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Financing Montana's health care (Volume 1982) online

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1515 E 6th AVE

February 1982

Bureau of Health Planning and Resource Development

Division of Hospital and Medical Facilities

Department of Health and Environmental Sciences


Digitized by the Internet Archive

in 2010 with funding from

IVIontana State Library

Introduction and Background Information

The major health issues facing Montana in 1982 are financial issues. The
health of our citizens and the availability of health care services is
continuing to improve. The 1981-82 Montana State Health Plan reports that
the state compares favorably with the rest of the nation in most major
diseases and infant mortality rates. Only those problems with origins
outside the scope of the health care system are really more serious here
than elsewhere. Montana's rate of accident and alcoholism-related dis-
ease, disability and death are higher than the corresponding rates in many
other states.

Current health status levels and availability of health services have been
reached through rapid growth in the health care industry and increasing
support from state and federal governments. Services to the poor, handi-
capped and elderly constitute a major portion of the government participa-
tion. These are thus the populations most threatened by reduction in
public health budgets. Since our health facilities also have become in-
creasingly dependent on government funds, the availability of services
to everyone is also threatened, particularly in sparsely-populated areas
with financially marginal facilities.

Because of government's substantial financial commitment and the potential
for impact on all citizens, health policy is one of the most important
issues for state government in Montana in 1982.

Listed in the following section are six major issues and a possible approach
to each one. The recommendations listed here are selected as examples of
potential state actions to address major health care issues.




Montana's Health Care Budget

The Issue

A rational health services budget should be based on health policy, instead
of policy being dictated by budget considerations. When resources are more
than adequate for health needs, budgets can be made on an item-by-item
basis. The need for state participation can be determined and funded with
minimal concern for priorities among programs. When unmet needs are
identified they can be handled by the state using state or federal funds.

Although national health policy in recent years has not been formally stated,
it has effectively been one of assuming all Americans have a right to
quality health care. "Quality care" is generally considered to mean what-
ever can be provided by the current "state-of-the-art." Through the 1970's
this policy was generally implemented using a program-by-program budgeting

Conditions have changed due to inflation, advanced medical technology and
federal fiscal policy. There will no longer be sufficient funds to cover
all possible health care services if the recent increases in the cost of
these services continue. It is now necessary to weigh expenditures for
health care against those for welfare, highways, environmental protection,
law enforcement and other state programs that are equally necessary for the
health and well-being of Montanans.

The rate of increase of health care expenditures cannot be maintained, and
continued funding for current service levels will be increasingly difficult.
A rational health care budget now requires a critical evaluation of each
program to establish its relative need and importance. Budget priorities
should be derived from an explicit, comprehensive state health policy.

The first tool needed by state government in the determination of health
policy is a thorough, objective evaluation of health needs and priorities.
Our system for determining state health budgets does not need to be changed,
but the decision makers need more information to carry out the responsibi-
lity of allocating limited health resources.


A formal system for evaluating state health expenditures should be established.
Most of the necessary information is already being used by the various state
agencies in their budget request preparations. The added steps in this pro-
cess would be:

(1) to develop a standard set of information requirements
and a format for their presentation;


(2) to perform an objective review of this information to
assure reasonably consistent information, sources and
the reliability and validity of data.

One possible way to do this without additional funding or creating new
government agencies would be to assign this task to the Statewide Health
Coordinating Council. The Council could work with the Departments of
Social and Rehabilitation Services, Health, and Institutions and the
Governor's staff to perform both of the above functions.

First, information requirements could be established so an objective evalua-
tion could be made of each program. These requirements would include such
information as the health conditions addressed by the program, the number of
people affected, the age, sex, and race of people receiving services, the
seriousness of the health condition, the consequences of reduced or increased
state participation, and other criteria to help establish priorities.

The second phase would involve receiving the information from the depart-
ments, checking for consistency in information (population counts, resources
available, etc.) and verifiability of data (concrete data versus estimates,
consistency with other sources, etc.). The information would then be assem-
bled in a form that would allow comparison, including current funding from
all sources and budget need estimates.

The final report could be used by the Governor's Office and the Legislature
in allocating funds for health services. The report would not contain all
the necessary information for priority-setting, since there would still be
value judgements, historic commitments, policy positions of public officials
and other relevant considerations. Such an approach would, however, provide
a common informational basis for the making of these key decisions.




Paying for Health Facility Growth and Renovation

The Issue

Health care facilities must be reimbursed for legitimate capital investment,
interest, and administrative costs, regardless of their utilization level.
The development of excess capacity encourages over-utilization and increases
the unit cost for all services delivered. Unit cost is also influenced by
a facility's design. If a nursing home or hospital can be adequately built
for less investment, or can be designed to use labor and equipment more
efficiently, these efficiencies can be reflected in the price of each service.

Excess or unnecessarily expensive facilities simply mean more choices or
more elegant, if not better quality, care when there are no financial con-
straints. The current situation in Montana is not one in which this luxury
can be afforded.

In 1980, Montana hospitals used 33 percent of our health care funds, and
nursing homes, the fastest growing sector of health care expenditures, used
12.9 percent. Combined, federal and state funds account for 41 percent of
the reimbursement of hospitals and 68 percent of the reimbursement of nursing
homes. County and city funds are also used in some facilities in Montana.
If limits are placed on government expenditures for health, the result will
be a decrease in services as the prices of those services increase. In-
creased service costs also will increase the number of people requiring
assistance in paying for their health care.


Regulation is not a popular or desirable solution to most problems. The
Certificate of Need program has suffered from federal requirements that do
not fit the needs of many states. Its shortcomings have been due mainly
to a cumbersome review process and federal requirements for plans which
do not provide clear policy for decision-making. These and other problems
have resulted in the community-based Health Systems Agency and the Depart-
ment of Health and Environmental Sciences finding it difficult to recommend
disapprovals of certificates. While the Health Systems Agency's subarea
councils and executive committee include, by law, a majority of consumers,
the decisions of these groups are consistently shaped by health care pro-
viders who dominate the often uninformed consumers and "push favorable
review decisions through the hearing process.

The positive effect of Certificate of Meed has been to increase public
knowledge of health care facility expenditures and encourage more compre-
hensive planning by health care facilities.

The Certificate of Need process could be improved by developing more com-
prehensive plans, with more clearly stated policies, particularly with



respect to expenditures. There should be less reliance on federal resource
standards and more emphasis on actual needs in Montana. On the review side,
the process should be shortened, more comprehensive records should be devel-
oped, thresholds for review should be changed, and all decisions should be
consistent with specific and detailed planning policies. Major capital pro-
jects should be evaluated only on the basis of their need and the soundness
of their financial and overall planning, not on the basis of political
pressures and influences that are often decisive.

Future plans would represent policies and standards set by a consensus of
Montana health care providers, consumers, and public officials. Their
enforcement would constitute a rational allocation of Montana's health care
resources, not an external constraint on facility development.


Certificate of Need and a Shrinking Budget

The Issue

The state Medicaid budget is established for a two-year period on the
basis of projected service needs and costs. Currently, there are diffi-
culties because of the proposed expansion or renovation of some hospital
and nursing home facilities. These capital expenditures often result in
increased service utilization, and increased costs for Medicaid patients.

The Medicaid program is faced with a number of undesirable alternatives.
Eligibility could be restricted, which would keep some people from getting
the health services they need. Services could be reduced for currently
eligible Medicaid patients. Medicaid payments to providers could be reduced
to a smaller share of full charges, which would result either in the Medicaid
patient covering a portion of the cost or in shifting the costs to third-
party payers, there is also the rather unrealistic alternative of seeking
additional appropriations.

One solution that has been proposed is to use the Certificate of Need
process to prevent expansion or renovation of facilities except when approved
in conjunction with the state's budget determinations.

Such a change would result in converting the basis for decisions in the
Certificate of Need program from community need for health services to
purely budgetary requirements. This would make the CON review process a
very expensive enforcement mechanism for financial judgements made by the
Department of SRS. A moratorium on all capital expenditure projects, no
matter how distastful for those involved, would be far more simple and
efficient. If it is decided that the Medicaid budget cannot allow further
expansion or renovation projects, then the best approach would be to say
"up front" that no capital projects will take place until July 1, 1983,
except in cases of facilities which have code deficiencies or pose life-
threatening conditions for patients and staff.

The Medicaid budget is sensitive to increases in the cost and volume of
hospital and nursing home services. Medicaid funds for 1980 in Montana
were spent at a level of $29.4 million (55 percent of all Medicaid expendi-
tures) for nursing home services and $14.0 million (22 percent) for hospitals
Hospital and hospital-related physician services paid by Medicaid were $21
million (33 percent) in 1980. It must also be noted that Medicaid payments
were 65 percent of the total revenues received by nursing homes and only
six percent of the total revenues received by hospitals in 1980.

Restriction of service volume or the maintenance of sub-standard facilities
to protect the Medicaid budget will affect the quality of care for all
hospital and nursing home patients, regardless of the source of payment for
their care.




The federal government is planning to take over full responsibility for
the Medicaid program in the future. It is almost certain that limits will
be placed on payments and the counties in Montana will be responsible for
paying for medical services for indigents who are not covered or services
only partially covered by Medicaid.

Clearly there is need for a health care financing system that permits
accurate budgeting by Medicaid, Medicare, private insurance carriers and
other payment systems as well as by the health care institutions them-
selves. It is becoming increasingly likely that trade-offs between service
needs and limited resources will become necessary. It also seems evident
these trade-offs cannot be made in a rational manner by a system in which
budget constraints and service needs are confused.


The Certificate of Need program should be redesigned and maintained as a
means of establishing community consensus on the number and types of health
care facilities needed in Montana. If this remains the primary objective
of the program, it cannot also be used to limit state Medicaid expenditures.

The state could set up a system in which rates and a maximum allowable
volume of services for Medicaid payments would be negotiated for each
budget period and not changed. While this arrangement would protect the
Medicaid budget, it would definitely lead to cost shifting to other payers
and result in Medicaid patients being unable to always obtain services in
the most convenient facility.

One alternative used in other states to deal with this problem is a manda-
tory prospective rate system. A formal process can be established for
negotiating rates for services in each hospital. These rates would remain
in affect for one year, and wjuld be the basic charge paid by all purchasers
of services.

A prospective rate system could include provisions for emergency repairs
or construction, but most capital expenditures could not be used as a basis
for rate increases until the next yearly rate was negotiated.

This kind of system would require some provision for the fact that state
budgets must be established for two years. It would also require an
accurate projection of the volume of services needed by Medicaid recipients.
The system would, however, give hospitals, the state and other third-party
payers a much more stable budget throughout each year.

The potential value of a prospective rate setting process varies from state
to state, and the particular design must fit the unique needs of the state.
According to an article in the January 4, 1982 issue of "Washington
Report on Medicine and Health", Congress is considering reducing the cuts
in Medicaid funding to states from four percent to three percent for states
with "qualified hospital cost review programs." There seem to be enough
potential gains to merit further consideration of a mandatory rate setting
system for Montana.



Paying for Long-Term Care

The Issue

Long-term care for elderly, chronically ill, mentally ill, and developmen-
tally and physically disabled persons is the area of health care most
heavily dependent on government financing. Nursina homes in Montana re-
ceived 65 percent of their revenue from government sources in 1980.

Among the many problems frequently coming to public attention in long-term
care are:

1. Lack of service alternatives

2. Problems with quality of care

3. Funding shortages

4. Proximity of service to home

5. Need for swing beds (Beds used for hospital or long-term care services.)

The first of these is further complicated by the considerable overlapping
of the social and health care needs of long-term care recipients. Each of
the patient groups mentioned has individuals whose needs vary from limited
personal care to constant nursing and medical attention.

One likely outcome of these need differences is a system which offers only
the extremes, either the highest level of service or none. Thus, a person
might do without care up to the point where a nursing home placement is
necessary as the only alternative. This is likely to occur in sparsely-
populated areas or when limited resources must be allocated over a wide
range of services.

Funding shortages and quality of care problems are both being addressed
by government and health care providers. Service alternatives are less
directly addressed because of the fragmentation of service delivery and

Day care, home health care, personal care homes, group homes, and other
social and medical long-term care services are usually unable to survive
without government support. The dependent nature of their clients usually
results in an inability to support themselves financially. Most of the
recipients of these services also have limited choice concerning which
services will be used to meet their needs.

Cost of care, quality of care, and appropriateness of services are most
favorable when a full range of services is available. However, a full
range of services costs more than limiting and rationing services. The
later approach is currently favored in current federal government policy.
While states are free to supplement the limited federal programs, they do
not really have the resources to do so.


The state government of Montana, with as much public participation as
possible, should realistically assess long-term care needs and resources
and develop policy for use of those resources. The importance of this
assessment and policy development for long-term care can be illustrated
by the projected statewide deficit of nursinq home beds by 1985.

The following are examples of questions that should not be decided indirectly
through inaction or budget expediency:

1. Should the state license and support personal care homes
for persons requiring assistance in daily living but not
continuous medical or nursing care?

2. Are home health services financially feasible? If not,

are they desirable anyway? Should such services be publicly
supported if they are only feasible in more populated areas?

3. Is the social desirability of having long-term care available
near one's home greater than the medical and financial
advantages of more specialized long-term care services which
will necessarily serve larger areas?

4. Can social and welfare programs be better coordinated with
health programs so that an individual's needs and eligibility
are consistently assessed by both systems? The goal would

be to set up a system in which neither the individual recipient
nor the government agency with budget responsibility would
benefit from improper long-term care placements.

5. Should multi-service institutions or closer medical monitoring
be used as a means of improving service access and appropriate

These and other long-term care issues should be addressed by state govern-
ment and studied in an integrated evaluation of long-term policy for the
development of long-term care in Montana. These decisions should not be
left up to the fragmented long-term care industry or to government operating
agencies that must carry out the policies of elected officials with the
budgets they are assigned.

Regardless of the policy decisions reached through an evaluation of the
questions raised above, the recommendations provided in the long-term care
component of the 1931 State Health Plan regarding the following areas should
be addressed:

A. Certificate of Need programs should remain in effect as a
method of neqotiating and enforcing consensus on nursing
home and lower-level residential services bed need.

B. Certificates of Need should only be approved for remodeling,
replacement, or addition of nursing home and lower-level
residential services beds that meet the conditions expressed
in the recommendations.



C. Non-institutional long-term care services should be
developed at least to the level determined by the 1980 SRS
State Plans.

D. Local development of services through technical assistance
and removal of regulatory and reimbursement barriers to forma-
tion of multi-service institutions (including swing bed arrange-
ments) or agencies should be encouraged.



Promoting Health and Preventing Disease

The Issue

Our modern health care system gives priority to the diagnosis and treat-
ment of acute conditions, particularly those that are life-threatening.
Some of the causes of this bias towards life-threatening diseases are
quite reasonable. The urgency of the demand for such care is a primary
factor. A less direct influence is the fact that our most thorough data
on the health of the population is derived from death certificates. Con-
sequently, our need assessments often over-emphasize diseases that are
direct causes of death.

The priority health problems selected for this year's Montana State Health
Plan are (1) alcohol abuse and alcoholism, (2) accidents and suicides,
(3) cancer, and (4) hypertension. These were selected mainly on the basis
of mortality statistics, estimated prevalence and potential for intervention.

The State Health Plan also shows that medical and other health care responses
to these conditions are being carried out and improved. The most impact
could be gained through prevention. Disease prevention, however, does not
replace treatment but must be pursued in addition to necessary treatment.

Health promotion and disease prevention programs are believed to be effec-
tive for many diseases. The results, however, are usually long-term and
only detectable through indirect measures. It is difficult to prove the
cause of the absence of a disease or disabling condition. In a time of
tight money it is difficult to support smoking clinics, nutrition programs
and health education when funds for treatment of renal failure, lung cancer
or cirrhosis of the liver are barely adequate.

Alcohol problems have continued to increase although treatment programs
have improved and increased. Prevention programs have not had significant
impact. Alcohol is not only considered one of the most serious health
problems in Montana, but is also a major contributor to accidents, which
is also one of the major threats to health in the state.

Immediate demand for treatment cannot be ignored. On the other hand, if
preventive measures are not continued the growth in demand for treatment
can be expected to far exceed the short-term gains of discontinuing these


The sources of health promotion and disease prevention services differ
depending on one's income level. Those with' resources obtain these services
mainly from private physicians; those without rely on public health programs.
Services directed toward the society as a whole, rather than delivered to
individuals, are almost exclusively provided by government and charitable


Cuts in government programs can thus be expected to reduce access to
personal preventive services for the poor and elderly and access to health
promotion and environmental health programs for everyone.

Long-term solutions to these problems have the best chance of being effective
if they bring about a better balance of health care services from all sources,
which is preferable to government taking exclusive responsibility for health
promotion. Government policy should include health promotion and education
services for those who receive all or most of their health care from govern-
ment sources. This, in fact, is the traditional approach of public health
care, particularly public health nursing.

The remainder of the population should obtain these services from the same
health care providers and payment systems that furnish their other health
care. This cannot be expected to occur spontaneously as a result of govern-


Online LibraryMontana. Bureau of Health Planning and Resource DeFinancing Montana's health care (Volume 1982) → online text (page 1 of 2)