President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry

Improving Quality in a Changing Health Care Industry

Chapter Two
Improving Health Care Quality in an Industry in Transition

The American health care system is undergoing a period of rapid and unprecedented change. The growth of managed care and its associated changes in provider organization, combined with health innovation and technological change, has great potential to enhance care delivery, but it also poses challenges and increases the demand for information. Taking advantage of the opportunities and meeting the challenges of rapid reconfiguration while avoiding the associated risks is a critical goal whose achievement is contingent upon the efforts of all who have a stake in the current and future performance of the health system.

A Rapidly Changing Industry

Four characteristics define the health insurance market today, with implications both for who gets coverage and also for the kinds of coverage and protections in place for those who have insurance coverage: (1) pluralism, with a focus on employer-based coverage for the nonelderly; (2) significant and growing numbers of uninsured Americans; (3) the continuing pressure of costs on employers and consumers; and (4) the shift to managed care and the growth of self-funded plans in the group insurance market. The implications of these characteristics are profound, generating potential tradeoffs among cost control, coverage, and access.

Health Insurance Products

Five trends characterize health insurance plans today and the ways in which the products they offer are structured: (1) an increased complexity and concentration of health plans; (2) an increased diversity of health insurance products; (3) an increased focus on network-based delivery; (4) shifting financial structures and incentives between purchasers, health plans, and providers; and (5) development of clinical infrastructure for utilization management and quality improvement. These trends have tremendous implications for consumers, affecting how care is accessed, which providers are seen, and how care is delivered, as well as who is accountable for the outcomes of care and performance of the health care system.

Changes in Provider Practice

The characteristics of provider practice are changing in four important ways: (1) the shift of physicians away from solo, self-employed practice and effects on income and satisfaction associated with the demands of the current health care system; (2) the shift in hospitals from inpatient facilities to health systems; (3) the heightened demand for nursing home, postacute care, and long-term care services associated with demographic trends and changes in Medicare coverage interpretations; and (4) the changing roles of nurses and other health care professionals.

Growth in Knowledge and Health Care Technology

Health knowledge and technology have grown explosively over the post-World War II period, and even more rapid growth is expected in the future. Surprisingly little is known about the relationship between health technology and costs and about how this relationship may be changing in today's environment.

Both public and private sector investments in research and development are extensive (Gelijns and Rosenberg, 1994; Read and Lee, 1994). While investments have a long pipeline, knowledge of treatment has grown explosively and promises to continue to do so in the future. About 20 to 30 new drugs are approved by the Food and Drug Administration (FDA) each year, including biotechnology products and vaccines (Reed and Lee, 1994). Recently approved and widely used drugs, devices, and procedures include beta blockers, imaging devices, ultrasound, and surgical laparoscopy (Gelijns and Rosenberg, 1994). Approved biotechnology products include some broad-based products such as Interferon and TPA.

In the pipeline and likely to emerge soon are new classes of technology that allow better targeting of drugs to cell receptors; new treatments for autoimmune diseases, such as diabetes and rheumatoid arthritis; and new approaches to genetic screening and therapy that will influence treatment for cystic fibrosis and cancer, for example (Schwartz, 1994).

Evolving knowledge has potential to improve care, but it also places stress on providers who need to be knowledgeable about evolving technologies and able to translate disparate findings into practice. Substantial efforts have been made in recent years to develop practice guidelines and other evidence-based guidance for clinicians, both on therapy and on preventive services. In response to these needs, efforts to better develop an infrastructure for evidence-based medicine are evolving. AHCPR recently awarded 12 5-year contracts to create Evidence-based Practice Centers to produce reports and technology assessments that would be widely used and provide a scientific foundation for developing guidelines, performance measures, and clinical quality improvement tools (AHCPR, 1997b). The AMA, American Association of Health Plans (AAHP), and AHCPR are working together to develop a National Clinical Guideline Clearinghouse (AHCPR, 1997a). The AMA is also working on a related Clinical Guideline Recognition Program to provide feedback to physicians on guideline quality (AMA, 1997).

The effects of these changes on health care expenditures are poorly understood. While studies quantifying the effects of health innovation and other technological changes on health care spending exist (Fuchs, 1986; Newhouse, 1992), these studies have been criticized because new technology is assumed to account for changes in health care spending unless the change is otherwise accounted for.


Achieving significant improvement in health care quality will require consistent efforts on the part of all stakeholders in the health care system: government leaders, group purchasers, health care providers (including individuals, facilities, and organizations), quality oversight organizations, and consumers themselves. Responsibilities for each of these key stakeholder groups are detailed in succeeding chapters. While each participant in the health care industry should read these chapters to understand what it should do to promote improvement in quality, it is important to underscore that lone action by any one group of stakeholders will not by itself achieve the necessary changes in the quality of American health care. Action by all parties will be needed to achieve the high-quality health care that American consumers deserve.


Agency for Health Care Policy and Research, Department of Health and Human Services, Press Release: AHCPR, AAHP and AMA to Develop National Clinical Guideline Clearinghouse (May 28, 1997a).

Agency for Health Care Policy and Research, Department of Health and Human Services, Press Release: AHCPR Announces 12 Evidence-based Practice Centers (June 25, 1997b).

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American Association of Health Plans, HMO and PPO Industry Profile, 1995-1996 edition (Washington, DC: May 1996).

American Association of Health Plans, unpublished data on plan ownership and products, 1997.

American Hospital Association, Hospital Statistics: The AHA Profile of United States Hospitals, 1994-1995 edition (Chicago: 1995).

American Hospital Association, Hospital Statistics, Emerging Trends in Hospitals, 1995-1996 edition (Chicago: 1996).

American Medical Association, Press Release: AMA Launches Clinical Practice Guideline Recognition Program to Evaluate Guidelines (July 16, 1997).

Anderson, Gerard F., "In Search of Value: An International Comparison of Cost, Access, and Outcomes," Health Affairs 16(6):163-171, November/December 1997.

Board of Trustees of the Federal Hospital Insurance Trust Fund, 1997 Annual Report (Washington, DC: U.S. Government Printing Office, 1997).

Colby, David C., "Perspective: Doctors and their Discontents," Health Affairs 16(6):112-114, November/December 1997.

Collins, Karen Scott, Cathy Schoen, and David R. Sandman, The Commonwealth Fund Survey of Physician Experiences With Managed Care (New York: Commonwealth Fund, March 1997).

Cooper, Philip F., and Barbara Steinberg Schone, "More Offers, Fewer Takers for Employment-Based Health Insurance: 1987-1996," Health Affairs 16(6):142-149, November/December 1997.

Copeland, Craig, and Bill Pierron, Implications of ERISA for Health Benefits and the Number of Self-Funded ERISA Plans, EBRI Issue Brief (Washington, DC: Employee Benefit Research Institute, January 1998).

Corrigan, Janet, Jill Eden, Marsha Gold, and Jeremy Pickreign, "Trends Toward a National Health Care Marketplace," Inquiry 34(1):11-28, Spring 1997.

Dunbar, Jennifer L., Anticipating the 1997 State Children's Health Insurance Program: What's Current in Five Rural States (Bethesda, MD: Project HOPE, January 1998).

Emmons, David W., and Phillip R. Kletke, "An Examination of Practice Size," in Socioeconomic Characteristics of Medical Practice 1997 (Chicago: American Medical Association, 1997).

Emmons, David W., and Gregory D. Wozniak, "Physicians' Contractual Arrangements with Managed Care Organizations," in Socioeconomic Characteristics of Medical Practice 1997 (Chicago: American Medical Association, 1997).

Employee Benefit Research Institute, Trends in Health Insurance Coverage, EBRI Issue Brief No. 185 (Washington, DC: 1997).

Fuchs, Victor, The Health Care Economy (Cambridge, MA: Harvard University Press, 1986).

Gabel, Jon R., Paul B. Ginsburg, and Kelly A. Hunt, "Small Employers and Their Health Benefits, 1988-1996: An Awkward Adolescence," Health Affairs 16(5):103-110, September/October 1997.

Gaskin, Darrell, and Jack Hadley, "The Impact of HMO Penetration on the Rate of Hospital Cost Inflation, 1985-93," Inquiry 34(3):205-216, Fall 1997.

Gelijns, Annetine, and Nathan Rosenberg, "The Dynamics of Technological Change in Medicine," Health Affairs 13(3):28-46, Summer 1994.

General Accounting Office, Private Health Insurance: Millions Relying on Individual Market Face Cost and Coverage Trade-Offs, GAO/HEDHS/97-8 (Washington, DC: November 1996).

General Accounting Office, Private Health Insurance: Continued Erosion of Coverage Linked to Cost Pressures, GAO/HEHS-97-122 (Washington, DC: July 1997).

Ginsburg, Paul, and Jeremy Pickreign, "Tracking Health Care Costs: An Update," Health Affairs 16(4):151-155, July/August 1997.

Gold, Marsha, and Robert Hurley, "The Role of Managed Care 'Products' in Managed Care Plans," Inquiry 34(1):29-37, Spring 1997.

Gold, Marsha R., Robert Hurley, Timothy Lake, et al., "A National Survey of the Arrangements Managed Care Plans Make With Physicians," New England Journal of Medicine 333(25): 1678-1683, December 21, 1995a.

Gold, Marsha, Lyle Nelson, Timothy Lake, et al., "Behind the Curve: A Critical Assessment of How Little Is Known About Arrangements Between Managed Care Plans and Physicians," Medical Care Research and Review 52(3):307-341, September 1995b.

Gold, Marsha R., et al., Arrangements Managed Care Plans Make With Physicians, Selected External Research Series, No. 3 (Washington, DC: Physician Payment Review Commission, November 1994).

Holahan, John, "Crowding Out: How Big a Problem," Health Affairs 16(1):204-206, January/February 1997.

Hunt, Kelly, Sara J. Singer, Jon Gabel, et al., "Paying More Twice: When Employers Subsidize Higher-Cost Health Plans," Health Affairs 16(6):150-156, November/December 1997.

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  1. Group purchasers' costs are reflected in premiums they pay as offset by any premium contribution from those covered. Because there is a lag in accounting for costs, changes in premiums may lag cost experience by 18 months or more.

  2. By managed care, we mean network-based arrangements associated with health benefit products such as HMOs, PPOs, and POS hybrid arrangements, including the provider-sponsored organizations set up to contract or compete with entities offering such products.

  3. The group/staff model is the form traditionally associated with large prepaid group practices that typically are exclusive to the HMO; the network/IPA model includes HMOs that have more dispersed networks of independent providers in community-based practices in which the HMO accounts for only a small share of the practice. But in 1994, 55 percent of group/staff model HMOs made some use of network/IPA arrangements within their traditional HMO product (Gold et al., 1995b).

  4. Only 1 in 10 PPOs uses a payment method that transfers risk to practitioners (AAHP, 1996). Whether the PPO itself bears any financial risk through its contract with the group purchaser is not clear.

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Last Revised: Sunday, July 19, 1998