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Racial and Ethnic Disparities in Healthcare: Issues in the Design, Structure, and Administration of Federal Healthcare Financing Programs Supported Through Direct Public Funding Sara Rosenbaum J.D. Harold and Jane Hirsh Professor, Health Law and Policy INTRODUCTION An examination of the relationship between racial disparities in health- care and public healthcare financing may strike some as ironic, given the well-documented role that programs such as Medicare and Medicaid have played in reducing racial and ethnic disparities in healthcare access and health outcomes (Congressional Research Service, 1993; Committee on Ways and Means, 1996; Davis and Schoen, 1978; Moon, 1993; Starr, 1982; Smith, 1999; The Henry J. Kaiser Family Foundation, 1999). But in the face of a significant and ongoing health gap between minority and non-minority individuals, it is worth considering whether the manner in which public financing programs are administered has the potential to contribute to one of the nation’s most sobering and enduring public health problems. This paper begins with a background and overview that briefly de- scribe Medicare and Medicaid (and its companion SCHIP program) and roles in financing healthcare for minority persons. It then turns to a more extended analysis of the kinds of administrative choices made under these programs that have the potential to contribute to the problem of health disparities, either by tolerating or tacitly countenancing access, treatment and quality differentials or by failing to act affirmatively to minimize the possibility of differentials. This paper examines issues in federal and state administration of health programs rather than the legislative design of the programs them- selves. Several limitations and caveats should be noted at the outset. First, the association between race and poverty makes it difficult to disentangle 664

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665 FEDERAL HEALTHCARE FINANCING PROGRAMS the two factors. Administrative choices that adversely affect poor pa- tients are also more likely to create problems for minority patients. The literature is replete with studies of race-associated healthcare disparities; regardless of payer source, income, or other characteristics unrelated to healthcare need, racially linked health disparities appear to be one of the most unfortunate constants of the American health system (U.S. Civil Rights Commission, 1999; Mayberry et al., 2000; Gaskin and Hoffman, 2000; Weinick et al., 2000). Minority patients perceive barriers and racism within the health system, and at least some research suggests that these perceptions appear to be borne out by discernible differences in how health professionals interact with minority patients (The Henry J. Kaiser Family Foundation, 1999; La Viest et al., 2000; Lillie-Blanton et al., 2000; Einbinder and Schulman, 2000; Schulman et al., 1999). Furthermore, stud- ies confirm the independent role of race in healthcare (Mayberry et al., 2000). At the same time, it is difficult to separate healthcare administra- tion choices that harm poor people from those that harm members of ra- cial and ethnic minority groups. This is particularly true in the case of programs such as Medicaid, where coverage is specifically aimed at the poor and medically indigent. Second, even if U.S. lawmakers were to enact a totally reformed sys- tem that utilizes a single payer with common coverage and payment rules, research from other nations suggests that minority and poor residents nonetheless would continue to experience reduced healthcare access and poorer health outcomes. The literature on disparities in healthcare access is replete with examples of disparate access to care and disparate utiliza- tion of health services (Mayberry et al., 2000; Lillie-Blanton et al., 2000). The most recent example can be found in a 2001 Surgeon General’s report examining racial and ethnic disparities in the use of mental health ser- vices by members of racial and ethnic minority groups, which speculates on the underlying causes of disparity in access, utilization and quality and concludes that the principal factors are cost, poor services in poor communities, cultural and communications barriers, fear of the health system, and general overall problems in the relationship between patients and providers (U.S. Department of Health and Human Services, 2001). This focus on provider/patient communication difficulties, fear of the sys- tem, and cultural isolation in healthcare appear to be recurrent themes throughout the literature on healthcare disparities. Furthermore, the evidence on disparate access to care even where in- surance is technically not a barrier is hardly unique to the United States. For example, studies of the apparently common practice of using govern- ment-sponsored community health clinics in nations with national health systems typically point to the need for such service delivery interventions because of access barriers related to race, ethnicity, culture, and poverty

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666 UNEQUAL TREATMENT (Hawkins et al., 2000). Consequently, even aggressive efforts to reduce disparity-causing choices in the administration of healthcare financing programs could nonetheless continue to leave minority and low-income patients with unequal access. Third, even substantial incremental reforms that improve existing programs but leave them intact inevitably would leave millions of Ameri- cans dependent on sources of healthcare financing that are perceived as other than “mainstream,” and thus subject to the misapprehensions that enrollment in “lesser” programs brings with it. The data reviewed for this study suggest that incremental reforms would leave a racially and income-identifiable group of Americans disproportionately enrolled in forms of healthcare financing that are less attractive to healthcare provid- ers because they cover less, pay less, and carry unpleasant connotations and associations, such as bureaucratic hassles and the status of a “poor people’s program.”1 This lesser form of coverage in effect validates on business grounds what may be underlying prejudicial leanings on the part of members of the medical care industry. Finally, and as noted at the outset, any assessment of the limitations of directly financed public insurance programs such as Medicare and Medicaid must be read against a backdrop of their extraordinary accom- plishments over the past three and a half decades. Since their inception, Medicare and Medicaid have literally remade the American healthcare system for minority Americans, opening access that previously had been denied. At the time of their enactment, white Americans were hospital- ized 27% more frequently than African Americans and members of other minority groups, and in the case of elderly persons, the racial gap stood at 70%. By 1975, the gap had narrowed to 4% overall and 14% among the elderly (Davis and Schoen, 1978). Research also has pointed to the con- nection between the decline in U.S. infant mortality rates and the advent of Medicaid, which made pregnancy related care available and accessible to the poorest women (Davis and Schoen, 1978; Congressional Research Service, 1993). Data on access to and use of healthcare by income and insurance sta- tus suggest that Medicaid has eliminated healthcare access and utilization disparities among children and non-elderly adults, particularly when uti- lization data are adjusted for reduced health status; indeed, poor Medic- aid beneficiaries appear to use care at rates greater than the poor with 1 At one time, dependence on Medicaid was viewed by health providers and policymakers as stigmatizing. As Medicare has become increasingly complicated and overall payment has declined in relation to the overall cost of care, anecdotal evidence suggests that reliance on Medicare (either alone or in combination with Medicaid) may be producing similar reactions within the health system.

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667 FEDERAL HEALTHCARE FINANCING PROGRAMS private insurance, presumably because of the program’s broad coverage rules and strict limits on cost sharing, discussed below (Congressional Research Service, 1993). Although the source of care differs, Medicaid beneficiaries have been shown to be significantly more likely to have a usual source of care (Congressional Research Service, 1993). Medicare and Medicaid have been directly credited with the desegregation of U.S. hos- pitals, nursing homes, and other healthcare institutions, as providers rap- idly moved to eliminate the techniques of discrimination in order to be able to participate in government health programs (Smith, 1999).2 Despite these limitations, it is important to understand the extent to which the administration of publicly funded health coverage has the po- tential to perpetuate, intensify, or implicitly validate differential treatment of minority Americans. Background and Overview Medicare and Medicaid represent enormous advances in American social welfare policy. The joint product of an extraordinary convergence of social, policy, and political circumstances that have been chronicled at length and in multiple dimensions by numerous experts (Fein, 1986; Marmor, 1970; Moon, 1993). Medicare and Medicaid not only opened the health system to previously uninsured persons but changed American healthcare itself by supplying the financing needed to achieve the enor- mous leaps in medicine and technology that the nation has witnessed over the past 40 years. For purposes of issues that are dealt with in this paper, it is important to remember the context in which Medicare and Medicaid were enacted. As Marilyn Moon has observed, “[t]he rules that were established to gov- ern Medicare did little to disrupt or change the way healthcare was prac- ticed or financed in the United States.” In his seminal history of the fed- eral government’s efforts to address race discrimination in American healthcare, David Barton Smith describes the civil rights environment in which Medicare and Medicaid were enacted, with de jure race discrimina- tion in healthcare having only recently ended, and with Southern Mem- bers of Congress threatening to derail passage of Medicare if its funding were used under Title VI as a lever to force healthcare integration (Smith, 2 These techniques included such devices as denying admission to patients without staff physicians while simultaneously denying admitting privileges to minority physicians or physicians working at publicly funded clinics located in medically underserved communi- ties, segregating the wards and wings of hospitals and nursing homes, placing strict numeri- cal limits on minority patients admitted or served, demanding insurmountable pre-admis- sion deposits (akin to a poll-tax), and refusing to participate in certain government insurance programs, particularly Medicaid (Rosenbaum et al., 2000).

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668 UNEQUAL TREATMENT 1999). In its efforts to secure Medicare’s enactment, the Johnson Adminis- tration effectively promised that Medicare funding would not be used as a basis for Title VI enforcement against physicians in individual practice and thus as a means of achieving changes in the behavior among medical professionals.3 This promise had major implications for the autonomy of American medicine and was consistent with the overall hands-off ap- proach of the original Medicare legislation when it came to altering the behavior of physicians. The Administration made good on its promise by interpreting Medicare physician payments as a form of indemnity cover- age, which lacked the requisite nexus to federal funding to produce Title VI enforcement jurisdiction—which hinges on the receipt of federal finan- cial assistance. Despite the virtual end of Medicare as an indemnity-style program (physicians now are effectively required to accept direct, as- signed Medicare payments as a condition of participation through the use of payment penalties for those physicians who refuse assignment), suc- ceeding administrations never have issued an outright reversal of this original interpretation of the program in a Civil Rights Act context. 4 While both Medicare and Medicaid are quite complex, Medicaid is especially so because of its cash welfare assistance roots, as well as its uneasy perch atop a honeycombed federal-state system of program au- thority. It is not possible to understand how the design and administra- tion of the programs (as well as the more recent SCHIP statute) could potentially create disparities without a basic familiarity with the programs and their relationship both to other payers as well as to each other. Medicare Medicare is a federally administered social insurance program that finances a defined set of health benefits for individuals who qualify for coverage (i.e., individuals who are entitled to Social Security Old Age or Disability Insurance benefits, children and adults with end-stage renal 3 Of course no similar promise was made with respect to Medicare payments to hospitals, whose desegregation already had been forced by the courts. Smith presents a marvelous overview of the Johnson Administration’s near-superhuman effort to achieve compliance agreements with all Medicare-participating hospitals by the date of Medicare implementa- tion, only six months following enactment. 4 The hesitation to extend civil rights statutes to office-based health professionals on the basis of their participation in federal healthcare financing programs continues today. In 2000, the federal government released guidelines clarifying existing civil rights act stan- dards as they apply to healthcare access among persons with limited English proficiency. Included in the regulations was clarification that physicians would be considered subject to these standards if they participated in Medicare and Medicaid. By the spring of 2001, nearly all of the major private medical groups were meeting with White House officials demanding the repeal of the guidance.

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669 FEDERAL HEALTHCARE FINANCING PROGRAMS disease, and certain individuals who are permitted to purchase coverage). In 2000, Medicare outlays reached $216 billion (Congressional Budget Of- fice, 2001) and total program enrollment stood at over 39 million (HCFA, 2001a). Medicare is federally administered according to uniform standards, most of which are found in extensive regulations governing the program. The program consists of three parts (A, B, and C). Part A (Hospital Insur- ance) is paid for through a payroll tax-based trust fund; it covers inpatient and outpatient hospital services, post-hospital extended care services, home healthcare, and hospice benefits. Part B (Supplementary Medical Insurance) is financed through a combination of premium payments and general revenues. Part B covers physician and other medical services, outpatient hospital care, home health services, certain preventive services, clinical diagnostic laboratory services, ambulatory surgical services, and outpatient mental health services. Part C of Medicare, enacted in 1997, established the Medicare+Choice program as a means of encouraging enrollment in managed care arrange- ments and to modernize and strengthen the regulatory framework for Medicare managed care (Rosenblatt et al., 1997; 2001). Medicare contains significant cost-sharing requirements, including both deductibles and coinsurance. While Medicare is federally administered, private insurers (known as carriers and intermediaries) conduct the day-to-day business of provider enrollment, claims payment, and coverage decision-making. Qualified managed care organizations, known as Medicare+Choice providers, carry out broad contractual responsibilities for the federal government. Both the Medicare statute and implementing regulations establish conditions of participation for medical care institutions and professionals; indeed, much of the Medicare legislation is devoted to the establishment of standards of participation for health professionals, hospitals, other in- stitutions and suppliers, and the managed care industry. Medicare also specifies a range of formulas for provider compensation in the case of hospital care, physician and medical care, and payments to managed care entities. State health agencies, accreditation bodies, and peer review orga- nizations conduct provider certification and oversight activities. Medicare was founded on the notion of health system freedom for both providers and patients alike. Physicians, hospitals, health profes- sionals and suppliers have discretion over whether to participate in the program at all (although most U.S. physicians and virtually all hospitals and qualified nursing homes and home health agencies do so). Further- more, providers can decide the extent of their participation, limiting their involvement for example to patients who once were privately insured and now depend on Medicare exclusively or primarily.

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670 UNEQUAL TREATMENT In a similar vein, a hallmark of Medicare from a beneficiary perspec- tive is its free-choice-of-provider guarantee. It is probably safe to say that Medicare beneficiaries are the last remaining group of insured Americans who are given a choice with respect to how they use healthcare. Benefi- ciaries can elect to enroll in a Medicare+Choice plan if one is available;5 alternatively, they can elect to remain in the “fee-for-service” system, ob- taining medical and healthcare from the participating physician, health- care institution, or other health professional of their choice. While the concept of free choice among participating health providers exists in theory, in practice there are problems, although none so severe as those faced by Medicaid beneficiaries. When these problems are com- bined with various structural shortcomings in the Medicare program, they create a potential for barriers, particularly in the case of lower income beneficiaries, who are significantly more likely to be members of a racial or ethnic minority group. Medicare coverage is limited, omitting crucial services such as prescribed drugs and cost sharing is high, with monthly premiums in the case of Part B coverage and significant deductibles and coinsurance. Furthermore, because Medicare was modeled on the “major medical” health insurance plans that existed at the time of enactment (and that still dominate the insurance market), it fails to cover long-term ser- vices necessary to the management of chronic and serious physical and mental health conditions that extend beyond an initial acute phase of illness. Figures 1 through 4 illustrate the nature and extent of the dilemma facing minority Medicare beneficiaries. Figure 1 shows that members of racial and ethnic minority groups, who are at significantly greater risk of poverty, represent a sizable and growing part of the Medicare popula- tion. By 2025, minority persons will constitute 33% of the Medicare popu- lation, up from 15% in 1995. Figure 2 provides an overview of the health status of Medicare benefi- ciaries by race and ethnicity and shows that regardless of condition, mi- nority beneficiaries are more likely to experience significant limitations in health status. Latino and African-American beneficiaries are more than one-and-a-half times more likely to be in fair to poor health. They also are at significantly greater risk for one or more limitations in activities of daily living (ADLs) and cognitive impairments. This health risk profile sug- gests a higher need for services. Figure 3 shows the enormity of the poverty gap between minority and non-minority beneficiaries. In 1997, African-American and Latino 5 In recent years participation in Medicare+Choice has eroded significantly, chiefly as a result of limitations on the payment formula enacted in 1997, as well as increased regulatory participation standards (Rosenblatt et al., 2001).

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671 FEDERAL HEALTHCARE FINANCING PROGRAMS FIGURE 1 Racial and ethnic minority Americans as a share of the elderly popu- lation: 1995–2025. SOURCE: Urban Institute analysis of the March 1998 Current Population Survey, prepared for The Henry J. Kaiser Family Foundation. FIGURE 2 Health problems and long-term care needs: minority and non-minor- ity individuals. SOURCE: Urban Institute analysis of the March 1998 Current Population Survey, prepared for the The Henry J. Kaiser Family Foundation.

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672 UNEQUAL TREATMENT Minority and non-minority individuals FIGURE 3 Poverty rates: Minority and non-minority individuals. SOURCE: Urban Institute analysis of the March 1998 Current Population Survey, prepared for The Henry J. Kaiser Family Foundation. FIGURE 4 Supplemental insurance coverage: Minority and non-minority Medi- care beneficiaries. SOURCE: Urban Institute analysis of the March 1998 Current Population Survey, prepared for the The Henry J. Kaiser Family Foundation.

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673 FEDERAL HEALTHCARE FINANCING PROGRAMS beneficiaries were over three times more likely to be poor and more than one-and-a-half times as likely to have low incomes overall. That year, two- thirds of African-American and Latino beneficiaries were poor or near poor. Figure 4 shows the healthcare financing implications of the deep pov- erty among minority beneficiaries. In 1995, white Medicare beneficiaries were one-and-a-half times more likely than African-American beneficia- ries and twice as likely as Latino beneficiaries to have additional coverage through an employer-sponsored health plan and three times as likely to have private Medigap coverage. Conversely, minority beneficiaries were twice as likely to be exclusively dependent on Medicare and about three times as likely to depend on Medicaid as a supplemental source of health coverage. These statistics suggest that minority Medicare beneficiaries are poorer and sicker, are at significantly greater risk for serious healthcare under-financing, and are far more likely to depend on sources of supple- mental financing less acceptable to providers. Minority beneficiaries are more likely to lack employer-sponsored or other private coverage, signifi- cantly more likely to depend on Medicare alone, and far more likely to depend on Medicaid as a source of supplemental coverage. Because mi- nority beneficiaries represent a rapidly growing proportion of the overall Medicare population, the consequences of these problems are more likely to become clear and pronounced. Medicaid and the State Children’s Health Insurance Program (SCHIP) The largest and most complex of all federal grant-in-aid programs, Medicaid is a means-tested entitlement that creates three interlocking sets of enforceable legal rights. The first is states’ right to open-ended federal financing for their medical assistance and program administration costs. The second is an eligible individual’s right to coverage for a defined set of benefits. The third is a legally enforceable providers’ right to participate in Medicaid if qualified and to be paid for the care they furnish (Rosen- baum and Rousseau, 2001). In fundamental respects, Medicaid is the mirror image of Medicare. Medicaid is rooted in welfare principles in that its origins were as a com- panion to federal cash welfare assistance programs for certain poor families with “dependent” children, indigent elderly and disabled persons, and cer- tain “medically needy” persons whose characteristics connect them to a federal welfare category (e.g., age, disability, dependent children) (Congres- sional Research Service, 1993; Schneider et al., 1998; Rosenbaum and Rousseau, 2001). These mandatory coverage categories have been ex- panded over the past 35 years to include “poverty level” (i.e., low income)

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674 UNEQUAL TREATMENT children and pregnant women regardless of family composition or disabil- ity status, and low-income Medicare beneficiaries whose poverty level in- comes prevent them from either purchasing supplemental Medigap cover- age or paying Medicare’s premiums, deductibles and coinsurance out of pocket. Beyond these minimum coverage groups, the law gives states the option of covering literally dozens of additional eligibility groups consist- ing of persons who bear some relationship to the mandatory groups but who are not poor enough to qualify for coverage outright. Despite the many eligibility expansions that have occurred over the past two decades, Medic- aid is still associated with coverage of the poor. After 35 years, the program remains a selective and restrictive source of coverage, reaching only ap- proximately half of all poor individuals. Despite the fact that Medicaid’s roots are in welfare, its importance as a health payer can hardly be overstated. In 1998, Medicaid was a source of health insurance for 40 million persons (Congressional Budget Office, 2001). The vast majority of individuals insured through Medicaid are persons without access to employer or other private health insurance ben- efits; they are individuals who because of age, disability, or dependency lie outside the furthest limits of the private health insurance market (Rosenbaum and Rousseau, 2001). Medicaid is an integral part of the American insurance system not only because of whom it covers, but also because of what it finances. Unencumbered by the conventions of private insurance, Medicaid is ca- pable of covering populations and services that lie outside essential struc- tural insurance limitations that flow from the problems of “avoidable risk” and “moral hazard,” and that are embedded in the notion of “fair dis- crimination” (Rosenblatt et al., 1997; Rosenbaum and Rousseau, 2001). In its role as an insurer of both uninsured and uninsurable populations and services, Medicaid effectively attempts to compensate for the structural and financial limitations of the world’s largest voluntary healthcare mar- ket. Medicaid melds state design and administration choices within a broad federal framework that contains many options and a few absolutes. The program is designed and administered by participating states in ac- cordance with broad federal standards. As a matter of federal law, state welfare agencies bear final legal responsibility for Medicaid eligibility determinations, but the law permits any state agency to act as the respon- sible “single state agency”6 for overall program accountability purposes.7 6 42 U.S.C. §1395a(a)(4) 7 Approximately half of all states share ongoing administrative responsibilities with county governments; even in these states however, the single state agency has a non-delegable ob- ligation to administer the program within federal requirements.

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688 UNEQUAL TREATMENT tients remain significant matters within the provider community, grossly low payment rates offer a ready-made excuse for non-participation that rests entirely on neutral economic grounds. This excuse is particularly available to urban healthcare providers who are plentiful in number to the point of saturation in more affluent communities. As Table 2 illus- trates, because of the high concentration of minority individuals in the poorest large city neighborhoods, this refusal to participate also has its greatest adverse impact on minority beneficiaries who ultimately are starved for access in the midst of plenty. Table 2 shows the marked racial and ethnic patterns of urban poverty in the largest cities. While the concentration of urban poverty increased for all races between 1970 and 1990, by 1990, 83% of all urban African- American poor persons resided in census tracts that could be labeled as poor, while nearly 42% resided in high-poverty census tracts. Latino pov- erty concentrations were somewhat less pronounced but decidedly el- evated above overall rates. In 1990, 68% of all poor persons residing in the nation’s 100 largest cities were either African American or Latino, and an astonishing 87% of all poor persons residing in these cities’ highest TABLE 2 Concentration of Poverty–100 Largest Cities, 1970-1990 1970 1980 1990 Total # poor 7,542,479 8,133,277 9,392,953 % poor 14.5% 16.7% 18.3% Poor in poverty (>20%) tracts 4,156,543 5,178,509 6,466,097 % poor in poverty tracts 55.1% 63.8% 68.8% Poor in high poverty 1,240,855 1,828,576 2,650,142 (> 40% poor) tracts % in high poverty tracts 16.5% 22.5% 28.2% African American # poor 3,182,881 3,428,593 4,002,094 % population poor 27.7% 27.2% 29.9% Poor in poverty (>20%) tracts 2,567,429 2,837,386 3,328,652 % poor in poverty tracts 80.7% 82.5% 83.2% Poor in high poverty 895,920 1,157,537 1,664,872 (> 40% poor) tracts % in high poverty tracts 28.1% 33.8% 41.6% # poor 966,413 1,575,569 2,394,890 Latino % population poor 23.2% 26.2% 21.7% Poor in poverty (>20%) tracts 664,375 1,162,367 1,842,990 % poor in poverty tracts 68.8% 73.8% 77.0% Poor in high poverty 196,202 378,832 650,747 (> 40% poor) tracts % in high poverty tracts 20.3% 24.0% 27.2% SOURCE: Fossett and Perloff, 1999.

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689 FEDERAL HEALTHCARE FINANCING PROGRAMS poverty urban census tracts were members of these racial and ethnic groups. These statistics underscore the particularly serious impact that provider non-participation in Medicaid and depressed Medicaid payment levels potentially could have on minority beneficiaries’ access to care. Low provider compensation rates have other pernicious effects as well. The failure of Medicaid programs to include capital payments in their compensation rates to safety net providers that so frequently anchor poor communities seriously limits their ability to engage in the level of renovation, facility and practice improvement, and overall technical up- keep that is essential to maintaining a safe and good quality healthcare environment. Equipment cannot be updated or replaced as needed. Building space essential to the expansion of capacity (along with greater employment opportunities in poorer neighborhoods) cannot be added. Supplies cannot be maintained. And finally, the recruitment of personnel and health professionals becomes even more difficult because of the de- pressed working conditions. The federal Medicaid equal access requirement described previously does not guarantee precisely the same pattern of access that privately in- sured persons have. But it does require that states maintain payment lev- els that are reasonable to enlist sufficient providers to achieve an equal overall level of access to care. Related to this equal access requirement is the requirement that medical assistance be furnished promptly, a basic operating rule that in recent years, as noted earlier, has been used to ex- pand access to care, particularly in the case of persons with disabilities. Other than isolated litigation efforts designed to challenge grossly low provider payment levels, this basic requirement of the program has at- tracted no attention other than from the nation’s governors who have pe- riodically called for its repeal.29 The federal government has done virtu- ally nothing with the provision, and there are virtually no guidelines that interpret how to apply the equal access requirement or what is expected in terms of state implementation (e.g., specific data collection to measure levels of access where disparities in health outcomes are pronounced, af- firmative efforts to increase rates, or affirmative efforts aimed at attract- ing healthcare providers in high need communities). 5. Administration of separate SCHIP programs As noted earlier, SCHIP permits states to use their allotments to es- tablish and operate separate SCHIP programs. Research on SCHIP is just 29 Under pressure from the governors, the Balanced Budget Act of 1997 repealed specific equal access provisions related to obstetrical and gynecological care but left the overall re- quirement in tact.

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690 UNEQUAL TREATMENT underway, but several issues are becoming apparent. First, in many states with separate programs, the SCHIP population is whiter than the Medic- aid population because of racially identifiable poverty distribution. Mi- nority children simply are more likely to be extremely poor, and thus any state with a separately administered SCHIP program is more likely to have a SCHIP population that is white in relation to its Medicaid popula- tion. As the inner-city data presented earlier underscore, SCHIP and Med- icaid children also are likely to reside in different communities, with Med- icaid children more concentrated in inner-city poor neighborhoods, and SCHIP children (those with incomes about twice the federal poverty level), throughout a metropolitan area. Thus, even without taking any step other than deciding to set up a separate SCHIP program, a state that does so likely faces a situation in which its Medicaid children are more likely to be minority children, and its SCHIP children are more likely to be white. This racial skewing of children receiving public insurance into two sub-groups may pose problems in and of itself, since these patterns create racial imprimaturs for the programs. Added to this problem however, is the fact that early research conducted by the George Washington Univer- sity Center for Health Services Research and Policy, as well as anecdotes from around the country, indicate that states with separate programs are permitting their physicians to participate in SCHIP but not Medicaid, per- mitting managed care organizations and insurers to sell to SCHIP agen- cies but not to Medicaid, and even paying better rates under SCHIP and not Medicaid. These choices in design and administration obviously have the potential to take a bad situation and make it far worse, labeling minor- ity children as members of substandard health coverage arrangements reserved for minorities and outside of the healthcare mainstream. No federal regulations address this problem. 6. Administrative choices in establishing conditions of participation and quality of care measurement; self examination by federal and state governments The final problem is one that affects Medicare, Medicaid, and SCHIP. There is very little in the conditions of participation under these three programs that requires or finances the efforts of healthcare providers to take systematic steps to examine enrollment and utilization patterns in relation to the demographics of the communities in which they serve, and undertake affirmative steps to improve access to their services. Limited conditions of participation under federal Medicare and Medicaid man- aged care regulations do require that participating managed care organi- zations make certain efforts to address access to care in their service ar-

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691 FEDERAL HEALTHCARE FINANCING PROGRAMS eas.30 But there is no affirmative obligation on the part of either providers as a condition of participation or participating states in the case of Medic- aid and SCHIP to collect and analyze health data on access and utilization by race, examine health outcomes by race, examine patterns of healthcare administration that conceivably could contribute to racially identifiable outcomes, or take affirmative steps to attempt to remedy these problems through restructuring of healthcare delivery arrangements. Notably, state Medicaid programs are far ahead of the federal gov- ernment in the case of managed care organizations; their contracts with managed care organizations typically contain extensive access require- ments related not only to networks but to hours, locations of services, cultural competency and translation services, and other steps designed to remove barriers that disproportionately could affect minority enrollment and utilization (Rosenbaum et al., 1997; 1998; 1999a). Only in the case of the federally funded community health centers program does one find federal policies aimed at engendering this type of careful self-examina- tion by health providers on an ongoing basis to determine whether access to care is appropriate. Not since the federal government undertook such an effort in the mid-1970s as part of its revision of Hill Burton hospital regulations31 has there been this type of careful self-assessment of the fed- eral government’s (or state governments’) payment practices or the prac- tices of federally assisted providers. Indeed, in the case of Medicaid, the federal government neither collects nor requires much racial data. 7. Administrative choices in the design of managed care systems: contractually sanctioned discrimination in provider networks As noted previously, federal law provides states with broad leeway in the design of their managed care arrangements and selection of man- aged care contractors. Despite the “equal access” provisions in the Med- icaid statute (noted above), most state contracts with managed care orga- nizations do not expressly prohibit contractors’ provider networks from engaging in what can be termed “contractually sanctioned discrimina- tion,” i.e., permitting network providers under a general duty of care to all plan members to nonetheless refuse to treat the Medicaid sponsored members of the plan (Rosenbaum et al., 1997). The issue of segregated provider networks (i.e., networks operated by Medicaid participating 30 The Medicaid managed care regulations are now in suspense by the Bush Administra- tion. Medicare+Choice regulations require merely that a provider network be “sufficient to provide adequate access to covered services to meet the needs of the population served.” 42 C.F.R. §422.112()(1). 31 See note 25, supra.

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692 UNEQUAL TREATMENT managed care organizations that subdivide members based on sponsor- ship status) has been the subject of both speculation and actual legal chal- lenges (Rosenbaum et al., 2000). Anecdotal discussions with physicians and other health professionals who participate in managed care plans sug- gest a great unwillingness on their part to accept Medicaid-sponsored members into their practices, either because of payment differentials or because of discomfort with Medicaid-sponsored members.32 As serious as network provider discrimination might be at the pri- mary care stage, in communities with health centers, safety net provider clinics, and other sources of primary care for medically underserved popu- lations, there may be enough primary care access to overcome the worst tangible effects of internally sanctioned discrimination (although the long- lasting tangible and intangible effects of contractually sanctioned discrimi- nation could never fairly be calculated). At the point of specialty care how- ever, the real and immediate impact of sanctioned network discrimination could be enormous, since permitting specialists to refuse to accept or treat referred Medicaid-sponsored plan members is tantamount to the denial of specialty care. Unless a managed care organization was to literally run two entire specialty networks, contractually sanctioned discrimination against Medicaid beneficiaries could have an incalculable effect on access to specialized services. Because of disproportionate minority representa- tion within the Medicaid-sponsored managed care enrollee population, the impact would be felt most heavily by minority patients. Regulations issued by the Clinton Administration in January 2001 and applicable to Medicaid managed care systems prohibit contractually sanc- tioned provider discrimination against Medicaid patients within Medic- aid-participating managed care organizations.33 On August 20, 2001, the Bush Administration suspended these rules.34 The Administration simul- taneously proposed new regulations that seek to relax certain of the re- quirements imposed on state agencies and managed care organizations 32 This position on the part of providers serves to at least informally dispel any notions that managed care would somehow erase healthcare access differentials based on sponsor- ship. Medicaid-only managed care plans are the norm in many communities, and in com- munities in which MCOs that do business across sponsors are in the market, separate Med- icaid-only subsidiary operations may be common. There are many reasons to maintain a special Medicaid subsidiary, because the specifications of a Medicaid contract offer differ enormously from those found in a commercial agreement. Furthermore, the geographic isolation in which beneficiaries may live (particularly in the case of inner city residents) may justify enhanced provider networks in order to ensure adequate access in underserved com- munities. These affirmative reasons for maintaining a separate Medicaid business are a different matter from doing so in order to isolate and separate Medicaid customers. 33 42 C.F.R. 438.206(d)(7). 34 66 Fed. Reg. (August 17, 2001).

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693 FEDERAL HEALTHCARE FINANCING PROGRAMS under the January 19 rule.35 One of the rules eliminated in its entirety is the regulation that explicitly prohibits discrimination against Medicaid beneficiaries. The implicit message sent by the repeal of this express anti- discrimination provision is that while general compliance with civil rights laws remains a requirement,36 contractually sanctioned discrimination based on payer status is no longer specifically prohibited. It is conceivable of course that the Health and Human Services Office for Civil Rights (OCR) could conclude upon investigation that federal civil rights regulations are violated by contractually sanctioned discrimination against Medicaid patients by network providers.37 To date however, OCR does not appear to have taken such a position, nor has it developed stan- dards to clarify the legality of this practice under Title VI. Furthermore, by relying on general Title VI sanctions rather than expressly prohibiting patient “redlining” by member sponsorship status, the Administration essentially foregoes an opportunity to set an explicit standard designed to directly address an identified problem issue in Medicaid managed care that has the potential to hurt not only all Medicaid beneficiaries but dis- proportionately harm minority patients. Putting aside Title VI, the repeal of such a regulation appears to have direct implications for the enforce- ability of the equal access provisions of the Medicaid statute themselves. Discussion There is no question regarding the contribution that public financing programs have made to improving health and healthcare for minority Americans. At the same time, the data presented in this paper underscore the disproportionate dependence on these programs that minority indi- viduals maintain, as well as their vulnerability to heightened health risks and reduced access to healthcare because of their poverty and where they live. Together Medicare, Medicaid, and SCHIP pumped better than $350 billion into the American healthcare system in 2000. At the same time, a review of key issues in program administration, such as treatment of low- income Medicare beneficiaries, Medicaid eligibility and enrollment prac- tices, provider recruitment and payment, conditions of participation for health providers, and overall program management by both agencies and 35 66 Fed. Reg. 454564 (August 20, 2001). 36 The NPRM does not repeal the January 19 rule requiring compliance by MCOs with Title VI as well as other applicable federal civil rights statutes. 37 In light of the recent Supreme Court decision in Alexander v Sandoval, 121 S.Ct. 1511 (2001), the ability of beneficiaries to directly challenge such discrimination as a violation of the Title VI regulations is thrown into doubt, as are the discriminatory effects regulations themselves.

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694 UNEQUAL TREATMENT participating providers reveals that little has been done to make affirma- tive use of this vast purchasing leverage to both promote and finance customization of the healthcare to better meet the needs of minority pa- tients and blunt or minimize prejudicial attitudes. Indeed, if anything, stigmatizing enrollment arrangements and dramatically low payment lev- els have not only tacitly sanctioned provider and system aversion but have affirmatively encouraged the rejection of lower income patients. Even in SCHIP, where the entire population is lower income, emerging informa- tion suggests that states are unwittingly creating a dynamic that encour- ages the racially identifiable treatment of children within the publicly fi- nanced health system. What will it take to fix these problems? Two issues—financial and political—need to be addressed. First, making the programs more ori- ented to minority patients will require significant financial investments. Destigmatizing Medicaid’s eligibility and enrollment arrangements not only requires funds to underwrite eligibility expansion but would also, if past reform efforts are any gauge, result in greater enrollment rates and would thus push program costs up. Medicaid payments are so depressed that even modest proportional increases in payments necessitate major outlays, and Medicaid provider participation research suggests that mod- est rate increases in fact result in little change in the system. While money is always a problem, and can be expected to become increasingly so in an era of declining rates of government revenues, the financial problems actually pale in comparison to the two awesome po- litical problems that arise in any restructuring discussion: the healthcare industry and state governments. Restructuring Medicare and Medicaid administration to emphasize orientation toward minority patients and beneficiaries as a condition of federal financial participation means confronting the fundamental char- acter of both programs. As Marilyn Moon has observed, the context for enactment of the programs was that they would require nothing of health providers (Moon, 1993). The promises made at the birth of Medicare and Medicaid (and once again at the birth of SCHIP) were that participation would be voluntary and that few if any conditions of participation would be imposed. Despite the presence of direct government financing, pro- viders could continue to select their patients and their markets, and to a greater or lesser degree could continue accountable and open to minori- ties. The act of literally pulling physician payments out of Title VI enforce- ment authority in 1965 is emblematic of the delicacy with which govern- ment payments were overlaid on the healthcare system. To the extent that anyone believes that provider attitudes regarding government regu- lation of their health practices have softened, one need only look at the

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695 FEDERAL HEALTHCARE FINANCING PROGRAMS recent dust-up over the Office for Civil Rights Limited English Proficiency Guidelines, when dozens of prominent provider groups in April 2001 joined together to actively protest to the White House the application of these guidelines to healthcare. It is true that much has changed since 1965. Providers now are in managed care networks and are obligated to accept as patients the mem- bers who select or are assigned to them.38 Payment arrangements are now direct rather than indemnity in nature. Old racial barriers and atti- tudes certainly have softened if not dissipated. But the notion of telling Medicare-participating physicians that they must participate in Medicaid at least to the extent that they serve low-income Medicare beneficiaries would strike most persons as an utterly radical idea and one that lies be- yond the furthest reaches of permissible payer leverage over the health system. The other political behemoth is state governments. States always have operated Medicaid with substantial levels of autonomy; this autonomy has grown over the years, as the power of governors has increased and as succeeding administrations have lessened their regulatory enforcement of the Medicaid statute. Were a federal agency to suddenly impose a series of regulatory requirements related to eligibility and enrollment de- sign, provider compensation, and assessment of program impact on mi- nority families, the federal officials prescribing such changes probably would be regarded as daft and most likely would lose their jobs. Where does that leave policy in this area? The enormous difficulty of achieving changes of the magnitude described here means that the effort to make changes will only work if they are constantly placed in front of policy makers and program administrators and if the changes that are identified as potentially beneficial are tied to incentives. Congress might consider extending additional levels of compensation to both state agen- cies and providers that take steps to orient programs toward minority patients and away from practices that result in segregation, exclusion, and denial of care. Also necessary is sufficient health services research to sup- port the claim that certain healthcare financing decisions and service ar- rangements are at least associated with better (or poorer) access to health- care and health outcomes among minority beneficiaries. There are certain practices that appear to create so much dispar- ity that careful consideration should be given to how to stop them. 38 In this regard, it is important to note that provider challenges to “all products” clauses have meant that in practice, managed care companies that sell their products to both public and private payers may in fact set up separate subsidiaries that do Medicaid business with separate networks or else may maintain separate networks for their Medicaid customers (Rosenblatt et al., 1997; 2001).

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696 UNEQUAL TREATMENT Above all is the refusal of providers to participate in Medicaid in the case of low-income Medicare beneficiaries and the tendency of sepa- rately administered state SCHIP programs to segregate white, near-poor children from minority poor children in access and coverage. Both of these practices, as well as the practice of permitting Medicaid managed care plans to treat enrollees through separate networks, appear to di- rectly countenance a form of payer segregation that comes close, at least in principle, to segregated waiting rooms and hospital wings. The elimi- nation of these practices should be matters of first priority for federal and state policy makers. REFERENCES Cohen Ross, D. 2000. Making it Simple (Kaiser Commission on Medicaid and the Unin- sured, Washington DC). Commerce Clearinghouse, 2001. Medicare and Medicaid Guide. Chicago, IL: Commerce Clear- inghouse. Committee on Ways and Means, United States House of Representatives. 1996. Green Book. Washington DC, GPO 1996. Congressional Budget Office. 2001. The Budget and Economic Outlook: 2001-2011. Washington DC. Accessed June 15, 2001, at www.cbo.gov. Congressional Research Service. 1993. Medicaid Source Book: Background Data and Analysis. Washington DC, GPO. Davis, K. and Schoen, C. 1978. Health and the War on Poverty. Washington DC: Brookings Institution Press. Duff, RS. and Hollingshead, AB. 1968. Sickness and Society. New York: Basic Books. Edwards, J. 2001. Presentation at 2001 annual meeting of the Association for Health Services Research, June 10-13 (Atlanta, GA). Einbinder, LC. and Schulman, KA. 2000. The Effect of Race on the Referral Process for Inva- sive Cardiac Procedures. Medical Care Research and Review 57:Supplement 1:162-181. Ellwood, M. and Ku, L. 1998. Welfare and Immigration Reforms: Unintended Side Effects for Medicaid Health Affairs 17:3 (May/June) pp. 137-152. Fein, R. 1986. Medical Care, Medical Costs. Cambridge, MA: Harvard University Press Fossett, J. and Perloff, J. 1999. The “New” Health Reform and Access to Care: The Problem of the Inner City Access to Health Care: Promises and Prospects for Low Income Americans (Lillie-Blanton, M., Martinez, RM, Lyons, B. and Rowland, D., eds.). Washington DC: The Henry J. Kaiser Family Foundation. Gaskin, D. and Hoffman, C. 2000. Racial and Ethnic Differences in Preventable Hospitaliza- tions Across 10 States Medical Care Research and Review 57 (Supplement 1):85-108. General Accounting Office (GAO). 2001. Consultants’ Billing Advice May Lead to Improperly Paid Insurance Claims (GAO-01-818). Hawkins, D., Gevorgyan, M., Lopes, A. and Rosenbaum, S. 2000. The Use of Community Health Centers In Countries with National Health Insurance: Evidence from the Literature. Washington DC: National Association of Community Health Centers. Health Care Financing Administration (HCFA). 2001a. Medicare web site, accessed July 3, 2001, at www.hcfa.gov/medicare. Health Care Financing Administration (HCFA). 2001b. Medicare web site, accessed July 3, 2001, at www.hcfa.gov/schip.

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697 FEDERAL HEALTHCARE FINANCING PROGRAMS Health Care Financing Administration (HCFA). Managed Care Penetration Rates from 1996- 2000: National Summary Table. Accessed June 2, 2001, at http://www.hcfa.gov. The Henry J. Kaiser Family Foundation. 1999. Key Facts: Race, Ethnicity and Medical Care. Accessed June 20, 2001, at www.kff.org/minority. The Henry J. Kaiser Family Foundation. Medicare and Minority Americans. Accessed June 20, 2001, at www.kff.org/medicare. Institute of Medicine (IOM). 2000. America’s Health Care Safety Net: Intact but Endangered. Washington DC: National Academy Press. La Viest, TA., Nickerson, K., and Bowie, J. 2000. Attitudes about Racism, Medical Mistrust, and Satisfaction with Care Among African American and White Cardiac Patients. Medical Care Research and Review 57 (Supplement 1):146-162. Lillie-Blanton, M., Brodie, M., Rowland, D., Altman, D. and McIntosh, M. 2000. Race, Ethnicity and the Health Care System: Public Perceptions and Experiences. Medical Care Research and Review 57 (Supplement 1):218-236. Marmor, T. 1970, 1973, 2000. The Politics of Medicare (2d Ed.). New York: Aldine De Gruyter. Mayberry, R., Mili, F., and Ofili, E., 2000. Racial and Ethnic Differences in Access to Medical Care. Medical Care Research and Review 57 (Supplement 1):108-146. Moon, Marilyn. 1993. Medicare Now and In the Future. Washington DC: Urban Institute Press. Rosenbaum, S. and Rousseau, D. 2001. Medicaid at Thirty-Five. St. Louis University Law Jour- nal 45(1):7-53. Rosenbaum, S. and Maloy, KA. 1999. The Law of Unintended Consequences. Ohio State Law Journal 60(4) 1443-1479. Rosenbaum S., Smith, B., Sonosky, C., Shaw, K., Shin, P., Zakheim, M. 1997, 1998, 1999a. Negotiating the New Health System: A Nationwide Study of Medicaid Managed Care Con- tracts. Washington DC: The George Washington University School of Public Health and Health Services. Rosenbaum, S., Darnell, J., Keenan, PS. and Simon, L. 1999b. Section 1115 Medicaid Waiv- ers: Charting A Path for Medicaid Managed Care Reform. Access to Health Care: Prom- ises and Prospects for Low Income Americans (Lillie-Blanton, M., Martinez, RM., Lyons, B. and Rowland, D., eds.). Washington DC: The Henry J. Kaiser Family Foundation. Rosenbaum, S., Markus, A., and Darnell, J. 2000. U.S. Civil Rights Policy and Access to Health Care by Minority Americans: Implications for a Changing Health Care System. Medical Care Research and Review 57 (Supplement 1):236-260. Rosenblatt, R., Law, S. and Rosenbaum, S. 1997. Rosenblatt R., Rosenbaum S., and Frankford, D. 2001. Law and the American Health Care System. New York, NY: Foundation Press. Schneider, A., Fennel, K., and Long, P. 1998. Medicaid Eligibility for Families and Children. Washington DC: Kaiser Commission on Medicaid and the Uninsured. Schneider, A. and Garfield, R. 2000. Medicaid Benefits. Washington DC: Kaiser Commission on Medicaid and the Uninsured. Schulman, K., Berlin, J., Harless, W., Kerner J., Sistrunk, S., Gersh, B., Dube, R., Taleghani, C., Burke, J., Williams, S., Eisenberg, J. and Escarce, J. 1999. The Effect of Race and Sex on Physicians’ Recommendations for Cardiac Catheterization. New England Journal of Medicine 340(8):618-626. Smith, D. 1999. Health Care Divided Ann Arbor, MI: The University of Michigan Press. Starr, P. 1982. The Social Transformation of American Medicine. New York, NY: Basic Books. Stevens, R. and Stevens R. 1974. Welfare Medicine in America: A Case Study of Medicaid. New York, NY: Free Press. Stuber, J., Maloy, K., and Rosenbaum S. 2000. Stigma and the Medicaid Program. Washington, DC: The George Washington University School of Public Health and Health Services, Center for Health Services Research and Policy. www.gwu.edu\~chsrp\what’snew.

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698 UNEQUAL TREATMENT U.S. Commission on Civil Rights. 1999. The Health Care Challenge: Acknowledging Disparity, Confronting Discrimination, and Ensuring Equality. Washington DC. U.S. Department of Health and Human Services. 2001. Mental Health: Culture, Race and Ethnicity—A Supplement to Mental Health: A Report of the Surgeon General. Rockville, MD: U.S. Department of Health and Human Services. Weinick, R., Zuvekas, S. and Cohen, J. 2000. Racial and Ethnic Differences in Access to and Use of Health Care Services, 1977 to 1996. Medical Care Research and Review 57 (Supple- ment 1):36-55.