Health Policies and Health Services

Another important determinant of health is the availability of and access to health services, which are any of a host of "specific activities undertaken to maintain or improve health or to prevent decrements of health" (Longest, Rakich, and Darr 2000, 5). Health services can be preventive (e.g., behavior modification, blood pressure screening, mammography); acute (e.g., surgical procedures, antibiotics to fight infection); chronic (e.g., control of diabetes or hypertension); restorative (e.g., physical rehabilitation of a stroke or trauma patient); or palliative (e.g., pain management or comfort measures in terminal stages of disease) in nature.

The production and distribution of health services require a vast set ofresources, including money, human resources, and technology, all ofwhich are heavily influenced by health policies. Health services are provided through the healthcare system, which comprises the organizations and systems or networks of organizations that transform these resources into health services and distribute them to consumers. The system itself is also influenced by health policies. Similar to their impact on the other determinants of health, health policies have major bearing on the nature of the health services available to people through their impact on the resources required to produce the services, as well as on the healthcare system through which the services are organized, delivered, and paid for. Policies' effect on the resources used to provide health services are examined in the next sections, beginning with monetary resources.

Money As shown in Table 2.1, national health expenditures are expected to continue to grow. They may exceed $3.5 trillion by 2014. These expenditures, representing about 16 percent of the gross domestic product (GDP) in 2006,

Spending category

NHE (billions) Health services and supplies Personal health care Hospital care

Professional services Physician and clinical services Other professional services Dental services Other personal health care

Nursing home and home health Home health careb Nursing home careb

Retail outlet sales of medical products Prescription drugs Durable medical equipment Nondurable medical products

Government administration and net cost of private health insurance Government public health activities

















856.3 775.8 320.0

1.342.9 484.2

1,614.2 1,440.8 515.9

1,735.5 1,549.0 551.8

1,862.5 1,663.6 588.6

1,997.8 1,781.3 623.5

3,451.3 3,067.0 1,007.2

















24.5 38.9

35.5 53.2

46.1 70.9

48.5 74.3

52.2 79.1

55.6 84.1

59.6 90.0

102.3 146.9









87.6 21.9 65.7

123.1 33.6 89.5

143.1 36.5 106.6

150.8 40.0 110.8

160.6 45.2 115.4

170.9 50.0 121.0


87.5 51.3

132.5 87.3

212.6 161.8


280.5 223.5

308.5 249.3

608.0 521.3
























National Health Expenditures (NHE), Aggregate and Per Capita Amounts, and Share of Gross Domestic Product (GDP), Selected Calendar Years 1993-2014


National Health Expenditures (NHE), Aggregate and Per Capita Amounts, and Share of Gross Domestic Product (GDP), Selected Calendar Years 1993-2014


63.6 69.2




























NHE per capita









Population (millions)









GDP, billions of dollars









Real NHEd $1,009.4 $1,192.9 $1,497.6 $1,583.8 $1,665.8 $1,752.5 $1,843.2 $2,623.8

Chain-weighted GDP index 0.88 0.96 1.04 1.06 1.08 1.11 1.13 1.37 Personal health care deflatore 0.82 0.94 1.08 1.12 1.16 1.20 1.25 1.68

NHE as percent of GDP 13.4% 13.2% 14.9% 15.3% 15.4% 15.6% 16.0% 18.7%

SOURCES: Centers for Medicare and Medicaid Services, Office of the Actuary; and U.S. Department of Commerce, Bureau of Economic Analysis and Bureau of the Census.

NOTES: Numbers may not add to totals because ofrounding. 1993 marks the beginning ofthe shift to managed care. a Projected.

b Freestanding facilities only. Additional services ofthis type are provided in hospital-based facilities and counted as hospital care. c Research and development expenditures of drug companies and other manufacturers and providers of medical equipment and supplies are excluded from "research expenditures" but are included in the expenditure class in which the product falls. d Deflated using GDP chain-type price index (2000 = 100.0).

e Personal health care (PHC) chain-type index is constructed from the producer price index for hospital care, nursing home input price index for nursing home care, and consumer price indices specific to each of the remaining PHC components (2000 = 100.0).

SOURCE: Heffler et al. (2005). Reprinted with permission of Project HOPE.

could rise to 18.7 percent of GDP by 2014 (Heffler et al. 2005). The United States spends more on health than does any other country, in total and on a per capita basis (OECD 2004), in large part because of "higher U.S. per capita gross domestic product (GDP) as well as a highly complex and fragmented payment system that weakens the demand side ofthe health sector and entails higher administrative costs" (Reinhardt, Hussey, and Anderson 2004, 10). Other countries have been far more likely to adopt policies such as global budgets for their healthcare systems or to impose restrictive limitations on the supplies of health services.

The implications of the level of health expenditures and projected future increases are significant. The increasing health expenditures in part reflect higher prices. These higher prices have reduced access to health services by making it more difficult for many people to purchase either the services or the insurance needed to cover those services. For many workers, the increases in health expenditures have absorbed much of the growth of their real compensation, meaning lower wages as employers spend more to provide health insurance benefits. Some employers have dropped health insurance altogether. The number of people without health insurance in the United States grew from 39.6 million in 2000 to 44.7 million in 2003 (Kaiser Commission on Medicaid and the Uninsured 2004).

Because federal and state governments now spend so much on health, rising health expenditures have put substantial pressures on their budgets. As health expenditures consume a growing portion of government resources, it becomes more difficult for government to support other priorities such as education or homeland security. The Real World of Health Policy: Estimated Cost of the Medicare Prescription Drug Benefit, 2004-2013 illustrates the high cost of this added benefit in the Medicare program.

The Real World of Health Policy

Estimated Cost of the Medicare Prescription Drug Benefit, 2004-2013

The Congressional Budget Office (CBO) ( produces analyses to inform Congressional policymaking. /As a nonpartisan Congressional agency, CBO does not make recommendations about policy. It does, however, provide analyses that can be useful to policymakers in their deliberations, as was done as Congress considered the addition of a prescription drug benefit to the Medicare program.

The recently enacted Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) contains many provisions that affect the

Medicare program specifically and the U.S. health sector more generally. This paper focuses on the provisions that establish a new outpatient prescription drug benefit under Medicare and explains the basis for and rationale behind the Congressional Budget Office's (CBO's) cost estimate of those provisions. CBO estimated that, on net, the Medicare drug benefit would increase mandatory outlays by $407 billion for fiscal years 2004 to 2013 and would raise federal revenues by $7 billion over that period. Those estimates consist of many components and reflect the complex interactions of the law's many provisions (see Exhibit 1). In describing how CBO derived its estimates, this paper also presents the agency's analysis of how the drug benefit is anticipated to operate in practice. Taken as a whole, the MMA's other provisions would reduce outlays by $13 billion and revenues by $7 billion, in CBO's estimation, for a net savings of $6 billion. As a result, the MMA would increase deficits—or reduce surpluses—by $394 billion over the 2004-2013 period (reflecting an increase of $395 billion in federal outlays and an increase of $0.5 billion in federal revenues).

Exhibit 1 CBO's Estimate of the Total Cost of the Medicare Prescription Drug Benefit, Fiscal Years 2004 to 2013

Total Cost

(Billions of Dollars) of the Benefit

Changes to Direct Federal Spending

Payments to Medicare drug plans for basic benefits and administrative costs 507

Beneficiaries' premiums -131

Subsidies for employer and union drug plans 71

Subsidies for low-income benefits 192

Federal Medicaid spending -142

Transfers from states' Medicaid programs -88

Other effects on federal spending -2

Totala 407

Changes to Federal Revenues 7

Net Budgetary Impact of the Drug Benefit Provisions 400

Net Budgetary Impact of the MMA's Other Provisions -6

Net Budgetary Impact of the MMA 394 Memorandum:

Net Change to Direct Federal Spending 395

NOTE: MMA = Medicare Prescription Drug, Improvement, and Modernization Act of 2003. a Figures for the total impact on direct spending of the drug benefit provisions differ slightly from figures previously released by CBO because certain expenditures have been reclassified from Part D to other provisions of the MMA and vice versa. That difference does not affect CBO's overall cost estimate, however. See Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2005 to 2014 (January 2004), pp. 12-13.

SOURCE: Congressional Budget Office. 2004. A Detailed Description of CBO's Cost Estimate for the Medicare Prescription Drug Benefit. Washington, DC: Congressional Budget Office, Section 2.

Human The talents and abilities of a large and diverse workforce comprise another Resources of the basic resources used to provide health services. These human resources are directly affected by health policies. There are more than 13 million health-related workers in the United States today, and 10 of the 20 occupations projected to grow the fastest are concentrated in health services. About 16 percent of all new wage and salary jobs created between 2002 and 2012 will be in health services—3.5 million jobs, which is more than in any other industry (U.S. Department of Labor 2005). The significant impact of policies on health-related human resources can be seen clearly in the nation's supply of physicians and registered nurses.

There are about 782,000 physicians in the United States (National Center for Health Workforce Analysis 2003). Over time, the supply has changed dramatically: The number of physicians doubled from the mid-1960s to the mid-1990s, to a considerable extent in response to federal policies intended to increase their supply, including the Health Professions Educational Assistance Act of 1963 (P.L. 88-129) and its amendments of 1965, 1968, and 1971.

Currently, a great deal of attention is focused on issues surrounding the shortage of registered nurses (RNs). The National Center for Health Workforce Analysis has studied the magnitude of this problem; its analysis


National Supply and Demand Projections for FTE Registered Nurses, 2000-2020


National Supply and Demand Projections for FTE Registered Nurses, 2000-2020

Excess or Shortage





(Supply Less Demand)*











































































































* Negative numbers indicate a shortage.

SOURCE: National Center for Workforce Analysis (2002).

* Negative numbers indicate a shortage.

SOURCE: National Center for Workforce Analysis (2002).

demonstrates a serious shortage in the supply of RNs and projects the shortage to worsen in future years. As stated in the report, and as shown in Table 2.2, "the shortage is expected to grow relatively slowly until 2010, by which time it will have reached 12 percent. At that point demand will begin to exceed supply at an accelerated rate and by 2015 the shortage, a relatively modest 6 percent in the year 2000, will have almost quadrupled to 20 percent. If not addressed, and if current trends continue, the shortage is projected to grow to 29 percent by 2020" (National Center for Health Workforce Analysis 2002, Section 1).

Because the shortage is already a problem, concerted efforts will be made to alleviate the shortage before it worsens to an intolerable level. The Real World of Health Policy: Addressing the Nursing Shortage contains a background brief on this issue that outlines the context of the shortage and summarizes some of the efforts to address it, including state and national policy activities.

The Real World of Health Policy

Addressing the Nursing Shortage

Registered nurses (RNs) constitute the largest single healthcare profession in the United States. Since World War II, hospitals in the United States have had to cope with cyclical shortages of nurses. In 2000, the national supply of FTE [full-time equivalent] registered nurses was estimated at 1.89 million while the demand was estimated at 2 million, a shortage of 110,000 or six percent. By 2020, the shortage is projected to grow to an estimated 808,400 nurses or 29 percent. This shortage is not just in hospitals, but also in nursing homes, which project that they will need 66 percent more RNs in 2020 based on 1991 data.

In 2002, many national reports attempted to quantify the nursing shortage and explain the threat this problem poses to healthcare delivery. According to a report released by the Health Resources and Services Administration within the U.S. Department of Health and Human Services, the number of states with a shortage of RNs is expected to grow from 30 states in 2000 to 44 states in 2020. Surveys and studies published in 2002 in the New England Journal of Medicine, Journal of the American Medical Association, and by the Joint Commission on Accreditation of Healthcare Organizations all confirm that the shortage of RNs is influencing the delivery of healthcare in the U.S and negatively affecting patient outcomes.

This and other research suggests that the current shortage is the product of several trends including: steep population growth in several states, a diminishing pipeline of new students to nursing, a decline in RN earnings relative to other career options, an aging nursing workforce, low job satisfaction and poor working conditions that contribute to high workforce attrition rates, and an aging population that will require intense healthcare services. These issues are occurring just as the majority of nurses are retiring and job opportunities within healthcare are expanding.

Typical solutions to address past nursing shortages have included wage increases and recruiting nurses from other countries, such as Canada, English-speaking Caribbean and African countries, Great Britain, India and the Philippines. Given the complex causes of the current shortage described above, however, experts increasingly recognize that these short-term solutions will have little impact.

Addressing the current shortage requires efforts aimed both at recruitment and retention of nurses. Recruitment refers to the need to continuously attract new entrants into the nursing profession. Strategies include wage increases and international recruitment discussed above, as well as improving financial aid in the form of scholarships and loans, and targeting underrepresented and nontraditional groups such as minorities and men. They also include advertising campaigns and promotions to advance messages about the rewards of a nursing career, such as the $20 million "Campaign for Nursing's Future" recently undertaken by Johnson & Johnson.

Retention strategies focus on both retaining current nurses and encouraging those who have left nursing careers to reenter the workforce. Improving workplace conditions and enhancing the education and professional development of nurses are primary retention strategies. High levels of job dissatisfaction related to scheduling, unrealistic workloads, mandatory overtime, and hospital administrators' lack of responsiveness to nurses' concerns have resulted in high turnover and early retirement among RNs.

Some states have made efforts to ensure safer working conditions for nurses by passing legislation concerning minimum staffing ratios and prohibiting mandatory overtime practices. California is a prominent example. In 1999, the California legislature enacted a law mandating patient-to-nurse ratios for its hospitals beginning in 2003. As many as 19 other states have introduced similar legislation. Moreover, as of December 2002, eight states had implemented laws or regulations that ban or limit mandatory overtime, and twenty-one more had introduced legislation or regulation.

The chief federal response addressing the current nursing shortage—the Nurse Reinvestment Act of 2002 — includes both recruitment and retention strategies. The law authorizes the following provisions: loan repayment programs and scholarships for nursing students; public service announcements to encourage more people to enter the nursing profession; career ladder programs for those who wish to advance within the profession; best practice grants for nursing administration; long-term care training grants to develop and incorporate gerontology curriculum into nursing programs; and a fast-track faculty loan repayment program for nursing students who agree to teach at a school of nursing.

Numerous professional nursing associations supported the Nurse Reinvestment Act and it received additional support from other professional bodies, including the American Hospital Association, the American Medical Association, the American College of Physicians, and the American Society of Internal Medicine. On February 18, 2003, both chambers of Congress passed the $397.4 billion FY 2003 Omnibus Appropriations bill and thus the Nurse Reinvestment Act (PL 107-205) was enacted and funded. The FY 2003 appropriations amounted to $113 million, a $20 million increase over FY 2002.

These state and federal initiatives indicate that professional organizations, healthcare institutions, and other experts have succeeded in alerting policy makers to the problems associated with a shortage of a skilled nursing workforce. If forecasts of a massive gap between the supply and demand for nurses in the future are correct, however, it is likely that the scope and scale of initiatives—particularly, the level of financial resources from public and private sources—will need to be significantly expanded to reverse current trends.

As policymakers debate the issues related to the nursing shortage, discussion will likely focus on several key issues:

• How and why is this current nursing shortage different from previous shortages? Do the policy options address the current problems or are they responding to historical problems?

• How does the nursing shortage affect the quality of care for patients?

• Is assuring an adequate nurse workforce a federal responsibility? What is the correlation, if any, between the availability of nurses in the health workforce and the nature and funding of federal discretionary nursing programs?

• What other federal policies affect the demand for and supply of nurses?

• What is the nature of states "safe staffing" legislation? Why are states addressing the nursing shortage this way? Does this policy have potential unintended consequences? Will an inability to find enough qualified RNs force hospitals to eliminate beds and reduce access to care?

• Do state nursing policies affect the supply of nurses from state to state? If so, how?

SOURCE: Henry J. Kaiser Family Foundation. 2004. "Addressing the Nursing Shortage: Background Brief." [Online brief; retrieved 3/05.] This information was reprinted with permission of The Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, independent national healthcare philanthropy and is not associated with Kaiser Permanente or Kaiser Industries.

The brief was prepared by Jason Gerson and Thomas Oliver, Bloomberg School of Public Health, Johns Hopkins University. The brief was updated March 2004 and accessed on March, 2005 at

Technology A third type of resource used in providing health services and on which health policies have significant impact is health-related technology. Broadly defined, technology is the application of science to the pursuit of health. Technological advances result in better pharmaceuticals, devices, and procedures used in providing health services. A major influence on the pursuit of health in the United States, technology has eradicated many diseases and greatly improved diagnoses and treatment for others. In fact, diseases that once were not even diagnosed are now routinely and effectively treated. Advancing technology has brought medical science to the early stages of understanding disease at the molecular level and intervening in diseases at the genetic level.

The United States produces and consumes more, and spends far more for, health-related technology than any other nation; it has provided technology with a uniquely favorable economic and political environment. As a result, health-related technology is widely available in the United States.

Funding for the research and development (R&D) that leads to new technology is an important way in which health policy affects the pursuit of health, although the private sector also pays for a great deal of the R&D that leads to new health-related technology. The United States has a long history of support for the development of health-related technology through policies that directly support biomedical research and that encourage private investment in such research. The National Institutes of Health (NIH 2005) budget is more than $27 billion in 2005. In addition, encouraged by policies that permit firms to recoup their investments in research and development, private industry also spends heavily on biomedical R&D. In fact, the Pharmaceutical Research and Manufacturers of America (PhRMA) ( reports that its member companies spent $38.8 billion on research in 2004.

Another way in which health policy affects technology is through the application of regulatory policies, such as those promulgated by the Food and Drug Administration (FDA) as a means of ensuring technology's safety and efficacy. "FDA is responsible for the safety and efficacy of most food products and all human and veterinary drugs, biologic products, medical devices, cosmetics, and products emitting radiation that are sold within U.S. borders—a list that accounts for an estimated 20 percent of consumer spending, valued at approximately $1.5 trillion" (Slater 2005). FDA's mission is to promote and protect the public health by permitting safe and effective medical products to reach the market in a timely way and by monitoring products for continued safety after they are in use. This process does not always go smoothly, as The Real World of Health Policy: The FDA Issues a Press Release, which appears in Chapter 1, illustrates.

With advances in technology, the costs of health services have risen as the new technology is utilized and paid for. One paradox of advancing health-related technology is that, even as people live longer because of these advances, they then may need and utilize additional health services. The net effect drives up health expenditures both for the new technology and for other services consumed over a longer life span. The costs associated with use oftechnology generate policy issues of their own, as can be seen in The Real World of Health Policy: Medicare Makes a Coverage Decision. This real world example pertains to Medicare's decision to cover implantable cardioverter defibrillators (ICDs). [See also Hlatky, Sanders, and Owens (2005) on this policy decision]. A good overview of the complex process through which Medicare decides whether to cover new items or services is found in "An Introduction to How Medicare Makes Coverage Decisions" (MedPAC 2003, 245-50.)

lants and accompanying surgery under the plan

Use of rhis¡Nustration ip restricted.

the study aimed to clarify how best to prevent sudden cardiac arrest in such patients—who typically are left breathing heavily after even modest activity because their hearts are functioning at low efficiency. Cardiac arrest is especially common in such patients, often after a bout of rhythm abnormality.

It differs from a heart attack, in which the heart stops beating because of an interruption of the flow of blood to the heart.

The new study compared three therapies.

One group received standard care for congestive heart failure, including ACE inhibitor medicines and, in many cases, beta blockers and statins.

A second group got standard care plus daily doses of amiodarone (brand name Cordarone), proved to correct potentially deadly rhythm abnormalities—or arrhythmias—after they occur. Although the drug is widely prescribed to people with congestive heart failure, it has never been tested to see whether it can prevent, as opposed to treat, the flutters that so often kill those patients.

Patients in the third group had ICDs surgically implanted near their left shoulder. The device, about the size of a credit card but thicker, can send 750-volt shocks to a heart that has descended into an arrhythmic state known as ventricular defibrillation, the extremely rapid but useless kind of beat that is the hallmark of sudden cardiac death. The devices are already approved by the FDA for use in people who have survived such an event. But their lifesaving value in people merely at increased risk had never been proved before the study published today.

The devices were made and provided by Medtronic Inc., a major manufacturer of implantable cardiac devices, which had no role in the analysis or publication of results.

Surprisingly, after about four years of treatment, amiodarone offered no survival benefit and may have even precipitated some deaths.

"We believed putting patients on this drug was a good thing. This study proved that to be incorrect," said Richard Luceri, director of the arrhythmia center at Holy Cross Hospital in Fort Lauderdale, Fla., who implanted many of the study's ICDs.

But while 29 percent of the patients receiving standard therapy died during the study, only 22 percent of those with ICDs died. That seven-percentage-point difference amounts to a 23 percent reduction in the number of deaths. That suggests that tens of thousands of lives could be saved each year with wider use of ICDs.

The saved lives came with a cost: Because the vast majority of ICDs never needed to fire, many people underwent modest but real risks for no benefit. Infections and other significant problems appeared in 14 percent of patients who got the devices.

"The problem is, you don't know who is the one who's going to drop dead and who's not," said study leader Gust H. Bardy, director of the Seattle Institute for Cardiac Research.

The Medicare follow-up could help answer that question. The new study suggested, for example, but could not prove, that the one-third of study participants who were most severely ill were not helped by their ICDs.

At the same time, data trends in the study suggest that many of those whose ICDs never went off are likely to be saved by the devices in years to come. Although the study itself has formally ended, such hints could be confirmed or debunked with ongoing Medicare-required data collection.

SOURCE: Weiss, R. 2005. "Medicare to Cover Cardiac Device: Plan Raises Issue ofLine Between Care and Research" Washington Post, January 20, A01. © 2005, The Washington Post, reprinted with permission.

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