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Cost Control and Technology

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Explain how each of the following groups have addressed issues of cost control. Be sure to include a discussion of how technology has played, and will continue to play, a role in cost control. Secondly, write a brief evaluation of what you believe will be the long-term impact of these cost-control efforts.

The United States Government

The Commercial Insurance Industry

Healthcare Providers

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Solution Preview

Please refer to file response attached (also presented below), as well as two related articles that I also attached. I hope this helps and take care.

RESPONSE:

1. Explain how each of the following groups has addressed issues of cost control.

A. The United States Government

From patient care to facility management, to regulatory standards and liability protection, the healthcare industry faces a wide range of issues. Increasing competition and cost controls are demanding more of healthcare providers than ever before. With constant pressure from insurers, government agencies and patient-advocacy groups to reduce costs, clinics, managed care facilities and hospitals must find new ways to effectively manage assets in a more productive manner.

See article on-line http://www.fee.org/vnews.php?nid=855 for full coverage.

a. Cost Containment: The controller reduction of inefficiencies in the consumption, allocation, or production of health care services that contribute to higher than necessary costs. The major effort of the current national administration for cost control to deal with rising health care costs was by placing government-mandated price restraints on the nation's hospitals. While outwardly rejecting controls for other sectors of the economy, the federal government imposes on one industry its "inflation control" program. Citing hospital costs as rising faster than the Consumer Price Index, these advocates of expanded centralized control would set an amount for cost increases before mandatory federal controls would go into effect. The major effort of the current national administration to deal with rising health care costs was by placing government-mandated price restraints on the nation's hospitals. While outwardly rejecting controls for other sectors of the economy, the federal government imposes on one industry its "inflation control" program. Citing hospital costs as rising faster than the Consumer Price Index, these advocates of expanded centralized control would set an amount for cost increases before mandatory federal controls would go into effect. The proposed solution, by ignoring certain economic facts in the health field, would create more problems than it would solve.

b. Regulatory Measures Restrictions on costs in patient care and on development of new health care equipment can lead to a rationing of health care. This rationing will place the best interest of a free people secondary to the cost policies of government bureaucrats.

c. A careful examination of the health care industry shows a myriad of government controls, which hamper the operation of the free market in medical care?and drive up costs for the consumers.

The federal government adopted the certificate-of-need program as a control mechanism to prevent hospitals from putting resources into "excessive investment" in health care facilities. The passage of Public Law 93-641 in 1974 required states to establish certificate-of-need programs in order to qualify for federal subsidies for health planning and other federal grant programs. What has been the result of this government cost control program? The program did not reduce the total dollars for hospital investment but merely changed the direction from investing in hospital beds to investments in more sophisticated medical equipment. In addition, the certificate-of-need program failed to reduce substantially the rise in hospital costs per capita and to bring about any significant savings in health care costs.[5]

Government intervention in the medical market place brings decisions by government bureaucrats rather than medical experts. These government bureaucrats have added non- health criteria before even granting the certificates-of-need. In the District of Columbia, a private nonprofit hospital received approval for a renovation and modernization project only on the condition it would change the sexual and racial composition of its governing body. In New Jersey, an attempt was made to coerce a certificate-of-need applicant to allow an outside organization to select members of its governing body. In Colorado, a hospital was told its certificate-of-need would be granted only if the applicant reduced its number of obstetric and pediatric beds.[6] All of these examples, as well as others, show that the certificate-of-need program has been used by government bureaucrats to do certain things which are unrelated to the original purposes of the program. These bureaucrats practice political medicine by imposing arbitrary and unfair requirements on those hospitals which seek renovation, modernization, or additional facilities.

d. Outsourcing: Why? The growth in demand for outsourced IT services in the healthcare sector is predominantly being driven by three operational areas that experience the greatest inefficiency and cash flow loss, including back-office administration, ongoing IT management and clinical cost control.

i.e. Back-office administration - Healthcare organizations have poor financial controls, and in general, are not equipped to support effective fiscal management. In U.S. hospitals, bad debt expenses average 12 to 13 percent of revenue and collection cycles average well over 90 days, resulting in significant cash flow losses that are exacerbated by cost-cutting by HMOs, states and the Federal government. Companies with the ability to manage this business process for healthcare organizations will capitalize on these inefficiencies by designing, installing and managing systems and controls to significantly improve revenue and collection cycles

i.e. Ongoing IT Management - Cost pressures from HMOs, states and the Federal Government are inherently driving the need for higher facility and worker productivity, which in turn, creates the demand for new technology adoption. The Health Information Portability and Accountability Act (HIPAA) is driving technology change as hospitals are being required to protect patient confidentiality, install
new transaction processing systems and standards and improve safety. In order to ensure confidentiality and patient safety healthcare organizations realize that they must dramatically improve their methods of managing information, thus creating a vacuum in the healthcare industry for business process outsourcers.

i.e. Clinical Costs - Additionally, several trends are affecting clinical costs, including patients becoming older and sicker, healthcare and its related technologies becoming more complex and healthcare organizations realizing they must reduce (http://64.233.167.104/search?q=cache:3CMb-vVQRX0J:www.merger.com/upload/spot_pdf/healthcare.pdf+Healthcare+Providers+cost+controls&hl=en)

Note: These examples also fit with health care providers. Although thee State and Federal Government are demanding this cost control (outsourcing) it also is part the long-term cost control method for the healthcare system. Obviously, there is a large overlap in these question and, thus, answers).

2. Be sure to include a discussion of how technology has played, and will continue to play, a role in cost control.

-Cost containment through rationing It seems to be mostly decisions and containment controls and regulation policies, other than technology per se.

-Cost control through Outsourcing and the use of technology (Answered partially in #2 above)

i.e. outsourcing IT (Information Technology)

VALUE DRIVERS

RCW Mirus believes the following are critical in driving value for middle market healthcare IT outsourcers.
Domain expertise - With demands for both regulatory knowledge and high quality experience, healthcare presents a unique set of challenges to IT outsourcers. Successful firms in the healthcare IT industry must have specialized healthcare and technology knowledge to effectively manage the problems posed by the industry.

Proven Integration Ability - Healthcare IT outsourcers must be able to effectively integrate back-office legacy systems with front office applications to provide a complete IT solution. The ability to integrate clinical and financial databases to improve cash flow will lead to significant cost savings for the client organization.

Strong Vendor Relationships - Integrators that support "best in class" vendors are attractive to customers who demand the most reliable and cost-efficient products.

Owning the Entire Customer Relationship - Owning the entire customer relationship gives IT integrators and outsourcers long-term and high value contracts, with greater revenue visibility.
Recent Transactions - The rapid growth of the industry is fueling consolidation at attractive prices for owners. (http://64.233.167.104/search?q=cache:3CMb-vVQRX0J:www.merger.com/upload/spot_pdf/healthcare.pdf+Healthcare+Providers+cost+controls&hl=en).

3. Secondly, write a brief evaluation of what you believe will be the long-term impact of these cost-control efforts.

Government attempts to intervene further in the health field will erode the quality of medical care and will substitute bureaucratic decisions which should be made by health experts in the market place. Cost containment will result in "price control," leading to a rationing of health care. Considering the past record of governmental intervention in the health (and other) fields, the results will be negative and individual choice will be nar rowed as the power of government is expanded in the decision-making process. Controls will not curb inflation or bring beneficial results to the U.S. economy; the prospect of failure is the same even if they are only applied to the hospital industry.

A large measure of the health cost increases comes not from deficiencies in the free market but as a direct result of governmental controls. Personnel costs occupy a significant part of a hospital's budget, and government-mandated increases in the minimum wage have significantly increased costs in the hospital industry. Increasing governmental regulations through Medicare and Medicaid have placed additional costs on hospitals through an abundance of new regulations. A two-year study by the Hospital Association of New York state revealed that government regulation was a major factor in increasing health costs. This study, focusing on hospitals in the state of New York, estimated that twenty-five percent of hospital costs were attributable to meeting government regulatory requirements at an annual cost of one hundred fifteen million man hours or over one billion dollars per year! The report noted that each of four hospital departments (administration, personnel, social services, and utilization review) devote over fifty percent of their costs to complying with government-ordered regulations.[4]

Emphasis needs to be placed on expanding the opportunity for competition in the health care field, not expanding government controls. The free market solution is to in crease competition through such initiatives as certification of health providers rather than occupational licensure, repeal of fair practice laws, more advertising of services, and greater use (and direct reimbursement) of health professionals (e.g., nurse practitioners) and emphasis on preventive care and the individual's responsibility to maintain his or her own health.[14] When government administrators come forth with a complex set of interventionist measures to "solve" the government-created health care crisis, advocates of freedom need ...

Solution Summary

This solution explains how each of the following groups have addressed issues of cost control: the United States Government, the commercial insurance industry and healthcare providers. It also explains the role of technology in cost control and provides a brief evaluation of the potential long-term impact of these cost-control efforts. Supplemented with two exceptionally informative articles discussing cost control strategies in healthcare and commercial insurance.

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