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The U.S. Healthcare System

Origins, Organization and Opportunities

Shalowitz, Joel I.

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1. Auflage Oktober 2019
720 Seiten, Softcover
Wiley & Sons Ltd

ISBN: 978-0-470-63152-2
John Wiley & Sons

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Provides a diverse, multi-faceted approach to health care evaluation and management

The U.S. Health Care System: Origins, Organization and Opportunities provides a comprehensive introduction and resource for understanding healthcare management in the United States. It brings together the many "moving parts" of this large and varied system to provide both a bird's-eye view as well as relevant details of the complex mechanisms at work. By focusing on stakeholders and their interests, this book analyzes the value propositions of the buyers and sellers of healthcare products and services along with the interests of patients.

The book begins with a presentation of frameworks for understanding the structure of the healthcare system and its dynamic stakeholder inter-relationships. The chapters that follow each begin with their social and historical origins, so the reader can fully appreciate how that area evolved. The next sections on each topic describe the current environment and opportunities for improvement.
Throughout, the learning objectives focus on three areas: frameworks for understanding issues, essential factual knowledge, and resources to keep the reader keep up to date.

Healthcare is a rapidly evolving field, due to the regulatory and business environments as well as the advance of science. To keep the content current, online updates are provided at: www.HealthcareInsights.MD. This website also offers a weekday blog of important/interesting news and teaching notes/class discussion suggestions for instructors who use the book as a text.

The U.S. Health Care System: Origins, Organization and Opportunities is an ideal textbook for healthcare courses in MBA, MPH, MHA, and public policy/administration programs. In piloting the content, over the past several years the author has successfully used drafts of chapters in his Healthcare Systems course for MBA and MPH students at Northwestern University. The book is also useful for novice or seasoned suppliers, payers and providers who work across the healthcare field and want a wider or deeper understanding of the entire system.

List of Exhibits xiii

Foreword xxi

Acknowledgments xxiii

One: Understanding and Managing Complex Healthcare Systems 1

Definitions 2

Health System Structure and Features 7

Who Pays? 8

How Much Is Paid? 11

Who and What Is Covered? 12

Where Is Care Provided? 13

Who Provides the Services and Products? 14

Strategic Planning 17

Stakeholders 17

Health System Trade-offs and Value Propositions 20

Putting It All Together 30

Summary 32

Two: Determinants of Utilization of Healthcare Services 33

Reasons Stakeholders Seek Healthcare 34

Patient Characteristics That Influence Care-Seeking 36

Age 37

Gender/Sex 37

Race 39

Income 41

Social Status 42

Education 43

Culture and Beliefs 44

Multifactorial Causes 46

Reducing Patient Demand for Healthcare 47

Increase Out-of-Pocket Expenses 47

Prevention 51

Eliminate/Reduce Risky Behaviors 51

End-of-Life Issues 52

Healthy Lifestyle Promotion 54

Consumer Behavior--Healthcare Market Segmentation 54

Provider-Induced Demand for Healthcare 56

Local (Small Area) Variations 61

Summary 63

Three: Managerial Epidemiology 65

Introduction 66

What Is Epidemiology? 66

Why Is It Important to Learn about Epidemiology? 66

Definitions and Uses of Principles 67

Morbidity and Mortality 67

Incidence and Prevalence 67

Validity 67

Reliability 68

Sensitivity, Specificity, Positive Predictive Value, and Negative Predictive Value 68

Clinical Study Designs 70

Case Control Studies 70

Problems with Observational Research 72

Benefits to Employing Observational Research 73

Cohort Study 74

Randomized Controlled Trial 78

Summary 80

Four: Hospitals and Healthcare Systems 81

A Brief History of Western Hospitals 82

American Hospital Expansion in the 20th Century 88

Hospital Definition and Classifications 94

Definition 94

Ways Hospitals May Be Classified and Special Related Issues 96

Hospital Inpatient Payment Methods 137

Organized (Integrated) Delivery Systems/Accountable Care Organizations 139

Origins and Definition 139

Eligibility 143

Financial Arrangements 143

Hospital Governance 153

Definition and Purpose 153

Legal Requirements 154

Responsibilities 156

Board Structure and Activities 159

Summary 161

Five: Healthcare Professionals 163

Physicians 164

History of Western Medical Care 164

History of American Medical Care 177

Current Status of Medical Training 190

Licensure 197

Shortage of Physicians 199

Employment Status 204

Summary 206

Nurses 206

Registered Nurses 206

Nurse Practitioners 208

Nurse Anesthetists 209

Midwives 210

Education and Certification 212

Physician Assistants 213

Education and Certification 214

Physician versus NP/PA Care 215

Summary 216

Six: Payers 219

Principles of Health Insurance 220

The Loss Must Have Some Nontrivial Value Upon Which Both Insured and Insurer Agree 222

The Peril Must Occur Randomly and Be Out of the Control of the Insured 222

The Event Must Occur Neither Too Frequently Nor Too Rarely 225

The Insurer Must Be Able to Write Large Numbers of Contracts to Indemnify Similar Risks 226

Background and Current Status of Health Insurance in the United States 229

Private Health Insurance 229

Medicare 264

Medicaid 318

Children's Health Insurance Program: Social Security Title XXI 335

Other Federally Sponsored Programs 337

Managed Care 357

Principles 361

Quality and Safety 361

Summary 381

Seven: Healthcare Technology 385

Definition and Frameworks for Study 386

Major Trends in Healthcare Technology 388

Safety 388

History of Safety Problems and Corrective Legislation 390

What Is Substantial Equivalence 404

When a 510(k) Is Required 404

Bringing Healthcare Technology to Market 435

Evolving Industry Structure 438

Globalization 444

Generics 444

Specialty Pharmaceuticals 446

Patents 453

Genomics and Precision Medicine 453

Disruptive Innovation 458

Healthcare Technology's Contribution to Costs by Stage of Care 460

Overview 460

Quality-Adjusted Life Years 460

Core Cost Issues 462

Prevention 463

Screening 464

Diagnosis 464

Treatment 466

Other Considerations 470

Religious Issues 470

Ethical Issues 470

End-of-Life Costs 471

Media's Role in Increasing Technology Costs 472

Malpractice and Defensive Medicine 473

Summary 474

Eight: Information Technology 475

Introduction 476

Definitions 477

Background and Key Issues in Health Information Technology 479

Collection, Classification, and Ordering of Data 479

Terminology/Coding 486

Interoperability 492

Lessons Learned 529

Challenges 529

Sustainability 529

Certification 534

Privacy and Security of Information 537

Management Considerations 547

Other Issues and Trends 549

Summary 563

Nine: Quality 565

Introduction 566

History of Healthcare Quality and Development of Key Concepts and Institutions 567

Ancient Origins 567

1900-1950 568

1950-1970s 574

1980s and Total Quality Management 580

1990s 589

2000-2010 592

2010-Present 605

Quality of Care and the Public's Health 623

The Centers for Disease Control and Prevention 623

Healthy People 626

Definition of Quality 630

Key Questions for Successful Evaluation and Implementation of Quality Measures 632

Choosing Standards 633

Monitoring Standards 637

Evaluating Results 639

Volume/Quality Relationship 644

Managing Quality Improvement 646

Value Propositions 646

Cost-Quality Trade-off 648

Cost-Access Trade-off 648

Quality-Access Trade-off 649

Summary 649

Index 651
Students of American health care's history, structure, organization, management, regulation, and financing face a daunting challenge, confounded by the complexity and scale of that industry. Until now, a modern comprehensive source book covering all of that terrain and more has been missing.

The wait is over. In The U.S. Healthcare System: Origins, Organization, and Opportunities, Professor Joel Shalowitz has provided a stunningly ambitious compendium with an unequaled combination of both scope and detail. It covers both the current shape and the historical background of payment, classical and emerging organizational forms, professional roles, regulation, technology, efforts to measure, control, and improve the quality of care, and more. It takes deep dives into the epidemiology of both disease and the utilization of care - important scientific foundations for proper health care policy and management. Throughout it makes generous use of helpful figures and tables, as well as copious citations that mark this as a work of authentic scholarship.

Professor Shalowitz's book is a must-have resource for the library of any health care scholar who wants to have ready and efficient access to the fundamental facts that shape American health care today.

Donald M. Berwick, MD, MPP

Former CMS Administrator

Professor of Health Policy and Management, Harvard School of Public Health

President Emeritus and Senior Fellow, Institute for Healthcare Improvement, Boston, Massachusetts


For anyone who picks up Joel Shalowitz's book, The U.S. Healthcare System: Origins, Organization, and Opportunities, do NOT make the common mistake of skipping the prefatory material. The first two paragraphs of the "Foreword" (p. xxi) are worth the price of admission. As far as I am concerned, anyone teaching or taking an introductory survey course on our healthcare system needs to embrace and internalize the nuggets of wisdom here, obviously gleaned over thirty years of laboring on this topic.

What are some these nuggets? First, we do not have a healthcare system. Rather, we have a series of inter-related parts that are not aligned in their goals and incentives. That means the parts don't work together and are not meant to work together. What that means is abandon efforts to try to "align the incentives" of all the parties using payment changes and structural models; the divides go deeper than this. The lack of a system also means that the parts impact one another in sometimes opaque ways. This means that efforts to change this monster with simplistic, top-down programs that only address one part are likely to fail. Trying to get all parties to participate in some reform might resemble the idealistic scene depicted in Edward Hicks' painting, "The Peaceable Kingdom" (with William Penn in the background!).

Second, there is nothing new in our healthcare system. As Yogi Berra reputedly said, "it is déjà vu all over again". Many of the problems we are trying to tackle today (improving quality, increasing access, controlling cost increases) are similar to problems we have tried to tackle in the past. The fact that we are still tackling them - - without realizing that we have been down this road before, unsuccessfully - - should send out warning signs to everyone. These problems are intractable. The only problem is that managers, policy-makers, and students of U.S. healthcare don't know the history and the lessons learned from the last time we tried to tackle these issues, and thus don't know (to quote an old management text) "the ropes to skip and the ropes to know".

These words are meant as praise for what Joel Shalowitz has achieved in this hefty tome. He takes nearly 700 pages to (a) present several important frameworks for understanding the U.S. healthcare system, (b) trace the history of this system, and (c) present the relevant fact base on its major sectors - - but with an emphasis on "understanding" how this system really works (or doesn't work). Unlike other introductory texts, Joel has avoided the mindless presentation of statistics and charts. I do not think those help anyone; moreover, it is boring. Instead, his book is designed to be thoughtful and thought-provoking - - i.e., to help improve your critical thinking about our healthcare system through some important lessons.

The lessons come quickly in this book. Chapter 1 introduces the reader to the three main policy goals pursued by the U.S. (and every other country) for decades: higher quality, improved access, and restrained rate of growth in healthcare costs. This framework needs to be on everyone's learning agenda, since every country endorses it as their strategic aim (but have not yet solved it). Joel immediately gets to the task of explaining what each of these complex goals consists of - - not an easy task, since they are multi-dimensional in nature. More importantly, he correctly (I think) characterizes this tripartite set of goals as inherently contradictory and involving tradeoffs in their accomplishment. This will come as unwelcome news to many people who want to have it all and/or do not want to make tough choices. This is critical thinking that challenges many widely-held beliefs.

Chapter 1 also introduces you to the many stakeholders in the U.S. healthcare system. This analysis should sober readers that "alignment" - - one of the most overused words in our field - - is going to be difficult given the plurality of interests involved. Anyone one who has studied plural societies (those with many, different ethnic or religious groups) should understand the difficulties of bringing all parties together for a common goal. Indeed, one of the strengths of this book is to emphasize the presence of stakeholders and their plurality in our healthcare system. Their mere existence tells the reader that, as far as "alignment" goes, "we have trouble in River City". Efforts to cut costs in one area of healthcare are likely to "gore someone else's ox" (e.g., income) and therefore be opposed and perhaps thwarted.

And this is just the Foreword and Chapter 1! I could go on further about why this book makes an enormous contribution. Chapters 2 and 3 deal with epidemiology - - a topic worthy of a physician author, but also important for an MBA business school audience that is interested in marketing (the managerial version of epidemiology). This should come as no surprise since Joel has co-authored another major text with Phil Kotler. Subsequent chapters (4 and 5) deal ably with the two biggest sources of spending in our healthcare system: hospitals (and hospital systems) and healthcare professionals. Chapters 6-8 then cover the multitude of payers, the multitude of technologies that need to be paid for, and (in particular) the advances in information technology. The final chapter does a deep-dive into the whole issue of quality - - how to measure it, how to manage it, and the tradeoffs necessitated in doing so.

I should acknowledge my biases. Like Joel, I have been teaching an introductory survey course on the U.S. healthcare system for over 30 years. It may take us that long to really appreciate what working in this non-system means. And, like Joel, I believe an understanding of the history of the system is important for anyone trying to work within it, let along trying to change it. And, like Joel, I have labored at this task in major business schools trying to teach MBA students about the importance of this all. So, I am already predisposed to like this book. I wish I had written it.

Lawton R. Burns, PhD, MBA

James Joo-Jin Kim Professor; Director, Wharton Center for Health Management and Economics; and

Chairperson, Health Care Systems Department, Wharton School, University of Pennsylvania


The U.S. Healthcare System: Origins, Organization and Opportunities is a tour de force-- a must use textbook for those seeking to solve the problems of the U.S. health care system.

It discusses each of the major stakeholders in an accessible, detailed, and authoritative voice and presents a compelling framework for understanding how they function.

Coupled with Professor Shalowitz's daily blog, https://www.healthcareinsights.md, which discussed current healthcare issues, this book will make for the lively, informed discussions that students of U.S. healthcare have been looking for.

Regina E. Herzlinger, PhD

Nancy R. McPherson Professor of Business Administration, Harvard Business School


This remarkably well-documented text provides important information and knowledge about the U.S. healthcare system within the context of historical developments and interpretative frameworks. The chapter on Managerial Epidemiology distinguishes [the book] from many other texts in the field, and there are particularly strong chapters on Payers, Technology, and Information Technology. The text will help readers understand and navigate the complexity of the U.S. healthcare system, why it has developed the way that it has, and some of the implications for its future evolution.

Stephen M. Shortell, PhD, MBA, MPH

Distinguished Professor of Health Policy and Management Emeritus

Dean Emeritus School of Public Health

University of California, Berkeley


No matter if you're a seasoned executive or just entering the health care workforce, this book provides critical context about the history of care delivery and payment methodologies. This understanding is essential as we consider our health care future as a country, and the author has some fascinating ideas about possible paths forward for our industry.

Susan Turney, MD, MS, FACP, FACPME

CEO of Marshfield Clinic Health System


To anyone who wants to really understand the U.S. healthcare system, Dr. Shalowitz's book is a "must read". Having participated in the healthcare industry for 40 years, this is the first time I have found a book that is comprehensive, factual and well-written."

Harry Kraemer, Jr., MBA

Former Chairman & CEO, Baxter International

Clinical Professor of Leadership, Kellogg School of Management, Northwestern University

Executive Partner at Madison Dearborn Partners
JOEL I. SHALOWITZ, MD, MBA, FACP, was Clinical Professor and Director of the Health Industry Management Program at the Kellogg School of Management for 28 years. In addition to practicing internal medicine, he has also been on Northwestern's Feinberg Medical School's faculty for more than 35 years, most recently as Professor of Preventive Medicine. He teaches and consults internationally, was the recipient of three Fulbright awards, and is currently a Senior Fellow at ETLA (the Research Institute of the Finnish Economy) and an Affiliate Professor at the Institute of Management of the Scuola Superiore Sant'Anna in Pisa.