1. A Short History of Health Care in America
Philip Madvig, MD
Associate Executive Director

2. “Who knew healthcare was this complicated?”
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3. Some Disasters are Natural…

4. US Health Care Has Many Challenges
…Some are man made
US Health Care Has Many Challenges
Large uninsured population
Highest costs in world
Displaces other potential goods
Generally lower health status than most industrialized countries
Seeming inability to solve problems

5. US Healthcare is fragmented, semi-cottage industry, with dysfunctional payment system
Could have turned out different:
Public health system
Government sponsored insurance
Highly integrated, “corporate” system
But it didn’t…

6. “Those who cannot remember the past are condemned to repeat it”
How did we get where we are?
If we understand how we got here, perhaps we can chart our better future

7. What forces shaped American health care?
Unique American culture
Emergence of a powerful medical profession
Central function of the hospital
Escape from corporatization
Evolution of American health insurance
Cost Crisis

8. Unique American Culture

9. American Culture: Pre-Industrial
Self-reliance
Who needs a health care system?
Democratic
Repudiate authority and traditional hierarchy
Naturalistic
Lack of scientific basis for medical practice
NET RESULT
Little need for health care system, and everyone can be a doctor — housewife, clergy, hat maker, brewer…

10. Post Industrial America
Rise of cities
Population concentrated
Loss of family structure
Scientific Advances and general respect for science
Disease origins
Antisepsis
Anesthesia
Diagnostic tools

11. Emergence of a Powerful Medical Profession

12. What is definition of a profession
What is definition of a profession? What does it mean to be professional?

13. Emergence of a powerful medical profession
Historically weak and not cohesive
“Everybody can be a doctor”
No authority in science
No barrier to entry
No standardized training
No interdependence
Inefficient/costly

14. Emergence of a powerful medical profession
Gains in authority
Scientific advances and knowledge and especially therapeutics
Declining self-reliance
Weakened competition
No scientific credibility
Increased interdependence
Specialization leading to referrals
Hospital as central institution for care

15. Emergence of a powerful medical profession
Barriers to entry
Licensure
Supply
Standardization of training
Elevates competence leading to greater authority
Reduces supply

16. How many medical schools and annual graduates in 2017? How many in 1900?

17. Standardization of Training
John’s Hopkins opened in It had a 4-year program
AMA makes educational reform a top priority
1904 Council on Medical Education
1906 inventory and grade medical school
RESULTS As
REPORT CARD 82 Bs
“Imperfect, but redeemable” 46 Cs
“Beyond repair” 32

18. Flexner Report (1910)
“ Society reaps at this moment but a small fraction of the advantages which current knowledge has the power to confer.”
Large discrepancy between medical science and medical education
AMA Council effectively becomes national accreditor
Medical education becomes standardized more or less as we know it today
As a result of Flexner and other actions:
The number of medical schools and medical students plunge
The profession becomes more uniform and cohesive (with less socio-economic and ethnic diversity. For example, pre Flexner there were 7 black medical schools; post Flexner there were 2)
Supply of doctors declines

19. Trend in US Medical Schools and Graduates
Grads
1850
1900
1925

20. Central Function of a Hospital

21. Transformation of Hospitals
Past
Modern
Johns Hopkins

22. How many hospitals in US?

23. Transformation of Hospitals
Hospitals transformed from “places of dreaded impurity and exiled human wreckage into awesome citadels of science”
Hospitals transformed from social welfare institutions to medical science institutions
Hospitals transformed from charities to businesses

24. Transformation of Hospitals
The following changes which occurred in the late 19th century contributed to the transformation of the hospital:
Industrialization accompanied by the rise of the city and the loss of the family of location of care
Scientific improvements contributing to surgical care (antiseptic technique and general anesthesia)
The emergence of nursing as a profession
Medical education requirements

25. Transformation of Hospitals
These changes lead to an explosion in the number, complexity, and cost of hospitals
$1,200
per bed
$4,400
per bed
$3,000,000
per bed
178
hospitals
4,000
hospitals
5,564
hospitals
Number of hospitals in 1870 = 178
Number of hospitals in 1910 = 4000
Hospital capital cost in 1870 = $1200 per bed
Hospital capital cost in 1905 = $4400 per bed
Cost for Kaiser Oakland in 2010 = $3M per bed
1870
2015
Source: Number of hospitals, AHA, FY2015; cost is that of Kaiser Oakland in 2010

26. Interactions between hospitals and medical profession
Physicians as hospital owners
Formal organization of medical staff
Tension between medical staff and hospital administration

27. Doctors come to stand between the hospital and its market
Hospital’s revenue comes from patients, but doctors control where patients go. In essence, doctors obtained control of the hospital assets without needing to invest capital
Hospitals did not become systematized partly because of the influence of physicians (noted above), but also because hospitals often developed unique themes (e.g. provided care to specific religious or ethnic groups, or specific medical services)

28. Failure to develop strong public health system
Webster’s dictionary definition
“ Public health refers to the health of the population as a whole especially as monitored, regulated, and promoted by the state.”
Origins in sanitary reform:
Formation of government health departments
Late 1800s: in response to epidemics of cholera and yellow fever
Addressed conditions favoring epidemics like waste disposal, squalid living conditions, water supply, and use of quarantine

29. Physician resistance
Physicians resisted public health expansion to provide broader medical care. Sanitary engineering was OK. But, when public health started providing vaccinations and health exams, physicians defended their own interests

30. Escape from Corporatization

31. Escape from Corporatization
“Where physicians become employees and permit their services to be peddled as commodities, the medical services usually deteriorate, and the public which purchases such services is injured.” – AMA 1935
Physicians did not want to be subjected to the kind of hierarchical controls that typically prevail in industrial capitalism
But did want control of emerging technology and other professions, e.g. laboratory medicine, imaging, etc.

32. Private business had interest in providing medical care
To their own employees through company doctors, and…
Potentially to the public for profit, but…
Physicians opposed “Contract Practice”

33. There were other forms of “Contract Practice”
Industrial medicine: the prevention or treatment of industrial injuries could have expanded to address the general health of employees
Welfare capitalism was also attractive to business as a way to resist unions, enhance employee loyalty and guard against socialism
Fraternal associations also represented a form of “contract practice”
Group practice (Mayo Clinic and others)

34. Preserving Physician Autonomy
All of these forms were actively resisted by organized medicine, in order to preserve physician autonomy. In particular, to preclude entry of third parties who might control physician practice and extract profit
Bar on corporate practice of medicine
Legal decisions in early 20th century held that corporations could not be licensed practitioners, therefore, could not engage in medical practice even if they employed physicians

35. Evolution of American Health Insurance

36. Health insurance emerged in Europe in the late 19th century
Bismarck in Germany
Origins in “sick pay” (i.e. protection against wage loss)
Part of social protection including unemployment, old age pension, etc.
Response to political and social discontent
Not regarded as charity but as inherent right to certain benefits and requiring compulsory contribution

37. In the US, government had little role in social welfare
Federal government relatively weak
Socialist movement in US relatively weak
Public health system had been restricted

38. In early 20th century American Progressives proposed insurance system for workers
Cost shared between employee, employer, and state
Benefits to include sick pay, medical costs, maternity costs for spouses, death benefits
Compulsory
Expected to stimulate prevention and result in economic benefit

39. Met with Strong Opposition
AMA supported but objected to capitation as payment and later opposed entire proposal
Labor opposed the proposal as a paternalistic intrusion of the state and because the proposal was in competition with the union role of providing social benefits
Business opposed
Insurance industry opposed, that is the life insurance industry opposed the proposal because of the death benefit

40. Rising Costs
In the 1930s rising medical costs became a more prominent reason to consider insurance than wage loss. This meant the middle class, not just workers, might benefit from insurance, especially since medical costs are highly unevenly distributed
Committee on the costs of medical care led by Lyman Wilbur, MD, President of Stanford University, findings:
National health expenditures equal $3.7 billion, 4% of GDP in 1929
Health care costs distributed unequally
Poorest people went without medical care

41. In 1929, 3. 5% of the population accounted for 1/3 of all costs
In 1929, 3.5% of the population accounted for 1/3 of all costs. How does this compare to today?

42. Committee Recommendations
Group practice and group payment, but no compulsory health insurance
Wanted to address delivery system first because without improvement healthcare and insurance were too expensive
Felt that it was easier to start with voluntary insurance rather than compulsory insurance
 AMA described the Committee’s proposal as “an incitement to revolution”

43. The US Depression revised the priorities for social reform
Unemployment insurance
Old age pensions
“Health insurance will have to wait.” – Committee on Economic Security
AMA began to describe terms under which they endorse an insurance proposal:
Voluntary not compulsory
Under control of local medical societies
No third party involved in physician business

44. The Truman Plan
End of WWII Truman calls for national program with compulsory insurance
“Medical services absorb only 4% of national income. We can afford to spend more for health.”
Under this plan “people would continue to get medical and hospital services just as they do now.”
Effort to differentiate from socialized medicine given threat of communism
AMA reacts with largest lobbying campaign in history
Truman plan failed to pass

45. Plans Emerge
Private employer-based insurance emerges partly as a result of union negotiations
Veterans health system created
Pre-paid plans emerge
Group Health in Seattle
HIP in NYC
Kaiser Permanente on west coast. “The closed panel colossus”

46. Great Society / War on Poverty
Great Society / War on Poverty, President Lyndon Johnson
Creation of Medicare 1965
Association with Social Security and acknowledgement of disproportionate health needs of aged
Creation of Medicaid 1965 for the extremely impoverished population
Physician interests accommodated by allowing usual and customary payment through fiscal intermediary (aka Blue Shield)
Hospital interests accommodated by reimbursement based on cost, including cost of capital, and use of fiscal intermediary (aka Blue Cross)
Therefore, there is no incentive to manage cost of care or to rationally organize a more efficient system of health care

47. Cost Crisis

48. Cost crisis continues 1970s health care cost crisis
$69 billion (7.2% of GDP) in 1970
By 1980 $230 billion (9.4% of GDP)
Government is now responsible for much larger share of cost

49. Changing costs over time
Trend in Health Care Costs, Percent of GDP
COSTS, % GDP
1929
2014
$3.7 Billion
$3.021 Trillion

50. Reactions
Interest in pre-paid, organized health care systems — HMO Act
Wage and price freeze
Certificate of Need and other regulations
Resumed call for national health insurance — Richard Nixon vs Ted Kennedy
Watergate put an end to the call for national health insurance

51. Corporate transformation of medicine, sort of…
As health care becomes more than 10% of GDP, controlling costs and extracting profit gain interest
Hospital systems emerge
Insurance industry consolidates and converts to for-profit
Vertical integration attempted
But, many of these changes are seen as gaining market power without transferring efficiencies to consumers

52. Quality Questioned: IOM reports
To Err is Human
100,000 deaths/year from harm
Crossing the Quality Chasm
“Between the health care that we now have and the health care that we could have lies not just a gap, but a chasm”.

53. Clinton, Obama
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54. Repeal and replace

55. Trump, Republicans “Who knew healthcare was this complicated?”
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