Funds for the construction or renovation of health facilities, and for major equipment purchases would be appropriated from the NHI budget. Regional health planning boards of both experts and community representatives would allocate these capital funds. Major capital projects funded from private donations would require approval by the health planning board if they entailed an increase in future operating expenses.
The NHI would pay owners of for-profit hospitals, nursing homes and clinics a reasonable fixed rate of return on existing equity. Since most new capital investment would be funded by the NHI, it would not be included in calculating return on equity. For-profit HMOs would receive similar compensation for their clinical facilities and for computers and other administrative facilities needed to manage NHI. They would not be reimbursed for loss of business opportunities or for administrative capacity not used by the NHI.
Current capital spending greatly affects future operating costs, as well as the distribution of resources. Effective health planning requires that funds go to high quality, efficient programs in areas of greatest need. Under the existing reimbursement system which combines operating and capital payments, prosperous hospitals can expand and modernize while impoverished ones cannot, regardless of community health needs or quality of care. NHI would replace this implicit mechanism for distributing capital with an explicit one, facilitating allocation based on need and quality. Insulating these crucial decisions from distortion by special interests will require rigorous technology evaluation and needs assessment, as well as active involvement of providers and patients.
The consistently poor performance of investor-owned facilities precludes their participation in NHI. Investor-ownership has been shown to compromise quality of care in hospitals6 7 8, nursing homes9, dialysis facilities10, and
HMOs11; for-profit hospitals are particularly costly12 13 14 15 16 17 18 19. A wide array of investor-owned firms have defrauded Medicare and been implicated in other illegal activities. For-profit providers would be phased out and compensated for past investments in clinical facilities.
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Prescription Drugs and Supplies
NHI would pay for all medically necessary prescription drugs and medical supplies, based on a national formulary. An expert panel would establish and regularly update the formulary. The NHI would negotiate drug and equipment prices with manufacturers, based on their costs (excluding marketing or lobbying). Where therapeutically equivalent drugs are available, the formulary would specify use of the lowest cost medication, with exceptions available in case of medical necessity. Suppliers would bill the NHI directly (for the negotiated wholesale price plus a reasonable dispensing fee) for any item in the formulary that is prescribed by a licensed practitioner.
NHI could simultaneously address two pressing needs: (1) providing all Americans with full coverage for necessary drugs and supplies; and (2) containing drug costs. As a monopsony purchaser, the NHI could exert substantial pressure on pharmaceutical companies to lower prices. Similar programs in the U.S. and in other nations (e.g. Australia) have resulted in substantial savings.
Additional reforms are urgently needed to: improve prescribing practices; minimize medication errors; upgrade monitoring of drug safety; curtail pharmaceutical marketing; assure that the fruits of publicly funded drug research are not appropriated for private profit; and ameliorate financial pressures that skew drug development.
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Funding
NHI would disburse virtually all payments for health services. Total expenditures would be set at approximately the same proportion of the Gross National Product as in the year preceding the establishment of NHI.
Funds for the NHI could be raised through a variety of mechanisms. In the long run, funding based on an income or other progressive tax is the fairest and most efficient solution, since tax-based funding is the least cumbersome and least expensive mechanism for collecting money.
It is critical that the vast majority of funds flow through the NHI. Such single source (monopsony) payment has been the cornerstone of cost containment and health planning in Canada and other nations with universal coverage. Government expenditures, including payments for public employees’ private health coverage and tax subsidies to private insurance, already account for nearly two-thirds of total health spending in the U.S. This figure would rise modestly under NHI, to perhaps 85% of health costs, and the public money now routed through private insurers would instead be used to fund public coverage. The mechanism for raising the additional funds for NHI is a matter of tax policy, largely separate from the organization of health care per se. Federal funding would attenuate inequalities among the states in financial and medical resources.
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