Academic Master

Health Care

Leveraging Results to Build a Brand in the Health Sector

Question: If mergers and market consolidation in health care do not increase access or lower prices for consumers, why have they been so prevalent in the last 20 years in the United States?

Table of Contents

In the past 20 years, mergers and market consolidation have been so prevalent in the healthcare sector because they do not increase access or lower prices for consumers. As the US healthcare system increasingly becomes dominated by mergers and acquisitions, large and vertically integrated companies attempted to achieve cost efficiencies by consolidating operations and eliminating redundancies. Moreover, the increased level of consolidation also led to the acquisition of more market share by the largest players in the health sector. This increase in market consolidation has resulted in a decrease in competition within the marketplace, which has been shown to have negative effects on prices and access to services. Resultantly, the costs of healthcare have continued to rise, while access to care has been limited to many consumers across the United States. These mergers and market consolidations were formed under false pretenses that they would generally reduce costs and improve efficiency, but many healthcare providers including hospitals and clinics failed to achieve these stated goals due to issues related to accountability and quality of care (Ho & Hamilton, 2000). Thus, these mergers did not necessarily improve the efficiency of care providers, nor did they improve the quality of care that patients receive.

Question: Are there economic theories or concepts that help to explain the regional variation in healthcare utilization and cost, as outlined by the Dartmouth Atlas of Healthcare report?

Adverse selection and risk aversion are two of the significant economic theories discussed in the Dartmouth Atlas of Healthcare report that help explain why healthcare utilization and cost vary regionally and are most closely associated with healthcare economics. Adverse selection occurs when people with high healthcare needs choose to enroll in plans with lower premiums, while those with low healthcare needs choose plans with higher premiums. This leads to higher costs for the people who need healthcare the most (Polyakova, 2016). The economic theory of risk aversion occurs when people are more likely to choose plans with higher premiums and lower deductibles as people avoid risky situations or activities due to the fear of potential losses and the possibility of a negative outcome. They instead choose alternatives that offer less risk or are more certain like getting health insurance to avoid the financial ruin that could come with an unexpected illness (A. Chandra et al., 2011). Given that hospitals are mostly privately owned, adverse selection may play a very important role than risk aversion in determining regional variation as a more powerful predictor of healthcare use and cost.

Part 2- Federal Health Care Policy

Question: Official federal health care policy for the past 40 years has focused on market solutions, underlining the reliance on competition to improve quality and access and reduce costs. Has this economic policy been successful? Why or why not?

The Federal government has not been a complete failure in its attempts to improve access to healthcare in the United States, but it has been far from successful. The main reason for this is that the government has focused on market solutions, which have not been shown to be effective in this area. There are a number of significant reasons for this, but the most important reason is that competition does not have the capability to improve quality or access in the care sector, and actually often decreases both (Glied & Altman, 2017). In fact, competition in healthcare often results in higher costs and worse quality. However, this economic policy has proved successful in various ways in the US healthcare sector. The Affordable Care Act (ACA) is one of those economic policies which requires that health plans should provide health insurance for a variety of non-healthcare services that would previously have been considered non-reportable by health insurers. This policy has been providing care goods and services, the cost of which is otherwise higher for low-income families and households. By any metric, the Affordable Care Act policy has been widely successful as more than 20 million people have gained healthcare insurance coverage which influenced the economy as well as benefitted the consumers of healthcare.

Part 3- Costs of Health Care

Question: There has been a focus on cost containment and cost reduction in health care for decades. What are some of the most prevalent cost-reduction strategies in healthcare organizations?

Cost reduction and containment strategies have long been focal points for the healthcare sector as these strategies can lead to improved patient outcomes, better utilization of healthcare resources, and greater overall probability for the organization. In healthcare organizations in the United States, one of the most prevalent cost-reduction strategies is reducing expenditure on direct medical costs which can be achieved through reducing the length of stays in hospitals, low-value or unnecessary tests and procedures, cost of drugs, and the number of hospitalizations. Cost containment can also be achieved through a variety of means such as negotiating lower prices with suppliers such as Medicaid and Medicare or implementing more efficient methods of care delivery (Stadhouders et al., 2019). Moreover, it can be achieved through improving operational efficiencies and reducing indirect medical costs through supply chain management, minimizing direct medical costs through process improvement initiatives, and improving patient financial responsibility through billing and collections processes. Other common cost-reduction strategies include reducing medical costs for facilities management and workforce optimization. However, most of the strategies discussed above are limited in scope and may not be effective in reducing costs at a large scale because organizations lack technological infrastructure (Bodenheimer, 2005). Therefore, as more organizations begin to focus on cost reduction in order to improve profitability, there is a need for effective strategies that are scalable and can reduce care costs while improving the patient experience.


Question: Healthcare costs have continued to rise in the United States to a level greater than any other country on a per capita basis. Why have cost containment efforts been ineffective in keeping total costs of health care down?

 

Cost containment in the healthcare sector has been one of the prevalent issues facing the United States in recent years. The major driver in this case that leads to rising healthcare costs is the lack of access to affordable health insurance which is a significant barrier to getting the care services many Americans need and want, especially for those with low and middle incomes. Since the recession of the Affordable Care Act in the US healthcare sector, the federal government has adopted several measures to reduce the cost of health insurance, but these measures have been largely ineffective on the premiums. Such measures or strategies have had limited access because they are often too vague to address the specific needs of certain groups of individuals. Furthermore, several reasons for the ineffectiveness of cost containment strategies include the fact that the American population is aging rapidly so more people are acquiring expensive treatments as they age. Moreover, there is increased competition for services between the government and the private sector which drives up prices because the US healthcare sector does not have a national care system to provide affordable coverage for everyone. This creates conflicts of interest and encourages care providers to maximize profits rather than reduce costs as the US care system relies heavily on private insurance companies to cover the care costs which makes a profit for their shareholders that raises the price of medical care (Altman & Rodwin, 1988).

Part 4 – Health Care Payment and Reimbursement

Question: The Centers for Medicare and Medicaid Services (CMS) implemented a new approach to reimbursement starting in 2011 called value-based purchasing. The goal was to reduce the amount of CMS payments overall and to tie patient satisfaction and quality goals to reimbursement. Has this shift in reimbursement strategy been successful? Why or why not?

The value-based purchasing implemented by Medicare and Medicaid services linked reimbursements to quality measures through the interactive payment model such as patient experiences and patient outcomes. This was to encourage care providers to improve the quality of care and increase patient satisfaction while reducing expenses by trying Medicare reimbursements to performance metrics. This shift in the care system has been successful as under this model, physicians and other healthcare providers are paid based on the quality and cost of care they provide to their patients, rather than the number of services they perform. Thus, the shift in focus from quantity to quality of care has been successful in reducing care costs and improving patient outcomes. The main reason for this success is that it incentivizes care providers to focus on improving the quality of care rather than simply providing more and more services that allow CMS to hold providers accountable for the quality of care they deliver (Damberg et al., 2014). To achieve this, providers focus on quality improvement initiatives that would have the greatest impact on patient care.


Question: Healthcare organizations must opt-in to accept payment from Medicare and Medicaid, and payment from private insurance companies usually requires a negotiated contract, with reduced reimbursement rates. What is the reimbursement strategy for your organization? If this information isn’t available to you, research and explain 2 different reimbursement strategies.

To ensure healthcare providers have the financial resources necessary to meet the cost of providing high-quality care and to increase the trust of patients and care providers alike, Medicaid and Medicare programs use a variety of funding sources to cover the cost of delivering healthcare services. The reimbursement strategies Medicaid and Medicare utilize are “value-based” and “traditional” to mitigate the risk of underfunding their operations and provide incentives to encourage physicians to focus on the high-value treatment they provide to their patients. A value-based approach to reimbursement is one that is calculated based on each service provided to the patient rather than on the type of service provided. This reimbursement strategy is more efficient and effective at meeting the needs of both patients and providers while reducing costs for both parties (Venkatesh et al., 2022). Moreover, the “traditional” reimbursement method includes basic free-for-service payments, point-of-service payments, and capitation payments which are all commonly used in the United States. These are intended to encourage healthcare providers to provide high-quality care and maximize the potential benefit of the service to the patient. These reimbursement strategies implemented by Medicare and Medicaid help hospitals and clinics manage their costs while improving the quality of care delivered to their patients.

 

Part 5 – Supply Chain Management in Health Care

Question: Is there anything that is purchased in your organization that is intended to be used directly or indirectly in delivering the products and services your organization offers that are not part of a supply chain? If not, what is it?

 

No, the organization cannot purchase anything that is not part of supply chain management as organizations that provide products or services outside of the traditional supply chain framework such as in the case of independent contractors, supply chain management becomes more complex. In this case, effective management of the external supply chain involves determining who the provider of the product or services is, what methods are used to procure it, and how the supply chain is managed and monitored. In the organization, the identification of areas of improvement in the supply chain involves the products and services that need to be purchased and the selection of the suppliers to purchase the products and services from. In addition, it involves selecting suppliers and performing supplier assessments to identify suitable suppliers. The healthcare organization should ensure that the products and services are purchased and supplied in the most cost-effective manner by negotiating price discounts from suppliers, monitoring the quality of products, and scheduling purchasing and deliveries of the products (C. Chandra & Kachhal, 2004).


Question: Who is responsible for supply chain development and management within your organization? Is this the right level of person to be managing the supply chain?

 

The ultimate responsibility for the development and management of a supply chain lies with the executive management of the organization. Therefore, in an organization, a healthcare facility in particular, the right level of person to be managing the supply chain is someone with a strong understanding of logistics and distribution systems. This person should also have a good understanding of how to work with suppliers and customers to get the best possible outcomes for the organization. The person should be able to work with other departments within the organization to ensure that all stakeholders have a clear understanding of the supply chain process. He/she must be able to identify potential opportunities and issues within the supply chain and develop strategies to mitigate risks, improve efficiencies, and capitalize on prospective opportunities (Kim & Kwon, 2015). Moreover, the person responsible for the supply chain development and management in a healthcare organization should be able to identify opportunities for reducing care costs while developing and implementing cost-containment strategies to improve the efficiency of the supply and the delivery of affordable care products or services.

Part 6 – SWOT Analysis – Supply Chain Management

Question: What are the greatest strengths and opportunities in supply chain management in your organization? How can they be maximized?

Supply chain management in the organization ensures that products or services are delivered on time through a strategic process that helps it identify, procure, produce, and deliver its products to satisfy customer demand. This area has the potential strength to improve the efficiency of a business which can lead to reduced costs and improved profits by optimizing the use of resources within an organization. It creates opportunities for an organization as it is one of the strategic areas of the business that focuses on business operations and product flow from the organization. Two of the most important areas of supply chain management that have potential strengths and offer numerous opportunities are reducing costs and increasing efficiency. By working together with other departments within a healthcare organization, supply chain management can help to streamline processes and reduce costs. This can be maximized by collaborating with suppliers and distributors as well as using technology to automate and track processes (Elmuti et al., 2013). In addition, developing strong relationships with external and internal stakeholders can maximize opportunities and ensure that the needs of the organization are met in a timely and efficient manner.

Question: Are there any weaknesses or threats involving the supply chain? How would you recommend addressing these or avoiding them becoming a larger problem?

There is no doubt that the supply chain is one of the most important and sensitive parts of an organization, particularly in the medical sector as it involves both the production of goods as well as the subsequent distribution to customers. Consequently, it is important that all suppliers and stakeholders within an organization are fully committed to achieving higher standards of customer service. However, when it comes to the supply chain, there are always potential threats and weaknesses that could impact an organization. Weaknesses could include issues with the logistics of an item’s delivery while threats could come from outside sources such as government regulations and external competitors. The issues with the logistics of an item’s delivery could include long delivery timeframes which could lead to customers’ complaints if the product is late or in a poor condition. Externally, threats could arise from the impact of competitors in the market who may try to take a share of that organization’s potential supplies and profits (Ford & Scanlon, 2006). These weaknesses and threats need to be identified and managed to ensure that they do not lead to a loss of trust in the consumers of the services. Once an organization addresses potential threats to its supply chain, one way to mitigate the risk is through risk assessments of each of the suppliers. These rigorous assessments can help identify areas of vulnerability and potential risks that could threaten consumers’ safety.

References

Altman, S. H., & Rodwin, M. A. (1988). Halfway competitive markets and ineffective regulation: The American health care system. Journal of Health Politics, Policy and Law, 13(2), 323–339.

Bodenheimer, T. (2005). High and rising health care costs. Part 3: The role of health care providers. Annals of Internal Medicine, 142(12_Part_1), 996–1002.

Chandra, A., Cutler, D., & Song, Z. (2011). Who ordered that? The economics of treatment choices in medical care. Handbook of Health Economics, 2, 397–432.

Chandra, C., & Kachhal, S. K. (2004). Managing health care supply chain: Trends, issues, and solutions from a logistics perspective. Proceedings of the Sixteenth Annual Society of Health Systems Management Engineering Forum, February, 20, 21.

Damberg, C. L., Sorbero, M. E., Lovejoy, S. L., Martsolf, G. R., Raaen, L., & Mandel, D. (2014). Measuring success in health care value-based purchasing programs: Findings from an environmental scan, literature review, and expert panel discussions. Rand Health Quarterly, 4(3).

Elmuti, D., Khoury, G., Omran, O., & Abou-Zaid, A. S. (2013). Challenges and opportunities of health care supply chain management in the United States. Health Marketing Quarterly, 30(2), 128–143.

Ford, E. W., & Scanlon, D. P. (2006). Promise and problems with supply chain management approaches to health care purchasing. Academy of Management Proceedings, 2006(1), A1–A6.

Glied, S. A., & Altman, S. H. (2017). Beyond antitrust: Health care and health insurance market trends and the future of competition. Health Affairs, 36(9), 1572–1577.

Ho, V., & Hamilton, B. H. (2000). Hospital mergers and acquisitions: Does market consolidation harm patients? Journal of Health Economics, 19(5), 767–791.

Kim, S.-H., & Kwon, I.-W. G. (2015). The study of healthcare supply chain management in the United States: A literature review. Management Review: An International Journal, 10(2), 34.

Polyakova, M. (2016). Regulation of insurance with adverse selection and switching costs: Evidence from Medicare Part D. American Economic Journal: Applied Economics, 8(3), 165–195.

Stadhouders, N., Kruse, F., Tanke, M., Koolman, X., & Jeurissen, P. (2019). Effective healthcare cost-containment policies: A systematic review. Health Policy, 123(1), 71–79.

Venkatesh, K. P., Raza, M. M., Diao, J. A., & Kvedar, J. C. (2022). Leveraging reimbursement strategies to guide value-based adoption and utilization of medical AI. NPJ Digital Medicine, 5(1), 112.

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