Introduction and Background
In the United States, the health care delivery system is characterized by diversity and complexity. The United States citizens rely on various insurance programs to pay for medical services, and the healthcare delivery system includes public and private institutions operating in for-profit and not-for-profit manner. Even though the United States healthcare expenditures far exceed those of other developed nations, the performance of the health care industry does not correlate with health care spending (Gaynor & Town, 2012, p. 501).
The quality and accessibility of health care are largely determined by competitive interactions between various public and private healthcare organizations (Gaynor & Town, 2012, p. 501). The complexity of these interactions and the diversity of the health care system in the United States mean that to minimize health disparities, it is necessary to have a thorough understanding of the structure of health care systems. In this paper, the researcher provides an overview of the current health care delivery structure in Virginia. Major determinants of healthcare market power are provided, and several connected health economy concepts are described, informed by literature review.
The Current Health Care Delivery Structure in Virginia
The state of Virginia is located in the South Atlantic region of the United States. The system of health care in Virginia services a diverse population of 8 million United States Citizens and currently, the quality of health care delivery services in Virginia is similar to that of the rest of the United States.
The system of health care in Virginia is comprised of the public sector, which includes medical facilities the government is responsible for, and private sector, which includes for-profit and not-for-profit hospitals (Sood & Cohen, 2014, p. 222). The majority of hospitals are ambulatory surgical and general acute hospitals, some private and some public (Hospital Information, n.d.).
Large community hospitals and health centers have an intensive and cardiac care unit, burn and trauma centers, offer premature baby care, transplant surgeries, and may offer heliport services (Our Regional And Community Hospitals, n.d.). The number of beds in licensed hospitals in Virginia varies between 25 and 1000 (Hospital Information, n.d.). The number of public hospital beds has decreased recently: in an attempt to reduce budget expenditures, the state relocated some responsibility to the private sector (Sood & Cohen, 2014, p. 224).
Public hospitals offer access to medical services to the uninsured, while private hospitals offer medical services to those who have medical insurance. Virginia is running the federally-facilitated Health Insurance Marketplace. The number of individuals without health insurance is slightly lower than the rest of the United States. Nonetheless, in 2012 13% of Virginia’s population was uninsured (The Virginia Health Care Landscape, 2014, para. 5). Among those insured, the majority of the population is covered by their employer, which is the main financier of managed care, a system that determines the utilization and prices of medical services. The rest of the insured population is covered by federal and state insurance programs (The Virginia Health Care Landscape, 2014, para. 5).
Federal insurance programs, which include Medicare and Medicaid, are gradually expanded with the introduction of new federal laws, such as the Affordable Care Act (ACA) and the Health Equity and Accountability Act (HEAA). As such, like with other states, the discrepancies between the health of different populations in Virginia still exist, and “measures of health status and access to and utilization of health care services in Virginia vary by race/ethnicity” (The Virginia Health Care Landscape, 2014, para. 7).
The expansion of federal insurance programs aims to eliminate the inequalities in health status and life expectancy for all consumers of healthcare by increasing the number of insured individuals. In addition to federal programs, state programs also exist which offer affordable health care to specific populations. Virginia’s FAMIS and FAMIS Plus programs offer comprehensive health insurance for children who live in families with low monthly income (State-Sponsored Health Insurance (the FAMIS programs and Medicaid, n.d., para. 4). The Virginia Coordinated Care (VCC) Program is the initiative of Virginia Commonwealth University the goal of which is to increase the availability of primary care by managing the care of 23,000 low-income uninsured Virginians (The Virginia Health Care Landscape, 2014).
Provider Incentive Programs in Virginia
Quality health care services are at least in part influenced by economic incentives, which encourage providers to deliver high-quality medical services. In the state of Virginia, a variety of incentives were established for practitioners offering health care services. These include recruitment initiatives, loan repaying programs, nursing scholarships, J-1 Visa Waiver Program and National Interest Waiver program (Johnson, n.d.). The programs aim to incentivize working in professional shortage areas and offering visa opportunities for medical personnel.
Recruitment initiatives include providing free assistance to practitioners seeking job opportunities in Virginia through the Primary Practice Opportunities of Virginia (PROVA) website. Between 2006 and 2007, 306 candidates were referred through the website (Johnson, n.d., p. 8). Virginia Lawn Repayment Programs allows applicants to be awarded up to $120,000 for a 4-year work in a professional shortage area (Johnson, n.d., p. 11).
Several nursing scholarships are established, including the Commonwealth of Virginia Nursing Scholarship Program for Nursing Educators, Mary Marshall Nursing Scholarship Program for Licensed Practical Nurses and others, which incentivize working in medically underserved areas. Visa waiver programs provide Visa opportunities for medical personnel and advanced degree professionals interested in immigrating to the United States.
The incentives seem substantial enough and assist both the providers and medically underserved populations at the same time.
Main Competitive Forces in the Healthcare Delivery System in Virginia
Strategic interactions between various organizations, policy-makers, and health care providers determine the quality of health care services. In the state of Virginia, even though the delivery system is largely privately owned, the health care industry is not fully driven by free-market forces.
Policymakers determine the quality of care by introducing programs and regulations, both state and nation-wide, aimed at optimizing the performance of health care. Examples of such programs and regulations include ACA, HEAA, Medicare and Medicaid, FAMIS and FAMIS Plus, VCC and others. Delivery reforms introduced by the government lead to better patient outcomes in both the private and public sectors.
However, many patients do not choose their provider based on the quality or price, since they are covered by insurance which limits their ability to make a purchasing decision. As such, “the effective hospital choice set for a patient when they need to be treated will, therefore, depend upon their health insurance plan” (Gaynor & Town, 2012, p. 524). Also, the prices are determined by the payer, which is a significant number of cases that is a government agency behind Medicare or Medicaid. As such, competitive forces are government agencies and insurance companies.
Another competitive force is the hospitals, which have significant market power. To offer services under the insurance plan, an insurance company has to establish a network of hospitals where the services will be covered by the insurance plan. Patients value choice when it comes to health care services, and so insurance companies with larger networks offer insurance products that are more valuable to the customer and have a higher premium (Gaynor & Town, 2012, p. 525).
Hospitals, on the other hand, help determine the price of medical services through their contracts with insurance companies. Since a variety of public and private hospitals offer similar services, the competition between different providers encourages providers to improve the quality of care, while maintaining competitive prices. As such, in addition to hospital price competition, hospital quality competition also exists (Gaynor & Town, 2012, p. 624).
In terms of supply and demand, the concept which describes the relationship between consumers and producers, healthcare system, in general, may be considered demand inelastic because people turn to medical services because of the need, rather than by choice. The demand for the health care sector, in general, is low and is estimated at -0.17 (Krueger & Kuziemko, 2013).
Positive and Negative Aspects of HMO Managed Care
Due to the rising health care costs, health maintenance organization (HMO) was established with the promise of lower health care costs in comparison to traditional insurance. HMO is a concept which describes a type of insurance and the organizations which provide it. HMO provides a variety of medical services by a range of specialists in a network of medical facilities for a fixed monthly fee (HMO Insurance Plans, n.d., para. 1).
The payment arrangement under HMO, where a patient pays a physician a fixed fee per each period, is considered capitation. While a patient pays a fixed amount each month, the actual costs of health care services vary depending on the exact health concern and treatment. The amount of payment is calculated using average local health care costs. Under this payment arrangement, the provider is at greater financial risk, since the provider is responsible for health care services which might exceed the capitation payment.
Under the HMO plan, an enrollee is assigned a primary care physician, who is the main source of health care services and makes referrals to other specialists (HMO Insurance Plans, n.d., para. 2). The physician, under a capitation agreement, has to provide a specific amount of medical services, such as preventive, diagnostic and treatment care. The exact extent of the physician’s responsibility is outlined in the contract, the terms of which may vary between organizations. There are several positive aspects to HMO managed care from a patient point of view:
- research shows that HMO penetration improves hospital mortality rates and is generally associated with better patient outcomes (Gaynor & Town, 2012, p. 576);
- typically HMOs lowers medical expenses for their members and do not require deductibles (HMO Insurance Plans, n.d., para. 3);
- a subscription model allows the patient to largely predict healthcare costs in advance.
The negative aspects of HMO managed health care from a consumer’s point of view are:
- specialized care requires a referral from the primary care physician. As such, any care sought without a referral which is not an emergency is not covered by HMO plan;
- as a pre-paid service, HMO managed care necessitates monthly fee;
- the consumer of health care services is restricted to the network of doctors and hospitals which provide HMO managed care;
The positive aspects of HMO managed care from the providers’ point of view are:
- a physician can establish long-term relationships with their patients;
- a patient is limited in their choice of a medical specialist to the network of HMO provider, which increases the likelihood that they will primarily use their services;
The negative aspects of HMO managed care from the providers’ point of view are:
- medical specialists are limited in their care decisions by HMO guidelines, which may forbid discussing more expensive treatment options;
- additional restrictions may be applied to the use of facilities and equipment;
The healthcare market in Virginia is characterized by complex relationships between public and private hospitals, practitioners, insurance companies and HMOs. The main competitive forces which determine market arrangement include the hospitals, the government, and insurance companies, including HMOs. As a type of insurance, HMO offers a variety of advantages to its consumers and exists as a viable alternative to traditional insurance plans.
Despite its advantages, there are certain limitations to HMO managed care due to its cost-effectiveness, and the capitation agreement places the provider at a financial risk. The government of Virginia seems to recognize the importance of incentives in increasing the quality of health care and provides scholarships and employment assistance to medical personnel in the area.
Gaynor, M., & Town, R. (2012). Competition in Health Care Markets. Handbook of Health Economics, 2, 501-637. DOI:10.1016/B978-0-444-53592-4.00009-8
HMO Insurance Plans. (n.d.).
Hospital Information. (n.d.).
Johnson, M. (n.d.). Virginia’s Workforce Incentives.
Krueger, A., & Kuziemko, Il. (2013). The demand for health insurance among uninsured Americans: Results of a survey experiment and implications for policy. Journal of Health Economics, 32(5), 780-793. DOI:10.1016/j.jhealeco.2012.09.005
Our Regional and Community Hospitals. (n.d.)
Sood, B. & Cohen, R. (2014). The Virginia Tech Massacre: Strategies and Challenges for Improving Mental Health Policy on Campus and Beyond. Oxford: Oxford University Press, Incorporated.