Table of Contents

Preface xxiii

Acknowledgments xxvii

Section I Foundations of the Ecosystem 1

Chapter 1 Introduction 3

The Intro and the Outro 3

Healthcare: Not Your Typical Industry 4

There's Good News and Bad News 5

Summary 6

Overview of the Volume 6

Chapter 2 A Guide Through the Wilderness 11

The Need for a Guide 11

The Healthcare Quadrilemma 11

Murky Relationships Among Goals 14

Trade-Offs are Everywhere 15

Health and Wealth 17

All Healthcare Is Local 19

Terroir 19

Watch Out for the B.S 20

Why Healthcare Is So Hard to Change 22

"Solutions" That Only Squeeze the Balloon 22

Importance of History and History Repeating 23

Two Historical Lessons Worth Remembering 25

Summary 27

Chapter 3 What Is a Healthcare System? 31

What Is a Healthcare System? 31

Frameworks for Analyzing Healthcare Systems 32

Nested Ecosystems 44

Summary 48

Chapter 4 Population Health 51

Introduction 51

Health Disparities in the US Population: Access, Utilization, and Health Status 51

Disparities in Health Status: United States Versus the World 56

Drivers of Health Status 57

The Burden of Chronic Illness 61

Population Health Management 63

Summary 67

Chapter 5 Goals of Healthcare 71

Major Goals of Healthcare 71

Triangle 1: Access, Quality, and Cost 71

Triangle 2: Care, Health, and Cost 76

Dueling Triangles? 77

Summary 78

Chapter 6 The 800-Pound Gorilla: Rising Healthcare Costs 81

Introduction to the Problem 81

Examining the Trends 81

Drivers of Healthcare Spending 87

Degree of Past Success in Cost Containment 92

Cycles in Healthcare Spending 93

Targets for Cutting Costs 93

Prognosis for Cutting Costs 94

Stakeholders: My Expense Is Your Income 95

Summary 97

Chapter 7 Managing Quality: Another 800-Pound Gorilla? 101

Introduction 101

Quality Management Versus Medical Management 101

Why the Need for Quality Management? 101

Historical Progression of Quality Management Efforts 104

Prognosis for Quality Improvement 117

Summary 121

Section II Provider Sectors in the Ecosystem 125

Chapter 8 Healthcare Providers 127

What Is a Provider? 127

Number and Diversity of Providers 127

Summary 134

Chapter 9 The Medical Profession 137

The Central Role of Physicians 137

The Big Disconnect: Physicians Don't Feel Central 138

How Physicians Are Trained 139

Demography of the Medical Profession 139

Trends in Physician Supply and Demand 141

Addressing the Physician Shortage 143

Where Do Physicians Practice? 144

The Economics of Physician Practice 145

Physician Practice Challenges 149

Physician Engagement 150

New Kid on the Block: The Patient-Centered Medical Home 150

Getting Physicians to Change their Behavior 151

Multiple Agency Roles 153

Summary 154

Chapter 10 Primary Care: Physicians, Nurses, and Pharmacists 159

The Case for Primary Care 159

New Models of Primary Care Delivery by Primary Care Physicians 162

Nursing 164

Pharmacists 173

Summary 177

Chapter 11 Hospitals 181

Overview and Types of Hospitals 181

Distinguishing Nonprofit and For-Profit Hospitals 183

The Importance and Centrality of Hospitals 184

Functions That Hospitals Perform 185

The Complex Hospital Structure 186

Hospital-Physician Relationships 190

The Challenge of Managing a Professional Organization 192

Trends in Hospital Capacity and Utilization 193

Hospital Finances 196

Hospital Efforts to Deliver Value 200

The Hospital's Regulatory Environment 202

Summary 203

Chapter 12 Hospital Diversification, Restructuring, and Integration 205

Introduction 205

Diversification of Services 205

Corporate Restructuring 209

The 1990s Push for Integration 209

Renewed Push for Integration in the New Millennium 215

Summary 222

Chapter 13 Organized Ambulatory Care 227

Introduction 227

Consumer-and Industry-Sponsored Group Practices 227

Community Health Centers and Federally Qualified Health Centers 228

Rural Health Clinics 229

Community Mental Health Centers 230

Urgent Care Centers 231

Stand-Alone Emergency Departments 233

Ambulatory Surgery Centers 233

Retail Clinics 236

Retail Pharmacies 241

Summary 245

Chapter 14 Post-Acute Care 249

The Continuum of Post-Acute Care (PAC) 249

Early Federal Efforts to Promote and (Then) Curb PAC Spending 249

Home Health Agencies 250

Skilled Nursing Facilities 251

Inpatient Rehabilitation Facilities 252

Long-Term Care Hospitals 252

Hospices 253

PAC Growth Under Prospective Payment 254

PAC Growth Drivers 255

Recent Federal Efforts to Contain PAC Spending 256

Strong PAC Tailwinds 259

Summary 263

Section III Payer Sectors in the Ecosystem 269

Chapter 15 Employer-Based Health Insurance 271

Overview of Chapters 15-19 271

Historical Origins of Private Health Insurance 271

Understanding Employer Health Coverage Today 274

Employer Cost and Quality Approaches 283

Health Promotion Efforts 286

Summary 290

Chapter 16 Contracting for Prescription Drug Benefits: Role of Employers, Insurers, and Pharmacy Benefit Managers 295

Introduction 295

The Rise of Managed Care and Drug Benefits 295

The Rise of Pharmacy Benefit Managers 295

The Need for Cost Control Over the Drug Benefit 297

Medical and Pharmacy Benefit Contracting by Employers 298

Prescription Drug Benefit Design in ERISA Health Plans 300

Cost Sharing for Drugs 305

The Brouhaha Over the Gross-to-Net Price Disparity 307

The Pharma Manufacturers Strike Back 315

Summary 316

Chapter 17 Private Health Insurance and Managed Care Organizations 319

Taxonomy of Insurance 319

What Do Insurers Do? 319

Brief History: Rise of Health Insurance 320

Changing Role of Insurers: From indemnity to Managed Care 323

Types of Managed Care Health Plans 323

Managed Care Lines of Business 328

The Internal Value Chain of a Managed Care Organization 331

Business Models of Managed Care Organizations 333

New Horizons in Private Health Insurance 340

Summary 343

Chapter 18 Medicare 345

Introduction 345

Medicare Benefits and Components 345

Medicare Financing 348

Medicare Beneficiaries 349

Medicare Advantage 352

Efforts to Control Medicare Spending 357

Other Budget Remedies Going Forward? 361

Dual Eligibles 361

Summary 361

Chapter 19 Medicaid and the Patient Protection and Affordable Care Act 365

Overview: Medicare Versus Medicaid 365

Origins of Medicaid 365

Historical Growth and Expansion 368

Overview of Patient Protection and Affordable Care Act 370

PPACA Impact on the Iron Triangle 372

Medicaid issues: Balancing Acts 375

Medicaid Today 375

Medicaid Eligibility 376

Services Covered 377

State Initiatives to Control Medicaid spending via Managed Care 378

Impact of Medicaid Managed Care on the Iron Triangle 380

Innovative State-Managed Care Approaches 381

Summary 382

Section IV Technology Sectors in the Ecosystem 385

Chapter 20 The Healthcare Technology Sectors 387

The Hunt for Biomedical Innovation 387

Innovation in the Healthcare Value Chain 387

Similarities Among the Technology Sectors 388

Differences Among the Technology Sectors 389

Commonalities in the Innovation Process 389

The Technological Imperative in Healthcare 392

The Innovation Challenge 395

Why Study the Producers of Healthcare Technology? 395

Impact of Technology Sectors on Local and National Economies 398

Summary 399

Chapter 21 The Pharmaceutical Sector 403

Distinguishing Pharmaceuticals and Biologies 403

Why the Pharmaceutical Sector Is So Interesting 403

Overview of Pharma: The Big Picture 404

Market Structure of Pharma 407

Research and Development 409

R&D Pipeline Productivity 414

Commercialization 417

Generic Drug Companies 420

Drug Product Manufacturing 421

Rising Drug Prices 421

Summary 423

Chapter 22 The Biotechnology Sector 427

The Growing Role of Biologies and Biotechnology 427

Inside Biotech 430

Orphan Drugs 434

Biosimilars and the Threat of Generics 435

Biotech Organization and Management 438

Biotech Investment: The Big Picture 439

Biotech Business Models 440

New Biotech Venture Geation 441

Summary 446

Chapter 23 The MedTech Sector 449

What Is MedTech? 449

MedTech Versus Pharma 449

The MedTech Sector Today 451

Technological Innovation 451

Business Model Innovation 451

The Twin Pillars in Action 455

Summary 466

Chapter 24 Healthcare Information Technology 471

The Information Technology Imperative 471

Small Sector, Growth Sector 472

Electronic Medical Records and Their Controversies 474

Other information Technology Subsectors 483

Big Tech Dancing With Elephants 494

Summary 500

Section V The Public Sector of the Ecosystem 505

Chapter 25 The Federal Bureaucracy, the US Congress, and Healthcare Policy 507

Introduction 507

The Federal Government's Diverse Roles 507

Consequences of Federal Involvement 508

The US Congress's Role 508

Overview of the Legislative Process 510

Implementation of Healthcare Policy 511

Regulation 513

Other Federal Initiatives 519

Summary 524

Chapter 26 The Public Health System 527

Introduction 527

Problems Addressed by Public Health 527

Progress and Continued Problems 528

The History of Public Health in the United States 535

The Core Functions and Essential Services of Public Health 537

The Federal Government's Role in Public Health 538

State and Local Government's Role in Public Health 541

The Public Health Workforce 546

Sources of Tension Facing Public Health 547

Summary 549

Index 551