1, 6, 8.


Systems in Transition / Chapter 3 (pgs. 119-120, 122,
131, 138- 139, 142)/ Copyright 2020. Accessed January
30, 2023. https://eurohealthobservatory.who.int/
publications/i/united-states-health-system-review-2020
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Book%3A_Economics_-
Care_Markets.

4: Access, Quality, & Cost.
CHAPTER 4: ACCESS, QUALITY & COST | 257
CHAPTER 4:
ACCESS, QUALITY
& COST
Learning Objectives
• Describe the importance and role of

Population Health Management and
strategies to improve health outcomes.
• Explore national strategies to increase
insurance coverage rates and improve access
to healthcare.
• Define the six domains of healthcare quality.
• Summarize the most widely used quality
improvement methodologies in healthcare
and examples of programs designed to
evaluate quality.
• Compare healthcare spending in the United
258 | CHAPTER 4: ACCESS, QUALITY & COST
States with other high-income countries.

• Outline several national trends affecting the
cost of health care and related impacts.
Chapter Sections:
4.1 Basic Concepts
4.2 Access to Care
4.3 Quality of Care
4.4 Cost of Care
4.5 Chapter Summary
4.1 BASIC CONCEPTS
Sections:
4.1.1 Population Health Management
4.1.2 The Triple Aim
4.1.1 Population Health

Management
Populations refer to individuals and the context where people
live, work and play in local communities (Carlson, 2020). The
term population health is described as “the health outcomes
of a group of individuals, including the distribution of such
outcomes within the group” (Kindig & Stoddart, 2003).
Population health (PopH) is extremely broad and
“recognizes the range of social, economic, and physical
environmental factors that contribute to health” (Public
Health Agency of Canada, 2012). Focusing on a population’s

health versus targeting individual health has become an
essential framework for delivering healthcare. The American
Hospital Association (2023), a major health sector
stakeholder, defines Population Health Management (PHM)
by adding and integrating a strong management component.
The new PHM pathway has transitioned from a disease-only
treatment model for individuals to a population health
strategy focused on groups, and, finally to a management
model that requires clinical effectiveness, cost-effectiveness,
and safer health outcomes.
Definition: Population Health Management

(PHM) “is the process of improving
clinical health outcomes of a defined group of
individuals through improved care coordination
and patient engagement supported by
appropriate financial and care models” (American
Hospital Association, 2023).
In 1979, a landmark document titled “Healthy People: The

Surgeon General’s Report on Health Promotion and Disease
Prevention” recommended for the first time a coordinated
national healthcare strategy (Office of Disease Prevention and
Health Promotion [ODPHP], 2021). Then, in 1980, ODPHP
released Healthy People 1990, which was followed in later

decades by new iterations of the Healthy People initiative, each
building on the last. At the end of every decade, the U.S.
Department of Health and Human Services assesses progress
toward achieving Healthy People’s 10-year national objectives.
Over the years, the five editions of Healthy People have
regularly provided evidence for setting health goals and
objectives to address the enormous variation in the
distribution of disease and morbidity for various at-risk and
minority populations (ODPHP, n.d.). The latest version of
our national public health objectives, Healthy People (HP)
2030, lists 355 core objectives ranging from reducing chronic
diseases to mitigating the contagious disease that reached a
pandemic stage, COVID-19. This expansive document not
only provides evidence-supported objectives but also identifies
metrics to help track them. The following HP 2030 goals serve
as guidelines for all collaborative health efforts, including
PHM (Centers for Disease Control and Prevention [CDC],
2020).
• Attain healthy, thriving lives and well-being free of

preventable disease, disability, injury, and premature
death.
• Eliminate health disparities, achieve health equity, and
attain health literacy to improve the health and well-
being of all.
• Create social, physical, and economic environments that
promote the full potential for health and well-being for

all.
• Promote healthy development, healthy behaviors, and
well-being across all life stages.
• Engage leadership, key constituents, and the public
across multiple sectors to act and design policies that
improve the health and well-being of all.
4.1.2 The Triple Aim

Health policy experts responded to the challenge of improving
health and produced several major national health
commentaries to guide new models. Two prominent reports
that attracted enormous attention and concern were the
Institute of Medicine’s “To Err is Human” and “Crossing the
Quality Chasm: A New Health System for the 21st Century”
(National Academy of Medicine, 2000, 2001). All Americans
should expect safe care, free from mistakes, and quality care
that is accessible and effective. Both documents described
crises within the health sector needing drastic and immediate
change. However, a seminal article introduced one of the most
important PHM components – the Triple Aim. The Triple
Aim concept was a proposed solution to an existing model first
introduced in William Kissick’s book, Medicine’s Dilemmas:
Infinite Needs Versus Finite Resources in 1994. This first model,
known as The Iron Triangle (Fig. 4-1), focused on three key
aims of healthcare delivery: access, quality, and cost (Berwick

et al., 2008).
Figure 4-1
Three Key Aims of the Iron Triangle
(Berwick et al., 2008)

The Triple Aim of Healthcare was presented by the
Institute for Healthcare Improvement in 2007 (Berwick et al.,
2008). It was defined as an attempt to realign the three aims
of healthcare previously identified in the Iron Triangle. The
Institute for Healthcare Improvement (IHI) intended for this
new model to change the dynamics of healthcare from one
focused on an individual to one encompassing population and
society at large. It also wanted to shift our thinking from a
healthcare system utilized to cure each illness that arises for

individuals on a case-by-case basis to one that encompasses
the maintenance of the health and wellness of populations.
This new model would include treating chronic conditions
(i.e., those that develop over time and are ongoing) rather than
acute conditions (i.e., those that develop suddenly and are
limited in duration). The IHI realized that treating chronic
diseases such as diabetes, heart disease, cancer, and others cost
the U.S. healthcare system billions of dollars. Today, it costs us
over a trillion dollars (Waters & Graf, 2018). Costs and patient
outcomes were the driving forces in the IHI’s development of
the Triple Aim. The Triple Aim has the following three pillars
(Berwick et al., 2008):
1. Improving the patient experience of care

2. Improving the health of populations
3. Reducing the per capita cost of healthcare
Improving individual patient experience had previously been

understood as the main focus of improvement for healthcare
delivery; however, the Triple Aim also included the elements of
population health and cost (Fig. 4-2). As a result, these are now
considered critical elements in determining the improvements
made in the healthcare industry.
Figure 4-2
The Three Key Elements of the Triple Aim
(Berwick et al., 2008)
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Care.
4.2 ACCESS TO CARE | 267
4.2 ACCESS TO CARE
Sections:
4.2.1. Access to Health Services
4.2.2 Access to Primary Care
4.2.3 Health Literacy
4.2.1 Access to Health Services
Definition: Access to healthcare is the

“timely use of personal health services to achieve
the best possible health outcomes” (Institute of
Medicine, 1993).
268 | 4.2 ACCESS TO CARE
Many people face barriers that prevent or limit access to needed

healthcare services, which may increase the risk of poor health
outcomes and health disparities (Institute of Medicine, 2003).
Barriers that prevent or limit access include lack of health
insurance and other barriers such as poor access to
transportation and limited healthcare resources.
I. Lack of Health Insurance
About 1 in 10 people in the United States don’t have health

insurance (Berchick et al., 2018). Inadequate health insurance
coverage is one of the largest barriers to healthcare access, and
the unequal distribution of coverage contributes to disparities
in health (Call et al., 2014; Institute of Medicine, 2003). Out-
of-pocket medical care costs may lead individuals to delay or
forgo needed care (such as doctor visits, dental care, and
medications). In fact, medical debt is common among both
insured and uninsured individuals (Herman et al., 2011; Pryor
& Gurewich, 2004). People with lower incomes are often
uninsured, and minority groups account for over half of the
uninsured population (DeNavas-Walt, 2010; Franks et al.,
1993; Hadley, 2003; Majerol et al., 2015; Zhu et al., 2010).
Lack of health insurance coverage may negatively affect
health (Institute of Medicine, 2009; Majerol et al., 2015).
Uninsured adults are less likely to receive preventive services
for chronic conditions such as diabetes, cancer, and
cardiovascular disease (Ayanian et al., 2000; Institute of
Medicine, 2009). Similarly, children without health insurance

coverage are less likely to receive appropriate treatment for
conditions like asthma or critical preventive services such as
dental care, immunizations, and well-child visits that track
developmental milestones (Institute of Medicine, 2009).
In contrast, studies show that having health insurance is
associated with improved access to health services and better
health monitoring (Baicker et al., 2013; Buchmueller et al.,
2005; McWilliams et al., 2003). For example, one study
demonstrated that when previously uninsured adults ages 60
to 64 became eligible for Medicare at age 65, their use of basic
clinical services increased (McWilliams et al., 2003). Similarly,
providing Medicaid coverage to previously uninsured adults
increased their chances of receiving a diabetes diagnosis and
using diabetic medications (Myerson & Laiteerapong, 2016).
Medicaid coverage is also critical for enabling children with
special health needs or chronic illnesses to access health
services. The Children’s Health Insurance Program (CHIP) is
the only source of coverage for 41% of children with special
healthcare needs (Musumeci, 2018). Many healthcare
resources are more prevalent in communities where residents
are well-insured, but the type of insurance individuals have
may also matter (Institute of Medicine, 2009). Medicaid
patients, for instance, experience access issues when living in
areas where few physicians accept Medicaid due to its reduced
reimbursement rate (Bodenheimer & Pham, 2010;
Buchmueller et al., 2005; Decker, 2012).
II. Other Barriers
Health insurance alone cannot remove every barrier to care

(Call et al., 2014). Limited availability of healthcare resources
is another barrier that may reduce access to health services
and increase the risk of poor health outcomes (Douthit et al.,
2015; National Association of Community Health Centers
and the Robert Graham Center, 2007). For example, physician
shortages may mean that patients experience longer wait times
and delayed care (Bodenheimer & Pham, 2010).
Inconvenient or unreliable transportation can interfere with
consistent access to healthcare, potentially contributing to
negative health outcomes (Syed et al., 2013). For example,
research has shown that individuals from racial/ethnic
minority groups with an increased risk for severe illness from
COVID-19 were more likely to lack transportation to
healthcare services (Clay et al., 2021). Transportation barriers
and residential segregation are also associated with the late-
stage presentation of certain medical conditions, such as breast
cancer (Dai, 2010; Tarlov et al., 2009; Wang et al., 2008).
Expanding access to health services is an important step
toward reducing health disparities. Affordable health
insurance is part of the solution. However, factors like
economic, social, cultural, and geographic barriers to
healthcare must also be considered, as must new strategies to
increase the efficiency of healthcare delivery (Bodenheimer &
Pham, 2010; Call et al., 2014; Douthit et al., 2015; Green et
al., 2013; Rieselbach et al., 2010). Further research is needed

to better understand barriers to healthcare. This additional
evidence will facilitate public health efforts to address access to
health services as a social determinant of health.
Source for 4.2.1: (U.S. Department of Health and Human
Services, n.d.-a)
4.2.2 Access to Primary Care
Definition: Primary care is “the provision of

integrated, accessible healthcare services by
clinicians accountable for addressing a large
majority of personal healthcare needs,
developing a sustained partnership with
patients, and practicing in the context of family
and community” (Institute of Medicine, 1996).
A primary care provider is usually an internist, family

physician, pediatrician, or non-physician provider such as a
family nurse practitioner or physician assistant (Friedberg et
al., 2010; Shi, 2012). Research shows that access to primary
care is associated with positive health outcomes (Shi, 2012;
Starfield et al., 2005).
Primary care providers offer a usual source of care, early
detection and treatment of disease, chronic disease

management, and preventive care (Friedberg et al., 2010; Shi,
2012; Starfield et al., 2005). Patients with a usual source of care
are more likely to receive recommended preventive services
such as flu shots, blood pressure screenings, and cancer
screenings (Blewett et al., 2008; Friedberg et al., 2010; Xu,
2002). However, disparities in access to primary care exist, and
many people face barriers that decrease access to services and
increase the risk of poor health outcomes (American College
of Physicians, 1999). Some of these obstacles include lack of
health insurance, language-related barriers, disabilities,
inability to take time off work to attend appointments,
geographic and transportation-related barriers, and a shortage
of primary care providers (American College of Physicians,
1999; Avila & Bramlett, 2013; Ayanian et al., 2000;
Bodenheimer & Pham, 2010; Douthit et al., 2015; Gleason &
Kneipp, 2004; Krahn et al., 2006; Tolbert et al., 2022). These
barriers may intersect to further reduce access to primary care.
Lack of health insurance decreases the use of preventive and
primary care services and is associated with poor health
outcomes (American College of Physicians, 1999; Ayanian et
al., 2000; Brown et al., 2000; Tolbert et al., 2022; Zuvekas &
Taliaferro, 2003). Individuals without health insurance may
delay seeking care when they are ill or injured and are more
likely to be hospitalized for chronic illness. Children who do
not primarily speak English and immigrant Hispanic children
are more likely to lack a usual source of care compared to
non-immigrant Hispanic individuals in English-speaking

households (Avila & Bramlett, 2013). Similarly, a study
examining health quality of life outcomes in older populations
discovered that older immigrants with limited English
proficiency had less access to healthcare than older adults who
speak English fluently (Nguyen & Reardon, 2013).
Limited provider office hours and availability can be barriers
to accessing primary care (O’Malley et al., 2012; Schoen et
al., 2009). Many primary care providers do not offer services
during off-work hours, posing barriers to workers without sick
leave benefits (Gleason & Kneipp, 2004). One study found
that even when workers were provided with sick leave, some
did not take time off to receive primary care because they
feared losing wages (Gleason & Kneipp, 2004). Additionally,
primary care provider shortages and extreme demand often
make it challenging for patients to get an appointment
(Douthit et al., 2015).
Factors such as access to transportation, travel distance, and
the supply of primary care providers can also limit people’s
ability to get primary care (Douthit et al., 2015). For example,
rural residents may need to travel long distances to get primary
care and thus may be less likely to seek preventive care such
as vaccinations (Douthit et al., 2015). In addition, rural
communities tend to have fewer providers than urban
communities; this relative shortage of providers may make it
harder for rural residents to access primary care (Douthit et al.,
2015; Institute of Medicine, 1996).
Primary care is critical for improving population health and

reducing health disparities (Starfield et al., 2005). Therefore,
addressing barriers to accessing primary care may help reduce
disparities and the risk of poor health outcomes. For example,
the National Health Service Corps supports the work of
primary healthcare clinicians in areas of the United States with
limited access to care, also called health professional shortage
areas (National Health Service Corps, 2021). Digital solutions
like telehealth can also improve access to primary care by
reducing barriers related to transportation and expanding the
ability to offer services in languages other than English (Rural
Health Information Hub, 2022).
Further research is needed to better understand barriers to
primary care, offer support to primary care providers, and
develop interventions that expand primary care access. This
additional evidence will facilitate public health efforts to
address access to primary care as a social determinant of health.
Services, n.d.-b)
4.2.3 Health Literacy

Healthy People 2030 has elevated the importance of health
literacy by declaring it a foundational principle and
overarching goal. The following two definitions together
constitute health literacy (National Library of Medicine,
2021):
1. Personal health literacy is

the degree to which
individuals have the ability Key Term
to find, understand, and use
information and services to
inform health-related
decisions and actions for Literacy.
themselves and others.
The ability to
Examples of personal health
use printed
literacy
and written
include understanding
information
prescription drug
to function in
instructions, understanding
doctor’s directions and society,
consent forms, and the achieve one’s
ability to navigate the goals, and
complex healthcare system. develop one’s
2. Organizational health knowledge
literacy is the degree to and potential
which organizations (White &
equitably enable individuals Dillow, 2005)
to find, understand, and use
information and services to
inform health-related
decisions and actions for themselves and others.
Examples of organizational health literacy include
simplifying the process to schedule appointments, using
the Teach-Back method to ensure patient

comprehension, and providing communications in the
appropriate language, reading level and format.
Healthy People and the U.S. Department of Health and

Human Services have long recognized that health literacy is
not just the result of individual capacities but also the health-
literacy-related demands and complexities of the healthcare
system (U.S. Department of Health and Human Services,
2003, 2010). This official recognition of the two dimensions
of health literacy clarifies the different routes to health literacy
improvement and encourages stakeholders to engage on both
levels. In addition, Healthy People’s new definitions of health
literacy also underscore the differences between social risks and
social determinants of health.
I. Personal Health Literacy
Personal health literacy is a social risk associated with worse

healthcare and health outcomes (Berkman et al., 2011). When
individuals have limited personal health literacy, they are at
higher risk of misunderstanding information important to
achieving and maintaining health or losing their way in the
fragmented healthcare system.
Most measures of personal health literacy assess people’s
ability to understand written health information and
numbers. Using such an assessment in English, the only
national health literacy measure found that over a third of

adults in the U.S. have limited personal health literacy (U. S.
Department of Health and Human Services, 2008). Assessing
personal health literacy at a given point in time to target
interventions to individuals has limitations; measurement
tools can lack precision, and personal health literacy skills can
fluctuate, declining at times of illness or stress (Pleasant et
al., 2016). However, assessment at the aggregate level allows
support and resources to be targeted to communities and
populations in greatest need. Currently, there is no national
measure of personal health literacy.
II. Organizational Health Literacy
Living in communities served by healthcare organizations that

lack organizational health literacy can affect the quality of
healthcare delivered and, consequently, health outcomes.
People who reside near the catchment areas of organizations
with limited health literacy may be more likely to suffer from
miscommunication and have difficulty accessing services. Even
people with high personal health literacy can suffer ill effects
from low organizational health literacy. Healthy People 2030
organizational health literacy objectives focus on provider-
patient communication and shared decision-making.
The concept of organizational health literacy is still
evolving. Attributes of a health-literate organization and
strategies for becoming a health-literate organization have been
articulated (Abrams et al., 2014; Brach, 2017; Brach et al.,

2012; Brega et al., 2015; Farmanova et al., 2018; Koh et al.,
2013). Many measures of organizational health literacy have
been developed, but currently, there is no measure of the
extent of organizational health literacy in the nation (Brega
et al., 2019; Kripalani et al., 2014). In addition, studies of
organizational health literacy have largely been descriptive,
with few impacts reported (Adsul et al., 2017; Brach, 2017;
Institute of Medicine, 2013; Isibel, 2020; Kaphingst et al.,
2014; Weaver et al., 2012). Additional research on the effect of
organizational health literacy is needed (Agency for Healthcare
Research and Quality, 2020a).
III. Health Literacy and Health Equity
Personal health literacy is associated with racial/ethnic

minority status, age, poverty, health insurance coverage,
educational attainment, language spoken before starting
school, and self-reported health (Kutner et al.,
2006). Strategies to increase personal health literacy
disproportionately benefit populations that have been
marginalized and therefore have the potential to decrease
health disparities.
Similarly, improving organizational health literacy may
reduce disparities. For example, one aspect of being a health-
literate organization is meeting the needs of populations with
a range of health literacy levels. Health-literate organizations
advance health equity by ensuring that everyone, regardless of

their abilities, can make use of health information and services.
The National Action Plan to Improve Health Literacy
called for interventions that increase both organizational and
personal health literacy (U.S. Department of Health and
Human Services, 2010). On the organizational health literacy
front, its goals include promoting changes in the healthcare
system that improve communication, informed decision-
making, and access to culturally and linguistically appropriate
health information and services. On the personal health
literacy front, it promotes accurate, standards-based, and
developmentally appropriate health and science information
and curricula in child care and education through the
university level, and expands adult education and English
language instruction.
Services, n.d.-c)
Knowledge Check

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Care.
4.3 QUALITY OF CARE | 281
4.3 QUALITY OF CARE
Sections:
4.3.1 Definitions and Domains of Quality
4.3.2 Quality Improvement Methods
4.3.3 Measures of Quality
4.3.1 Definition and Domains of

Quality
Definition: Healthcare quality is “the degree

to which healthcare services for individuals and
populations increase the likelihood of desired
health outcomes and are consistent with current
282 | 4.3 QUALITY OF CARE
professional knowledge” (Agency for Healthcare

Research and Quality, [AHRQ], 2020b).
A definition of quality that has historically guided the

measurement of quality initiatives in healthcare systems is
based on the framework for improvement created by the
Institute of Medicine (IOM). The IOM changed its name to
the National Academy of Medicine (NAM) in 2015. The
National Academy of Medicine further defines quality as
having the following properties or domains (AHRQ, 2020b):
• Safe: Avoiding harm to patients from the care intended

to help them.
• Effective: Providing services based on scientific
knowledge to all who could benefit and refraining from
providing services to those not likely to benefit (i.e.,
avoiding underuse and misuse).
• Patient-centered: Providing care that is respectful of
and responsive to individual patient preferences, needs,
and values and ensuring that patient values guide all
clinical decisions.
• Timely: Reducing waits and sometimes harmful delays
for both those who receive and those who provide care.
• Efficient: Avoiding waste, including waste of
equipment, supplies, ideas, and energy.
• Equitable: Providing care that does not vary in quality

because of personal characteristics such as gender,
ethnicity, geographic location, and socioeconomic
status.
This framework continues to guide quality improvement

initiatives across America’s healthcare system. The evidence-
based practice (EBP) movement began with the public
acknowledgment of unacceptable patient outcomes resulting
from a gap between research findings and actual healthcare
practices. For EBP to be successfully adopted and sustained, it
must be adopted by healthcare team members, system leaders,
and policymakers. Regulations and recognitions are also
necessary to promote the adoption of EBP. For example, the
Magnet Recognition Program promotes nursing as a leader in
catalyzing the adoption of EBP and using it as a marker of
excellence (Stevens, 2013).
4.3.2 Quality Improvement

Methods
Healthcare differs from other industries that rely on labor in
that it is more difficult to achieve increased productivity.
Effective performance improvement methodologies in
healthcare have been slow to adapt. Healthcare providers are
increasingly challenged to provide improved patient services
at a faster pace. The traditional physician-centric model of
healthcare must change. The following are four widely utilized

improvement methodologies to improve processes and
quality: 1) Plan-Do-Study-Act, 2) Six Sigma, 3) Lean, and 4)
Lean Six Sigma.
I. Plan-Do-Study-Act
One of the most commonly used improvement methods is

the Plan-Do-Study-Act (PDSA) cycle (Fig. 4-3). PDSA was
developed in 1986 as a more effective alternative to a precursor
method known as Plan-Do-Study-Check. Since quality
improvement projects are typically team-based, PDSA places
great emphasis on including the right people for success
(Langley et al., 2009). Planning can be the most important
part of a successful project. Change should be monitored and
adjusted as needed. The cycle of PDSA allows for refinement
of the change to implementation on a broader scale after
successful changes have been identified (Langley et al., 2009).
The following two documents review the steps associated with
each phase of the PDSA cycle and examples in a healthcare
setting:
• The PDSA Cycle Step by Step (Administration for

Children & Families, 2018)
• Plan-Do-Study-Act (PDSA) Directions and Examples
(AHRQ, 2020c)
Figure 4-3
Plan-Do-Study-Act Method for Quality Improvement
(AHRQ, 2020c)
II. Six Sigma
Six Sigma is another model for quality improvement using

a measurement-based strategy for process improvement and
problem reduction applied to improvement projects. The term
Six Sigma derives from the Greek letter σ (sigma), used to
denote standard deviation from the mean or how far
something deviates from perfection. By definition, six sigma
is the equivalent of 3.4 defects or errors per million (Seecof,
2013). Six Sigma models include DMAIC (define, measure,
analyze, improve, control) and DMADV (define, measure,

analyze, design, verify). DMAIC is used to make incremental
improvements to existing processes, whereas DMADV is used
to develop new processes at Six Sigma quality levels (Seecof,
2013). DMAIC is a formalized problem-solving method
designed to improve the effectiveness and ultimate efficiency of
the organization (Table 1).
Table 1 The DMAIC Method
What is DMAIC?
Who wants the project, and why

The scope of the project/
improvement
Define: Key team members and resources for
What is the problem? the project
Critical milestones and stakeholder
review
Budget allocation
Ensure measurement system reliability

Prepare a data collection plan
How many data points need to be
collected
Measure:
How much time will data collection
How big is the problem?
take
What is the sampling strategy
Who will collect data, and how will it
be stored
Analyze: Use a variety of tools
What is causing the Choose the tools that best fit the
problem? improvement strategy
Improve: Gain insight into the problem's causes
What will solve the Control/eliminate those causes to
problem? achieve better performance
Control:
How can the The best controls are those that
improvement be require no monitoring
sustained?
(Ahmed, 2019)
Having arrived at one or more solutions, it is time to
implement new processes or systems and monitor to ensure

consistent achievement. The “control” stage is the release of
responsibility from the project. Once this stage is achieved,
some organizations may implement the support of a Six Sigma
project team to ensure the sustainability of the improvement
in the future.
III. Lean
Definition: Lean is “a set of management

practices to improve efficiency and effectiveness
by eliminating waste” (The American Society for
Quality, 2023a).
Lean concepts can be introduced as a tool to reduce waste,

including unnecessary work due to errors, poor organization,
or communication. The core principle of Lean is to reduce and
eliminate non-value-adding activities and waste. According to
Simon (2013), the three key pillars of Lean in healthcare
include (Fig. 4-4):
1. Delivering value (from the patient’s perspective)

2. Eliminating waste (from the patient’s perspective)
3. Continuously improving processes to better serve
patients
Figure 4-4
The Three Key Pillars of Lean in Healthcare
(Simon, 2013)
Lean methodology designates eight areas of waste: defects,

overproduction, waiting, transportation, inventory, motion,
extra-processing, and non-utilized or underutilized talent
(American Society for Quality, 2023a). Some examples that
may seem insignificant include the following:
• Reducing inventory, especially medical supplies that

have expiration dates
• Reducing or maximizing the use of space
• Reducing wait times

• Reductions of defects, medical errors, and mistakes
• Increasing the overall productivity and utilization of
employees
Value stream mapping is a technique organizations use to

create a visual guide of all the components necessary to deliver
a product or service, aiming to analyze and optimize the entire
process. According to the American Society for Quality
(2023b):
Value stream mapping is a workplace efficiency tool

designed to combine material processing steps with
information flow, along with other important related data.
VSM is an essential Lean tool for an organization wanting
to plan, implement, and improve while on its Lean
journey. VSM helps users create a solid implementation
plan to maximize their available resources and help ensure
that materials and time are used efficiently.
Definition: Value stream mapping is “a

lean tool that employs a flowchart documenting
every step in the process. Many Lean
practitioners see VSM as a fundamental tool to
identify waste, reduce process cycle times, and
implement process improvement” (American
Society for Quality, 2023b).
Using Lean concepts can improve the quality of patient care.

To illustrate, review these Lean implementation case studies
(Purdue University, 2022):
Rural hospital uses Lean Daily Improvement to increase
patient feedback
Primary care practice improves EHR efficiency for better
physician-patient interaction
Also, consider these various scenarios:
1. Providers walk down the hall to a printer. This effort is

wasted motion and time. A more efficient solution may
be to install a printer at both ends of the clinic.
2. The new electronic health record (EHR) system is not
optimized, and physicians must scroll through hundreds
of diagnosis and billing codes. Consider condensing the
list of available codes to the top five or ten. This small
change could save them a significant amount of time and
frustration.
3. A nurse performing clerical duties may need to
redistribute some tasks to non-licensed employees, thus
optimizing their nursing skills on more appropriate
tasks.
4. One floor is short-staffed, while another floor has a low

patient volume. Nursing staff may need to be
redistributed to help balance the workload on the other
floors.
IV. Lean Six Sigma
Lean Six Sigma is a philosophy of improvement that values

defect prevention over defect detection (American Society for
Quality, 2023a). It drives patient satisfaction and bottom-line
results by reducing variation, waste, and cycle time while
simultaneously promoting process standardization and flow.
The combination, Lean Six Sigma, became mainstream in
healthcare by the 2000s.
Using the two initiatives together has resulted in
superior results to what either program could have
achieved alone. Lean creates value by minimizing waste,
while Six Sigma reduces defects through effective
problem-solving. In addition, Lean can accelerate the Six
Sigma process, making it more efficient.
Preparing a healthcare team for change using Lean and Six
Sigma requires the organization to set clear goals,
communicate, establish a Lean mindset by cultivating shared
leadership among the team, start small, and find a change
agent. Often, the best change agent can be the provider or
employee with the strongest opposition. Gaining their trust,
respect, and buy-in can be the biggest asset. For example,
several senior physicians in a medical practice opposed the

rollout of a new EHR system. Getting the strongest
opposition on board by explaining that the success of this
rollout would weigh heavily on the administrator’s job
performance was critical. His desire to ensure the
administrator’s success in the eyes of leadership was enough
to get him on board. He became the physician champion by
gaining the buy-in from the rest of the providers. This step was
the lynchpin in the project’s success.
4.3.3 Measures of Quality

Examples of quality measures in healthcare include the:
• Magnet Recognition Program

• Value-based reimbursement models
• CMS quality initiatives
• Accreditation review process
• Core measures
• Patient safety goals
I. Magnet Recognition Program
The Magnet Recognition Program is an American Nurses

Credentialing Center award that recognizes organizational
commitment to nursing excellence. “The Magnet Recognition
Program designates organizations worldwide where nursing
leaders successfully align their nursing strategic goals to

improve the organization’s patient outcomes” (American
Nurses Association, n.d.). To nurses, Magnet Recognition
means education and development are available throughout
their career. To patients, it means quality care is delivered by
nurses who are supported to be the best they can be.
II. Reimbursement Models
Quality healthcare is also defined by the value-based

reimbursement models used by Medicare, Medicaid, and
private insurance companies paying for healthcare services.
Reimbursement models use financial incentives to reward
quality healthcare and positive patient outcomes. For example,
Medicare no longer reimburses hospitals to treat patients who
acquire certain preventable conditions during their hospital
stay, such as pressure injuries or urinary tract infections
associated with the use of catheters (James, 2012). These
reimbursement models directly impact the evidence-based care
nurses provide at the bedside and the associated
documentation of assessments, interventions, and nursing care
plans to ensure quality performance criteria are met.
There are five original value-based programs; their goal is
to link provider performance of quality measures to provider
payment (Centers for Medicare and Medicaid Services, 2022a):
• End-Stage Renal Disease Quality Incentive

Program – The Centers for Medicare & Medicaid

Services (CMS) administers the End-Stage Renal Disease
Quality Incentive Program to promote high-quality
services in renal dialysis facilities. The first of its kind in
Medicare, this program changes the way CMS pays for
the treatment of patients who receive dialysis by linking
a portion of payment directly to facilities’ performance
on quality of care measures.
• Hospital Value-Based Purchasing Program – The
Hospital Value-Based Purchasing Program (VBP)
rewards acute care hospitals with incentive payments for
the quality of care provided in the inpatient hospital
setting. The Hospital VBP Program encourages
hospitals to improve the quality, efficiency, patient
experience and safety of care that Medicare beneficiaries
receive during acute care inpatient stays.
• Hospital Readmission Reduction Program – The
Hospital Readmission Reduction Program is a Medicare
value-based purchasing program that encourages
hospitals to improve communication and care
coordination to better engage patients and caregivers in
discharge plans and, in turn, reduce avoidable
readmissions.
• Value Modifier Program (also called the Physician
Value-Based Modifier) – The Merit-based Incentive
Payment System (MIPS) under the Quality Payment
Program replaced the Physician Feedback/Value-Based
Payment Modifier Program on January 1, 2019. The

Physician Feedback Program provided comparative
performance information to solo practitioners and
medical practice groups, as part of Medicare’s efforts to
improve the quality and efficiency of medical care
furnished to Medicare beneficiaries.
• Hospital Acquired Conditions Reduction Program
– The Hospital Acquired Conditions Reduction
Program encourages hospitals to improve patients’ safety
and reduce the number of conditions people experience
from their time in a hospital, such as pressure sores and
hip fractures after surgery. This Program encourages
hospitals to improve patients’ safety and implement best
practices to reduce their rates of infections associated
with health care.
Other value-based programs include (Centers for Medicare

and Medicaid Services, 2022a):
• Skilled Nursing Facility Value-Based Purchasing –

The CMS awards incentive payments to skilled nursing
facilities (SNFs) through the Skilled Nursing Facility
Value-Based Purchasing (SNF VBP) Program to
encourage SNFs to improve the quality of care they
provide to Medicare beneficiaries. For the Fiscal Year
2024 Program year, performance in the SNF VBP
Program is based on a single measure of all-cause
hospital readmissions.
• Home Health Value-Based Purchasing – The CMS
Innovation Center implemented the Home Health
Value-Based Purchasing (HHVBP) Model (i.e., the
original Model) in nine (9) states on January 1, 2016.
The specific goals of the original Home Health Value-
Based Purchasing (HHVBP) Model were to provide
incentives for better quality care with greater efficiency,
study new potential quality and efficiency measures for
appropriateness in the home health setting, and enhance
the current public reporting process. The expanded
HHVBP Model began on January 1, 2022 and includes
Medicare-certified Home Health Agencies in all fifty
(50) states, District of Columbia, and the U.S.
territories. Under the expanded HHVBP Model, HHAs
receive adjustments to their Medicare fee-for-service
payments based on their performance against a set of
quality measures, relative to their peers’ performance.
III. CMS Quality Initiatives
The Centers for Medicare & Medicaid Services (CMS)

establishes quality initiatives focusing on several key quality
measures of healthcare. These quality measures provide a
comprehensive understanding and evaluation of the care an
organization delivers, and responses from the patients who
received care. These quality measures evaluate many areas of
healthcare, including the following (Centers for Medicare and

Medicaid Services, 2022b):
• Health outcomes
• Clinical processes
• Patient safety
• Efficient use of healthcare resources
• Care coordination
• Patient engagement in their own care
• Patient perceptions of their care
These measures of quality focus on providing the care the

patient needs when the patient needs it in an affordable, safe,
and effective manner. It also means engaging and involving the
patient, so they take ownership of their care at home.
IV. Accreditation
Accreditation is a review process that determines if an agency

meets the defined standards of quality determined by the
accrediting body. The quality standards vary depending on the
accrediting organization, but they all share common goals to
improve efficiency, equity, and delivery of high-quality care.
The main accrediting organizations for healthcare are as
follows:
• The Joint Commission

• National Committee for Quality Assurance

• American Medical Accreditation Program
• American Accreditation Healthcare Commission
V. Core Measures
Core measures are national standards of care and treatment

processes for common conditions. These processes are proven
to reduce complications and lead to better patient outcomes.
Core measure compliance reports show how often a hospital
successfully provides recommended treatment for certain
medical conditions. In the United States, hospitals must report
their compliance with core measures to the Joint Commission,
CMS, and other agencies (Johns Hopkins Medicine, 2023).
In November 2003, The Joint Commission and CMS
began to align common core measures to be identical. This
work resulted in the creation of one common set of measures
known as the Specifications Manual for National Hospital
Inpatient Quality Measures. Both organizations use these core
measures to improve the healthcare delivery process. Examples
of core measures include guidelines regarding immunizations,
tobacco treatment, substance use, hip and knee replacements,
cardiac care, strokes, treatment of high blood pressure, and
the use of high-risk medications in the elderly. Healthcare
providers must be aware of core measures and ensure the care
they provide aligns with these recommendations (The Joint
Commission, 2023a).
VI. Patient Safety Goals
Patient safety goals are guidelines specifically for

organizations accredited by The Joint Commission that focus
on healthcare safety problems and ways to solve them. The
National Patient Safety Goals (NPSG) were first established
in 2003 and are updated annually to address areas of national
concern related to patient safety, and promote high-quality
care. The NPSG provides guidance for specific healthcare
settings, including hospitals, ambulatory clinics, behavioral
health, critical access hospitals, home care, laboratory, skilled
nursing care, and surgery. Documentation in the electronic
medical record is primarily used as evidence that an
organization is meeting these goals. The following goals are
some examples of NPSG for hospitals (The Joint
Commission, 2023b):
• Identify patients correctly

• Improve staff communication
• Use medicines safely
• Use alarms safely
• Prevent infection
• Identify patient safety risks
• Prevent mistakes in surgery
Knowledge Check

Click here to move on to 4.4 Cost of

Care.
302 | 4.4 COST OF CARE
4.4 COST OF CARE
Sections:
4.4.1 Health Spending
4.4.2 Cost Drivers
4.4.1 Health Spending

The United States (U.S.) spends more per capita on healthcare
than any other comparable high-income country and
continues to spend more on healthcare at an unsustainable rate
(Organization for Economic Co-operation and Development
[OECD], 2018; PWC Health Research Institute, 2022). In
2021, nearly 4.3 trillion dollars were spent by uninsured
individuals, private health insurers, and federal and state
governments on health consumption expenditures,
accounting for approximately 18.3% of the nation’s gross
4.4 COST OF CARE | 303
domestic product (Centers for Medicare & Medicaid Services

[CMS], 2022c; Wager et al., 2022). Moreover, following the
COVID-19 pandemic, the U.S. spent nearly 10% more on
healthcare, totaling more than 19% of its gross domestic
product (Wager et al., 2022; CMS, 2022c). The gross domestic
product (GDP) is the total monetary or market value of all
the finished products and services produced within a country
during a specified time frame. In other words, the GDP
provides a scorecard of a country’s economic health.
Healthcare spending is closely tied to a country’s wealth;

however, comparing health expenditures across countries can
be complicated due to unique health system structuring, the
political landscape, and economic features that affect each
country’s spending (Wager et al., 2022). The OECD consists
of 38 countries with above-median national and per-person
incomes that commit to democratic and market principles
enabling comparisons to be drawn on the political and
economic experiences between the high-income nations
(Wager et al., 2022). As previously mentioned, the U.S. spends
more on healthcare than all other countries in the OECD,
while some countries, such as Turkey, spend as little as 4% of
their GDP on healthcare. In 2020, the U.S. spent $11,945 on
health expenditures per person, nearly twice as much as the
average $5,736 the other high-income OECD countries spent
on health per person (Fig. 4-5). Although health spending
increased between 2019 and 2020 for all developed nations
following the global pandemic, the U.S. was already spending

the most per capita on health (Wager et al., 2022).
Figure 4-5
Health System Tracking
(Peterson-KFF Health Systems Tracker, 2023)

One reason we spend so much on healthcare in the U.S.
is that high-quality care is at least in part a luxury good –
something that we spend relatively more on as our income
increases (like newer cars or a larger house). Yet even across
relatively affluent countries, healthcare takes very different
forms. Compare, for example, the U.S. and Canada. Canada
has a system in which the government pays for healthcare.
The program is financed by the payment of taxes to the
government. The government sets doctors’ fees, which limits
competition within the health industry. Furthermore, other
developed countries spend much less on healthcare than the
U.S., but have health outcomes that are as good as or even

better than those in the U.S (Cooper & Taylor, 1994). “For
example, life expectancy at birth in the U.S. was 77 years in
2020 — three years lower than the OECD average. Provisional
data shows life expectancy in the U.S. dropped even further in
2021” (National Center for Health Statistics, 2022).
Differences in both the quality and cost of healthcare mean
that, perhaps surprisingly, people travel to other countries to
obtain treatments that are unavailable in their home countries.
For example, US residents sometimes travel to other countries
to obtain stem-cell treatments banned in the United States. Or
people may seek healthcare in other countries simply because
it is cheaper: people from around the world travel to Thailand,
for example, to obtain cheap and reliable dentistry services.
There are even tour operators that arrange such medical
tourism trips. National Public Radio (NPR) published a
story on March 18, 2008 about a husband and wife going
to China to get stem-cell treatment for their 7-month-old
daughter (Lim, 2008). There is also a company that organizes
trips to Canada (Find Private Clinics.ca, 2023).
Definition: Medical tourism is when a patient

intentionally crosses a border to seek medical
care that will typically require out-of-pocket

payment for services (De Arellano, 2007).
4.4.2 Cost Drivers

What determines the cost of healthcare? There are several
national trends affecting the cost of healthcare. These include
the aging population, increased costs of medical technology,
increased prescription medication costs, the Patient Protection
and Affordable Care Act, and social determinants of health.
I. Aging Population
As demonstrated in Figure 4-6, the U.S. has a growing number

of older adults (age 65 years or older) living longer than
previous generations. As a result, older adults are anticipated
to make up more than 20% of the U.S. population by 2030
(Agency for Healthcare Research and Quality [AHRQ], n.d.).
This demographic change will result in increased national
healthcare costs because older adults typically experience more
chronic conditions than younger populations, requiring
expensive specialty and long-term care (AHRQ, n.d.).
Figure 4-6
A Growing Population of Older Adults
(U.S. Census Bureau, 2018)
II. Increased Costs of Medical

Technology
Highly visible medical technologies, such as organ

transplantation, diagnostic imaging systems, and
biotechnology products, attract both praise and blame.

Evolving medical technologies may save lives and improve a
client’s health status, but they are also viewed as a dominant
cause of the continued escalation of medical costs. Research
suggests that medical technology accounts for about 10% to
40% of the increase in healthcare expenditures over time
(Neumann & Weinstein, 1991). These costs also lead to
further ethical dilemmas as decisions regarding what scarce
resources are provided to which patients are made. Medical
technologies, especially new ones, must justify their costs in
a climate of competing claims on limited resources. Resource
allocation follows American society’s objective of cost-
effectiveness: if a new technology improves health outcomes at
a lower cost than existing technologies, it should be adopted;
otherwise, it should not (Neumann & Weinstein, 1991).
III. Increased Prescription Medication

Costs
Retail prices for commonly-used prescription medications

continue to increase twice as much as inflation, contributing
to increased healthcare costs and making these life-sustaining
medicines potentially unaffordable to many Americans.
According to a recent AARP Rx Price Watch report, in 2020,
prices for 260 commonly used medications increased by 2.9%
while the general inflation rate was 1.3% (Bunis, 2021). For
example, the cost of Symbicort, a medication used to treat
asthma and COPD, increased 46%, from $2,940 to $4,282
(Bunis, 2021). See Figure 4-7 for an illustration related to
spending on prescription drugs (Peterson-KFF Health Systems
Tracker, 2023).
Although most Americans have either public or private
insurance that helps them pay for medications, increased
medication prices result in higher health insurance premiums
and higher taxpayer costs for the Medicare and Medicaid
programs. Some insurance companies only cover approved
formulary medications (i.e., the list of generic and brand-
name prescription medications covered by the insurance
company). As a result, national organizations like the
American Association of Retired Persons (AARP) advocate
for national policy changes, such as allowing Medicare to
negotiate the prices of prescription medications with drug
companies and allowing private insurance plans to have access
to those lower prices (Bunis, 2021). Many consumers find

themselves tasked with the difficult decision of purchasing
expensive medication or going without prescribed medication
and paying for their families’ housing and food.
Figure 4-7
Spending on Prescription Drugs
(Peterson-KFF Health Systems Tracker, 2023)
IV. Affordable Care Act
The Patient Protection and Affordable Care Act, also known

as the Affordable Care Act (ACA), was signed into law in
2010 (U.S. Department of Health and Human Services,

2022). This legislation aimed to increase consumers’ access to
healthcare coverage and protect them from insurance practices
that restricted care or significantly increased the cost of care.
The ACA mandated health insurance coverage for employers
and individuals. Employers were mandated to provide
healthcare coverage based on the number of their employees.
Individuals who were not covered through employer insurance
plans were mandated to seek coverage through a newly created
Marketplace. The Marketplace provides a central website that
offers three standard health insurance coverage levels to
facilitate comparison by consumers. As a result of the ACA
and associated Medicaid expansion, 32 million people had
healthcare coverage in 2021 (HealthCare.gov., n.d.; U.S.
Department of Health and Human Services, n.d.-d).
Key provisions of the ACA
The ACA includes the following key provisions (U.S.

Department of Health and Human Services, 2022):
• Insurers can no longer deny coverage or care for

preexisting conditions like diabetes, asthma, and cancer.
• Young adults may remain on their parent’s insurance
plans until they are 26 (even if they are married,
financially independent, or not living with their
parents).
• Health insurance plans cannot place annual or lifetime
limits on coverage except for nonessential exceptions,

such as cosmetic procedures.
• Many preventive services must be provided, such as:
◦ Well-child visits, flu shots, and other common
vaccines
◦ Screening tests for blood pressure and diabetes
◦ Diagnostic screening tests, such as mammograms,
and colonoscopies
◦ Counseling services related to mental health and
substance use
The ACA also allows consumers to appeal to insurance

companies for denials of care or payment of services, and
restricts situations in which an insurance carrier may cancel a
policy.
Challenges to the ACA
Although the ACA has significantly increased the number of

Americans with health insurance coverage, it continues to be
debated. Debates focus on increased taxes, increased insurance
premiums, and some people’s belief that mandated coverage is
a governmental intrusion on an individual’s rights. The ACA
has been challenged three times without success. In 2012 the
U. S. Supreme Court upheld mandated coverage as a
constitutional exercise of Congress’s taxing powers because it
could be interpreted as an individual’s choice to maintain
health insurance or pay a tax. However, in 2017 Congress set
the penalty for failing to comply with the mandate at zero

dollars after multiple attempts to repeal and replace the ACA.
In June 2021, the U.S. Supreme Court rejected a third major
challenge regarding the constitutionality of the ACA. In a
7-to-2 decision, the U.S. Supreme Court upheld the ACA
based on the judgment that the states who brought forth the
case did not prove damage to citizens because the fines for not
having health coverage had been eliminated since the original
legislation was passed (K&L Gates LLP, 2021).
V. Social Determinants of Health
Social determinants of health (SDOH) are the conditions

in the environments where people live, learn, work, and play
that affect a wide range of outcomes. SDOH directly impact
individuals’ health behaviors, access to routine healthcare, and
the development of chronic diseases. Yet, the U.S. spends a
significantly lower percentage of its gross domestic product
(GDP) on social services than similar countries with better
health outcomes (Bush, 2018). Healthy People 2030,
established by the U.S. Department of Health and Human
Services, identifies public health priorities to help individuals,
organizations, and communities across the U.S. improve
health and well-being over the next decade by addressing
SDOH. One of Healthy People 2030’s goals states, “Create
social, physical, and economic environments that promote
attaining the full potential for health and well-being for all”
(Healthy People 2030, n.d.). SDOH includes healthcare access

and quality, neighborhood and environment, social and
community context, economic stability, and education access
and quality (Fig. 4-8). These conditions have a major impact
on people’s health and well-being, ultimately affecting national
healthcare costs (Healthy People 2030, n.d.).
Figure 4-8
Five Key Areas of Social Determinants of Health
(Healthy People 2030, n.d.)
Knowledge Check


Summary.
4.5 CHAPTER SUMMARY
The Population Health Management (PHM) pathway has

transitioned healthcare from a disease-only treatment model
for individuals to a management model that requires clinical
effectiveness, cost-effectiveness, and safer health outcomes.
The latest version of our national public health objectives,
Healthy People (HP) 2030, lists 355 core objectives ranging
from reducing chronic diseases to mitigating contagious
diseases. However, it was a seminal article that introduced one
of the most important PHM components – the Triple Aim.
The three pillars of the Triple Aim include improving the
patient experience of care, improving the health of
populations, and reducing the per capita cost of
healthcare. Many people face barriers that prevent or limit
access to needed healthcare services, which may increase the
risk of poor health outcomes and health disparities. Barriers
that prevent or limit access include lack of health insurance,
poor access to transportation, and limited healthcare
resources. Sometimes people don’t get recommended health
care services, like cancer screenings, because they don’t have
a primary care provider or live too far away from health care
providers who offer them. Further research is needed to better
understand the barriers to primary care and develop
interventions that expand access. Health literacy, or the ability

to find, understand, and use information and services to
inform health-related decisions and actions, is another barrier
to accessing healthcare. It results from both individual
capacities (i.e., personal health literacy) and the complex
demands of the U.S. healthcare system (i.e., organizational
health literacy).
Healthcare quality is care that is safe, effective, patient-
centered, timely, efficient, and equitable. Four widely utilized
improvement methodologies to improve processes and
healthcare quality include Plan-Do-Study-Act, Six Sigma,
Lean, and Lean Six Sigma. The cycle of PDSA allows for
refinement of the change to implementation on a broader scale
after successful changes have been identified. Six Sigma uses
a measurement-based strategy for process improvement and
problem reduction applied to improvement projects. The core
principle of Lean is to reduce and eliminate non-value-adding
activities and waste. The combination, Lean Six Sigma, has
resulted in superior results to what either program could have
achieved alone. Quality measures in healthcare include the
Magnet Recognition Program, value-based reimbursement
models, CMS quality initiatives, the accreditation review
process, core measures, and patient safety goals.
The United States (U.S.) spends more per capita on
healthcare than any comparable high-income country.
Although other comparable countries spend much less on
healthcare than the U.S., health outcomes in these countries
are as good or even better than outcomes in the U.S. The

national trends affecting the cost of healthcare in the U.S.
include the aging population, medical technology costs,
prescription medication costs, Patient Protection and
Affordable Care Act, and social determinants of health.

4.6 REFERENCES &

ATTRIBUTIONS
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Attribution

NC-SA 4.0 . Chapters 1, 5, 11, 12.

Academy is licensed under CC BY-NC-SA 3.0
. Chapter 16. https://socialsci.libretexts.org/

Bookshelves/Economics/Book%3A_Economics_-
Care_Markets.
3. Chapter 8.2 “Trends Related to Increased Health Care
Costs” by Ernstmeyer & Christman (Eds.), found in the
book “Nursing Management and Professional
Concepts” is licensed under CC BY 4.0 .

4. Chapter 9.2 “Quality Care” by Ernstmeyer &
Christman (Eds.), found in the book “Nursing
Management and Professional Concepts” is licensed
under CC BY 4.0 .

5: Current Issues in Healthcare
Policy.
CHAPTER 5: CURRENT ISSUES IN HEALTHCARE POLICY | 341
CHAPTER 5:
CURRENT ISSUES
IN HEALTHCARE
POLICY
Learning Objectives
• Examine the basis for government

intervention in the market for healthcare
services, as well as the forms of intervention.
• Explore the Patient Protection and Affordable
Care Act as a policy that has been adopted in
the United States with the intention of
improving healthcare delivery, access, or
outcomes.
• Outline the legislation and programs
developed to decentralize risk from the
342 | CHAPTER 5: CURRENT ISSUES IN HEALTHCARE POLICY
healthcare payer to providers of healthcare

services.
Chapter Sections:
5.1 Government Policy
5.2 Patient Protection and Affordable Care Act
5.3 Value-Based Contracting in Healthcare
5.4 Chapter Summary
5.1 GOVERNMENT POLICY | 343
5.1 GOVERNMENT
POLICY
Sections:
5.1.1 Why Do Governments Intervene?
5.1.2 How Do Governments Intervene?
5.1.1 Why Do Governments

Intervene?
Government involvement in the economy is typically analyzed
through the lens of market failure. However, when it comes to
healthcare, there are several market failures to consider.
I. Externalities
One argument for public involvement in healthcare is the

344 | 5.1 GOVERNMENT POLICY
presence of externalities. If one individual is sick, then the

likelihood that others around that person get sick increases.
Individuals typically make decisions about their healthcare
without thinking much about the effects of their decisions on
the welfare of others. For example, a person may decide to go
to work even though they are suffering from the flu because
of financial strains, and may not think very much about the
likelihood of infecting others. This scenario is a classic example
of an externality.
II. Commitment
Through legislation passed in 1986, hospitals are required to

treat patients in emergency situations whether or not they have
insurance. The regulation is called the Emergency Medical
Treatment and Labor Act, also known asEMTALA
(Centers for Medicare & Medicaid Services, n.d.-a). Although
the regulation applies only to those hospitals that accept
Medicare, it is almost universal. Treating the uninsured is an
inefficient way for a hospital to treat people. One consequence
is that the uninsured are incentivized to seek routine care in
hospital emergency rooms, even though this is an expensive
place to provide care. Suppose hospitals could commit to only
serving those with health insurance to ensure they are paid for
the delivery of care. In that case, some of the uninsured might
be induced to purchase health insurance instead of relying on
emergency departments for routine care. However, hospitals
cannot make such a commitment, and it would run counter to

the Hippocratic Oath. “The Hippocratic Oath is perhaps the
most widely known of Greek medical texts. It requires a new
physician to swear upon a number of healing gods that he will
uphold a number of professional ethical standards” (National
Institutes of Health, 2012).
Review fact sheet (Centers for Medicare & Medicaid
Services, n.d.-a): Know Your Rights: Emergency Medical
Treatment and Labor Act (EMTALA)
Review webpage (National Institutes of Health,
2012): Hippocractic Oath
III. Adverse Selection and Moral

Hazard
These concepts were presented in Chapter 3: Health

Insurance. Please review 3.1.2 Adverse Selection and 3.1.3
Moral Hazard.
IV. Drug Quality & Doctor Quality
The healthcare market is filled with gaps in information. As a

result, patients and even their doctors cannot fully assess the
safety and efficacy of pharmaceutical products. Although drug
companies test their own products, the government has a role
in assessing this information and determining the safety and
effectiveness of medications.
Another informational problem in the healthcare market is

a patient’s inability to properly evaluate the quality of a doctor.
A patient can look at some indications of their doctor’s ability,
such as years of practice, school of graduation, and the number
of people in the waiting room. But it is impossible to make a
fully informed judgment about the quality of a doctor. Again,
the government plays a role by requiring that doctors obtain
specialized training and pass a licensing examination before
they are allowed to practice.
V. Patents
According to the World Intellectual Property Organization

(n.d.):
A patent is an exclusive right granted for an invention,

which is a product or a process that provides, in general,
a new way of doing something, or offers a new technical
solution to a problem. To get a patent, technical
information about the invention must be disclosed to the
public in a patent application.
The investment into the research and development needed to

create a new drug is substantial. The patent system exists to
protect firms from potential competitors producing the same
product and selling it at a lower price, which could negatively
impact the firm’s ability to earn a return on the investment.
Although price competition may be valued from a consumer’s
point of view, it destroys the initial incentives a firm has to
undertake for research and development. Therefore,

governments provide patent protection for a period of time to
induce firms to make substantial investments in research and
development.
VI. Market Power
Market outcomes are inefficient when there are relatively few

sellers of a product. This situation may occur in various
healthcare markets because there may be relatively few doctors
and few hospitals in a given location. Furthermore,
pharmaceutical companies have market power based on
exclusive knowledge of their specific product, as protected
through patents. Finally, there are relatively few health
insurance providers, and some are very large.
VII. Equity and Fairness
One argument for government involvement is to provide for

a more equitable allocation of goods and services. From this
perspective, the fact that many Americans lack health
insurance and adequate healthcare is also a basis for
government involvement. According to the United Nations
(n.d.), Article 25 of the Universal Declaration of Human
Rights includes the right to healthcare:
Everyone has the right to a standard of living adequate

for the health and well-being of himself and their family,
including food, clothing, housing and medical care and

necessary social services, and the right to security in the
event of unemployment, sickness, disability, widowhood,
old age or other lack of livelihood in circumstances beyond
his control.
5.1.2 How Does the Government

Intervene?
The government intervenes through tax free health insurance
benefits and income taxes, reguations that influence market
demand and supply, the provision of public health insurance,
and the provision of health information.
I. Taxes and Subsidies
As previously mentioned, one of the key ways in which the

government subsidizes healthcare is by allowing employees tax-
free health insurance benefits provided by an employer. In this
way, the government reduces the cost of firm-provided
healthcare. It is now common for employment contracts in the
United States to include a provision for healthcare.
One of the main issues surrounding employer-provided
health insurance is the possibility of losing insurance when
a person changes jobs (sometimes called the “portability
problem”). In our economy, shifts in demand for goods and
services and changes in productivity naturally lead to the
creation of new jobs by some firms and the destruction of jobs

by other (perhaps less profitable) firms. Therefore, the efficient
working of an economy requires that workers leave old jobs
for new ones. Unfortunately, insurance can get in the way of
worker mobility. If a person has a job with health insurance,
quitting their job to look for another may be costly for several
reasons. First, they may lose insurance coverage while they are
searching for a new job. Second, an ailment covered by
insurance in their previous position could be viewed as a
preexisting condition when they apply for insurance at a new
firm. A preexisting condition can adversely affect insurance
rates and coverage types. In some cases, people choose not
to change jobs purely because of the implications on health
insurance.
Healthcare is also subsidized through income taxes. If a person

itemizes deductions for a taxable year, they may be able to
deduct the expenses paid that year for medical and dental care
for themselves, their spouse, and their dependents. Medical
care expenses include payments for the diagnosis, cure,
mitigation, treatment, or prevention of disease, or payments
for treatments affecting any structure or function of the body
(Internal Revenue Service, 2023).
II. Regulation
Government regulations are common in the health industry.

These regulations influence both demand and supply in this

market.
On the demand side, households are required to obtain
certain medical services. For example, it is common for schools
to require some vaccinations prior to admission. The
argument for such interventions is that there are externalities
from a person’s health to the health of others.
The government licenses or certifies many of the actors on
the supply side of the healthcare market. This requirement
is another form of quality control. Doctors who practice in
a state must pass exams called medical boards. Hospitals are
certified for the types of activities they offer. Often the
certification occurs at the state level. Other providers of
healthcare are also licensed. For example, a nursing home must
be certified as a Medicare provider to receive reimbursements.
The rationale for such interventions stems from the extensive
information problems in the healthcare market. As consumers
cannot accurately assess the quality of care provided by doctors
and hospitals, the government provides a service to us all by
regulating healthcare providers.
III. Provision of Insurance
The Department of Health and Human Services (HHS) is the

federal agency that oversees the Center for Medicare and
Medicaid Services, which administers programs for protecting
the health of all Americans. Through its Medicare and
Medicaid programs and the Children’s Health Insurance

Program (CHIP), the government provides insurance to low-
income, elderly, and disabled households.
There is continuing debate about expanding the availability
of health insurance to the general population. A more
fundamental question is whether the government should even
be in the business of providing health insurance. One set of
arguments for government involvement rests on the various
market failures identified in this section. First, healthcare is
complicated, and there are many ways in which healthcare
markets depart from the competitive ideal. It is sometimes
argued that spending on health services in the United States
is very high because the market is inefficient. From that
perspective, having the government in charge of this sector of
the economy might reduce inefficiencies. Second, government
involvement can be justified on the grounds of equity and
fairness.
IV. Provision of Information
One of the primary roles of the government is to provide

information to the public about health matters. Information
comes in a variety of forms. In January 1966, the following
warning first appeared on cigarette packs: “Warning: Cigarette
Smoking May be Hazardous to Your Health.” This initial
warning from the Surgeon General’s office of the United States
was followed by many others concerning the consumption of
cigarettes and other potentially harmful products. Such

warnings are a good example of government provision of
information. Each consumer of these products wants to know
the impact on health. Gathering such information is a public
good because the information is available to everyone and can
be “consumed” by everyone simultaneously. Another form of
information is through drug testing. The US Food and Drug
Administration is responsible for testing drugs before they
appear on the market. The FDA also supplies public
information about a wide range of food items.
Knowledge Check
Drag each concept to its corresponding column.

Click here to move on to 5.2 Patient

Protection and Affordable Care Act.
5.2 PATIENT PROTECTION AND AFFORDABLE CARE ACT | 353
5.2 PATIENT
PROTECTION AND
AFFORDABLE CARE ACT
Sections:
5.2.1 Background
5.2.2 Primary Goals & Provisions
5.2.3 Current Status
5.2.1 Background
The Patient Protection and Affordable Care Act,
commonly referred to as the Affordable Care Act or “ACA”
for short, was signed into law in 2010 (U.S. Department of
Health and Human Services, 2022). The primary objective
was to provide healthcare insurance for Americans who were
354 | 5.2 PATIENT PROTECTION AND AFFORDABLE CARE ACT
uninsured. Before many of its provisions took effect, it was

estimated that 44 million Americans lacked health insurance
(Garfield et al., 2019). The law also extended coverage by
allowing those up to the age of 26 to remain on their parent’s
healthcare plans. In addition, it expanded Medicaid coverage
to include those with incomes 133% or less of the national
poverty level. It also prevented health insurance companies
from kicking people out of their plans for pre-existing
conditions.
Technologically, the ACA created an open market and
access to it through an online portal, or health exchange, where
Americans could purchase insurance. However, the law has
seen many court challenges since its adoption, and the one
area with the biggest point of contention was the “individual
mandate.” The individual mandate section of the law initially
required individuals to have insurance, and if they didn’t, they
would be penalized. Legislation passed in late 2017 ended
federal penalties beginning with the 2019 tax year; however,
individual states can still impose a penalty.
The efforts of the ACA were not only to reduce the number
of people without insurance but knowing that the uninsured
were exceptionally costly to the system, reducing their
numbers could then decrease the overall cost to the healthcare
system. It also attempted to establish price transparency, which
is the ability of consumers to find and compare pricing for
healthcare services. The success of the ACA is still somewhat
disputed; however, most sources agree that it did provide
health insurance to those who were previously not covered by

a policy (Colla & Skinner, 2020).
5.2.2 Primary Goals & Provisions
I. Primary Goals
According to the U.S. Department of Health and Human

Services (2022), the Patient Protection and Affordable Care
Act has three primary goals:
• Make affordable health insurance available to more

people. The law provides consumers with subsidies
(“premium tax credits”) that lower costs for households
with incomes between 100% and 400% of the federal
poverty level (FPL).
• Expand the Medicaid program to cover all adults with
income below 138% of the FPL. Not all states have
expanded their Medicaid programs.
• Support innovative medical care delivery methods
designed to lower the costs of healthcare.
II. Provisions Related to the Triple Aim
The Triple Aim of Healthcare was first presented by the

Institute for Healthcare Improvement in 2007 (Berwick et al.,
2008). It was defined as an attempt to realign the three aims
of healthcare identified in an existing model known as the

Iron Triangle. The Iron Triangle focused on three key aims
of healthcare delivery: access, quality, and cost (Berwick et al.,
2008). The Triple Aim has the three pillars: improving the
patient experience of care, improving the health of
populations, and reducing the per capita cost of healthcare.
The ACA achieved increased access through two primary
mechanisms, a combination of new and already existing
insurance arrangements: (1) a mandate to possess insurance or
to purchase it through ACA marketplaces; and (2) Medicaid
expansion in many states. Low-income Americans benefited
most because, starting in 2014, they received Medicaid
coverage if they lived in a state where Medicaid expansion went
forward. Other low income individuals received subsidies for
purchasing private insurance. However, the poor living in
states that did not expand Medicaid did not benefit from either
of these two mechanisms. The ACA also included quality
improvement measures. Improved medical care may result
from the ACA’s emphasis on primary care and Accountable
Care Organizations (Centers for Medicare & Medicaid
Services [CMS], 2019). The use of comparative effectiveness
(although not cost-effectiveness) information was encouraged.
Incentive systems in some programs and pilot research projects
attempted to link quality to outcomes. More information on
the best medical care available has been made public, and
transparency has been encouraged. Lastly, proponents of the
ACA also claim the Act was designed to control rising
healthcare costs and reduce the national deficit. These

measures included greater regulation of insurance pricing,
increased competition to lower the price of insurance through
the ACA marketplaces, reform of payments to Medicare,
bundled payment systems, and the potential for future
implementation of the results of several pilot projects. These
provisions will be covered in more detail in the sections below.
Increased Access
The ACA requires health insurers to sell policies to all those

seeking to purchase them (guaranteed issue) at a fixed rate for
each age category and tobacco use within a specific family size
and regional area (community rating). The most significant of
these is the one regarding age, where the legislation required
that premiums charged to older adults be no more than three
times those of younger adults. In addition, discrimination
based on gender or health status (an individual’s health
history) is prohibited for plans sold on the ACA insurance
markets. An annual ceiling of approximately $7,900 for out-
of-pocket (OOP) costs (i.e., deductibles, copayments, and
coinsurance) for individuals and $15,800 for families was also
required by the ACA in 2019. In 2014, minimum standards
as to what must be included in all health insurance plans went
into effect, addressing the problem of the “underinsured”,
which are those people with less than adequate coverage
(Commonwealth Fund, 2010a). States had an important role
in setting up and implementing these standards.
The ACA mandated that every resident must have health

insurance starting in 2014. However, there were exemptions
for those with moral or religious objections, American
Indians, undocumented immigrants, those in prison, those
who can prove that the lowest cost plan option exceeds 8% of
their income, those whose income is so low that they are not
required to file a tax return, and for the very poor residing
in states that do not expand Medicaid (Kaiser Family
Foundation, 2011).
Removal of the penalty by Congress in 2017 could
undermine the risk pool of the healthcare marketplaces where
individual policies are sold. Most of those who choose to forgo
health insurance legally and without penalty are expected to be
healthy and younger than the general population. Therefore,
the cost of insurance for those remaining in the purchasing
pool will be higher as they are likely to be sicker and older than
those who opt-out.
The Supreme Court’s decision in 2012 made Medicaid
expansion optional, and some states have opted out of the
Medicaid expansion, arguing that they could not afford it.
However, a range of options was available to states. There was
no deadline for states to make choices about Medicaid
expansion; some did so later, though they did not receive the
full array of financial incentives offered to states that expanded
Medicaid early on. To date, 37 states (including Washington,
DC) have adopted the Medicaid expansion, and 14 states have
not (Kaiser Family Foundation, 2019a).
Because the funding for Medicaid expansion was largely the

federal government’s responsibility, states had the incentive to
participate. “Specifically, for people who became newly eligible
for Medicaid under the expansion, the federal government
covered 100% of costs from 2014 through 2016, declining to
90% of costs in 2020” (Congressional Budget Office [CBO],
2012a, p. 9).
It is not entirely certain how much the Supreme Court’s
2012 decision to not require states to expand Medicaid reduces
access to health insurance for the poor (CBO, 2012b). While
many of the poorest individuals live in states that have not
expanded Medicaid, many with incomes below 100% of the
federal poverty level (FPL) remain uninsured and cannot
receive federal subsidies when purchasing coverage in the
ACA’s insurance marketplaces. However, those with incomes
above 100% of the FPL met the requirements for purchasing
insurance on the ACA markets with substantial federal
subsidies (CBO, 2012b). Individuals were also exempt from
purchasing insurance for other reasons.
Review chart book (Center on Budget and Policy Priorities,
2020): Benefits of The Affordable Care Act’s Medicaid
Expansion
Most people in the United States obtain health insurance
through their employers, which continued after the ACA was
adopted. Employers with 50 or more full-time employees who
did not offer insurance were obliged to pay the penalty. The
same was true if coverage did not meet state standards, if it was
too expensive for employees to afford, or if employers asked

new employees to wait more than 60 days for coverage to begin
(Tolbert, 2010). Some employers with fewer than 50
employees received special tax deductions for offering health
insurance, but they were exempt from the penalties even if
they did not offer insurance.
The ACA included the mandatory creation of state health
insurance marketplaces – online markets where insurers
compete to sell state and/or federally compliant policies to
individuals and small businesses. If states chose not to
implement an ACA marketplace, the federal government was
mandated to step in and make a federal ACA marketplace
available to the residents of these states. Up to half the states
partnered with the federal government to organize and
implement an ACA marketplace (Mercer, 2013). States that
partnered were permitted to alter these decisions and take over
the responsibility at any time.
Quality Improvement Measures
The ACA contains measures to improve the quality of care

at both the individual patient level and for the population in
general by encouraging primary care, prevention, new models
of integrated care, the use of comparative effectiveness
information by providers, quality measurement, the reporting
of information about quality to consumers, and improved
medical care (Commonwealth Fund, 2010b; Kaiser Family
Foundation, 2011). It also discouraged the overuse of medical
care (Jacobs & Skocpol, 2010) and set forth a national strategy
for quality improvement. In addition, increased
reimbursement for primary care providers were included to
encourage medical students to choose these specialties.
Accountable Care Organizations (ACOs) aim to improve
quality and reduce costs in the Medicare program and private
sector by promoting integrated healthcare and including
various methods of linking payment to outcomes. As a result,
ACOs in the United States have seen significant growth, from
fewer than 100 organizations in 2011 to over 1000 in 2018,
while the proportion of the population enrolled in a policy
with an ACO contract has grown from a few million to over
32 million, covering 10% of the population (Muhlestein et al.,
2017, 2018).
The ACA funds comparative effectiveness research. In 2011
the National Health Care Quality Strategy and Plan was
prepared, and the resulting recommendations were reported
to Congress for action (Agency for Healthcare Research and
Quality [AHRQ], 2011). The ACA authorizes the collection
of data on healthcare disparities, including race, ethnicity,
gender, linguistic minorities, the disabled, and those who are
underserved because of geographical location (rural and
frontier populations). It sets up and funds the Patient-
Centered Outcomes Research Institute (PCORI), a non-
profit research organization tasked with providing the
information patients and the public need to make informed
decisions about their health.
In 2011, a Center for Medicare and Medicaid Innovation

Program was set up to undertake pilot programs and
demonstration projects that reward doctors and hospitals for
quality healthcare (Zezza et al., 2011). Starting in 2015, the
ACA began denying federal payments for Medicare services
associated with some hospital-acquired infections. For
hospitals with excessive preventable hospital readmissions,
Medicare reimbursements are reduced. Value-based Medicare
payments link payment with results for physicians, hospitals,
skilled nursing facilities, home health agencies, and
ambulatory surgical centers. The goal was for Medicare to
become an active purchaser of higher-quality health services,
which could both reduce costs and improve the quality of care
(CMS, n.d.-b).
The ACA includes nursing home transparency regulations
designed to improve protective services for elderly residents
through closer oversight, which could result in better quality
nursing home care if consumers and their representatives are
vigilant and monitor the information available to them.
Unfortunately, many health plans do not do a sufficient job of
monitoring the quality of the nursing homes in their network
(Graham et al., 2018). The ACA gave nursing home patients
broader rights to internal and external appeal of decisions by
insurers, including coverage denials. In addition, Medicare
obtained the right to collect and distribute data about nursing
home staffing levels. The success of these measures depends in
part on the appropriation of adequate funds; such funds are

not assured.
Control Rising Healthcare Costs
The financial impact of the ACA was fiercely disputed from

the beginning. Opponents argued it would cost too much and
cause many employers to drop employee insurance coverage,
preferring to pay the penalty. Proponents contended it would
be revenue neutral or the rate of increase in national health
expenditures would slow (Cutler et al., 2009). The
Congressional Budget Office estimated that an overall
reduction in the US deficit would result from the passage of
the ACA (CBO, 2010a, 2010b).
One of the major concerns regarding the financial impact
of the ACA was that it would increase the price of premiums.
While average premium increases vary year to year, overall
marketplace premiums increased by 75% between 2014 and
2019 (Kaiser Family Foundation, 2019b). There were,
however, wide variations across the states because pricing
decisions are made by insurers, for the most part, at the state
level. In 2019, for example, premiums dropped 26% in
Tennessee but increased 16% in Delaware.
Items in the ACA intended to protect against increases in
the national deficit include productivity improvement
incentives, reductions in subsidies to Medicare Advantage
programs (Biles et al., 2011), and penalties paid by hospitals
for poor performance (e.g., inappropriate readmissions) and
by large employers who fail to provide workers with adequate

insurance. The law also includes bundled hospital payment
systems and revenue from a surtax imposed on unearned
investment income on wealthy taxpayers to reduce costs.
Finally, other financing mechanisms in the law include a 40%
excise tax (i.e., the ‘Cadillac tax’) on high-premium insurance
plans typically characterized by low or no deductibles and co-
payments (now repealed); health industry fees; rate reviews;
and increased Medicare payroll taxes for the wealthy (CBO,
2010b).
The ACA Bundled Payments
for Care Improvement
Key Term Initiative is another policy
intended to control costs. It is
voluntary and offers physicians,
hospitals, and other providers a
Episode of
single payment to cover all
Illness. A
medical services required to care
specific medical
for a patient for a specific episode
condition or
of illness. Traditionally, providers
problem of
have been paid separately for each
expected
service received by a patient, a
limited
duration. practice that some believe
increases costs (U.S. Department
of Health and Human Services,
2011).
An ACA provision requires insurers to spend a minimum
of 80% (for individuals in the small group markets) and 85%

(for those in the large group market) of sales revenue from
premiums on medical care for policyholders and quality
improvement (Tolbert, 2015). This requirement is known as
the medical loss ratio (MLR). The MLR refers to the fact
that money spent on medical care, rather than administration,
represents a ‘loss’ to insurers. The MLR encourages health
insurance companies to “eliminate wasteful administrative
spending and increase the value consumers receive for their
premium dollars” (Harrington et al., 2012).
Some administrative provisions of the ACA include
measures designed to reduce administrative costs, encourage
accurate accounting and promote careful and efficient record-
keeping. They establish compliance and certification rules that
reduce fraud, and penalties for violations of administrative
record-keeping (CMS, n.d.-c).
Review report (Tolbert, 2015): Coverage Provisions in the
Affordable Care Act, An Update
5.2.3 Current Status

Review survey brief (Commonwealth Fund, 2019): Health
Insurance Coverage Eight Years After the ACA
Knowledge Check


Value-Based Contracting in
Healthcare.
5.3 VALUE-BASED CONTRACTING IN HEALTHCARE | 367
5.3 VALUE-BASED
CONTRACTING IN
HEALTHCARE
Sections:
5.3.1 Background
5.3.2 Types of Value-Based Contracts
5.3.3 What are the Value-Based Programs?
5.3.1 Background
At its most fundamental, health risk (either clinical or
financial) is a combination of two factors: the amount of loss
and the probability of occurrence. Loss occurs when an
individual’s post-occurrence state is less favorable than the pre-
occurrence state. Financial risk is a function of loss amount
368 | 5.3 VALUE-BASED CONTRACTING IN HEALTHCARE
and probability of occurrence, or in actuarial terminology, the

frequency and severity of the loss. In the United States (U.S.),
health risk has historically been the responsibility of payers
(i.e., insurers, government programs, and employers).
Healthcare payers have traditionally managed risk by
combining pricing, underwriting, reinsurance, and claims
management.
With the enactment of the HMO Act of 1973, managed
care was developed in the 1990s as a series of initiatives
designed to better manage the health of covered individuals
and reduce unnecessary medical claims costs. The original
approaches included network management, which is the
process of identifying and contracting with preferred
providers who offer either lower fees or lower utilization of
services and steering patients to them, through benefit design
or by requiring referrals. It also included utilization
management throughpre-authorization or concurrent review
of hospital admissions.
Definition: Utilization management is “the

evaluation of the medical necessity,
appropriateness, and efficiency of the use of
healthcare services, procedures, and facilities
under the provisions of the applicable health
benefits plan, sometimes called utilization
review” (Matthews, 2016).
In a quest for savings, these models devolved into restricting

services and denials of care. Because of consumer reaction to
the perceived restrictions and denials that resulted from these
interventions, managed care plans began to seek other
solutions to contain rapidly increasing costs. Techniques
favored for managing utilization include implementing
programs that encourage members to take responsibility for
their own health. Other techniques aim to educate physicians
in the most cost-effective, evidence-based treatments, such as
chronic disease management and case management.
The chronic disease management programs of the early
2000s were implemented by payers and aimed to identify high-
risk or high-need patients, particularly those who were not
compliant with their treatments or had gaps in care. Patient
management was usually performed externally, often via
telephone, by nurses employed at large disease management
organizations. Although attempts were made to involve the
patient’s providers, providers were not party to the payer
contract. This model peaked with several Medicare
Coordinated Care and Support demonstration programs
between 2005 and 2008 (Nelson, 2012; Peikes et al., 2008).
Because of the growth and importance of chronic disease
management programs, the Centers for Medicare and

Medicaid Services (CMS) established a major demonstration
project, the Medicare Coordinated Care Project, to evaluate 15
different care coordination models (Peikes et al., 2008, 2009).
Although the demonstration program showed some
improvement in the quality of care delivered to patients, the
lack of demonstrated savings led to a decline in the type of
vendor-based disease management programs popular up to
that time. It also led to an interest in programs that involved
contracting directly with providers to take the risk for patient
outcomes.
By the end of the first decade of the 21st Century, two
things began to become clear: first, these programs were not
containing medical costs, and second that the solution to rising
costs had to include providers (Peikes et al., 2008). As a result,
CMS’s attention shifted to alternative payment models
incorporating providers directly and focusing on a
combination of cost, quality, and patient satisfaction (i.e., the
Triple Aim). This shift was a reaction to the quality of care
delivered within the U.S. Healthcare system. A study by
McGlynn et al. (2003) found that adults in the U.S. receive the
generally accepted standard of preventive, acute, and chronic
care only about 55% of the time. In addition, quality of care
“varied substantially according to the particular medical
condition, ranging from 78.7% of recommended care to 10.5%
of recommended care for alcohol dependence” (McGlynn et
al., 2003).
Pay for quality was intended to increase the frequency of

these measures by rewarding physicians for their achievement
of evidence-based quality measures (such as screenings, tests
for patient populations, or adherence to prescriptions). The
theory was that closing gaps in care and identifying health
issues earlier would lead to reduced utilization of more
expensive healthcare services later. The achievement of
reduced cost of care in exchange for incentive payments made
this a value-based initiative. Following the failure of the disease
management model to demonstrate financial success,
Congress passed several laws promoting different value-based
initiatives, in addition to initiatives introduced by the Center
for Innovation at CMS. These initiatives (in chronological
order) include:
• Medicare Improvements for Patients and Providers Act

(MIPPA) 2008;
• Affordable Care Act (ACA) 2010;
• Bundled Payments for Care Improvement (BPCI and its
successors) 2011;
• Protecting Access to Medicare Act (PAMA) 2014;
• The Medicare Access and CHIP Reauthorization Act
(MACRA) 2015;
• Medicare’s direct contracting model: Global and
Professional Direct Contracting Model (GPDC) 2020;
• Accountable Care Organization Realizing Equity,
Access, and Community Health Model (ACO
REACH) 2023.
In addition, CMS has introduced a number of alternative

payment models (APMs). In these models, providers agree to
accept a portion of their reimbursement, often in the form of
a share of savings, based on the achievement of certain goals,
including improved quality, reduced utilization, and reduced
cost. APMs include Accountable Care Organizations (ACOs)
as well as models aimed at specific conditions or provider
organizations: Bundled Payments for Care Improvement
(BPCI), Comprehensive Care for Joint Replacement,
Comprehensive Primary Care, Comprehensive End-stage
Renal Disease model, Kidney Care Choices model, and the
Oncology Care Model (OCM). CMS’s stated objective is to
move the entire healthcare market toward paying providers
based on the quality rather than the quantity of care they give
patients (Peikes et al., 2009).
5.3.2 Types of Value-Based

Contracts
Werner et al. (2021) noted that, “the complexity of the current
suite of alternative payment models” and the variety and lack
of standardization of different models make value-based
contracting challenging. Figure 5-1 illustrates the development
and growth of alternative payment models. Over time, models
have become more comprehensive, and the risk assumed by
providers and healthcare management organizations (HCMs)

has increased.
Figure 5-1
Risk and Value-Based Contract Types
(Duncan, 2022)
*BPCI: Bundled Payment for Care Improvement; **OCM:
Oncology Care Model; ***MSSP: Medicare Shared Savings
Program.
Figure 5-1 also illustrates the two dimensions of risk that are
accepted by a provider or HCM: the x-axis indicates increasing
degrees of financial risk, from none (i.e., supplemental pay
for performance payments on top of regular provider
reimbursement) to capitation (i.e., the potential for significant
gain but also losses). The y-axis illustrates the extent of the
services at risk incorporated in the contract. The extent of
services at risk may range from a risk limited to a single episode
of care only (e.g., knee surgery) to population risk in which

the provider or HCM accepts financial risk for all expenses
incurred by the target population.
I. Pay for Quality & Pay for

Performance
According to Magill (2016), the original reimbursement

model (i.e., fee-for-service) can be traced back “to to the origins
of Blue Cross Blue Shield insurance in the 1930s.” In the fee-
for-service (FFS) reimbursement model, each time the patient
received a service from a physician, hospital, or pharmacist, a
bill was generated and then paid by the patient or the payer
(or both). As this system began to impose a financial strain on
payers, different models evolved, beginning with payment for
quality. Unfortunately, while these models improved quality
metrics such as HEDIS – NCQA, they did not significantly
reduce healthcare costs (McGlynn et al., 2003).
Closely aligned with pay for quality models is pay for
performance, in which physicians are rewarded for patient
metrics (such as mammograms for women, eye and foot exams
for people with diabetes, etc.). The foundation of effective pay
for performance initiatives is a collaboration with providers
and other stakeholders to ensure that valid quality measures
are used, that providers aren’t being pulled in conflicting
directions, and that providers have support for achieving
actual improvement.
II. Shared Savings
The big breakthrough in terms of financial risk transfer

occurred with disease management programs in the early
2000s. Insurers that purchased disease management programs
from vendors needed assurance that the programs would
reduce medical costs. Lacking convincing randomized studies,
vendors and payers contracted around a financial outcome;
initially, vendors put a portion of their fees at risk of a favorable
financial outcome. Later models allowed vendors to share in
actual savings generated (i.e., gain-sharing) to the extent that
the vendor reduced costs below a target (Duncan, 2014).
There are different variations of gain-sharing models, with
some being one-sided so only positive savings are shared. In
contrast, others are two-sided so that if costs increase relative to
the target, the vendor must reimburse some of the excess.
III. Bundled Payments
Traditionally, Medicare makes separate payments to providers

for each of the individual services they furnish to beneficiaries
for a single illness or course of treatment. This approach can
result in fragmented care with minimal coordination across
providers and health care settings. Payment rewards the
quantity of services offered by providers rather than the quality
of care furnished. “Research has shown that bundled
payments can align incentives for providers – hospitals, post-
acute care providers, physicians, and other practitioners –

allowing them to work closely together across all specialties
and settings” (CMS, 2022a).
“The Centers for Medicare and Medicaid Services
Innovation Center introduced the Bundled Payments for Care
Improvement (BPCI) initiative in 2011 as one strategy to
encourage healthcare organizations and clinicians to improve
healthcare delivery for patients” (Hardin et al., 2017). This
initiative tested four broadly defined models of care, which
linked payments for the multiple services beneficiaries received
during an episode of care (CMS, 2022a). Under the initiative,
organizations entered into payment arrangements that
included financial and performance accountability “for the
full spectrum of delivery—both acute and postacute—as a
single episode of care, defined as all related services up to 90
days after hospital discharge to treat a clinical condition or
procedure” (Hardin et al., 2017).
The Bundled Payments for Care Improvement Advanced
Model (BPCI Advanced) is a new iteration of this initiative.
The BPCI Advanced Model launched with its first cohort of
providers on October 1, 2018 and the period of performance
ends on December 31, 2025 (Centers for Medicare &
Medicaid Services, 2020). The Avanced Model aims to support
healthcare providers who invest in practice innovation and
care redesign to better coordinate care and reduce
expenditures, while improving the quality of care for Medicare
beneficiaries. BPCI Advanced qualifies as an APM under the
Quality Payment Program. The overarching goals of the BPCI

Advanced Model are (Centers for Medicare and Medicaid
Services, 2023):
• Care Redesign
• Health Care Provider Engagement
• Patient and Caregiver Engagement
• Data Analysis/Feedback
• Financial Accountability.
An independent evaluation in 2020 (i.e., after two years)

found (Centers for Medicare & Medicaid Services, 2020):
Early evidence from the independent evaluation of the

BPCI Advanced Model indicates that participating
hospitals reduced Medicare FFS payments for most of the
clinical episodes evaluated while maintaining quality of
care. However, Medicare experienced net losses in the first
ten months of the model after accounting for
reconciliation payments. This underscores the challenges
of identifying appropriate benchmarks in setting target
prices within a prospective payment framework.
Review the BPCI findings at-a-glance (Centers for Medicare

& Medicaid Services, 2020): BPCI Advanced Year 2 Report –
Findings at-a-Glance
IV. Accountable Care Organizations
The Affordable Care Act introduced Accountable Care

Organizations (ACOs): provider groups that accept payment
risk for their attributed populations in return for the
opportunity to share savings when costs are reduced below an
adjusted benchmark (United States Congress, 2010). In the
original model, providers only accepted upside risk (shared
savings only). In later models, providers could achieve a greater
share of savings but at the cost of having to also share losses.
ACO arrangements exist among all payers and payer types,
including commercial insurers, traditional Medicare, and
Medicaid. CMS’s Oncology Care Model is a similar initiative
but limited to cancer patients undergoing treatment by
oncologists.
V. Capitation
All these models involve some sharing of risk between the

payer and providers. However, full risk transfer is achieved
with capitated models. With capitation, the provider accepts
full financial responsibility for all costs of a population or sub-
population (e.g., primary care only). “Capitated managed care
is the dominant way states deliver services to Medicaid
enrollees. States pay Medicaid managed care organizations
(MCOs) a set per member per month payment for the
Medicaid services specified in their contracts” (Hinton &

Musumeci, 2020).
Definition: Capitation is a way of paying

healthcare providers or organizations in which
they receive a predictable, upfront, set amount
of money to cover the predicted cost of all or
some of the healthcare services for a specific
patient over a certain period of time (CMS, n.d.-
d).
5.3.3 What are Value-Based

Programs?
There are five original value-based programs; their goal is to
link provider performance of quality measures to provider
payment (CMS, 2022b):
1. End-Stage Renal Disease Quality Incentive

Program (ESRD QIP): The CMS administers the
ESRD QIP to promote high-quality services in renal
dialysis facilities. The first of its kind in Medicare, this
program changes how CMS pays for the treatment of
patients who receive dialysis by linking a portion of
payment directly to facilities’ performance on quality of

care measures. These types of programs are known as
“pay for performance” or “value-based purchasing”
(VBP) programs.
2. Hospital Value-Based Purchasing (VBP)
Program: The Hospital VBP Program rewards acute
care hospitals with incentive payments for the quality of
care provided in the inpatient hospital setting. This
program adjusts payments to hospitals under
the Inpatient Prospective Payment System (IPPS) based
on the quality of care they deliver.
3. Hospital Readmission Reduction Program
(HRRP): HRRP is a Medicare value-based purchasing
program that encourages hospitals to improve
communication and care coordination to better engage
patients and caregivers in discharge plans and, in turn,
reduce avoidable readmissions.
4. Value Modifier (VM) Program (also called the
Physician Value-Based Modifier or PVBM):
Mandated by the Affordable Care Act, this program
seeks to financially reward physicians who provide
healthcare that is high value-both high in quality, and
low in cost.
5. Hospital Acquired Conditions (HAC) Reduction
Program: The HAC Reduction Program encourages
hospitals to improve patients’ safety and reduce the
number of conditions people experience during their
time in a hospital, such as pressure sores and hip

fractures after surgery.
There are also other value-based programs (CMS, 2022b):
• Skilled Nursing Facility Value-Based Purchasing

(SNFVBP): The CMS awards incentive payments to
skilled nursing facilities (SNFs) through the SNF VBP
Program to encourage SNFs to improve the quality of
care they provide to Medicare beneficiaries. The SNF
VBP Program performance is currently based on a single
measure of all-cause hospital readmissions.
• Home Health Value-Based Purchasing (HHVBP):
The overall purpose of the HHVBP Model was to
improve the quality and delivery of home healthcare
services to Medicare beneficiaries with specific goals to 1)
provide incentives for better quality care with greater
efficiency, 2) study new potential quality and efficiency
measures for appropriateness in the home health setting,
and 3) enhance the public reporting process.
What’s the timeline for these programs (Fig. 5-2)?

Figure 5-2
CMS Value-Based Program Timeline
(CMS, 2022b)
Knowledge Check
Find the missing words in the word search below:
1. At its most fundamental, health risk is a combination of

two factors: amount of _____ and probability of _____.
2. The original approaches to managed care included
_____ management and _____ management.
3. The _____ and lack of standardization of different
_____ make value-based contracting challenging.
4. With capitation the provider accepts full _____
responsibility for all costs of a _____.


Summary.
5.4 CHAPTER SUMMARY
Government involvement in the economy is typically analyzed

through the lens of market failure. Market failures in
healthcare include externalities, commitment, adverse
selection, moral hazard, drug quality, doctor quality, patents,
market power, equity, and fairness. Governments intervene by
allowing employees tax-free health insurance benefits provided
by an employer and subsidizing healthcare through income
taxes. The government also intervenes through regulations
that influence demand and supply by providing insurance and
information to the public about health matters. The Patient
Protection and Affordable Care Act was signed into law in
2010 to reduce the number of people without insurance and
decrease the overall cost to the healthcare system. The three
primary goals were to make affordable health insurance
available to more people, expand the Medicaid program, and
support innovative medical care delivery methods designed to
lower healthcare costs. The provisions of the Act address the
triple aim: increase access, improve the quality of care, and
reduce the cost of care.
Payers are increasingly looking to providers to assume
financial risk, in addition to the risk of clinical quality and
outcomes of their managed populations. Numerous types of
contracts are being signed between providers and payers: pay

for quality, pay for performance, shared risk and shared savings
arrangements, bundled payments, accountable care, and
capitation. A value-based initiative reduces the cost of care
in exchange for incentive payments to providers. Laws and
initiatives promoting different value-based initiatives include
the Medicare Improvements for Patients and Providers Act
(MIPPA), Affordable Care Act (ACA), Bundled Payments for
Care Improvement (BPCI), Protecting Access to Medicare
Act (PAMA), The Medicare Access and CHIP
Reauthorization Act (MACRA), Medicare’s direct
contracting model: Global and Professional Direct
Contracting Model (GPDC), and Accountable Care
Organization Realizing Equity, Access, and Community
Health Model (ACO REACH).

5.5 REFERENCES &

ATTRIBUTIONS
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Attribution

NC-SA 4.0 . Chapter 12 .

Systems in Transition / Chapter 6 (pgs. 310-317)
/ Copyright 2020. Accessed January 30, 2023.
Academy is licensed under CC BY-NC-SA 3.0.
. Chapter 16.4.
https://socialsci.libretexts.org/Bookshelves/Economics/
Book%3A_Economics_-
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4. Chapter 9, “Value-Based Contracting in Health Care”
by Ian Duncan, found in the book “Health Insurance”
(Isabel Tavares, A. Ed.), is licensed under CC BY 3.0

6: Technology in Healthcare.
CHAPTER 6: TECHNOLOGY IN HEALTHCARE | 397
CHAPTER 6:
TECHNOLOGY IN
HEALTHCARE
Learning Objectives
• Define the major terms associated with health

information technology.
• Examine the categories of innovative health
information technologies that support safe
and effective patient care.
• Summarize health information legislation
created to improve the delivery of healthcare
and protect confidential patient information.
• Describe developing health information
technologies designed to change the way we
safeguard human health.
398 | CHAPTER 6: TECHNOLOGY IN HEALTHCARE
Chapter Sections:
6.1 Health Information Technology
6.2 Health Information Legislation
6.3 Developing Technology in Healthcare
6.4 Chapter Summary
6.1 HEALTH INFORMATION TECHNOLOGY | 399
6.1 HEALTH
INFORMATION
TECHNOLOGY
Sections:
6.1.1 Background & Terminology
6.1.2 General Categories of Health Information

Technology Applications
6.1.1 Background & Terminology
I. Background
Various health information technology (HIT) initiatives have

emerged as part of the strategy to assist healthcare professionals
in their daily duties and reduce the cost of care. High-income
400 | 6.1 HEALTH INFORMATION TECHNOLOGY
countries, as well as low- and middle-income countries, are

working to provide their healthcare systems with HIT. Beyond
these efforts, researchers are working on innovative HIT to
assist patients in managing their health conditions, accessing
healthcare services, and assisting general physicians in their
daily duties (Edoh & Teege, 2011; Shire & Leimeister, 2012;
Yang et al., 2015).
Low and middle-income countries, and rural regions in
high-income countries, are typically medically underserved
and thus face poor access to healthcare services primarily
because patients live far from care units (World Health
Organization, 2017). In addition, rural regions in high-income
countries mostly suffer from a low rate of physicians providing
medical services in these regions (Edoh, 2018).
Overall, the primary healthcare sector is increasingly being
provided with modern information systems that assist medical
doctors in their daily duties by supporting them in decision-
making, diagnosing, prescribing, and remote delivery of care to
patients.
eHealth, mHealth, telehealth, and telemedicine are modern
HIT-enabled tools aiming to provide better, more efficient,
and more effective care services to the patient. Telehealth and
telemedicine enable care service delivery regardless of the time
zone, the geographic residence place of the patient, and his
or her medical doctor(s). Rural regions (i.e., medically
underserved), in particular, have taken advantage of these tools
supporting remote care (Edoh et al., 2016).
HIT systems collect and provide medical information to

medical doctors and the patient for self-management of his
or her health conditions (e.g., glucometer for glucose testing
and tensiometer for blood pressure monitoring). HIT also
processes collected data to assist in decision-making. These
data are stored in the electronic health record or electronic
medical record. Evidence has shown the benefits of electronic
medical records include reducing prescription errors and
enabling inter- and extra-organizational information sharing
(Adjerid et al., 2018; Hydari et al., 2019). Beyond decreasing
the rate of prescription errors, the EHR could also be used
to support accurate diagnosis-making and thus impact the
patient’s health outcomes.
II. Terminology
Digital health. Digital health is a broad, overarching term

that includes categories such as eHealth, mHealth, HIT,
wearable devices, telehealth and telemedicine, and
personalized medicine (U.S. Food & Drug Administration,
2020). Digital health technologies use computing platforms,
connectivity, software, and sensors for health care and related
uses. These technologies span a wide range of uses, from
applications in general wellness to applications as a medical
device. They include technologies intended for use as a medical
product, in a medical product, as companion diagnostics, or
as an adjunct to other medical products (devices, drugs, and
biologics). They may also be used to develop or study medical

products (U.S. Food & Drug Administration, 2020).
eHealth (electronic health). The term ehealth is
defined as “a set of technologies applied with the help of
the internet, in which healthcare services are provided to
improve quality of life and facilitate healthcare delivery”
(da Fonseca et al., 2021). eHealth mostly focuses on
medical informatics and deals with data. An electronic
medical record (EMR) system is an eHealth system that
records patients’ medical data. A hospital information
system is also an eHealth system that collects, processes,
and stores any data related to a hospital.
mHealth (mobile health). According to the WHO
Global Observatory for eHealth (2011), mHealth is a
component of eHealth. The Global Observatory for
eHealth defines mHealth as medical and public health
practice supported by mobile applications, such as
mobile phones, patient monitoring devices, personal
digital assistants (PDAs), and other wireless devices
(Martinez-Pérez et al., 2013). Health and fitness apps
are generally intended for daily individual use and are
related to monitoring or informing about a variety of
healthy activities such as calorie counting or exercise
(Aungst et al., 2014; Martinez-Pérez et al., 2013).
Medical apps focus more on healthcare practices and
may assist in communication or visual representation
of a medical condition or may help to record blood
pressure or blood sugars in clients with hypertension or

diabetes.
◦ However, the use of m-Health technology may

have potential security issues. Many health apps
currently available require the client to input
personal health information (Cummings et al.,
2013). The developer informs the user of the terms
of use (including the use of personal health
information) by requiring a confirmation
agreement before the app can be used. If the client
agrees to the terms of use, users must be informed
of who has access to any personal information
placed within the app. Clients also need to be
informed if their healthcare provider will monitor
this information or if someone else outside the
circle of care will have access to this health
information, such as the app developer. All
healthcare providers must follow the Health
Insurance Portability and Accountability Act
(HIPAA) when using apps with multiple clients so
that any personal information is de-identified.
Suppose more than one client is accessing a mobile
device during a hospital stay or health consult. In
that case, it is also important to develop privacy
policies to prevent clients from accessing another
client’s health information entered into the app.
(Note: Whereas eHealth refers primarily to systems

that create infrastructure, mHealth refers to the mobile
applications that provide data to providers and
patients.)
Health information technology (HIT). The
processing, storage, and exchange of health information
in an electronic environment. Widespread use of health
IT within the health care industry will improve the
quality of health care, prevent medical errors, reduce
health care costs, increase administrative efficiencies,
decrease paperwork, and expand access to affordable
health care. It is imperative that the privacy and security
of electronic health information be ensured as this
information is maintained and transmitted
electronically (U.S. Department of Health and Human
Services, 2022a). HIT includes electronic health records
(EHRs), personal health records (PHRs), electronic
prescribing (e-prescribing), as well as privacy and
security systems (Office of the National Coordinator
for Health Information Technology, n.d.). Review fact
sheet (Office of the National Coordinator for Health
Information Technology, n.d.): Health Information
Technology Fact Sheet
6.1.2 General Categories of

Health Information Technology
Applications
Five (5) categories of health information technology
applications include electronic health records, telemedicine/
telehealth services, health information networks, decision
support tools, and internet-based technologies and services.
I. Electronic Health Records
The electronic health record (EHR) allows access in real-

time to patient information to authorized providers since it
contains each patient’s medical history, diagnoses,
medications, immunizations, and allergies. The certified EHR
is a digital system that provides the most up-to-date
documented information on the patient’s medical status.
EHRs, when integrated with clinical decision support tools,
help the provider to interpret the patient data currently
available and support the interpretation of that data by the
provider. This system can provide clinical reminders or alerts,
aggregate the data into a central database for analysis, and
provide a means of communication and collaboration with
other providers (and with patients) through the patient portal.
The EHR is interactive and can support complete
documentation of a patient encounter through the use of the
Computerized Provider Order Entry (CPOE) templates
embedded in the EHR. Access and accuracy of information in
the EHR depend upon provider inputs, messaging standards,
and terminology standards. The use of patient portals has

improved communication between healthcare providers
through the use of encrypted emails as well as access to the
patient’s medical record, also known as health information
exchange.
Standardization overview
Electronic health systems use standardized clinical

terminologies so that all healthcare providers can
communicate findings and share client information within
their specific practice settings. Standardized clinical
terminologies refer to a set of common terms that describe
health conditions, treatment plans, and necessary
interventions. Two examples of commonly used standardized
clinical terminologies include the Systematized
Nomenclature of Medicine—Clinical Terms (SNOMED
CT) and Canadian Health Outcomes for Better
Information and Care (C-HOBIC). Standardized clinical
terminologies facilitate the measuring and recording of
medical care and data, such as monitoring the time it takes
to perform a procedure. This recorded data can also describe
specific medical activities and their impact on client outcomes,
including the client’s progression toward discharge.
Benefits
The accuracy of data used in patient care and treatment is

critical as a foundation for better clinical outcomes, accuracy

in billing, and timely reimbursements of healthcare services.
The EHR design is to provide complete and accurate medical
documentation on each patient. This data accessed at the
point of care, without the difficulties of reading an illegible
paper record, is critical for efficient and effective clinical
decision-making. By sharing patient information outside of
the healthcare organization or physician practice with other
authorized healthcare providers, organizations can reduce the
costs of duplicate testing, saving time and money for patients
and providers. The coordination of care includes many
stakeholders (e.g., care teams, the patient) in the management
of the patient’s health. Streamlining administrative and
business processes helps improve the value of these systems as
well as increase patient safety and satisfaction.
Challenges
There are many challenges when adopting an EHR and

CPOE. Some unintentional consequences when adopting
these systems can be disrupted workflows that increase the
clerical burden on the provider by including clerical
documentation responsibilities in addition to the clinical
documentation. The frequent changes to systems and user
interfaces increase the disruption of work and the learning
curve included with each change. Some issues remain with
using paper documentation since complex patient orders like
Total Parenteral Nutrition (TPN) and Chemotherapy
continue on paper orders because of the complexity and

uniqueness of each order based on a specific patient’s needs.
Although EHR and CPOE technologies change how
medications are ordered, they can introduce new medication
errors that result from confusing or overly complex graphical
user interfaces where CPOE restricts medication orders and
protocols that do not allow the clinician to order the
appropriate medication because it is not an available selection
(Hartzog, 2010).
If the CPOE templates only offer the provider a check-off
box, a revision of the templates is indicated to provide more
opportunities for specific documentation details. Providers
and coders collaborate with the CPOE implementation team
to ensure that the templates reflect best practices and billing
requirements. Organizations must be aware that correcting
one error, such as illegible handwriting, can also lead to alert
fatigue. Automating some processes like medication
interactions is very valuable as long as the pop-up alerts do
not cause alert fatigue. The pop-up alert must be targeted and
provide valuable information to the healthcare provider.
If the alerts are frivolous and the provider is overwhelmed

by the number of interruptions, they can make errors by
overriding all alerts. For example, aspirin causes an alert with
almost every drug, and is a common prophylactic medication
for stroke and heart attack. Alerts can be modified through the
Pharmacy and Therapeutics Committee, where pharmacists,
clinicians, and physicians work together to ensure their

relevance in the practice setting. The configuration of CPOE
templates can present a barrier to billing since accurate
documentation is critical. Template configuration must allow
the level of detail required to satisfy code requirements for
reimbursement of health services provided in patient care
(Centers for Medicare & Medicaid Services, 2021a).
Health information exchange
The Health Information Exchange (HIE) supports the sharing

of electronic health data between two or more healthcare
organizations or providers. The HIE can also be an
organization that provides this technology at a local, state,
regional, or national level, providing a secure ability to share
health data. The STAR (Strengthening the Technical
Advancement & Readiness of Public Health via Health
Information Exchange) Program expands the ability of HIEs
to support public health agencies in response to health
emergencies and pandemics such as COVID-19 (HealthIT,
2021a). The HIE is a hub of data pulled from multiple sources,
including local communities, regional and state entities that
depends on policies to define how data can be used in public
health agencies.
One of the challenges of the HIE is the need for a master
patient index that provides unique identification so that the
patient information is unique to that patient and not merged
with a patient who has the same name. The capability of
keeping correct patient information is used at an

organizational level with medical record numbers associated
with unique patients. The danger of incorrect treatments
based on incorrect patient information can happen when
sharing patient information outside the organization. This
danger is one reason that patient engagement in their care and
review of the documentation in their medical record is so
important.
II. Telemedicine and Telehealth

Services
Descriptions
During the COVID-19 pandemic, telemedicine and telehealth

were widely adopted to provide healthcare to patients and keep
them safe. Telemedicine uses telecommunication
technologies such as a computer, tablet, or smartphone over
the Internet to let a patient talk to their doctor live either
by phone or video chat (Health Resources and Services
Administration [HRSA], 2022). Telemedicine uses electronic
communications and software to provide clinical services
without the need for an in-person visit to the doctor’s office.
Telemedicine supports remote monitoring so a patient’s
doctor can review any changes they are experiencing from
home (HRSA, 2022). Telehealth provides non-clinical
services such as provider training and medical education. It
also supports the ability to send and receive secure messages

and exchange files with a healthcare provider (HRSA, 2022).
Although telemedicine/telehealth may seem to be an
entirely new technology, it really is not. NASA pioneered
telemetry and telemedical technologies in the space program
to monitor the life signs of the astronauts. These emerging
communication technologies provide an opportunity for
virtual healthcare visits and remote monitoring to support
rural populations that are often medically underserved or the
need for isolation. For example, the only way that many
patients were provided a continuity of care when in-person
visits were restricted during the COVID-19 pandemic was
through the virtual visit using telehealth platforms (Bird,
2021).
Providing safe and efficient care to patients has always been
the goal of healthcare. Pre-COVID-19, the use of telehealth
was restricted due to policies governing the specific telehealth
services that would be covered and reimbursed. Currently,
revisions to state laws and federal regulations are being
considered since existing licensing and reimbursement barriers
may limit the use of telehealth technologies (Lewis, 2021;
Maheu, 2021). During the pandemic, there was a temporary
change that removed these restrictions. However, further
research is needed to explore the sustainability of telehealth
as a treatment option for a wide range of patient groups and
its utility as a communication tool (Doraiswamy et al., 2021;
Graham et al., 2021; Lieneck et al., 2021; Nicosia et al., 2021;

Purnell & Zheng, 2021).
Modalities
Telemedicine/telehealth can take the form of audio and video

(synchronous), store-and-forward technologies
(asynchronous), and remote patient monitoring (Rangachari
et al., 2021).
1. Synchronous
This modality includes real-time telephone or live

audio-video interaction, typically with a patient using a
smartphone, tablet, or computer. In some cases, a nurse
may use peripheral medical equipment (e.g., digital
stethoscopes, otoscopes, ultrasounds) physically with
the patient, while the consulting medical provider
conducts a remote evaluation.
2. Asynchronous
This modality includes “store and forward” technology,

where messages, images, or data are collected at one
point in time and interpreted or responded to later.
Patient portals can facilitate this type of communication
between provider and patient through secure
messaging.
3. Remote patient monitoring
This modality allows direct transmission of a patient’s

clinical measurements to their healthcare provider from
a distance (which may or may not be in real-time). It
also allows the older adult to age in place with less travel
and exposure to COVID-19 and other infectious
diseases. Examples of telehealth services include
TeleSleep, TeleSurgery, outpatient patient-provider
video conferencing, mental health support services,
virtual physical exam guidelines, and maternity support
(Benziger et al., 2021; Lieneck et al., 2021; Nicosia et
al., 2021; Purnell & Zheng, 2021; Westwood, 2021;
Zimmerman et al., 2021).
To examine the effectiveness of this modality,
Zimmerman et al. (2021) conducted a patient
satisfaction survey comparing partial hospital services
delivered to 240 patients via telehealth during the
COVID-19 pandemic, to in-person treatment provided
to 240 patients prior to the pandemic. The results of the
patient satisfaction survey revealed that “both groups
were highly satisfied with all components of the
treatment program and almost all would recommend
treatment to a friend or family member” (Zimmerman
et al., 2021).
Examples of remote monitoring tools include
continuous glucose monitors, anticoagulation testing,
electrocardiography devices, heart rate monitors,

medical alert systems, maternity care monitoring,
pediatric monitoring, pulse oximeter, smart scale,
medication monitoring, and patient wearables (Welkin
Health, 2020). Devices such as smartphones and
computers allow easy access to remote healthcare
providers through virtual visits from the comfort of
their home. In addition, many new technologies, such
as blood pressure cuffs, glucose meters, and pulse
oximeters, can upload data for the provider.
III. Health Information Networks
Health Information Networks (HIN) are standards,

policies, and services. The objectives of HIN are to secure
health information exchange over the Internet. HIN are,
therefore, important for medical data, which are sensitive data
that need to be protected for reasons such as data integrity
prevention. Examples of HIN include:
• National: The Nationwide Health Information

Network (NHIN)
• Public: The Public Health Information Network
• State: Michigan Health Information Network
IV. Decision Support Tools
Machine learning and all subsets of artificial intelligence (AI)

are now being used with eHealth applications to support
decision-making. Decision support tools mostly use patient
data for data analytics and can even assist in predicting a
medical event.
Definition: Machine learning is a branch of

artificial intelligence (AI) and computer science
which focuses on the use of data and algorithms
to imitate the way that humans learn, gradually
improving its accuracy (IBM, n.d.).
Definition: Artificial intelligence is defined as

“a machine-based system that can, for a given
set of human-defined objectives, make
predictions, recommendations or decisions
influencing real or virtual environments”
(National Artificial Intelligence Initiative Office,
2023).
Electronic clinical decision support (CDS) tools are

integrated into some electronic health records (EHR) and

other similar systems. Some CDS tools can provide prompts
and reminders to assist users, including healthcare
professionals, clinical teams, patients, and administrators, in
implementing evidence-based clinical guideline
recommendations during patient care or service delivery. CDS
tools can provide accurate and timely information to help
advise clinical decision-making within the patient encounter.
The data from the EHR can be used, for example, to analyze
organizational practices and progress (Centers for Disease
Control and Prevention, 2022a).
V. Internet-Based Technologies and

Services
The Internet is the data highway that enables data and

information exchange and communication between the
different actors within a health system. The Internet of
Things (IoT) is defined as user or industrial devices that are
connected to the internet including sensors, controllers, and
household appliances (National Institute of Standards and
Technology [NIST], n.d.). According to the NIST (n.d.), the
IoT could revolutionize the American economy by enabling a
fully connected world with on-demand access to data, systems,
and each other. Of course there are risks that come along with
this level of connectivity, especially among so many devices
across the globe. We must be able to trust the privacy, security,
authenticity, and reliability of these devices, and the advanced

networks that support them (NIST, n.d.).
Review video :
One or more interactive elements has been

can view them online here:
ushealthcaresystem/?p=1461#oembed-1
NIST. (2018). What is the Internet of Things (IoT) and how

do we secure it? https://youtu.be/H_X6IP1-NDc
Knowledge Check


Information Legislation.
6.2 HEALTH INFORMATION LEGISLATION | 419
6.2 HEALTH
INFORMATION
LEGISLATION
Sections:
6.2.1 HIPAA
6.2.2 HITECH Act
Healthcare legislation is created to improve access to care and

depends on the use of the information technologies that we
have available at the point of care. Our electronic health
records (EHRs) are connected to the Internet. From that
perspective, we must be concerned with protected health
information (PHI) so that it is secure when used or shared
with other healthcare providers. Two important pieces of
legislation enacted to protect PHI include the Health
420 | 6.2 HEALTH INFORMATION LEGISLATION
Insurance Portability and Accountability Act (HIPAA) of

1996 and the Health Information Technology for Economic
and Clinical Health (HITECH) Act of 2009. “It is important
to be aware that the HITECH Act and HIPAA are separate
and independent laws. However, because some provisions of
HITECH strengthened existing HIPAA standards and
mandated breach notifications, HITECH is often
(incorrectly) regarded as part of HIPAA” (HIPAA Journal,
2023).
Definition: Protected health information

(PHI) is defined as individually identifiable health
information that is transmitted or maintained in
any form or medium (electronic, oral, or paper)
by a covered entity or its business associates,
excluding certain educational and employment
records (National Institutes of Health, 2007b)
6.2.1 HIPAA
The Health Insurance Portability and Accountability Act
of 1996 (HIPAA) is a federal law requiring the creation of
national standards to protect sensitive patient health
information from being disclosed without the patient’s

consent or knowledge (Centers for Disease Control and
Prevention, 2022b). HIPAA privacy and security rules grew
out of two statutes in the 1970s that addressed the concerns
for confidential patient information: first the Comprehensive
Alcohol Abuse and Alcoholism Prevention, Treatment, and
Rehabilitation Act of 1970 and then the Drug Abuse
Prevention, Treatment, and Rehabilitation Act of 1972
(Health & Human Services, 1994). Protecting the identities
of people seeking treatment for addiction was a catalyst for
our “current need to know” policies that define many of our
information security strategies. HIPAA was signed into law in
1996 to protect the health insurance coverage of people when
they change or lose their employment. In addition, HIPAA
created standards for electronic healthcare transactions and
national identifiers for healthcare providers, insurers, and
employers (HealthIT, 2021b).
I. HIPAA Privacy and Security

Standards
HIPAA Privacy Rule: Establishes national standards to
protect individuals’ medical records and other personal
health information. It applies to health plans, healthcare
clearinghouses, and healthcare providers that conduct
certain healthcare transactions electronically. The rule
applies safeguards to protect the privacy of personal health
information and sets limits and conditions on the uses and
disclosures of such information without patient

authorization. The rule also gives patients rights over their
own health information, including the right to examine
and obtain a copy of their records and request corrections
(Health Information Management Systems Society, 2021).
HIPAA Security Rule: Sets national standards for
protecting the confidentiality, integrity, and availability of
electronically protected health information. Compliance
with the Security Rule was required as of April 20, 2005.
The rule addresses the technical and non-technical
safeguards that “covered entities” must have to secure an
individual’s electronic health information. Before HIPAA,
there were no generally accepted requirements or security
standards for protecting health information (Health
Information Management Systems Society, 2021).
II. Covered Entities
Definition: Covered entities are defined in

the HIPAA rules as (1) health plans that provide
or pay the cost of medical care, (2) health care
clearinghouses such as a billing system or health
management information system, and (3) health
care providers (National Institutes of Health,
2007a). In general, a covered entity is any entity
that provides, bills, or receives payments for
healthcare services as part of its normal
business activities.
Protecting electronic patient information requires a definition

of who is required to follow HIPAA privacy and security
requirements. Under HIPAA, only a covered entity is
required to be HIPAA-compliant and responsible for data
breaches. For example, if a clearinghouse processes or facilitates
the processing of health information from nonstandard or
standard formats into standard or nonstandard formats, this
qualifies them as a covered entity. Private group healthcare
benefit plans and insurers that provide or pay for the cost
of medical care qualify these groups as a covered entity. An
exception is if the benefit plan has less than 50 participants and
is self-administered, it is not a covered entity. Supplemental
Medicare policies and health maintenance organizations
(HMOs) are covered entities. Considering these definitions,
health insurance companies, HMOs, employer-sponsored
health plans, Medicare, Medicaid, military, and veteran’s
health programs are covered entities. Health Data
Clearinghouses, doctors, clinics, psychologists, dentists,
chiropractors, nursing homes, and pharmacies are covered
entities. Suppose a covered entity uses the services of a third
party, such as a Cloud Service Provider. In that case, they must
have a written business associates agreement (BAA) contract
that establishes what this third party has been engaged to do,
and the BAA must require compliance with HIPAA
regulations. Some other examples are a third party that helps
with health plan claims processing, utilization review
consultants, and independent medical transcriptionist services
for physicians (CMS, 2021b).
III. Safeguards
Before HIPAA became law in 1996, there was no accepted

standard for protecting health information. CMS outlined the
policies and procedures needed to protect patient information.
Security is one of the primary concerns organizations have
in protecting patient health information (PHI), and sharing
it with other organizations in health information exchanges.
Three security safeguards are used to secure an organization’s
protected health data: administrative, physical, and technical.
• Administrative safeguards demonstrate appropriate

written policies, procedures, and job descriptions,
including sanctions for violations, so staff are aware and
can be properly trained.
• Physical safeguards define user access, training, disaster
planning, backup, facility inventory, safeguards for
unauthorized physical access or tampering, and
contingency plans.
• Technical safeguards include unique user-identified
password policies, user access allowed, automatic log-off,

email policies, encryption, and data transmission
protocols.
Considering organizational requirements, they must include

the use of Business Associates Agreements (BAAs) that
identify and control the amount of access a vendor could have
to protected health information (CMS, 2016). However, with
the increased adoption of EHRs to gather patient health
information, there is also an increased vulnerability to data
breaches. HIPAA administrative, technical, and physical
safeguards must be implemented to keep protected health
information (PHI) confidential, private, and secure
(HealthIT, 2017).
IV. Threats
Inside the healthcare organization, security training for all staff

accessing the information system is critical to protecting health
information. The threats to information security can be
intentional or unintentional. The threat source is either
internal or external to the organization. Intentional exposure
of patient information without authorization can result from
a hacker or a disgruntled employee using malicious software
– malware. Intentional destruction of data or network
disruption can result from various forms of malware,
including viruses, Trojan Horses, spyware, worms,
Ransomware, and rootkits. Organizations must provide, at a

minimum, annual security training so that the health
information systems that staff are using are less likely to be
compromised (Conn, 2016). In addition, the appropriate
password complexity and security must be enforced for each
user of the system. The security precautions to prevent an
internal breach include not sharing passwords and not
downloading information or unauthorized software from
insecure or forbidden sites.
The U.S. Department of Health and Human Services
(2019) provides security resources for healthcare organizations
and providers. The first step is to create an organizational
culture committed to HIPAA privacy and security
requirements. Next, it is important to perform a security risk
analysis by reviewing policies, procedures, and staff activities
related to the HIPAA Security Rule, then document the risk
analysis processes. Developing an action plan that helps
manage and mitigate the risks identified in the analysis is also
important.
6.2.2 HITECH Act

The Health Information Technology for Economic and
Clinical Health Act of 2009 (HITECH), which was part
of the American Recovery and Reinvestment Act of 2009
(ARRA), provided the Department of Health and Human
Services (HHS) the authority to create programs that would
improve quality, safety, and efficiency in the exchange of health

information (U.S. Department of Health and Human
Services, 2017). HITECH expanded the adoption of health
information technology, such as EHRs, by providing funding
through incentive payments authorized by Medicare and
Medicaid. This funding was provided to hospitals and
clinicians who could demonstrate the “meaningful use” of
EHRs by integrating clinical quality measures in patient care
(U.S. Department of Health and Human Services, 2017).
Definition: Meaningful use is defined as “the

use of certified electronic health record by
healthcare providers to improve the safety,
efficiency, and quality of care. It includes the:
• Use of certified EHR technology in a

meaningful manner (e.g., e-prescribing).
• Use of certified EHR technology in a
manner that provides for electronic
exchange of health information to improve
the quality of care.
• Use of certified EHR technology to submit
clinical quality measures (CQM) and other
measures.” (Henricks, 2011)
HITECH not only encouraged the adoption of Certified

EHRs but also removed loopholes in HIPAA by making the
language describing HIPAA Rules more robust (HealthIT,
2015; HIPAA Journal, 2023). For example:
Prior to the HITECH Act of 2009, there was no

enforcement of a written business associates agreement
(BAA), and covered entities could avoid sanctions in the
event of a breach of PHI by a Business Associate by
claiming they did not know the Business Associate was not
HIPAA-compliant. Since Business Associates could not be
fined directly for HIPAA violations, many failed to meet
the standards demanded by HIPAA and were placing
millions of health records at risk. (HIPAA Journal, 2023)
From 2011 through 2016, the EHR incentives were available

to eligible care providers who met the criteria defined by
Medicare and Medicaid (Burke, 2010). The Medicare
incentives were available to hospitals that received payments
under the Inpatient Prospective Payment System (IPPS),
critical access hospitals, and Medicare advantage. The eligible
professionals were medical or osteopathy doctors, dental
surgeons, podiatrists, doctors of optometry, and chiropractors.
Medicaid incentives were available to acute care, critical access,
children’s, and cancer hospitals in which Medicaid patients
comprised at least 10% of their patient volume. Eligible
professionals are physicians, nurse practitioners, certified
nurse-midwives, dentists, and physician assistants working in a
federally qualified health center or rural health clinic (Centers

for Medicare & Medicaid Services [CMS], 2010).
To be eligible for the incentive payments, the participants
must demonstrate the meaningful use of the certified EHR to
improve the quality of healthcare by achieving clinical quality
measures to meet meaningful use objectives. The Meaningful
Use Incentive Program included privacy and security
requirements that PHI would be protected from unauthorized
access and that the patients would have access to their medical
information (HealthIT, 2015).
Definition: Interoperability is defined as the

ability of two or more systems to exchange
health information and use the information once
it is received (HealthIT, 2013).
According to the HIPAA Journal (2023):
In April 2018, CMS renamed the Meaningful Use

incentive program the Promoting Interoperability
Program. The change moved the program’s focus beyond
the requirements of Meaningful Use to the
interoperability of EHRs to improve data collection and
submission, and patient access to health information.
EHR Interoperability enables better workflows and reduced

ambiguity and allows data transfer among EHR systems and
health care stakeholders. Ultimately, an interoperable

environment improves healthcare delivery by making the right
data available at the right time to the right people.
Review fact sheet (CMS, 2021c): Medicare Promoting
Interoperability 2021
Knowledge Check


Developing Technology in Healthcare.
6.3 DEVELOPING TECHNOLOGY IN HEALTHCARE | 431
6.3 DEVELOPING
TECHNOLOGY IN
HEALTHCARE
Sections:
6.3.1 Emerging Healthcare Technologies
6.3.2 The Future of Healthcare Technology
6.3.1 Emerging Healthcare

Technologies
Implementation of smart healthcare solutions can improve the
quality of patient care to enhance patient treatments. These
kinds of solutions enable healthcare professionals to deliver
the needed and adjusted medical treatment smarter and faster
(Alotaibi & Federico, 2017). With the increasing world
432 | 6.3 DEVELOPING TECHNOLOGY IN HEALTHCARE
population, the well-known conventional patient-doctor

relationship has lost effectiveness (Choy & Ismail, 2017).
Hence, smart healthcare has become very important and can
be implemented at all levels in an organization, starting from
temperature monitoring for babies to tracking vital signs in the
elderly. With healthcare technologies, organizations can create
efficient workflows to ensure high-quality patient treatment.
This ambition is only achieved when technologies are fully
utilized. Therefore, the focus should be on ensuring the
efficient use of existing and new technologies (Cozzens et al.,
2010; Simpson et al., 2008). Research in new technology is
developing rapidly in the health field. Six topics regarding
emerging health information technology include telemedicine,
robotic surgery, game technology, the home under
observation, wearables, and usability (Boulos & Wheeler,
2007).
I. Telemedicine
This topic was discussed in Section 6.1.2 of this chapter. Please

review 6.1.2 Categories of Health Information
Technology Applications.
II. Robotic Surgery
Robots are machines or automated technologies

capable of performing a series of actions to do
everything from driving cars to performing surgery.

Robots have existed in the workplace for years, but
their presence on job sites is increasing, as are their
capabilities. Today’s robots are designed to work
alongside, move amongst, and be worn by human
workers.
Robotic surgery is a method of performing
surgery using very small tools attached to a robotic
arm. The surgeon controls the robotic arm with a
computer. Nowadays, robots are used for surgeries
such as gastric bypass, uterus, kidney, bladder,
prostate, and colon. The advantage is that robotic
surgery can be performed without an incision, and
the patient can leave the hospital earlier than with
open surgery (UC Health, 2019). At the same time,
the robot can see the body in 3-D; it is more flexible
and has more precision. The result is less blood loss,
fewer infections, less scarring, shorter hospitalization,
and less pain (Van Koughnett et al., 2009).
III. Game Technology
According to Lioce et al. (2020), “Game technology is the

application of game design elements (conceptual building
blocks integral to building successful games) to traditionally
nongame contexts (Rutledge et al., 2018). It is the application
of the characteristics and benefits of games to real-world
processes or problems. Gamification differs from serious

games in terms of the design intention, with gamification
interventions involving the application of game elements with
a utilitarian purpose” (Gentry et al., 2019).
Game technology became popular through a concept
known as exergaming. Exergaming is defined as “digital games
that require bodily movements to play, stimulating an active
gaming experience to function as a form of physical activity.”
These games require the user to apply full body motion to
participate in virtual sports, in group fitness exercise or other
interactive physical activities. Exergaming became popular
among young people and then spread quickly to nursing
homes where the elderly also had the pleasure and benefit of
the machine because it was both entertaining and a form of
exercise (Hwang et al., 2011, Lawrence et al., 2010).
Review fact sheet (American College of Sports Medicine,
2013): Exergaming
Phillips et al. (2019) concluded the following regarding the use

of game technology in healthcare:
• “Gamification can motivate patient-controlled

behaviors and has already been studied in a wide
variety of disease states.”
• “Although gamification in healthcare has the
potential to modify behaviors, participating in
gaming is innately a behavior that may result in
unintended consequences. Given concerns both real
and imagined, it does not seem unreasonable for
gamified health apps to undergo an assessment of

efficacy and safety before being released to the
public.”
• “Noncompliance with and nonadherence to
prescribed medical treatments are problems that seem
well suited to alternative motivational strategies.
Conceptually, a variety of disease states could be
avoided, or their progression substantially halted by
more rational patient behavior, which might be
positively influenced through a game application.
Clinical examples include diet and exercise in patients
with cardiac disease, smoking cessation in patients
with chronic obstructive pulmonary disease, and
lifestyle modification in patients with type 2 diabetes.
Given that these chronic diseases have significant
management costs, it would seem appropriate that
physicians monitor the gamified apps in such clinical
scenarios.”
Today, games are also used for rehabilitation after cerebral

hemorrhage and for the care of dementia patients. For
example, patients can get cognitive training and become
calmer through reversal play with old family pictures
(Dormann, 2016; McCallum & Boletsis, 2013).
IV. The Home Under Observation
Imagine a home where it is being registered online

every time you open the refrigerator door. The floor
is pressure sensitive and can follow your walk around
the house. In the potted plants, there are small

sensors that measure every time you water the plant,
and when you turn on the light, it is logged (Cordelois,
2010).
For some, it sounds like a dystopic surveillance society. But
for others, there are great opportunities to prevent hospital
admissions among the elderly. The technology has huge
potential. For example, pneumonia and urinary tract
infections in the elderly can be traced in their everyday
rhythms. If one can measure as soon as a breach of the patient
ordinary routine occurs, treatment can put in much faster
(Jerant et al., 2001).
V. Wearable Computers and Wearable

Technology
Wearable computers and wearable technology are small

devices using computers and other advanced technology
designed to be worn in clothing or directly against the body.
These devices are usually used for entertainment and other
tasks like monitoring physical activity. Wearable technology
typically uses low-powered radiofrequency transmitters to
send and receive data from smartphones or the Internet.
Radiofrequency transmitters emit radiowaves, a type of non-
ionizing radiation. Most devices use low-powered Bluetooth
technology similar to that used in hands-free headsets for cell
phones and many other wireless consumer devices. Some
devices also use Wi-Fi or other communication technologies

(Centers for Disease Control and Prevention, 2015).
Familiar examples of wearable computers or wearable
technology include “smartwatches” and fitness trackers.
Future devices could include head-mounted displays and a
wide variety of personal health monitors. Wearables collect all
sorts of data about your body: sleep rhythm, pulse, location,
and, among other things, how much you exercise
(Asimakopoulos et al., 2017). These devices will be even more
comprehensive in the future by reading insulin levels,
anticipating ovulation, or monitoring how much sun you get.
VI. Usability in Health Technology
Health technology must be adapted to the users. Two basic

elements of health technology must be present: first, the
technology must work, and second, patients must have access
to the technology. It is not the technology itself that is
interesting, but the purpose of the technology. The technology
must be applicable to many patient groups, disease groups,
and populations where it can contribute value to health, safety,
cohesion, learning, and quality of life (Bernhardt, 2004). The
patient, or the user, is thus the focal point.
Definition: Usability is the extent to which a

product can be used by specified users to

achieve specified goals with effectiveness,
efficiency, and satisfaction in a specified context
of use (National Institute of Standards and
Technology, 2017).
One of the pieces in this great puzzle of health technology is

usability. It must be easy, safe, useful, and motivating for users
to use the technology. The technology user interface must be
intuitive and tailored to the specific user group. When needed,
the right effort must be organized to equip users to apply the
technology properly. “Human factors” are an important part
of health technology (Turner et al., 2017). According to the
American Psychological Association (2023):
The term human factors decribes the impact of human

beings, with their characteristic needs, abilities, and
physical and mental limitations, on system function.
Considerations for human factors need to be made when
designing, evaluating, or optimizing systems for human
use, especially with regard to safety, efficiency, and comfort.
Human factors are becoming increasingly important as more

and more patients with psychiatric disorders are being treated
through technology (Patel & Kannampallil, 2014).
6.3.2 The Future of Health

Information Technology
The future includes new technologies such as blockchain,
artificial intelligence, robotic process automation, the Internet
of Medical Things, and concerns regarding cybersecurity and
data privacy.
I. Blockchain
The COVID-19 pandemic demonstrated the need for

healthcare providers to adopt EHRs and other digital
technologies like telehealth and health information exchanges
to expand access to care for all patients. The need to adopt
EHR technologies will increase the focus on standardization.
In the future, improvements in securing patient information
may use new technologies like blockchain (Ahmad et al.,
2021).
Blockchain is a digital ledger of transactions and is likely
an important component of the next-generation Internet –
the Decentralized Web or Web 3 (Walkweltech, 2019). Simply
put, blockchain is a database technology (or digital ledger) that
enables the secure storing and sharing of information.
Blockchain is not a new technology but instead an innovative
way of using existing, mature technologies. Currently, its core
function is to create a tamper-resistant ledger for digital assets,
such as cryptocurrency (U.S. Government Accountability

Office, 2022).
Since the Health Insurance Portability and Accountability
Act (HIPAA) os 1996 requires an audit trail to be visible
regarding protected health information (PHI), blockchain
in its current form is not HIPAA compliant. However, it could
be developed to accommodate that requirement. Large
amounts of complex medical data are being collected in EHRs
(e.g., lab values from tests, diagnostic imaging, sensor devices,
and genomics). This large amount of complex data requires a
strategy to analyze it so that it is useful and creates actionable
information. Data can be structured, semi-structured, or
unstructured.
The characteristics of big data are “value, volume, velocity,
variety, veracity, and variability” (Ristevski & Chen, 2018, p.
2). The value of the data is when it is analyzed that it provides
value to the patients and clinicians who will use it.The sheer
volume of medical and health-related data is increasing
exponentially, and the velocity refers to the speed and amount
of data created. The variety of the data depends on if the data
is structured, unstructured, or semi-structured. The veracity
of the data means what relevance, reliability, quality, and
predictive value the data may provide. Finally, data variability
considers if the data is consistent over time.
Big data analytics can potentially improve patient care by

detecting diseases and trends more quickly by revealing disease
patterns and providing actionable knowledge to healthcare

providers and public health. However, missing data points can
change the analysis and lead to erroneous conclusions.
Key Term There
are also privacy and security issues with using big data in
healthcare since medical data is sensitive and must be kept
confidential. Encryption and data de-identification are
Encryp
needed so that personal information is not accidentally
tion. A
revealed. method
of
converti
II. Artificial ng an
original
Intelligence messag
e of
In healthcare, there are regular
opportunities to apply artificial text into
encoded
intelligence (AI) and machine text.
learning (ML) to the large The text
amounts of patient data generated is
encrypt
every day (Fernandez, 2018). The
ed using
application of AI to digital an
imaging is a critical opportunity algorith
m (a
for streamlining the diagnosis of
type of
disease and can help identify formula)
disease trends in different . If
informa
geographic locations. ML is a type
tion is
of AI where the algorithms
developed are based on
computational statistics. This
data can “teach” the computer by

recognizing patterns in the data;
encrypt the larger the dataset provided,
ed, the more precise the output will
there is become. COVID-19
a low
probabil
demonstrated the value of
ity that predictive analytics that helped
anyone medical providers respond to the
other
than the
spread of the disease to support
receivin population health and improve
g party patient outcomes. Although AI
with the
key to
and ML are powerful tools, they
the are only as good as their
code or programming. If incomplete
access
datasets are used to train AI and
could
decrypt ML, bias can be introduced by
(translat including existing prejudices
e) the
around race or gender, for
text and
convert example. Addressing this ethical
it into concern means that these
plain,
programs must be free of errors.
compre
hensible Human oversight is needed since
text AI and ML systems are not
(HealthI
infallible (Juneja, 2022).
T, 2015).
III. Robotic Process Automation
Definition: Robotic process automation

(RPA), also known as software robotics, uses
automation technologies to mimic back-office
tasks of human workers, such as extracting data,
filling in forms, moving files, et cetera
(International Business Machines Corporation
[IBM], 2020).
Robotic Process Automation (RPA) is a technology that extracts

data, fills in forms, and moves files. This software helps to
automate repetitive tasks and can expand the use of AI and
ML, natural language processing, and computer vision (IBM,
2020). The difference between AI and RPA is that AI is data-
driven, and RPA is process-driven. The RPA processes are
defined by end-users.
IV. The Internet of Medical Things
Definition: The Internet of Medical Things

(IoMT)refers to the use of mobile computing,
medical sensors, and cloud computing to monitor

patients’ vital signs in real-time and the use of
communication technologies to relay data to a
Cloud computing framework (Schneider & Xhafa,
2022).
Definition: Cloud computing is a layered

architecture composed of the hardware, storage
infrastructure, platform composed of the
software framework, and web service
applications (Botta et al., 2016).
The Internet of Medical Things (IoMT) connects many

widely distributed devices. The opportunity to leverage
wearable devices to help patients and their care providers
manage chronic disease through remote patient monitoring
cannot be overlooked. The interoperability and connectivity
of healthcare devices depends on how the device
communicates its data, such as a one-way data transmission to
the provider. Integrating data from different devices provides
a better understanding of the patient and their current
conditions.
Patient engagement and understanding about using medical

devices will provide the benefit of better patient outcomes
through early detection and interventions by their provider.
Botta et al. (2016) suggest that the Cloud and IoMT must
integrate radio frequency identified (RFID) technology,
wireless sensor networks, and smart devices capable of sending
digital information. The IoMT is used to support eHealth,
where data is stored in the cloud and shared (Kelly et al., 2020).
The security, privacy, and confidentiality factors of these new
technologies, like the IoMT, Cloud computing, and remote
monitoring, will be a challenge in meeting HIPAA
requirements since these technologies are currently vulnerable
to cyberattacks.
However in 2022, health care providers and health plans
(i.e., covered entities) were granted use of remote
communication technologies to provide audio-only
telehealth services when such communications are conducted
in a manner that is consistent with the applicable requirements
of the HIPAA Privacy Rules (U.S. Department of Health and
Human Service, 2022b). Covered health care providers that
seek additional privacy protections for telehealth while using
video communication products need to provide these services
through technology vendors that are HIPAA compliant (U.S.
Department of Health and Human Services, 2021).
Fortunately, most telehealth video conferencing platforms are
HIPAA compliant. Encryption is an important step needed to
protect private data during video conference calls and IoMT

devices (Softermii, 2022).
V. Cybersecurity and Data Privacy
Definition: Cybersecurity is defined as the art

of protecting networks, devices, and data from
unauthorized access or criminal use and the
practice of ensuring confidentiality, integrity, and
availability of information.
Cybersecurity and data privacy are ongoing concerns as the

adoption and use of these innovative technologies increase.
According to the Healthcare Information and Management
Systems Society (2023):
Cybersecurity in healthcare involves the protecting of

electronic information and assets from unauthorized
access, use and disclosure. There are three goals of
cybersecurity: protecting the confidentiality, integrity, and
availability of information, also known as the CIA triad.
Review webpage (Healthcare Information and Management

Systems Society, 2023): Cybersecurity in Healthcare
Review blog (Health and Human Services, 2022):
Improving the Cybersecurity Posture of Healthcare in 2022
Knowledge Check


Summary.
6.4 CHAPTER SUMMARY
High-income and low- and middle-income countries are

working to support their healthcare systems with health
information technology (HIT). eHealth, mHealth, telehealth,
and telemedicine are modern HIT-enabled tools aiming to
provide better, more efficient, and more effective care services
to the patient. HIT systems collect and provide medical
information and process collected data to assist decision-
making. Five health information technology applications
categories include electronic health records (EHR),
telemedicine/telehealth services, health information networks,
decision support tools, and internet-based technologies and
services. The certified EHR is a digital system that provides
patient medical information and, when integrated with clinical
decision support tools, helps the provider interpret the patient
data.
The Health Information Exchange (HIE) supports sharing
of electronic health data between two or more healthcare
organizations or providers at the state, public health, or federal
level. Telemedicine uses electronic communications and
software to provide clinical services without the need for an
in-person visit. The telehealth that results from this form of
communication can take the form of audio and video
(synchronous), store-and-forward technologies

(asynchronous), and remote patient monitoring. Health
Information Networks (HIN) are standards, policies, and
services designed to secure health information exchange over
the Internet. Decision support tools are used for data analytics
and to predict a medical event. Internet-based technologies
enable data and information exchange as well as
communication between the different actors within a health
system.
Health information legislation created to improve
healthcare delivery and protect confidential patient
information include the Health Information Technology for
Economic and Clinical Health (HITECH) Act and the
Health Insurance Portability and Accountability Act
(HIPAA). Six emerging health information technologies
include telemedicine, robotic surgery, game technology, the
home under observation, wearables, and usability. Future
health information technologies include blockchain, artificial
intelligence, robotic process automation, and the Internet of
Medical Things. The future of health information technology
continues to embrace concerns regarding cybersecurity and
data privacy.

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Attribution
1. Introduction to the U.S. Healthcare System” by Thomas

A. Clobes is licensed under CC BY-NC-SA 4.0
. Chapter 13.
2. Chapter 3, “Primary Health-Care Service Delivery and
Accessibility in the Digital Age” by Thierry Edoh, found
in the book “Recent Advances in Digital System
Diagnosis and Management of Healthcare” (Kamran
Sartipi & Thierry Edoh, Eds.) is licensed under under
CC BY 3.0 . Chapter 3.
https://www.intechopen.com/chapters/73175
3. Chapter 14, “Nursing Leadership through
Informatics, Facilitating and Empowering Health Using
Digital Technology” by Shauna Davies, found in the
book “Leadership and Influencing Change in Nursing”
(Joan Wagner) is licensed under CC BY 4.0 .

4. Chapter 4, “Information and Communication
Technology” by Delvin Khan, found in the book “Smart
Healthcare” (Thomas Heston, Ed.), is licensed under
CC BY 3.0 .
Click here to view the Glossary.

GLOSSARY | 469
Glossary
Access. The timely use of personal health services to achieve
the best possible health outcomes.
Accountable Care Organizations (ACOs). Groups of
doctors, hospitals, and other healthcare providers who partner
voluntarily to give coordinated, high-quality care to the
Medicare patients they serve.
Accreditation. A review process that determines if an
agency meets the defined standards of quality determined by
the accrediting body.
Adult day care. A group program designed to meet the
needs of functionally and/or cognitively impaired adults and
provide respite for family caregivers.
Adverse selection. A problem in the health insurance
industry caused by asymmetry in information before
insurance is purchased, such as when individuals/patients who
know they are more likely to require care tend to choose more
generous insurance plans.
Aides. Individuals that provide routine care and assistance
to patients under the direct supervision of other health care
professionals and/or perform routine maintenance and
general assistance in health care facilities and laboratories.
470 | GLOSSARY
Ambulatory Payment Classification (APC). A method

of paying facilities prospectively for outpatient services.
Ambulatory surgical center. An outpatient facility that
operates primarily to provide surgical services to patients who
do not require overnight hospital care.
Artificial intelligence (AI). A machine-based system that
can, for a given set of human-defined objectives, make
predictions, recommendations or decisions influencing real or
virtual environments.
Assisted living. A living environment focused on
maintaining independence in a supervised setting.
Blockchain. A database technology (or digital ledger) that
enables the secure storing and sharing of information.
Brand-name drugs. Drugs that once were or still are under
patents.
Bundled Payment Care Initiative (BPCI). A form of
reimbursement that links various providers together for one
single payment.
Capitation. A fixed sum of money paid to the provider per
time unit (usually monthly) for each patient being treated by
the provider.
Children’s Health Insurance Program (CHIP). A
cooperative federal/state public health insurance
program that provides low-cost health coverage to children in
families that earn too much money to qualify for Medicaid.
Clinical care. The prevention, treatment, and
management of illness and preservation of mental and physical
GLOSSARY | 471
well-being through services offered by medical and allied

health professions, also known as healthcare.
Clinical privileges. Permissions to provide medical and
other patient care services in the granting institution, within
defined limits, based on the individual’s education,
professional license, experience, competence, ability, health,
and judgment.
Cloud computing. A layered architecture composed of the
hardware, storage infrastructure, platform composed of the
software framework, and web service applications.
Coinsurance. A form of medical cost-sharing requires an
insured person to pay a stated percentage of medical expenses
after the deductible amount, if any, is paid.
Concurrent utilization review. A form of utilization
review conducted while the medical services are ongoing.
Conventional indemnity plan. An indemnity that allows
the participant the choice of any provider without effect on
reimbursement. These plans reimburse the patient and/or
provider as expenses are incurred.
Copayments. The fixed dollar amount that an insured
person must pay when a service is received before the insurer
pays any remaining charges.
Core measures. National standards of care and treatment
processes for common conditions.
Coverage limits. Insurance payment limits set in terms of
a dollar or per-day ceiling on benefits.
Covered entities. Any entity (health plans, health care
472 | GLOSSARY
clearinghouses, or health care providers) that provides, bills, or

receives payments for healthcare services as part of its normal
business activities.
Current Procedural Terminology (CPT). A uniform
coding system primarily used to describe tests, surgeries,
evaluations, and any other medical procedure performed by a
healthcare provider on a patient.
Custodial care. Non-medical care that can be safely
provided by non-licensed caregivers. It can take place at home
or in a nursing home and involves help with daily activities like
bathing and dressing. In some cases where care is received at
home, care can also include help with household duties such as
cooking and laundry. It may be covered by Medicaid if care is
provided in a nursing home setting and not at home.
Cybersecurity. The art of protecting networks, devices,
and data from unauthorized access or criminal use and the
practice of ensuring confidentiality, integrity, and availability
of information.
Deductible. The deductible is a dollar amount that an
insured person pays during the benefit period–usually a
year–before the insurer starts to make payments for covered
medical services.
Determinant. A factor that contributes to the generation
of a trait.
Diagnostic-related group (DRG). A method of paying
hospitals prospectively for inpatient services by relating the
GLOSSARY | 473
type of patients a hospital treats to the resource demands and

associated costs incurred by the hospital.
Digital healthcare. The delivery of patient and
personalized medicine using digital channels to collect the
patient’s medical data, helping the patient to self-manage his
health conditions using digital platforms or tools.
Disease management. A comprehensive, integrated
approach to care and reimbursement based on a disease’s
natural course.
Dually eligible. People who are eligible for both
Medicare and Medicaid.
eHealth. The use of information technology and/or
systems and electronic devices for healthcare service delivery
(electronic health).
Encryption. A method of converting an original message
of regular text into encoded text.
Electronic clinical decision support (CDS). Tools
integrated into some electronic health records (EHR) to
provide accurate and timely information to help advise clinical
decision-making within the patient encounter.
Electronic health record (EHR). A digital system that
provides the most up-to-date documented information on the
patient’s medical status.
Emergency department. Hospital facilities that are staffed
24 hours a day, 7 days a week, and provide unscheduled
outpatient services to patients whose condition requires
immediate care.
474 | GLOSSARY
Emergency Medical Treatment and Labor Act

(EMTALA). Legislation that requires hospitals to treat
patients in emergency situations whether or not they have
insurance.
Epidemic. An increase, often sudden, in the number of
cases of a disease above what is normally expected in that
population in that area.
Episode of illness. A specific medical condition or
problem of expected limited duration.
Exclusive Provider Organization (EPO) plan. A more
restrictive type of preferred provider organization plan under
which employees must use providers from the specified
network of physicians and hospitals to receive coverage.
Exergaming. Technology-driven physical activities, such as
video game play, that requires participants to be physically
active or exercise in order to play the game.
Facility-based long-term care services. Residential care
facilities, assisted living facilities, nursing homes, and
continuing care retirement communities.
Fee-for-service. A method of insurance payment in which
doctors and other healthcare providers are paid for each service
performed. Examples of services include tests and office visits.
Formulary drugs. Generic and brand-name drugs
approved by the healthcare provider.
Game technology. The application of game design
elements to traditionally nongame contexts.
Gatekeeping. The requirement to visit a general
GLOSSARY | 475
practitioner, family practitioner, general internal medicine

physician, or general pediatrician in an ambulatory setting and
to obtain a referral prior to accessing specialist care.
Generic drugs. Drugs that are not under any patents.
Geriatrics. The branch of medicine dealing with the care
of patients 65 and older.
Group health maintenance organization. A model in
which the health maintenance organization contracts with a
single, multispecialty entity for providers to provide care to its
members.
Health. A state of complete physical, mental and social
well-being and not merely the absence of disease or infirmity.
Health disparities. Preventable differences in the burden
of disease, injury, violence, or in opportunities to achieve
optimal health experienced by socially disadvantaged racial,
ethnic, and other population groups and communities.
Health indicators. Summary measures that capture
relevant information on different attributes and dimensions of
health status and performance of a health system.
Health information exchange (HIE). The sharing of
electronic health data between two or more healthcare
organizations or providers.
Health information networks (HIN). Standards,
policies, and services that secure health information exchange
over the Internet.
Health information technology (HIT). The field of
information and communication technology mainly focusing
476 | GLOSSARY
on process automation and medical data processing to support

healthcare service delivery, patient self-management, and any
other related processes.
Health Information Technology for Economic and
Clinical Health Act (HITECH). Part of the American
Recovery and Reinvestment Act of 2009 that provided the
Department of Health and Human Services the authority to
create programs that would improve quality, safety, and
efficiency in the exchange of health information.
Health Insurance Portability and Accountability Act
(HIPAA). A federal law requiring the creation of national
standards to protect sensitive patient health information from
being disclosed without the patient’s consent or knowledge.
Health maintenance organization (HMO). A healthcare
system that assumes both the financial risks associated with
providing comprehensive medical services (insurance and
service risk) and the responsibility for healthcare delivery to
HMO members in a particular geographic area, usually in
return for a fixed, prepaid fee.
Health outcome. The result of a medical condition that
directly affects the length or quality of a person’s life.
Healthy People 2030. Launched in August 2020, this
initiative is the fifth and most current iteration of the Healthy
People initiative. It builds on knowledge gained over the last
4 decades and has an increased focus on health equity, social
determinants of health, and health literacy with a new focus on
well-being
GLOSSARY | 477
High deductible health plan (HDHP). This type of plan

typically features a higher deductible and lower insurance
premiums than traditional health plans.
Hippocratic oath. A Greek medical text that requires a
new physician to swear upon a number of healing gods that he
will uphold a number of professional ethical standards.
Home and community-based services (HCBS). Person-
centered care that allows people with significant physical and
cognitive limitations to live in their home or a home-like
setting and remain integrated with the community.
Home healthcare. A formal, regulated program of
care delivered in the home that can include a range of
services provided by skilled medical professionals.
Hospice care. Care focused on providing comfort and pain
control versus extending one’s life for patients expected to live
six months or less.
Hospitals. Licensed institutions with at least six beds
whose primary function is to provide diagnostic and
therapeutic patient services for medical conditions; they have
an organized physician staff, and they provide continuous
nursing services under the supervision of registered nurses.
In-network providers. Healthcare providers (e.g.,
specialists, hospitals, laboratories) that have accepted
contracted rates with the insurer. As a result, the insured
person typically pays a lower price for using services within the
network.
478 | GLOSSARY
Indemnification. The payment for losses actually

incurred.
Independent Practice Association (IPA). A health
maintenance organization model in which a group of
independent practitioners and group providers who decide to
form a legal contract with a separate legal entity.
Infant mortality. The death of an infant before his or her
first birthday.
Inpatient rehabilitation facility. A specialized hospital or
unit focused on delivering intensive rehabilitative services to
patients with medically complex diagnoses.
Internet of Medical Things (IoMT). The use of mobile
computing, medical sensors, and cloud computing to monitor
patients’ vital signs in real-time and the use of communication
technologies to relay data to a Cloud computing framework.
Internet of Things (IoT). User or industrial devices that
are connected to the internet including sensors, controllers,
and household appliances.
Interoperability. The ability of two or more systems to
exchange health information and use the information once it is
received.
Intervention. An action or ministration that produces an
effect or is intended to alter the course of a pathologic process.
Iron triangle. A population health management model
focused on three key aims of healthcare delivery: access,
quality, and cost.
GLOSSARY | 479
Lean. A set of management practices to improve efficiency

and effectiveness by eliminating waste.
Lean six sigma. A philosophy of improvement that values
defect prevention over defect detection.
Life expectancy. The average number of years that a person
could expect to live if he or she experienced the age-specific
mortality rates prevalent in a given country in a particular year.
Long-term care. A type of care traditionally provided in
nursing homes, providing patients who can no longer be cared
for at home or in assisted living with support for both daily
living activities and complex medical problems.
Long-term care hospital. An inpatient facility for those
demonstrating a great deal of medical complexity and
requiring an extended period of medical care and
hospitalization.
Long-term services and supports (LTSS). Home and
community-based services and facility-based settings.
Magnet Recognition Program. An American Nurses
Credentialing Center award that recognizes organizational
commitment to nursing excellence.
Mail-order drugs. Drugs that can be ordered through the
mail.
Managed care plans. Managed care plans generally provide
comprehensive health services to their members and offer
financial incentives for patients to use the providers who
belong to the plan.
Managed care organizations (MCOs). Integrated and
480 | GLOSSARY
coordinated organizations designed to provide care to a

specific patient population.
Maximum out-of-pocket expense. The annual dollar
amount limit a participant or family is required to pay out-of-
pocket in addition to the plan deductible.
Meaningful use. The use of certified electronic health
record by healthcare providers to improve the safety, efficiency,
and quality of care.
Medicaid. A cooperative federal/state public health
insurance program that provides access to
comprehensive health coverage that may not be
affordable otherwise for eligible low-income adults,
children, pregnant women, elderly adults, and people
with disabilities.
Medical loss ratio. The percentage of insurance premium
dollars that a health plan spends on medical care for
policyholders and quality improvement efforts, rather than on
administrative costs. The Affordable Care Act set minimum
MLR standards between 80-85% for insurers in the United
States.
Medicare. A federal public health insurance program that
provides health insurance coverage to nearly all Americans
aged 65 and older and people who have received federal
disability payments for two or more years, those with end-stage
renal disease, and amyotrophic lateral sclerosis.
Medicare Part A. A program within Medicare that
GLOSSARY | 481
provides hospital coverage to all Medicare recipients receive at

no cost.
Medicare Part B. Also known as Supplementary Medical
Insurance (SMI), this helps cover doctors’ services and
outpatient care.
Medicare Part C. A voluntary program within Medicare
that is an alternative to Parts A and B and provides coverage
through private organizations, such as health maintenance
organizations, for the same services.
Medicare Part D. A program within Medicare that
provides prescription drug coverage.
Medical tourism. A patient intentionally crosses a border
to seek medical care that will typically require out-of-pocket
payment for services.
mHealth. Medical and public health practice supported
by mobile devices, such as mobile phones, patient monitoring
devices, personal digital assistants (PDAs), and other wireless
devices (mobile health).
Moral hazard. A problem in the health insurance industry
caused by asymmetry in actions after insurance is purchased,
such as when a buyer of insurance is incentivized to use more
services because they will bear a smaller share of their medical
care costs.
Network management. The process of identifying and
contracting with preferred providers who offer either lower
fees or lower utilization of services and steering patients to
them, through benefit design or by requiring referrals.
482 | GLOSSARY
Network model – A model in which the health

maintenance organization contracts with multiple provider
groups, either single or multispecialty, to provide services to its
members.
Organizational health literacy. The degree to which
organizations equitably enable individuals to find, understand,
and use information and services to inform health-related
decisions and actions for themselves and others.
Out-of-network providers. Healthcare providers who
have not accepted contracted rates with the insurer. As a result,
services received outside the network of healthcare providers
with contracted rates typically carry a higher cost to the
insured person.
Overall limits. Restrictions that apply to all or most
insurance benefits under the plan, as opposed to selected
individual benefits.
Palliative care. A type of care that focuses on managing
the chronic conditions of a patient with the goal of providing
comfort and the highest quality of life possible.
Pandemic. Denoting a disease affecting or attacking the
population of an extensive region, country, or continent.
Patient-centered. Providing care that is respectful of and
responsive to individual patient preferences, needs, and values
and ensuring that patient values guide all clinical decisions.
Patient-centered medical home (PCMH). A
multidisciplinary approach to primary care delivery focused
on providing meaningful, holistic care of the patient, both
GLOSSARY | 483
physical and mental, via an interdisciplinary team of providers

under one roof.
Patient Protection and Affordable Care Act (PPACA).
Legislation aimed to increase consumers’ access to healthcare
coverage and protect them from insurance practices that
restricted care or significantly increased the cost of care.
Patient safety goals. Guidelines specifically for
organizations accredited by The Joint Commission that focus
on healthcare safety problems and ways to solve them.
Personal health literacy. The degree to which individuals
have the ability to find, understand, and use information and
services to inform health-related decisions and actions for
themselves and others.
Physician-hospital organization (PHO). Alliances
between physicians and hospitals for the purpose of helping
providers attain market share, improve bargaining power and
reduce administrative costs.
Plan-do-study-act (PDSA). A commonly used quality
improvement method that allows for refinement of the change
to implementation on a broader scale after successful changes
have been identified.
Point-of-service (POS) plan. A POS plan is an “HMO/
PPO” hybrid, sometimes referred to as an “open-ended”
HMO when offered by an HMO. POS plans resemble HMOs
for in-network services.
Population health (PopH). The health outcomes of a
484 | GLOSSARY
group of individuals, including the distribution of such

outcomes within the group.
Population health management (PHM). The process of
improving clinical health outcomes of a defined group of
individuals through improved care coordination and patient
engagement supported by appropriate financial and care
models.
Post-acute care. Care provided to patients recently released
from the hospital and can take place in many settings,
including nursing homes and rehabilitation centers.
Prevention. An action to avoid, forestall, or circumvent a
happening, conclusion, or phenomenon (e.g., disease).
Pre-authorization. A decision by a health insurer or plan
that a healthcare service, treatment plan, prescription drug or
durable medical equipment is medically necessary.
Preferred provider organization (PPO). An indemnity
plan where coverage is provided to participants through a
network of selected healthcare providers (such as hospitals and
physicians).
Premium. Agreed upon fees paid for coverage of medical
benefits for a defined benefit period.
Primary care. The provision of integrated, accessible
health care services by clinicians who are accountable for
addressing a large majority of personal health care needs,
developing a sustained partnership with patients, and
practicing in the context of family and community.
Prior authorization. A decision by a health insurer or plan
GLOSSARY | 485
that a health care service, treatment plan, prescription drug, or

durable medical equipment is medically necessary.
Prospective utilization review. A form of utilization
review done prior to the medical services or procedures being
delivered.
Protected health information (PHI). Individually
identifiable health information that is transmitted or
maintained in any form or medium (electronic, oral, or paper)
by a covered entity or its business associates, excluding certain
educational and employment records.
Public health. The science and art of preventing disease,
prolonging life and promoting health through the organized
efforts and informed choices of society, organizations, public
and private, communities, and individuals.
Quality. The degree to which healthcare services for
individuals and populations increase the likelihood of desired
health outcomes and are consistent with current professional
knowledge.
Reinsurance. The acceptance by one or more insurers
called reinsurers or assuming companies, of a portion of the
risk underwritten by another insurer contracted with an
employer for the entire coverage.
Retrospective utilization review. A form of utilization
review done after the services are provided and the bill is
delivered.
Risk. The chance of loss or the perils to the subject matter
486 | GLOSSARY
of an insurance contract; also: the degree of probability of such

loss.
Robotic process automation (RPA). The use of
automation technologies to mimic back-office tasks of human
workers, such as extracting data, filling in forms, moving files,
et cetera.
Robotic surgery. A method of performing surgery
using very small tools attached to a robotic arm.
Self-insured plan. A plan offered by employers who
directly assume the major cost of health insurance for their
employees.
Six Sigma. A model for quality improvement that uses a
measurement-based strategy for process improvement and
problem reduction applied to improvement projects.
Skilled nursing facility care. Care ordered by a physician,
delivered by skilled nursing or therapy staff, and paid for by
Medicare Part A for a fixed period of time (up to 100 days).
Social determinants of health. The conditions in which
people are born, grow, live, work, and age. These
circumstances are shaped by the distribution of money, power,
and resources at global, national, and local levels.
Staff model. A model in which the health maintenance
organization directly employs providers on a salary basis.
Stop-loss coverage. A form of reinsurance for self-insured
employers that limits the amount the employers will have to
pay for each person’s healthcare (individual limit) or the
employers’ total expenses (group limit).
GLOSSARY | 487
Telehealth. The provision of non-clinical services such as

provider training and medical education.
Telemedicine. The use of electronic communications and
software to provide clinical services without the need for an in-
person visit to the doctor’s office.
Triple aim. A population health management model
focused on simultaneously improving the patient experience
of care, improving population health, and reducing the per
capita costs of care.
Usability. The extent to which a product can be used by
specified users to achieve specified goals with effectiveness,
efficiency, and satisfaction in a specified context of use.
Usual, customary, and reasonable (UCR) charges. The
charge that is the provider’s usual fee for a service that does
not exceed the customary fee in that geographic area and is
reasonable based on the circumstances.
Utilization review (UR). The evaluation of the medical
necessity, appropriateness, and efficiency of the use of
healthcare services, procedures, and facilities under the
provisions of the applicable health benefits plan, also known as
utilization management.
Value-based reimbursement models. Reimbursement
models used by Medicare, Medicaid, and private insurance
companies that use financial incentives to reward quality
healthcare and positive patient outcomes.
Value stream mapping. A lean tool that employs
a flowchart documenting every step in the process.
488 | GLOSSARY
Veterans Affairs Healthcare System (VAHS). A national

system of clinics and hospitals that provides healthcare services
for military veterans.
Wearable technology. Small devices using computers and
other advanced technology designed to be worn in clothing or
directly against the body for the purpose entertainment and
other tasks like monitoring physical activity.
Wellness. The optimal state of health of individuals and
groups, expressed as a positive approach to living.

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Exploring the U.S.

University of West Florida Pressbooks

Chapter 1: Overview of the U.S.

1.1 Historical Background 9

Chapter 2: Delivery Systems

2.1 Inpatient Care 109

Chapter 3: Health Insurance

3.1 Basic Concepts 179

Chapter 4: Access, Quality & Cost

4.1 Basic Concepts 259

Chapter 5: Current Issues in Healthcare

5.1 Government Policy 343

Chapter 6: Technology in Healthcare

6.1 Health Information Technology 399

Welcome to Exploring the U.S. Healthcare System. This

a “knowledge check” exercise to actively engage students with

Open Educational Resources

Clobes, T. A. (2022). Introduction to the U.S. healthcare system.

licensed under CC BY-NC-SA 4.0

Click here to view the

Thanks and Gratitude To:

Sciences and Administration Department at the University of

Click here to move on to Chapter

• Outline the historical background and basic

1.1.1 Medical Training

1.1.3 Health Insurance

1.1.1 Medical Training

vomiting, and treatment with harmful agents such as mercury

Carnegie Foundation, the report provided a detailed account

Medical Colleges (2021), as of 2020, there were 155 accredited

institutions. When middle- or upper-class became sick or

Definition: Clinical privileges are permissions

This model was particularly appealing to the medical

community because physicians could avail themselves of the

Link to infographic: AHA – Fast Facts on U.S. Hospitals,

1.1.3 Health Insurance

illness. By 1912, many countries

together to provide this coverage

freedom to choose their hospital. transferring risk

‘experience rating’ (where

employer contributions to employee private health insurance

Number of Persons with Health Insurance

(Health Insurance Institute, 1961)

factors, coupled with rising incomes with the onset and

No major government health insurance programs operated

for low-income patients. In one such program, begun in 1950,

were paid from general federal revenues. Medicaid, in contrast,

One notable gap in Medicare benefits was outpatient

1. Subsidies aimed at lower-income individuals and families

3. A requirement that firms with over 50 employees offer

Most of the major provisions went into effect in 2014.

An interactive H5P element has been

Click here to move on to 1.2

1.2 ORGANIZATION &

1.2.1 System Organization

1.2.2 System Regulation

1.2.1 System Organization