Healthcare Systems

Abstract

This article examines the structural components of the healthcare system in the United States. The interactions among the components, specifically healthcare providers, patients, and payors, are presented. Strengths and weaknesses of healthcare delivery and finance mechanisms are described in terms of impact on healthcare expenditures and health status. The article concludes with a brief discussion of why the U.S. healthcare system is in need of reform.

Overview

A healthcare system is an organized collection of individuals and organizations that provide for the access, financing, and delivery of medical services to individuals. As a general definition, a system is a logical "set of interdependent parts organized with a sense of logic and consistency" (Southby, 2004). Yet, there are those who argue that the healthcare system in the United States is both illogical and inconsistent. The U.S. spends more on healthcare (as measured by percent of GDP) with worse health outcomes than many other developed nations (Howard & McPhillips, 2023). Healthcare costs impact both public and private sectors and have enormous implications for global competitiveness, employee productivity, and economic stability. Healthcare reform has been a dominant issue on the public discussion agenda, but the most meaningful attempt at reform thus far, the 2010 Patient Protection and Affordable Care Act, has not resolved the issue, with many attempts by conservatives to seek its repeal since it was passed.

Structural Components of the U.S. Healthcare System. The structural components of a healthcare system refer to the methods and means of healthcare delivery and access: the who, the what, and the where of providing healthcare to individuals and groups. In modern societies, healthcare is traditionally provided by a physician trained in the medical sciences. As a society, we grant physicians the technical, legal, and cultural authority to give patients information and render treatment for their medical conditions. This has not always been the case. Up until the late nineteenth century, most medical care was provided within families. Physician services were a last resort. As research began to provide physicians with proven treatments (especially through the understanding of disease, the importance of asepsis, and the development of antibiotics), medical knowledge became the exclusive domain of physicians. This position was reinforced through standardized training and the rise of physicians as a sovereign profession (Starr, 1982).

As specialization emerged within medical practice, conflict between general practitioners and specialists emerged as specialists sought to maintain exclusivity in certain types of practice. Ophthalmology, endocrinology, and neurology are a few examples of specialization. By controlling access to specialty training through governing boards, e.g., the American Board of Ophthalmology, specialists effectively restricted general practitioners from taking on patients with specific types of conditions (Starr, 1982). As a result, a hierarchy within the practice of medicine arose, with general practitioners typically viewed as lower in status and subsequently lacking the ability to charge and collect higher fees. The term "general practitioner" is not in wide use today. Those physicians who provide overall broad-based medical care are referred to as "primary care" physicians. Family practice, general internal medicine, pediatrics, and obstetrics/gynecology are considered primary care practices. Examples of specialty and subspecialty practices are neurology, endocrinology, dermatology, and ophthalmology, along with a range of surgical specialties such as neurosurgery and orthopedic surgery.

Other providers that are key to the delivery of medical care are nurses and professionals that are sometimes referred to as physician extenders. This latter group includes nurse practitioners (nurses with advanced medical training) and physician assistants. In addition, there is a vast spectrum of technicians and therapists who practice under the aegis of particular physician specialists. These professionals, known as allied health providers, are trained in specific technologies that provide physicians with the diagnostic and therapeutic data required for the treatment of specific medical conditions. Examples are imaging technologies (x-ray, computerized tomography (CAT scans), mammography, and magnetic resonance imaging (MRI)), biologic and biochemical diagnostics (blood chemistry, urinalysis, pathology, etc.), and rehabilitative therapies (physical therapy, respiratory therapy, occupational therapy, and others).

Outside the mainstream of traditional healthcare providers are those who practice alternative forms of medicine. Examples of these are chiropractors, naturopaths, and practitioners of alternative treatments such as acupuncture, nutritional therapists, and herbalists.

Outside the scope of primary care and specialty care is the system of mental healthcare. Within mental healthcare is a corresponding network of providers that range from the specialty of psychiatry to non-MD providers such as psychologists, social workers, and addiction counselors and therapists, to name a few.

Categories of Delivery. The second component of access to care—the what—addresses the categories of healthcare delivery. In the United States, the categories are acute care, long-term care, and mental healthcare. Acute care refers to any medical condition that is diagnosed and successfully cured. Examples include a broken bone, an intestinal disorder, a fungal rash, and other more or less complicated diseases. Long-term care refers to a condition that can be diagnosed but not necessarily cured and must be treated by managing the symptoms or effects of the disease. Examples include arthritis, diabetes, and some forms of cancer. As the population ages, medical care becomes more the practice of long-term care and the management of multiple and overlapping conditions. The emphasis in long-term care is not to cure but to maintain function; that is, to provide treatments and management strategies to help patients cope with the daily management of their disease or condition and enable them to live as full and independent a life as possible. For example, a patient with diabetes must learn to follow a specific diet, monitor their blood sugar levels daily, and watch for changes in their vision and circulatory problems, especially those that are manifested in the foot.

Medical Care Facilities. The third component of access and delivery—the where—refers to the physical facilities where medical care is provided. Just as the nature of medicine has changed over time, so have the facilities where medical care is delivered. For centuries, physicians diagnosed and treated their patients in the patient's home. The home visit, once the hallmark of medical care, now has all but vanished. The primary facilities for the delivery of medical care are the hospital and the physician's office. Just as the practice of medicine was transformed through the introduction of science and technology, hospitals were also transformed by increasing advances in medical care. Evolving from institutions of charity care and warehouses for the poor, the aged, and the infirm, hospitals today are facilities tailored to the delivery of modern scientific and technological treatments. Physician offices similarly have evolved from the one- or two-room office of the solo practitioner to modern buildings housing group practices and sophisticated laboratories, diagnostic equipment, and sterile suites for performing minimally invasive surgery. Psychiatric hospitals and nursing homes have similarly evolved into mini-hospitals providing long-term care for those with a mental illness and the elderly.

Financing. Access to care also refers to the ability to pay for care. The United States is one of the few developed nations that does not provide universal health coverage to its citizens, although the Patient Protection and Affordable Care Act began making inroads into addressing the US uninsured rate. In the United States, medical care is paid for by individuals, the government, and third-party payers, i.e., insurance companies.

Historically, physician fees were low, and payment, especially in rural areas, was often rendered in the form of vegetables, eggs, or other foodstuffs or services. Practicing medicine was often secondary to an individual's income-producing livelihood, which may have been farming, banking, or managing a general store. As scientific breakthroughs developed and physician training became more advanced and complex, doctors' ability to charge for their increased knowledge and treatment increased accordingly.

The rise of third-party payers in the mid-twentieth century reinforced the fee-for-service (FFS) payment mechanism. Blue Cross/Blue Shield emerged as an early and powerful health insurance company. During the labor shortage of World War II, company-paid health insurance premiums became an important tool in recruiting prospective workers. This was an exceptionally attractive employee benefit, as the IRS did not count employer-paid health insurance in a worker's wages, and employers were able to write off health insurance premiums as a business expense. This practice did not abate following World War II but instead continued to grow as businesses expanded and the economy prospered. In the 2020s, more than half of the working population receives healthcare coverage through an employer-based plan (Vankar, 2022).

In 1965, the federal government became a major player in the health insurance arena as government-sponsored medical coverage for the elderly—Medicare—was established. A corresponding program for the poor—Medicaid—was also established by the federal government and administered in partnership with the states. These programs were created to provide healthcare coverage to the millions of Americans not covered by employer-based health insurance. The payment mechanism was designed to accommodate the established FFS structure. Physicians and hospitals were able to submit claims for care, and reimbursement by Medicare or Medicaid was provided with few questions asked.

Rapidly expanding technologies and the rise of increasingly sophisticated care by physicians and hospitals characterized medical care in the second half of the twentieth century. Increasing costs and expenditures by both employers and government programs marked this growth. National health spending grew from $27 billion in 1960 to $3.3 trillion in 2016. In 2022, healthcare expenditures reached $4.3 trillion after seeing a spike in 2020 and 2021 due to the COVID-19 pandemic (Martin, et. al., 2022). Healthcare expenditures as a percent of the gross domestic product grew from 7 percent in 1970 to 18.3 percent in 2021, with projections indicating a rise to 19.7 percent by 2026 (Centers for Medicare & Medicaid Services, 2022).

In the 1980s, a new type of health plan, the health maintenance organization (HMO), emerged as a method of controlling spiraling healthcare costs. The HMO concept became one of several variations on pre-paid health plans adopted in the 1990s. In fee-for-service payment mechanisms, physicians and hospitals submit claims for services to a third-party payer, i.e., a private health insurance company or the government (Medicare/Medicaid). In a pre-paid plan, fees between service providers and payors are negotiated and agreed upon in advance, generally a year in advance. The HMO is one type of pre-paid plan. The PPO, physician provider organization, is the second most common type of pre-paid plan. The idea of pre-paid plans caught on by private health insurance companies as well as Medicare/Medicaid. Collectively, HMOs, PPOs, and other pre-paid plans are referred to as managed care. The theory behind managed care is that providers have an incentive to keep patients healthy or otherwise use the least costly treatment alternative because their reimbursement rate was set in advance. During the late 1980s and early 1990s, these plans appeared to be working, as healthcare expenditures leveled off somewhat; however, by the mid-1990s, healthcare costs again began a rapid escalation.

Further Insights

Comparative data on selected US health expenditures and health status indices in five other developed nations (Australia, Canada, France, Sweden, United Kingdom) reveals that the United States has the highest total healthcare expenditure (as expressed in percentage of GDP) and spends more per capita on healthcare than these other nations. Yet of the six nations compared, the US is the only country lacking universal healthcare coverage and consistently ranks lower than other nations in standard health status indices such as life expectancy and infant mortality (Howard & McPhillips, 2023).

Despite increasing dollars spent and increasing medical knowledge and technology available, Americans are no healthier than citizens in other developed countries. A key factor in this situation is the structure of our healthcare system and the interrelationship among healthcare providers, patients, and payors in the healthcare market.

Health policy scholars and economists point to the fee-for-service payment mechanism and reliance on third-party payors as two barriers to the actions of true market performance in access and delivery of medical services. One assumption of a true market system is that buyers and sellers have equal knowledge of the product or service they are purchasing. Buyers, therefore, base their purchasing decision on their perceived value and price of that product or service. Historically, physicians controlled access to information and knowledge by enforcing licensure regulations, credentialing practices, and certification requirements from specialty boards and associations. Patients were dependent on their doctors for all but the most rudimentary medical treatments and preventive care. In choosing a doctor, patients relied on reputation, word-of-mouth, and family history in deciding which doctor to choose for their healthcare (Starr, 1982).

The FFS payment mechanism reinforced this buying decision. In the early years of health insurance, patients would have free choice in selecting what provider they wanted, the insurance company or other third-party payor that would reimburse the chosen doctor at whatever amount the patient claimed. There was no comparison shopping to get the best price. Also, when faced with a choice between a primary care provider or a specialist, patients often choose the specialist based on the perception that a specialist will provide better care. For example, a general practitioner could set an ordinary broken bone and provide necessary follow-up care, but a patient may choose to go to an orthopedic surgeon in expectation of receiving better care. In reality, it may be the case that the care provided by each is the same, but the reimbursed cost of the orthopedic surgeon is much higher because of the specialized training and knowledge.

In a managed care environment, this freedom of choice among providers is limited. Patients have to choose from physicians enrolled in a given health plan's panel of providers. Access to specialty care is limited by requiring a referral from the patient's primary care doctor, otherwise, specialist fees would not be covered by the plan. One outcome of this arrangement is a reduction in income to specialists and an increase in status for primary care physicians. However, this rise in status did not resulted in increased income for primary care providers (Escarce, 2001).

Demographics and the associated health profiles of an aging population present another challenge to the U.S. healthcare system. However, with the coming swell of baby boomers entering the later decades of life, long-term care services will be in greater demand. As noted previously in this article, current finance mechanisms, be they FFS or pre-paid plans, are designed for acute healthcare delivery. Payment provisions under Medicare provide an excellent example of the weakness of a system built almost solely on the acute care model of medical practice. When an elderly patient is discharged from the hospital, Medicare will only reimburse costs associated with recovery and rehabilitation. However, if the patient cannot fully recover and requires permanent assistance such as nursing home care, Medicare will not pay for this cost. Patients without financial resources are forced to spend down their assets and enroll in Medicaid to pay for nursing home care. Long-term care insurance is an increasingly popular insurance product to meet the needs of long-term care not covered by Medicare or standard health insurance.

A further challenge to the U.S. healthcare system is the erosion of employer-paid health insurance. At one time in our society, lack of healthcare was associated with geography (lack of doctors in rural areas, for example) or was a problem associated with poverty and chronic unemployment. However, as employers began cutting back or eliminating company-paid health insurance premiums, lack of access to healthcare became a middle-class issue and in turn, a political issue.

Conclusion

While the growth of technology and increased knowledge of disease and illness have made the United States a leader in healthcare services, the mechanisms for paying for this care are a weakness of the system and a barrier to universal healthcare coverage. The costs of healthcare impact everyone from mom-and-pop businesses to our largest corporations, from the youngest in our society to the oldest. The closest thing to healthcare reform enacted to date is the Patient Protection and Affordable Care Act, and its long-term effects are still being studied though it has survived several attempts at repeal. The issue of equitable access and distribution of healthcare in the United States may therefore remain a heated political issue for some time.

Terms & Concepts

Access to care: The availability of health care providers, facilities, and financing.

Acute care: The treatment for curable, short-term medical conditions.

Fee for service: A method of paying for medical services where the provider sets the fee for each cost incurred in the process of treatment.

Healthcare delivery: The provision of health care services.

Long-term care: The treatment for chronic conditions that may not have an immediate cure.

Managed care: A method of paying for medical services where a third party (such as an insurance company or a health maintenance organization) negotiates a fee schedule with medical providers to provide medical coverage for enrolled patients.

Primary care: Refers to general practice or family practice physicians that provide routine medical care and coordinate referrals and treatment plans when specialized medical care is required.

Bibliography

Centers for Medicare & Medicaid Services. (2018). NHE fact sheet. CMS.gov. Retrieved March 27, 2018, from http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet.html

Dickman, S. L., Himmelstein, D. U., & Woolhandler, S. (2017). Inequality and the health-care system in the USA. Lancet, 389(10077), 1431-1441. Retrieved March 7, 2018, from EBSCO online database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=122563602&site=ehost-live&scope=site

Diggs, S. N. (2012). Health disparities and health care financing: Restructuring the American health care system. Journal of Health Care Finance, 38, 76-90. Retrieved November 27, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=77191125

Escarce, Jose J. (2001). Health maintenance organizations and the changing physician workforce. Document # RB-4540. RAND Corporation. Retrieved July 27, 2007, from http://www.rand.org/pubs/research%5fbriefs/RB4540/index1.html

Fronstin, P. (2001). The history of employment-based health insurance: The role of managed care. Benefits Quarterly, 17, 7-16. Retrieved July 13, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4451491&site=ehost-live

Howard, J., & McPhillips, D. (2023, Jan. 31). US spends most on health care but has worst health outcomes among high-income countries, new report finds. CNN. Retrieved June 14, 2023, from https://www.cnn.com/2023/01/31/health/us-health-care-spending-global-perspective/index.html

How does health spending in the U.S. compare to other countries? (2023, Feb. 9). Peterson-KFF Health System Tracker. Retrieved June 14, 2023, from https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/#GDP)

Jost, T. S. (2012). Eight decades of discouragement: The history of health care cost containment in the USA. Forum for Health Economics & Policy, 15, 53-82. Retrieved November 27, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90365630

Kuan-Chou, C., & Keh-Wen, C. (2013). Using systems thinking to analyze health care in the United States: Should we move to a government sponsored health care system? Academy of Health Care Management Journal, 9(1/2), 3-12. Retrieved November 27, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87742732

Martin, A. B., Hartman, M., Benson, J., & Catlin, A. (2022, Dec. 22). National health care spending in 2021: Decline in federal spending outweighs greater use of health care. Health Affairs, 42(1). https://www.healthaffairs.org/doi/10.1377/hlthaff.2022.01397

Southby, R. F. (2004). Where do we go from here: Is there any hope for real health care reform? Journal of Law, Medicine, & Ethics, 32, 442-445. Retrieved July 7, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=14841785&site=ehost-live

Starr, P. (1982) The social transformation of American medicine. New York: Basic Books.

Vankar, P. (2022, Sept. 15). Employment-based health insurance U.S. share 1987-2021. Statista. Retrieved June 14, 2023, from https://www.statista.com/statistics/323076/share-of-us-population-with-employer-health-insurance

Suggested Reading

Arrow, K. J. (2004). Uncertainty and the welfare economics of medical care. Bulletin of the World Health Organization, 82 141-149. Retrieved July 17, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5689210&site=ehost-live

Brown, L. D. (2012). The fox and the grapes: Is real reform beyond reach in the United States?. Journal of Health Politics, Policy & Law, 37, 587-609. Retrieved November 27, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=78914087

Cutler, D. M. (1997, Spring). Making sense of the medical system. NBER Reporter, 12-16. Retrieved July 15, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9706124200&site=ehost-live

Fang, H., & Gavazza, A. (2011). Dynamic inefficiencies in an employment-based health insurance system: Theory and evidence. American Economic Review, 101, 3047-3077. Retrieved November 27, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=69627331

Porter, M. E., & Kaplan, R. S. (2016). How to pay for health care. Harvard Business Review, 94(7/8), 88-102. Retrieved March 7, 2018, from EBSCO online database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=116330695&site=ehost-live&scope=site

Wealth but not health in the USA [Editorial]. (2013, January 19). Lancet, 381(9862), 177. Retrieved November 27, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=85113219