The Administrative State and Healthcare: Struggle for Control

By Ferd Mitchell

This book describes how federal agencies are attempting to gain full control over the healthcare system, and how such efforts can impair patient-physician relationships, the services that are delivered, and public support.

This book indicates the struggle for control that is taking place today. First, a simplified way is developed to treat agencies and providers as organizations, in order to provide a foundation for the following discussions. Then, a detailed look is taken, step by step, at the ways in which agency pressures are impacting hospitals and integrated care networks, physician practices, Medicare and Medicaid, the use of fraud and abuse laws, antitrust laws and competition, medical devices and drugs, behavioral health programs, and digital networking. A potential game plan is presented for compromise solutions that may achieve a balance between agency regulations and independent healthcare operations.

• Language: English
• Publisher: BookBaby
• Release date: Jan 31, 2020
• ISBN: 9781098300630

Book preview

Copyright © 2019

Ferd H. Mitchell and Cheryl C. Mitchell

All rights reserved. This book or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review.

ISBN: 978-1-54399-654-8

Contents

About this book:

About the Authors:

Chapter 1. The administrative state and healthcare—struggle for control

Chapter 2. Ways of thinking about agencies and operating businesses in healthcare

Chapter 3. Making use of organizational understanding and qualitative analysis to describe operating businesses

Chapter 4. Types of agency actions and potential reactions by operating businesses

Chapter 5. Developing Knowledge Bases

Chapter 6. Organizational Transitions

Chapter 7. Control over hospitals and integrated care networks by the administrative state

Chapter 8. Control over medical practices by the administrative state

Chapter 9. Medicare Controls and the Administrative State

Chapter 10. Medicaid Controls and the Administrative State

Chapter 11. Fraud and Abuse Laws Used for Control by Agencies

Chapter 12. Antitrust Laws Used for Control by Agencies

Chapter 13. How the FDA Controls the Use of Medical Devices

Chapter 14. How the FDA Controls Prescription and OTC Drugs

Chapter 15. Flawed Strategies for Behavioral Health Services

Chapter 16. Flawed Strategies for Digital Technology

Chapter 17. Control through the Affordable Care Act

Chapter 18. Continuing Struggle for Control after the ACA

Chapter 19. A Game Plan for Achieving Balance Between Regulations and Operations in Healthcare

About this book:

Political stress on the U.S. healthcare system continues to threaten disruptive change that may seriously damage the providing of services and public confidence in healthcare. Throughout current debates, there seems to be little understanding of how healthcare agencies and provider organizations interact together to determine system operations, or of the requirements that will accompany any efforts to further change how services are provided and financed. Instead, emphasis is on conducting ideological warfare that is often disconnected from the reality of the world of medical needs and treatments.

Opposing strategies for healthcare are often playing out through struggles for control between administrative agencies and operating businesses in healthcare (such as hospitals, physician practices, and integrated care networks). However, there is little appreciation today of the key factors that shape this dynamic.

The more recent escalation of conflict had its roots in the Affordable Care Act (ACA) or Obamacare, which sought to move healthcare toward more agency control combined with less independence by provider organizations and the public. At the same time, resistance to the ACA has developed among those who seek less agency control and more independence for organizations and the public.

Additional regulatory changes toward less agency control have been attempted over the past few years, but many of these efforts are tied up in court fights. Large-scale moves have been proposed toward more control through various types of national health insurance plans, but these efforts remain far removed from the clinical, administrative, financial, and political reality of the present healthcare system. The result has been a sharp division between those seeking to reduce or increase agency controls over healthcare services.

This book describes the evolution that is taking place today in healthcare. First, a simplified way is developed to treat agencies and providers as organizations. Then, a detailed look is taken—step by step—at the struggles for control that are taking place today. This discussion involves a close look at hospitals and integrated care networks; physician practices; Medicare and Medicaid; the use of fraud and abuse laws; antitrust laws and competition; how the FDA regulates medical devices and drugs; and how behavioral health programs and digital networking seem to have gone astray. For each perspective, struggles for control between agencies and providers are emphasized. These insights are then combined.

It becomes clear that the stress affecting healthcare is beginning to exact a significant toll, and the situation may get much worse. Alternative strategies are suggested for possible efforts to rebalance agency controls and provider independence, in order to lower present stress and seek better strategies to meet the expectations of the public.

About the Authors:

Ferd and Cheryl Mitchell are married attorneys in Washington State. They have developed an in-depth understanding of the ways in which healthcare agencies make decisions and take actions; how hospitals, physician practices and other business organizations react to pursue their own interests; and how struggles and conflict result. In addition, the Mitchells’ work for clients has given them an appreciation for the ways in which the healthcare system affects patients, their families, and the public at large. The resultant insights into healthcare agencies and operating businesses, and patient and public needs, provide the basis for the comprehensive approach taken for this book.

More information on the topics discussed in this book may be found on the authors’ blog web page at https://admin-state-and-healthcare.com. Sign up to receive new postings by email as they are added to the blog.

Chapter 1. The administrative state

and healthcare—struggle for control

Introduction

Overview

Arrangement of this book

Scope of detailed healthcare descriptions

Struggle for control

Balancing actions and reactions

Preview—decision making models and the administrative state (Chapter 2)

Preview—using the five-step model to understand struggles for control in healthcare (Chapter 3)

Preview—types of agency actions and potential reactions by operating businesses (Chapter 4)

Preview—knowledge bases as key to reducing conflict between agencies and operating businesses (Chapter 5)

Preview—transitions for agencies and operating businesses (Chapter 6)

Preview—insights about hospitals and integrated care networks (Chapter 7)

Preview—insights about physicians and medical practices (Chapter 8)

Preview—the purposes of Medicare (Chapter 9)

Preview—the purposes of Medicaid (Chapter 10)

Preview—fraud and abuse statutes as a means of control (Chapter 11)

Preview—antitrust laws used to control organizational relationships (Chapter 12)

Preview—FDA control strategies for medical devices (Chapter 13)

Preview—FDA control strategies for drugs (Chapter 14)

Preview—agency control over behavioral health services (Chapter 15)

Preview—agency responses to digital technology in healthcare (Chapter 16)

Preview—impact of the ACA on agency controls in healthcare (Chapter 17)

Preview—continuing struggles for control after the ACA (Chapter 18)

Preview—insights from applications (Chapter 19)

1-1. Introduction

A major struggle is taking place in healthcare today, between regulatory agencies (that seek to maximize control over services and funding) and operating businesses such as hospitals, physician medical practices, and integrated care networks (that seek to maximize independent decision making over their services and budgets). In this struggle, both regulators and operators generally believe that it is of essential importance for them to prevail in this pursuit for control. Regulators believe that they have a duty to supervise all aspects of healthcare in order to achieve public and agency objectives, while operators believe that they must resist excessive agency controls if they are to successfully provide care to the public and satisfy their budgetary requirements.

This book describes the dynamic between administrative agencies that seek to protect their defined interests, and operating businesses that must deliver care to patients and maintain viable finances. Detailed discussions indicate how this struggle plays out throughout a wide range of activities in healthcare.

Initial materials introduce several organizational concepts that are useful for describing and evaluating the interactions between agencies and operating businesses in healthcare. The emphasis is on the ways in which organizations collect and process information and make decisions, then act and react to pursue their own interests. These materials are then applied to wide-ranging discussions of healthcare operations today from various perspectives. These perspectives are associated with detailed explanations of the ways in which the healthcare system operates today.

The discussion covers how regulatory agencies impact hospitals, physician medical practices and integrated care networks; how the Medicare and Medicaid programs seek to control services and funding for their enrollees; how fraud and abuse laws, and antitrust laws, are applied as methods of control; how the FDA regulation of medical devices and drugs makes use of different types of controls; the impact of flaws in strategies for behavioral health services and digital technology; control through the Affordable Care Act (ACA); and continuing struggles for control after the ACA. In all of these areas, in-depth insight is provided into the ways in which the healthcare system actually functions and how differences in perceptions between regulating agencies and operating businesses help drive the care that is available and payment strategies.

Chapter 1 provides previews for Chapters 1-6 (with introductory materials); Chapters 7-18 (with applications in healthcare); and Chapter 19 (where all of these materials are brought together for an overview). Chapter 19 describes how conflict has developed between agencies and operating businesses; the strengths and weaknesses of present strategies based on struggles for control; the potential risks associated with a healthcare system developed around organizational conflict; and how achieving a balance between regulations and operations may have potential for producing a more stable and effective approach to healthcare. The struggles for control between the administrate state and healthcare system are seen as being unproductive and potentially flawed approaches to meeting public needs.

1-2. Overview

Chapters 1-4 provide a foundation for analysis that is based on organizational behavior and theory, decision making models, and knowledge bases, with consideration of the ways in which general concepts may be customized to understand conflict among healthcare organizations. Emphasis is placed on information handling, decision making, and resultant actions (by agencies) and reactions (by operating businesses). These chapters introduce an intuitive approach to understanding organizations in healthcare. Emphasis is placed on a basic five-step decision making model of the ways in which organizations collect information from the outside world; process this information; make decisions; and act or react. As shown, these steps may be associated with rankings that indicate how well existing organizations are doing at their tasks. Agencies and operating businesses may be ranked in terms of their capabilities and effectiveness.

As discussed in Chapters 1-4, reactions by operating businesses to agency actions may either be directed at the businesses themselves, as a form of adaptation, or directed at the agencies applying control efforts, in a form of counter-action. Both types of reactions are described. As shown, counter-actions may be based on the expansion and redirection of three established theories drawn from public administration, related to productivity, motivation, and behavioral responses.

Chapters 5-6 consider the need for customized knowledge bases in healthcare, and the difficulties encountered when trying to transition from existing healthcare operations to possible alternatives. Even when a potential redesign is considered to be an attractive option, actually implementing any such changes raises complex issues that must be addressed in detail.

Chapter 5 describes how knowledge bases may be developed to help agencies and operating businesses better understand how conflict is affecting their capabilities and effectiveness. The widespread and extensive development of knowledge bases today, across all types of organizations, may be drawn upon to help agencies and businesses better understand their situations. Such compiled knowledge needs to be based on actual experiences, and not biased by preferences or subjective interpretations. Such knowledge bases may help these organizations better appreciate how agency actions may always be somewhat compromised by business reactions that challenge controls, while business reactions may affect controls but will never be able to achieve full independence from external regulation.

As indicated in Chapter 6, efforts to reduce organizational conflict require evaluations of alternative transition strategies (to guide from the present to new relationships); understanding of the uncertainties associated with descriptions of organizational systems; and the management of risk whenever estimation methods are applied. Chapters 5 and 6 add to the foundation being developed.

These initial materials are then applied in Chapters 7-18 to specific perspectives of the healthcare system as it functions today. Chapter 19 brings together all of these discussions in order to examine the issues facing healthcare today and options that may be available for improving the situation.

Chapters 7-18 examine how interactions between agencies and operating businesses dominate healthcare today. Regulatory agencies impact hospitals, physician medical practices and integrated care networks, while the Medicare and Medicaid programs seek to control services and funding for their enrollees. Fraud and abuse laws, and antitrust laws, are applied as methods of control. The FDA regulation of medical devices and drugs makes use of differing types of controls. In contrast, as discussed, agencies dealing with behavioral health services and digital technology are demonstrating the adoption of unsupported assumptions about healthcare.

Chapter 19 brings all of these materials together to gain a composite viewpoint of the administrative state and healthcare. The results suggest a potential game plan for achieving a better balance between regulations and operations that is based on a reduced level of struggle and conflict.

1-3. Arrangement of this book

In Chapters 1-6, this book describes how agencies and operating businesses may be understood as types of organizations, and how they may be described in terms of their information collection and decision making functions, which are linked to the actions that they take (for agencies) or reactions that they develop (for businesses). The discussion further indicates how these two types of organizations may interact.

Both types of organizations may be described in terms of such basic functions. However, these organizations also differ in important ways. A five-step viewpoint of organizational functions is developed to help understand the interactions that are taking place.

Methods are introduced for describing and ranking the capabilities and performances of organizations, in order to distinguish businesses that are highly capable and effective from those that are not, and to show how rankings depend on perspectives. Chapters 1-3 provide useful background for the following descriptions of actions and reactions in healthcare from a range of perspectives.

Operating businesses in healthcare may react to agency actions in a variety of ways; some of these are well recognized, while others are not. These types of reactions are discussed in Chapter 4. As described, the organizational struggles for control are influencing how such interactions are understood and applied.

Chapter 5 provides additional materials on the ways in which agencies and operating businesses may draw on knowledge bases to better understand their options. Chapter 6 covers transition strategies that may be available to seek an improved balance between regulations and operations, to achieve tensions and stress.

Against this background, attention then turns in Chapters 7-18 to specific discussions of the healthcare system and the interactions that are observed between agencies and operating businesses. In each chapter, an introduction is provided to the ways in which agencies and operating businesses function in today’s healthcare system, and how these organizations interact from a specific perspective. Many different issues and interactions in healthcare are covered. Each chapter includes descriptions of the ways in which various types of interactions may be understood, by drawing on the background of chapters 1-6.

1-4. Scope of detailed healthcare descriptions

The applications of Chapters 7-18 cover a wide range of current topics in healthcare. Chapter 7 includes discussions of the interactions between hospitals and integrated care networks (HICNs) and the agencies that regulate them. As described, integrated care networks have become a dominant arrangement in healthcare. In research sponsored by HHS, over 600 integrated care networks have been defined to include at least one non-federal, general acute care hospital and at least one group of physicians (with at least 50 total physicians and 10 or more primary care physicians that provide comprehensive care, including primary and specialty care), with hospitals and practices connected through common ownership or joint management.

The discussion of Chapter 7 covers hospital regulations; hospital mergers and acquisitions; certificate of public advantage (COPA) laws; hospital accreditation; certificate of need (CON) programs; surprise billing; patient steering; and at-risk contracting. Chapter 8 then covers the regulation of physician practices, including interactions with agencies related to physician licensing and discipline; failures of contract protections; physician stress; managed care; prior authorization controls; medical necessity controls; and administrative control over medical decisions.

Chapter 9 describes how agency interactions with operating businesses develop through the Medicare program. Included are discussions of patient and provider relationships for classical Medicare and the Medical Advantage program; medical necessity controls; provider contracts; flawed appeal procedures; and interactions between Accountable Care Organizations (ACOs) and agencies to accommodate the program. Chapter 10 relates to the Medicaid program and program expansion under the ACA; income-based (MAGI) eligibility; managed care contracts and Medical Care Organizations; capitation rates; grievances and appeals, and fraud control.

Chapters 11 and 12 involve agency interactions with operating businesses with respect to fraud and abuse laws (the CMPL, AKS, FCA and Stark laws) and antitrust laws (the Sherman, Clayton, and FTC acts). The discussion covers penalties and prosecution under these laws; agency interpretation of these laws and consent decrees; patient steering; and the antitrust implications of COPA and CON laws.

Chapter 13 describes the agency, manufacturer, and provider interactions that take place under FDA regulation of medical devices. Included are medical device approval procedures; current good manufacturing practices; and medical device reporting. Chapter 14 considers how the FDA deals with control over prescription and over-the-counter (OTC) drugs, including drug approval procedures; failure to warn of risks; causation and damages; adverse event reporting; and pricing and distribution.

Chapter 15 addresses the failures that have been experienced by behavioral health programs and agencies, suggesting that present agency approaches are flawed. Chapter 16 describes how the entire treatment of digital technology seems to be poorly matched to broader preferences by society.

Chapters 17-18 cover the types of controls included in the ACA and continuing struggles for control. Chapter 19 shows how the insights developed in all applications may be interpreted, and includes a possible game plan for achieving a better balance between regulations and operations in healthcare.

These chapters use the specific interactions that are taking place today between agencies and operating businesses to illustrate how actions by agencies (to maximize controls), and reactions by operating businesses (to maintain more independence), are driving the healthcare system. Various perspectives are drawn upon to provide improved insight into the interactions that are taking place.

1-5. Struggle for control

The administrative state seeks to control healthcare in the U.S. in order to achieve policy objectives. At the same time, the operating businesses (such as hospitals, integrated care networks, and physician medical practices)—that are responsible for actually delivering healthcare services to patients—want to retain as much control as possible over their own activities. The result is a high-stakes struggle between administrative agencies and operating businesses to determine how healthcare services are managed and delivered. The outcome of this struggle will determine the balance between regulations and operations in healthcare.

Federal and state agencies are increasing efforts to control the ways in which operating businesses are licensed and accredited; permitted to deliver services to patients; monitored for performance; funded and made accountable for expenses; and controlled for compliance with agency-set constraints. Essentially all healthcare businesses are subject to agency rules and tend to resist growing control by the administrative state.

The struggle for control in healthcare is intense, and is placing high demands on both agencies and operating businesses. This struggle is raising tensions and stress levels. Agencies often feel that operating businesses are uncooperative and resistant to agency objectives, while operating businesses feel that agencies are intervening to an excessive degree and to the detriment of healthcare operations. This book thoroughly explores these issues as they are being experienced throughout healthcare today.

1-6. Balancing actions and reactions

Agencies have been seeking to limit the independence of operating businesses. In turn, operating businesses often react to such control efforts. In one major response, many integrated care networks have formed across the U.S., bringing together multiple hospitals and physician medical practices in order to maximize organizational resources and the ability to resist agency efforts at control (and to also increase bargaining power with insurers). At the same time, insurers have often merged to increase their resources and ability to cope with and resist outside interventions (and to strengthen their positions in negotiations with providers).

At first, agencies often saw the formation of integrated networks as desirable, as a way to simplify agency control over a fewer number of centralized operations. However, it has now become clear that such integrated networks have the capability to better challenge agency efforts to exert control over healthcare. The transition to integrated networks has been so successful that agencies are now increasing the use of antitrust laws and payment restrictions to limit more horizontal and vertical attempts at integration. Yet, the transition to integrated networks is so far along that it is difficult for agencies to limit this movement.

Agencies have been relying on the expanded use of managed care as a way to gain more control over services and costs. Agencies have sought to use managed care to increase control over integrated networks, but these networks are finding new ways to react to such service and payment controls, in keeping with network interests. At the same time, insurers and health plans have used such managed care strategies to strengthen their own capabilities.

The increased availability of computer-based information has resulted in other ways in which agencies may seek to control operating businesses. Yet, at the same time, care networks are learning how to modify information systems to best serve organizational purposes.

Over a long historical period, extensions of the Medicare and Medicaid programs, antitrust laws, fraud and abuse laws, and laws for other healthcare programs have been harnessed as tools to increase agency control. More recently, operating businesses in healthcare have started to deal more effectively with and counter such agency efforts.

As a result of these and other interactions described in this volume, the administrative state and operating businesses are continuing their struggle for control over the healthcare system. Passage of the Affordable Care Act in 2010 increased agency power and potential control over operations, but also strengthened operating businesses by increasing their available funding (which has enabled these businesses to more strongly resist agency controls). As a result, the level and complexity of conflict has often increased.

Tensions over proposed approaches to weakening the ACA scope of control, and promotions of national health programs, are adding to the level of conflict, increasing both agency efforts to expand control efforts and resistance by operating businesses. A political struggle over the future of healthcare is extending through all aspects of the affected organizations.

1-7. Preview—decision making models and the administrative state (Chapter 2)

Chapter 2 explores how detailed descriptions of healthcare operations may be used to gain insight into the struggles for control that are observed today. One of the tools used for this analysis is a basic five-step decision making model that can be applied to all agencies and operating businesses in healthcare. Chapter 2 describes such a model, for application use throughout this book.

Every decision making model should reflect the setting and application; predispositions of those making the decisions; and purposes of the decisions that are being made. As discussed, the literature is filled with both generic decision models and specific models matched to highly targeted problem solving. An appropriate model for healthcare needs to recognize the nature of the healthcare system (viewed here as a collection of organizations); the types of exchanges between the organizations that are involved; the complexity of decision making in healthcare; the types of problems often encountered; and preferences of those involved in organizational decision making.

For use in this volume, a model should match the viewpoints and purposes of the discussion and be a reasonable approach to the issues being examined. The approach taken here relies on a broad review of the history of such models, translated for use in today’s highly technical clinical setting and based on extensive use of digital technology. The emphasis here is on competing organizations that are dealing with a high levels of agency controls and strong reactions by operating businesses.

In order to understand the actions and reactions between agencies and operating businesses, it is—above all—necessary to understand how these organizations collect information from the outside world, process this information, make decisions, and act on these decisions. The administrative state consists of many agencies (and sometimes associated agencies or subagencies) that act together and seek to control the healthcare system. Each agency applies decision making models to make decisions according to its own preferences, and then takes action. In turn, the healthcare system consists of numerous operating businesses that all pursue their own interests. These businesses apply similar types of decision making models to make decisions and react to agencies.

The operations and evolution of the healthcare system are driven by the ways in which these organizations make decisions, act on these decisions, and interact together. The present conflict and struggles for control in healthcare have developed through this combination of separate agencies and businesses all pursuing their own objectives.

An understanding of the administrative state and healthcare requires insight into how these organizations reach decisions, act, and react. A basic five-step decision making model is described, and may be applied to all organizations as they interact together. Throughout this book, the five-step information collection and decision making model is used to aid in understanding of interactions between agencies and operating businesses in healthcare.

1-8. Preview—using the five-step model to understand struggles for control in healthcare (Chapter 3)

In order to apply the five-step model to gain more perspective into agencies and operating businesses in healthcare, it is helpful to have additional insight into the features of this model. As discussed in Chapter 3, the five steps of this model may be described in terms of five parameters, with one parameter for each step that is included in the decision making procedure. Each parameter provides a way for describing a step in the model; these parameters are taken here to be the effectiveness of information collection; capability to estimate the potential impact of information; capability to formulate and evaluate various reaction options; capability to make decisions that are in the organization’s best interests; and ability to react effectively. These five parameters may be used to describe and compare organizations.

It is helpful to be able to rate and compare various organizations. As shown, qualitative scales and categories of performance may be used to describe each parameter for each type of organization of interest, resulting in rankings of capability and performance from very low to low, high, and very high. (In an interesting note, FDA reviewers use a similar strategy to rate information received about medical device and drug safety and effectiveness, as described in Chapter 14).

This approach provides a framework in which organizations may be compared, leading to a better understanding of the strengths and weaknesses of agencies and business operations from a variety of perspectives.

1-9. Preview—types of agency actions and potential reactions by operating businesses (Chapter 4)

In order to fully apply the five-step information and decision model, it is important to understand more about the ways in which organizations can act and react in response to the information that they receive. Chapter 4 describes six types of fundamental agency actions and ten types of potential reactions by operating businesses. The following potential agency actions are considered: administrative warnings, complaints and sanctions; hearings by internal agency offices; preparation and publishing of changes in regulations to increase enforcement activity; publication of new written procedures; and court actions (lawsuits and requests for injunctions) that may be brought in federal court.

In turn, ten potential reactions by operating businesses are discussed. The first seven of these describe the ways in which businesses may direct their own activities, by (1) accepting agency control; (2) negotiating control; (3) ignoring control efforts; (4) legally challenging control efforts; (5) withdrawing from the program or activity; (6) adopting a delaying action; or (7) relying on shields for defense. For all of these reactions, businesses direct their efforts toward themselves, in a form of adaptation.

The next three types of reactions are different: they involve reactions that are directed at causing changes to take place in the activities of the agencies involved. Instead of focusing inwardly on business operations, attention is instead directed to the ways in which an agency may be changed from the outside. These options are based on expansions and redirections of three established theories drawn from public administration, related to changes in agency productivity (8) or motivation (9), or by applying principles of behavior modification to the agency (10).

As described in detail, many reactions are based on inwardly directed activities by operating businesses, essentially forms of adaption to agency controls. However, the last three reactions are different, in that they are directed toward efforts to change agency actions from the outside.

1-10. Preview—knowledge bases as key to reducing conflict between agencies and operating businesses (Chapter 5)

As discussed in Chapter 5, knowledge management and knowledge base technology are key considerations today for a wide range of purposes.