1. McKay, Marcella L. MEd, MSN, RN


Adapting to a market-driven environment.


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During the early decades of the 20th century, very little money changed hands in hospitals, excepting cash payments made by patients of means and charitable donations. Today, one of every seven dollars in the U.S. economy is spent on health care, 40 cents of which goes to the nation's hospitals.



With annual health expenditures totaling more than a trillion dollars, a patina of unreality covers that bygone era in which hospital organizational structures were simple and centered on direct care, and the only expenses were those of food, equipment, heat, light, medicine, and labor.


When Isabel Hampton Robb was writing about hospital economics in the first issue of AJN (October 1900), hospitals were generally institutions in which trustees, superintendents, and nursing supervisors were directly involved in meeting patients' needs. With limited knowledge of disease etiologies and little technology, care focused primarily on nutrition, fresh air, hydration, elimination, basic medications, hygiene, and the treatment of symptoms such as fever, pain, and immobility. Restoration and cure were only beginning to evolve through the development of early surgical techniques.


The 1899 mission statement of the Association of Hospital Superintendents of the United States and Canada (the predecessor of the American Hospital Association) reflects the emerging priorities of hospitals of the time. The association set out to foment the exchange of ideas by comparing different methods of management, discussing hospital economics, inspecting facilities, making suggestions for operating them more efficiently, and being involved in issues that concerned its members. As early as the first meeting, the group discussed the important role of supervisory nurses in hospitals and debated the type of membership they should hold.


Robb proposed a curriculum to better train nurses in "economics," a word understood to be synonymous with "business." Courses in hospital economics included systematic instruction in the practical aspects of hospital administration and organizational management. Education consisted of training schools for nurses and the instruction of supervisory nurses in business skills.



Fed by more than a half century of progress, health care eventually came to represent a sizable portion of the nation's economy. By 1960, the sector represented 5.2% of the gross domestic product (GDP). In 1980, this amount had risen to 8.9%, and by 1990 it had jumped to 12.6%. However, beginning in 1993, health care spending as a percentage of GDP reached a plateau and fluctuated between 13.5% and 13.7% through 1998. By the close of the century, growth in the health care sector remained below 6% for five consecutive years, reflecting an overall slow-down in health care spending. Still, in 1997 U.S. per capita spending on health care was ranked highest in the world at about $4,000, with more than one-third of that spent in hospitals.


During the past century, hospitals have evolved from basic sanctuaries for the infirm to sophisticated and multifaceted organizations with highly educated health professionals who, because of extraordinary advances in the knowledge of disease and prevention, deliver highly specialized and diversified treatment across a broad continuum of care. Also, by the latter part of the century, private insurers and the U.S. government had developed elaborate reimbursement systems to finance health services.


Health care is now a distinct specialty within the field of economics; as such, it produces an extensive body of information and research that contribute significantly to understanding the importance of this sector of the nation's economy. Health economists are focusing increasingly on the supply and demand for services, reimbursement mechanisms, productivity, the impact of technology, workforce issues, market dynamics, and analytical approaches to the economics of health-related public policy.


Because of the importance of the health care sector in the U.S. economy and the dynamics of health care markets, debates regarding access and pricing are highly politicized and emotional. Economics, as a science, offers useful techniques for analysis and evaluation of health care spending within the overall economy. Because of this, experts in health care economics have been called upon to provide unbiased, reliable input as an adjunct to public policy decision making.


Economic pressures in the health care sector have been considerable during the past 10 years, as managed care has focused on cost containment and the federal government has modified reimbursement programs to curtail escalating health care costs. The plateau in health care spending that has prevailed since the mid-1990s has been attributed largely to federal budget cuts mandated by the Balanced Budget Act of 1997 (BBA), which scaled down Medicare funding of acute care, graduate medical education, skilled nursing care, hospital outpatient services, home care, rehabilitation, long-term care, and psychiatric services.



From an economic perspective, hospitals and health care systems are viewed as entities that produce and distribute health services in the marketplace, with the demand for services fueled by third-party reimbursement systems, provider-driven care decisions, and burgeoning technology. Economists study health care as a market-driven industry in which competition is highly imperfect. Local markets vary, and many of them, particularly those for specialty services, have a small number of sellers. Even when consumers have a variety of services from which to choose, they frequently do not have enough information to determine comparability. Governmental regulations, costs, and professional barriers also affect entry of health care organizations into the market, and pricing is controlled by private insurers and governmental payers. Buyers are often third-party payers who set prices rather than allow competition in the marketplace to determine them. In some cases, market concentration and service offerings are regulated by state governments to inhibit oversupply and duplication of services. Although rollbacks of some provisions of the BBA are being considered, it is anticipated that the implementation of federal cost containment measures during the next couple of years will limit the growth of public spending in health care through 2002.


This circumstance is not anticipated in private spending in the short term because Americans between the ages of 45 and 64 will increase the rolls of private insurers before they become eligible for Medicare. Additionally, employers are expected to continue to face rising benefit costs and health insurance premiums while the number of the uninsured is expected to rise. In the longer term, a greater percentage of care will be funded by the federal government as baby boomers move into the Medicare system and the increasing number of elderly patients raises the demand for specialized acute care services as well as services for those suffering from chronic illnesses.


The dramatic increases in health care spending have invited the scrutiny of the allocation of government and private resources. However, as the information age flourishes, patients will have access to more health-related information than ever before, and knowledge of options is likely to fuel an increased demand for services. Simultaneously, private and governmental payers will continue to impose restrictions on reimbursement, carefully managing financial risk and the delivery of effective and efficient patient care.



As the nation tries to rein in health care expenditures, nurses will play a pivotal role in providing high-quality care under austere economic circumstances and meeting the increased demand for services by health care consumers. The quality and cost effectiveness of care will be scrutinized, and all care providers will be held to high standards of performance and productivity. Nurses can continue to make significant contributions to the health care system by


* keeping abreast of the economic dynamics of both the health care workplace and marketplace.


* being involved in the documentation of clinical outcomes essential to the assessment of the meaningful and fundamental contribution of nurses to patient health, safety, and treatment. Partnerships of nurse researchers and clinical providers can ensure the effective use of credible methodology and analysis in the scientific inquiry into nursing care and patient outcomes.


* articulating and demonstrating the value of nursing. Front-line nurses must recognize the critical importance of skillfully communicating nursing's contribution to consumers, employers, and payers, because in the new health care economy resources will be allocated according to return on investment.


* combining clinical acumen and business expertise to effectively manage resources and ensure the cost-effective provision of high-quality care. Executive nurses should speak in economic terms and convey the importance of clinical quality in a way that influences senior health care management and dramatically affects the delivery of care.




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