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October 1973
The Politics of American Health Care: What Is It Costing You?
The health care crisis is upon us. In response to soaring costs, a jumbled
patchwork of insurance programs, and critical problems in delivering
medical care, some kind of national health insurance has seemed in recent
years to be an idea whose time has finally come in America. For those not
protected by insurance--and often for those who are partially
protected--illness means financial disaster. The quality of American
medical care is at issue too. After twenty years of unprecedentedly high
spending for research our public health standards have fallen far behind
some countries with fewer resources. We rank seventeenth in infant
mortality, according to a United Nations study; thirtieth in life
expectancy for males, behind Spain, Greece, and five Communist nations in
Eastern Europe. And yet, writes reporter Godfrey Hodgson, for all our
troubles, an opportunity to reform American health care has slipped by.
How could this be? And where do we go from here?
by Godfrey Hodgson
If someone had asked me five years ago," said Dr. Rashi Fein, "to estimate
when the United States would have some clearly universal and comprehensive
system of national health insurance, I might have answered: in fifteen
years."
"Three years ago," he went on, "my estimate would have been fifteen minus
eight, or minus ten, or even minus twelve. But if someone were to ask me
today when we will have national health insurance, my answer would be:
many years more."
Dr. Fein, of the Harvard Medical School, is one of the most highly
respected authorities on health policy in the country; the fact that both
the Nixon Administration and Senator Edward Kennedy have consulted him
gives some index of his standing. But he is not alone in his judgment "A
few years ago," I was told by Dr. John Hogness, president of the Institute
of Medicine at the National Academy of Sciences, "the feeling among
experts was that we would have national health insurance by 1973. Now the
feeling among experts is that it will take three to five years."
"Not in this Congress," said Bill Fullerton, top staff aide on health to
Chairman Wilbur Mills of the House Ways and Means Committee. "Not in the
next Congress. With the confrontation politics we have now, I don't see
the Democrats giving the Republicans something to crow about, and I don't
see the Republicans giving the Democrats something to crow about either.
My personal view is that the earliest it could come would be the second
year of the next Administration."
A simple way of stating what has happened is that after the passage of
Medicare in 1965, just about everybody in the world of health policy was
persuaded that the United States needed something called national health
insurance--even if there was little agreement on what that should mean.
Then, rather suddenly in the early 1970s, the mood changed. More cautious
views reasserted themselves, both among experts and among politicians. The
same reversal of mood which dampened optimism about the possibility of
social change through political action generally--in the field of
education, for example, or in dealing with poverty and urban problems-
has now also begun to shape the debate about health care.
It is not just that congressional enactment of any kind of national health
insurance, which only a few years ago seemed to be getting closer and
closer, is now becoming more and more remote. Any form of national health
insurance enacted in the late 1970s is now likely to be a milder measure,
involving less drastic change, than seemed inevitable so recently.
One Democrat the Republicans will be especially anxious not to present
with anything to crow about before 1976 is Senator Kennedy. But the
strongest push in Congress for a truly radical overhaul of the health care
system has come from Kennedy, as chairman of the subcommittee on health of
the Senate Labor and Public Welfare Committee. Both liberals and organized
labor--through the Committee for National Health Insurance, set up by the
late Walter Reuther and backed by George Meany and the AFL-CIO as
well--have supported Kennedy's "health security" approach. S.3, the
Kennedy-Griffiths bill (it is sponsored in the House by Representative
Martha Griffiths, Democrat of Michigan) is the most radical of the half
dozen or more health insurance bills now before Congress. It offers the
fullest range of benefits with the fewest co-insurances, deductibles, and
other snags. It is also the firmest on the principle that if government
financing is to be made available to the health care system, it must be
used as leverage to secure government control: leverage to keep down
rising costs and to make the health system more accountable to government
in other respects. And with this intent, one of its key proposals has been
that, as Kennedy put it in his book In Critical Condition in 1972, "The
Federal government would become the health insurance carrier for the
entire nation." "Only the government," he wrote, "can operate such an
insurance program in the best interest of all the people. We can no longer
afford the health insurance industry in America, and we should not waste
vast funds bailing it out."
That is a plain enough position, and little more than a year old. Yet
Kennedy will almost certainly have to retreat from that position,
and--whatever precise form national health insurance eventually
takes--insurance companies will almost certainly have an important share
of the pie.
This is not because of any change of heart on Kennedy's part. It is a
consequence of the facts of life in Congress. Senator Kennedy has emerged
as the leading Democratic spokesman on health issues, but he does not have
the votes to pass his health security bill, even in the Senate. The
question is academic, in any case, since he cannot bring it to the floor
for a vote. That prerogative lies with the Senate Finance Committee,
headed by Senator Russell Long, Democrat of Louisiana. And Long has his
own bill, artfully contrived to sap the strength of Kennedy's proposals.
Senator Long is in favor of what is called "catastrophic insurance" that
is, insurance against catastrophically heavy medical bills. Long proposes
that the federal government insure people only against being hospitalized
for sixty days and for other medical bills over $2000. Kennedy--unwisely,
perhaps, from a tactical point of view--has emphasized, in his book and in
hearings, the havoc caused by "medical catastrophes."
"Catastrophic insurance" would be inflationary in its effect. This is
because, as things stand now, many people go without treatment that costs
more than the upper limit imposed by their conventional insurance policy;
with a federal insurance program footing the bill, more expensive
treatment would be prescribed and paid for. Moreover, a federal insurance
scheme limited to the "catastrophic" end of the scale would do nothing to
meet Kennedy's central concern that the public establish control over the
costs and procedures of a system that would absorb billions of dollars of
public money.
"It calms down the flame," Senator Kennedy told me, "but it really doesn't
meet the need. You're going to be bankrupting people anyway. It adds up to
an inflationary trend. And I have a philosophic belief that you have to
use the lever of financing to do something about quality, and something
about control."
Yet the appeal of "catastrophic insurance," as the lesser of evils for
politicians and organized medicine if the alternative is a fully
federalized system, could be very damaging to hopes of more comprehensive
reform. In 1972, the Senate Finance Committee was already deadlocked on
Senator Russell Long's "catastrophic insurance" legislation. The coalition
against it was maintained by Senator Kennedy and his allies, who insisted
that, if passed, the Long bill meant good-bye to any broader national
health insurance measure for five years. If Long's bill had been reported
out of committee, it would almost certainly have passed on the Senate
floor. "There just aren't enough souls in the Senate hardy enough to vote
against it," one Kennedy aide said bitterly. And if it had passed the
Senate, then all would have depended, as it so often does when the shape
of major legislation is at stake, on one man: Chairman Wilbur Mills of the
House Ways and Means Committee.
And so, in the summer of 1972, Arkansas Democrat Mills and Massachusetts
Democrat Kennedy issued a joint statement. They said they would work
together to draft joint legislation on national health insurance.
Officially, the line from both the Senator's and the Chairman's staff
people is noncommittal: "Work is continuing." But in early 1973 Kennedy
and Mills met several times, and they now hope to introduce a joint bill
this fall, a bill which would in one major respect be weaker than the
Kennedy-Griffiths bill.
Kennedy is trying earnestly to find a compromise he can accept without
betraying what he regards as the essential features of S.3. And Mills is
trying just as hard to find a bill he can pass. Two main issues remain to
be resolved.
One is the method of financing. Realistically, national health insurance
can be financed in only three ways: through the federal budget; through
Social Security, like Medicare; or through what is known as "mandated"
coverage. This last approach, favored by the Nixon Administration, would
have the great bulk of premiums paid by individuals and their employers to
private insurance companies, so that public funds would be needed only for
those who could not obtain coverage through their jobs, or for other
special reasons. On financing, Mills and Kennedy have not yet made up
their minds. If we had the key to this problem," Senator Kennedy told me,
"we'd have the legislation."
The second major issue--the role of insurance companies--has now been
resolved. But Kennedy has made an important concession. He is wary of the
danger that, whatever regulatory controls Congress sets up over the health
insurance industry, "in all too short a time the controlled end up
controlling." That is why he favored eliminating the role of the private
health insurance industry completely. He now believes, however, that
"there may be some role, actuarial or procedural, some arrangement that
could be worked out that would give them some role." One point, in short,
is now clear. In order to get a version of national health insurance that
Mills would report out of committee, Kennedy will have to accommodate, in
some way, the commercial health insurance industry. America, one might say
with Senator Kennedy, may not be able to afford the health insurance
industry; but Senator Kennedy cannot afford to do without the health
insurance industry.
The prospect of Senator Kennedy's crusade for national health insurance
being transformed into a canny Kennedy-Mills compromise with Aetna,
Connecticut General, or even W. Clement Stone (the Chicago insurance man
with the "positive mental attitude" who was, so far as we know, Mr.
Nixon's biggest campaign contributor in both 1968 and 1972), is
distressing for those who believe that the American health care system
needs radical reform.
There are other indications, too, that the middle ground both of academic
debate and practical politics has taken a step back toward the cautious
center. But this recent shift should be seen in perspective: it comes
after some startlingly rapid strides to the left.
Between 1968 and 1970--which is to say, almost overnight, as major shifts
in political attitudes are measured--certain ideas about health policy
that had been considered daring even on the liberal Left suddenly became
widely acceptable. There were two in particular: the idea that the federal
government should guarantee the availability of health care to all
citizens through a national health insurance system, and the idea that
government should actively encourage the replacement of at least some
fee-for-service practice by prepaid group health arrangements. As late as
1965, even liberal reformers limited themselves to the complaint that not
enough health care was available to enough people. But by 1970, to say
that the American health care system was in crisis had indeed become
something of a cliche.
In early 1970, President Nixon announced to a press conference that "we
face a massive crisis in this [health] area. Unless action is taken within
the next two or three years...we will have a breakdown in our medical
system." That was well over three years ago and to date there has been no
legislative action commensurate with such a prophecy. But neither has
there been anything that could truly be called a breakdown.
No doubt at the time the President believed exactly what he said. His
assessment was supported by the somber report sent to him by Robert Finch,
his first Secretary of Health, Education, and Welfare, and Roger Egeberg,
his first Assistant Secretary for Health and Scientific Affairs. The
report posed the alternatives in the starkest terms. "What is at stake,"
it concluded, "is the pluralistic, independent, voluntary nature of our
health care system. We will lose it to pressures for monolithic,
government-dominated medical care unless we can make the system work for
everyone." And this was no idiosyncratic view of Finch's. Two years later
his successor at HEW, Elliot Richardson, produced a White Paper which, he
insisted, "seeks to modify the entire SYSTEM of health care" (his
italics).
The Nixon Administration's policies, even more than its rhetoric, showed
its conversion at that time to the argument that the system needed
fundamental change. Each of its two main proposals marked a clear breach
with the shibboleths of organized medicine. One official who had worked at
HEW for a decade said to me with awe in his voice: "The atmosphere around
here changed so much in three or four years that you had a Republican
President saying, and a Republican Administration doing, things that would
have raised the roof if Kennedy or Johnson had done them."
One of the two main thrusts of the Administration's strategy was to
encourage the spread of Health Maintenance Organizations (HMO's). The HMO
concept was co
opted from the prepaid group health idea, of which the California-based
Kaiser
Permanente plan is the best-known example. The essence of the group health
idea is that, instead of paying medical bills when they fall due, you pay
a flat annual sum to join a group which contracts to provide all the
medical care you may need. Typically, the group either maintains its own
hospitals, or makes arrangements with particular hospitals to provide
services; it also employs physicians and other staff. The whole idea has
long been anathema to organized medicine. For one thing, it turns the
rugged, individualist, fee-for-service, small-businessman physician into
an employee. Secondly, with the specific incentive of fee-for-service
removed, group health schemes have shown consistently lower rates of
utilization of advanced medical technology, thus stimulating a passionate
debate among medical academics as to whether group health did too little,
or fee-for-service doctors did too much.
The notion that Health Maintenance Organizations "might provide a check on
the provision of unnecessary services, inflation and inequitable
distribution" of doctors received a boost from the work of Dr. Paul
Ellwood, Jr., of the American Rehabilitation Foundation in Minneapolis, on
the grounds that HMO's would "align [the physician's] economic interests
with those of the consumer." In a paper called "The Health Maintenance
Strategy," first drafted in March, 1970, and revised in June and October
that year, Ellwood and his Colleagues seemed to be consciously selling
HMO's as an alternative to national health insurance. "The Nixon
Administration must make a major decision on its strategy for dealing with
the much-proclaimed health crisis in America. It can either rely on
continued or increased Federal intervention...or promote a health
maintenance industry...the health maintenance strategy offers...a feasible
alternative to a nationalized health system."
This argument was apparently persuasive, for in a speech early in 1971,
Mrs. Beverlee Myers, an assistant administrator at HEW, laid down the
prerequisites for the types of HMO the federal government would encourage.
Significantly, Mrs. Myers defined HMO's more widely than liberals would
have liked: besides the Kaiser-Permanente model, with its own hospitals
and other specialized facilities, she included organizations modeled on
the San Joaquin Medical Care Foundation in California, that is to say,
group practice arrangements, set up by doctors, which RETAINED
fee-for-service.
One can get the flavor of some of the organizations which qualify as HMO's
under the Administration's definition by reading a long article published
by Fortune this spring in which the profit-making possibilities of HMO's
are glowingly discussed. Their profit ratio, the article argues, could be
as high as that of oil companies, and one doctor who successfully sold
stock in his HMO received the highest accolade Fortune has to bestow: "a
fast-moving entrepreneur." "The most blatant forms of entrepreneurial
practice qualify as HMO's under the Administration's proposals," comments
Dr. Victor Sidel, of Montefiore Hospital in the Bronx, New York. And Dr.
Max Fine, of the Committee for National Health Insurance, described to me
with horror the style of some of the HMO's that flourish in Southern
California. "They send loudspeaker trucks round the streets," he said.
"They offer fried chicken to anyone who joins the group. And they send
solicitors round door to door, and pay them three dollars a head for every
patient they sign up." One such group health outfit advertises in medical
journals, offering free use of a company-owned Mercedes to any doctor who
will join. Sports cars for the doctors, and fried chicken for the
patients: that was hardly the vision of group health pioneers.
Both with HMO's and with national health insurance, the Republicans
borrowed a liberal idea and made something very different out of it.
National health insurance, in fact, has become one of those phrases, like
the word "liberal," whose meaning has exploded, so that little pieces of
it are littered all over the political landscape. There is a world of
difference between the health scheme Labor and Senator Kennedy had in
mind, and what Republicans have proposed.
There is the matter of the insurance companies. When Elliot Richardson was
Secretary of HEW, he admitted in congressional testimony that his version
of national health insurance would have the effect of swelling the premium
income of private health insurance companies from $23 billion to $30
billion in the first year, or by some 30 percent. Dr. Fine calculates that
even this is a substantial underestimate, and that the Administration's
plan would have produced a windfall for the insurance companies (including
Blue Cross and Blue Shield) of no less than $12 billion--more than 50
percent above its current premium income. The fact that in spite of these
remarkable expectations the insurance industry opposes any form of
national health insurance as an entering wedge of federal regulation,
gives some idea of how ideological, and how profitable, the insurance
business may be taken to be.
But liberals' objections to the Administration's proposals are not limited
to the observation that they would enrich the insurance industry lavishly.
The National Health Insurance Partnership, as the Administration called
its national health insurance proposals, would limit the government's role
to a minimum. It would merely require that the carrying of a stipulated
minimum employer-employee health insurance coverage be made a mandatory
condition of all employment. Those who were not covered in this way would
be picked up either by a family health insurance plan, replacing Medicaid
for the poor; or by "pool coverage," arranged in some not too clearly
specified way for the unemployed, the self
employed, and the employees of small businesses. The government would
also, under the Administration's plan, set national health insurance
standards. And here the contrast between coverage proposed in the
Kennedy-Griffiths bill and the modest benefits (and thickets of
exceptions) promised by the Administration's bill is so great as to be
ludicrous.
The principle of national health insurance dates back to the 1930s. It was
temporarily interred when congressional efforts to enact the
Wagner-Murray-Dingell bill (first proposed in 1943 after Senator Robert
Wagner had sponsored a similar bill in 1939) ended in 1950, in the face of
fierce opposition from the American Medical Association. The AMA assessed
its members twenty-five dollars a head that year to fight "the enslavement
of the medical profession."
For nearly two decades the idea lay dormant. Public attention to the
problem during the 1950s and the early 1960s focused on two efforts, one
congressional, the other undertaken by private enterprise. Politicians
abandoned any attempt to involve the government in making medical care
available to the general population, and concentrated instead on taking
care of the special problems of the old and the very poor. Ideologically,
the thrust for the two programs eventually enacted in 1965 came from
different directions. Medicare--free medical care for the aged under
Social Security--was a liberal program. But Medicaid--federal assistance
to the states to provide medical care for the indigent--was attractive to
conservatives and states
righters, concerned about the growing burden of providing medical care for
welfare recipients.
One important reason for political indifference to the medical needs of
working- and middle-class people in those years was the rapid spread of
private health insurance, both with commercial insurance companies and
with the "nonprofit" Blue Cross and Blue Shield plans. By 1971, more than
76 million Americans were covered by Blue Cross hospitalization insurance;
and of these about 66 million had Blue Shield policies for doctors' and
surgeons' bills. (By contrast, only some 8 million people belonged to
group health plans organized by the Group Health Association of America,
of whom some 2 million belonged to the largest plan, Kaiser-Permanente.)
Spread of health insurance came about largely because hospitals, and, to a
lesser extent, the doctors, wanted to be assured of payment. Nevertheless
the proportion of private hospital expenditure paid by insurance
(excluding all government payments) rose from 34.6 percent in 1950 to 73.7
percent in 1968. Inadequate as it was, the spread of private health
insurance for years precluded any clamorous demand for national health
insurance.
Walter Reuther, shortly before his death, revived public discussion of
national health insurance. In the Bronfman lecture to the American Public
Health Association in Detroit on November 14, 1968, less than two weeks
after President Nixon was elected, he called for "an appropriate system of
national health insurance that will provide an adequate and workable
financial mechanism to make high quality comprehensive health care
available to every American." In January, 1969, Senator Kennedy announced
that he intended to sponsor a measure to enact such a system. And then,
abruptly, everybody was talking about national health insurance again. As
Dr. William McKissick reported in the New England Journal of Medicine:
"The year 1969 witnessed advocacy of universal health insurance from
political quarters that ranged from Representative John Dingell...to the
American Medical Association...Governor Rockefeller, the Aetna Life
Insurance Company, Senator Javits, Senator Kennedy...Walter Reuther..."
and, he might have added, Reuther's adversaries in the AFL-CIO. When
President Nixon was converted to the cause, it seemed truly an idea whose
time had come.
A bureaucratic detail pinpoints the change in official Administration
attitudes toward health care reform better than all the volumes of
congressional testimony and the task force reports of the time. For years,
every draft of health legislation ritually included boiler-plate language
which, it was believed by congressmen and federal officials, had to be
inserted to placate the AMA. Section 1801 of the Social Security Act of
l965, which enacted Medicare, is an example: "Nothing in this title," it
proclaimed a trifle disingenuously, "shall be construed to authorize any
Federal officer or employee to exercise any control over the practice of
medicine or the manner in which medical services are provided."
Suddenly, in the changed climate of l968 and subsequent years, nobody felt
the need to write in clauses like that anymore. And not only that. Robert
Ball, who quit this year as commissioner of the Social Security
Administration, made the point to me that, after 1968 or 1969, most
experts would have regarded it as a grave deficiency in legislation if it
did not attempt to exercise some control over "the manner in which medical
services are provided."
Why did the field of debate about national health policy and the role of
the federal government shift so sharply to the left after 1968?
In a single word, the answer given by all the experts I talked to was:
Medicare. The impact of the enactment of Medicare and Medicaid in 1965 was
both financial and psychological.
The fact that hospitals and doctors were reimbursed on a cost basis, under
both programs, accelerated the inflation of medical costs. Medicare and
Medicaid went into effect in 1966. Within two years, cost inflation had
reached the proportions of a crisis. And that steep, sudden inflation
exposed other weaknesses in the health system, and triggered a general
reassessment of long-accepted assumptions and values.
At the same time, once the federal government was involved in paying for
health care, essentially for the first time, it became both possible and
necessary to ask how much further it should be involved. As Wilbur Cohen,
Secretary of HEW at the time Medicare was enacted in 1965, put it to me:
"The passage of Medicare broke the back of the ideological controversy
over the government's role, and opened up the possibility of discussing
changes in the delivery system." Robert Ball agrees:
"There has been a most remarkable change in atmosphere. I went all
through the fight for Medicare, and it would have been unthinkable at that
time to get stronger legislation in terms of affecting the delivery of
health care. When Medicare came in it was accepted as an economic measure,
as something that would protect people against the costs of medical care.
It was considered as part of the pension system. The great change which
began fairly soon was that people began to feel that there was a real
responsibility to do something about cost; to do something about quality;
and to do something about organization. Medicare was a terrific
catalyst."
It wasn't long before it became plain that the cost overruns on Medicare
were going to be spectacular. Between l966 and 1968, everything went up;
hospital bills, doctors' fees, laboratory charges, insurance premiums, and
even--though more modestly-
nurses' and orderlies' wages. (At Massachusetts General Hospital in
Boston, for example, nurses' wages went up 100 percent between 1959 and
1969; but over the same period interns' salaries went up 1650 percent!)
Over the decade of the 1960s, hospital charges rose four times as fast as
all other items in the Consumer Price Index; physicians' fees rose twice
as fast. And that increase was heavily concentrated in the brief period
after the introduction of Medicare. The rate of inflation of hospital
costs, for example, increased from an average of 6.9 percent between l950
and 1960 to an annual average of 14.8 percent between March, 1966, and
March, l970.
Some economists [See Endnote 1] have argued that the primary reason for
inflation was increased demand from patients. But the Nixon
Administration's own White Paper in 1971 commented that "while undoubtedly
there were improvements in the quality of care for at least some of the
population, more than 75% of the increase in expenditures for hospital
care, and nearly 70% of the increase for physician services, were the
consequence of inflation."
By 1969, some hospitals were charging as much as $150 a day for basic
care--in effect for little more than a bed, food, and attention from a
nurse when she had a moment. John de Lury, of the New York sanitation
workers' union, gave a state legislative hearing a harrowing illustration
of what the full cost could come to:
"A ten-year-old boy was admitted to the hospital at 3:20 A.M. The boy
died at 10:34 the same night. The family of this child was charged $105.80
for drugs, $184.80 for X
rays, $220.00 for inhalation therapy, $655.50 for laboratory work. The
total bill for the child was $1717.80."
With the government reimbursing whatever hospitals and doctors charged,
the cost of both Medicare and Medicaid spiraled out of control. Less than
ONE YEAR after Medicare came into operation, Congress had to increase by
25 percent the Social Security tax budgeted to pay for it. The actuarial
estimates of both utilization and cost presented to Congress by the
Administration when the program was under construction proved to be
hopelessly understated. Cost overruns, projected over the next twenty-five
years, added up to a stupendous $131 billion.
Medicaid was soon in worse trouble than Medicare. Two reporters, generally
sympathetic to the program, wrote that "starting in late l966 Medicaid hit
New York's medical marketplace like a flash-flood." In January, 1967, the
federal budget, assuming that Medicaid would be in operation in
forty-eight states by the end of the year, predicted that it would cost
$2.25 billion. A year later, however, although only thirty-seven states
were receiving Medicaid, the actual cost came to $3.54 billion.
In human terms, there is no question that both Medicare and Medicaid have
done incalculable good. Medicare, covering about 21 million people, paid
portions of bills for roughly half of them last year; allowing for various
overlaps among programs, Medicaid paid a part of the bills last year for
about 16 million of the many more people who were eligible. No one can put
a cash value on the lives that have been prolonged and the suffering saved
as a result. But there is no denying that by pouring money into the
medical system on a cost reimbursement basis, Medicare and Medicaid set
off a wild inflation in costs.
The rise, however, had begun long before Medicare was enacted. The rapid
spread of health insurance, both with commercial companies and with Blue
Cross/Blue Shield, had been triggering an inflationary effect since the
middle 1950s. Private insurance policies worked on a cost reimbursement
basis, like Medicare, and far from having any deflationary control over
medical practice, often encouraged EXPENSIVE treatment. Many policies, for
example, would pay for certain kinds of treatment only in a hospital, a
proviso that naturally encouraged needless hospitalization.
Secondly, the acceleration of Medicare-induced inflation coincided with
the general inflation of the late 1960s. Half of the inflation of medical
costs, Wilbur Cohen believes, is due to the general inflation, which in
turn he blames on the Vietnam War.
In any case, a flood of new money--Medicare and Medicaid are now paying
for well over a third of all health care--was poured into the system at a
moment when medical costs had been rising more quickly than most other
costs. No serious attempt was made either to increase the number of
providers or to hold down costs by imposing controls. The result was
predictable.
The inflationary effect worked differently in the two cases of doctors'
fees and hospital bills. In the case of physicians' fees, what happened
was what economists call a "demand-pull" inflation. Since the supply of
doctors remained virtually stable, greatly increased demand meant that
doctors could increase their fees (sometimes directly sometimes by
splitting procedures and thereby charging more for what would have been
one appointment) and still be sure of the same volume of patients.
Some have argued that hospital costs too, rose mainly in response to
demand-pull, as an army of new users descended on overstressed resources.
The argument is attractive to hospital administrators because, if
accepted, its logical corollary is that even more money should be spent on
hospitals--something administrators approve of for various reasons. But
while admissions to hospitals rose by 21 percent over the period from 1961
to 1969, the supply of hospital beds rose even faster, by 25 percent.
Medicare and Medicaid did indeed drive hospital costs up, but not by
stimulating an excess of demand over supply. In the hospitals, there was
cost-push inflation.
In October, 1968, two economists, Paul S. Feldstein and Saul Waldman,
correctly summarized what had happened in the Social Security Bulletin:
"In Medicare's first year, the financial position of the hospitals
improved considerably, possibly as the result of the following factors:
(a) increases in occupancy rates;
(b) reimbursement to hospitals for the cost of services to some aged
patients, previously provided free or at reduced charges;
(c) reduction of losses from uncollectibles...
(d) payment to voluntary and government hospitals under Medicare of an
allowance amounting to 2% of allowable costs...
(e) receipt of additional revenue from higher charges."
Why did charges go up? Feldstein and Waldman offered two alternative
explanations:
"1. Hospital management may have miscalculated the effect of Medicare and
believed higher charges to non-Medicare patients would be needed because
it expected less than adequate reimbursement under Medicare.
2. Hospital management may have decided that the early Medicare period,
which was a period of unusual change in hospital finances and accounting,
was a convenient time to adjust their charge
schedules." [They also added a third point: some large hospitals remained
in deficit even after increasing charges].
That is a gentle way of putting it. Bill Fullerton, in Wilbur Mills's
office, spelled it out more bluntly. "After Medicare," he told me, "the
hospitals got paid more than before: they got full cost. And that meant
that, despite all their protestations to the contrary, for the first time
they were really making money. I talk to plenty of hospital
administrators, and they say, 'I have a little list of things I want to do
for the hospital. When Medicare came along, I could start checking them
off.'"
John de Lury put it even less kindly, and still accurately:
"The hospitals with the high patient costs are the newer ones, those
on the make, with brilliant reputations, with teaching affiliations. Above
all they are the ones with programs of vast expansion and edifice
complexes. Their rates are high to support their vast ambitions, and they
are making us pay through the nose."
The strategic accommodation accepted by the Johnson Administration in
1965, in order to pass Medicare, was with the hospital people: with the
American Hospital Association and with Blue Cross. (In most American
cities, hospital trustees, senior medical staff, and Blue Cross boards are
so intertwined that it can truthfully be said the deal was made with a
single interest: "the hospital people") Two main concessions were made.
Medicare was to be financed by reimbursing costs. And the hospitals were
to be allowed to choose their own "fiscal intermediaries" to check, audit,
and authorize disbursement. Some chose private insurance companies. More
chose Blue Cross. Given the coinciding interests, attitudes, and personal
contacts of many hospital administrators and of the Blue Cross people who
were supposed to be riding herd on them, it is not too harsh to say that
"the hospital people" were given their own ticket to write.
They could, and did, expand their buildings, take on new staff, invest in
fancy electronic equipment, make generous settlements with the unions--and
could be paid whatever the bill came to by the feds, just as long as the
friendly fellows at Blue Cross or at the insurance company said it was OK.
The result was a bonanza not only for doctors and hospitals but for
insurers, electronic data processors, surgical dressing manufacturers,
drug companies, and all the other interests which feed at the $70-billion
trough of the medical-industrial complex. It was no accident that in the
years immediately following passage of Medicare, the hottest of the hot
stocks on Wall Street were those of profit-making nursing homes for old
people. The promoter of the hottest of them all, the tactfully named Four
Season Nursing Centers, has just pleaded guilty to the biggest stock fraud
in American history: $200 million.
What made the Medicare bonanza so attractive was this no-loss proposition:
the federal government was footing the bill, and the providers were adding
it up. As two Tufts Medical School professors wrote in 1970: "Medicare has
proved a better mechanism for insuring the providers than the patients."
Government audits have tightened up recently, and have shown how
inadequate both sections of the insurance industry, the profit-making
companies and Blue Cross/Blue Shield, proved at controlling costs.
Massachusetts Blue Cross, for example, was given a 15 percent increase in
premiums by the regulatory authority on December 1, 1970, and then filed
for a further 33 percent increase on May 10, 1971. In the previous two
years, modest investigation revealed the executive payroll had almost
doubled. Blue Cross of Chicago was criticized by HEW auditors for using
Medicare money to pay for first-class air travel and entertainment for its
executives. And so it went in the commercial companies, too. In certain
cases, federal auditors found that insurance companies acting as fiscal
intermediaries programmed their computers to omit from cost-control
checking procedures hospitals in which the companies had invested.
Two particularly baroque tales illustrate just how free and easy the
spending was: the episode of the monogrammed golf balls, and the
rags-to-riches saga of the Medicare Billionaire.
In Virginia, Blue Cross was named as the "intermediary" for Medicare, Part
A (hospital services), and Blue Shield was the ''fiscal agent" on behalf
of the state for Medicaid. They were charged by the law with deciding
which "providers"--mainly hospitals in this case--should be paid how much;
on a "reasonable cost basis." They were then to receive, disburse, and
account for the money, and apply safeguards against "unnecessary
utilization of services." The government auditors' report suggests that
this hardly turned out to be the main problem.
The "Virginia Blues" took on staff until the federal auditors found, two
years later, that staffing was "about 23% in excess of requirements." They
bought two big IBM machines, so that while the workload increased by 22.3
percent, money spent on data-processing jumped 1409.8 percent. Yet, the
auditors found, the system remained "basically ineffective." Other
expenditures seemed even harder to justify. Soon after getting the
Medicare contract, the Virginia Blues built a new office building, and
spent more than a million dollars on new furniture for it...from the
furniture company whose sales manager was chairman of the state Blue Cross
board of trustees' building committee. He did not, however, let that
position influence him into giving Blue Cross undue bargains. With no
competitive bidding, Blue Cross paid $1750 each for secretaries' desks.
Medicare was also billed for at least part of the cost of entertainment
for Blue Cross executives and their "clients"--it would be interesting to
know whether "clients" means insurees or doctors--including "cocktails,
beer, wine, alcoholic beverages, tickets for stage plays and football
games and golf fees." A portion of the cost of a company picnic was
charged to Medicare, including 1050 buffet dinners, two bartenders, bingo
prizes, and the rental of six ponies.
The Social Security Administration's auditors commented (dryly) that
"since alcoholic beverages are not considered stimulants of production and
do not help to disseminate technical information, they cannot be
considered allowable costs to the Medicare program."
Finally there were the golf balls. Medicare was charged with one-third of
$2138.50 paid for thirteen dozen golf balls imprinted with the Blue
Cross/Blue Shield monogram. Teachers and social workers are not the only
ones who sometimes benefit more from programs intended to help the poor
than the poor themselves do.
Shortly after his first inauguration, President Nixon announced the names
of a select group of trustees for the Nixon Foundation. Most of them were
either well known to be old friends of the new President, or at least
heavy campaign contributors. More than one owed a good deal to the
medical-industrial complex; W. Clement Stone, for example, or Elmer Bobst
the Vitamin King. But one name was then quite obscure: that of H. Ross
Perot.
By the end of 1969, after his elevation to the board of the Nixon
Foundation, H. Ross Perot had become a world celebrity by chartering two
jets (one of them modestly christened "Peace on Earth") and flying off to
Southeast Asia in a well publicized attempt to ransom American POW's. By
1970, with stock of the Electronic Data Systems Corporation, which he
controlled, selling at over $150 a share on the New York Stock Exchange,
Perot's personal wealth was authoritatively estimated at $1.5 billion. No
American, Fortune magazine guessed admiringly, had ever made so much money
so quickly. But then neither Henry Ford nor John D. Rockefeller, nor even
Paul Getty, had had federal Medicare funds to help him.
Perot, at one time an IBM software salesman made his big leap in 1965 when
Texas Blue Cross and Blue Shield subcontracted the data-processing work
arising under their Medicare contract to the company he had founded in
1962, the Electronic Data Systems Corporation (EDS). Perot was at that
time, and remained for almost a year afterwards, a part-time employee of
Texas Blue Cross; he was manager of their data
processing department at a salary of $20,000 a year. Until then, EDS had
been small beer. Its turnover had never exceeded $500,000 a year. The Blue
Cross contract was worth $5 million; the contract ran for three years,
even though Blue Cross's contract with the government, on which it
depended, was for only one year. There was no competitive bidding, and
while the contract between the Social Security Administration and the
Texas Blues had a provision for the examination of records, the contract
between Blue Cross and EDS did not. To get ready to handle this tempting
contract, EDS had enjoyed a vital helping hand: a loan of $8 million from
the Republic National Bank of Dallas, whose chief executive officer was
the chairman of Blue Cross.
Once into Medicare and Medicaid work, Perot and EDS never had to look
back. The corporation's gross revenue rose from $1.6 million in 1966 to
$47.6 million in 1970. The rate of profit on that revenue rose from 15
percent in 1966 to 41 percent in 1969, and then fell back to a mere 29
percent in 1970. By 1971, EDS was doing the electronic data-processing
work for Medicare in nine states, including four out of the biggest five.
Two-thirds of its gross revenues have come from Medicare and Medicaid. EDS
stoutly maintains that it has processed Medicare and Medicaid claims more
cheaply than they would otherwise have been processed, and this may be
true. In any case, on its own showing, EDS made profits of up to 41
percent on turnover, two-thirds of which came straight out of public funds
which were supposed to be disbursed on a "reasonable cost basis." In other
words, in a perfectly legal manner, and in less than five years, Ross
Perot was able to make himself a very wealthy man in a way that would be
regarded in many other countries as incredible: by owning stock in a
company that helped other private organizations decide whether the
government should or should not pay out public funds for the medical care
of the old and the poor.
In an atmosphere where such things were possible, it was probably
inevitable that attention should turn from the mechanics of the health
care system to its ethics. While the escalation of costs forced even
conservatives to concede that the system faced crisis, liberals--who had
largely confined themselves to quantitative and economic issues in the
past--began to make more searching criticisms.
"The cost question turned the spotlight on the other deficiencies of the
system," said Karl Yordy of the National Institute of Medicine. "It was
not only the increase in costs produced by the fact that Medicare was on a
cost-reimbursing basis," thinks Dr. Jack Geiger, the head of the State
University of New York's new medical school at Stony Brook, "it was the
rise in costs, plus the failure to deliver health care, that revealed the
inadequacies of the system. The push for a reassessment of the system came
from the fact that the cost of health care, and the difficulty of finding
primary sources of health care, were beginning to hit the white middle
class."
Whatever the reason, four new, interrelated lines of criticism began to be
heard in the late 1960s with increasing force. Each probed more deeply
than the last into the substructure of assumptions that underlay the
American medical system.
* A new skepticism appeared about the value of technology in medicine; a
new willingness to question an equation that had been virtually
unchallenged for a generation; the assumption that good medical care means
advanced medical technology.
* Institutions, and in particular the dominant institution of modern
medicine in America, the hospital, became objects of increased
suspicion.
* The physician's professional authority began to be challenged as never
before.
* Ultimately, even the traditional ethics of medicine were called into
question on issues of social and political responsibility.
For over twenty years, from 1948 to 1968, Congress had been persuaded to
pour money steadily into medical research. Most politicians were aware
that "health" was an issue with their constituents. But once the AMA
seemed to block any reform of the health care delivery system, the only
politically prudent way of showing concern for the health issue was by
voting money for research. A formidable coalition pressed the good work
forward. It consisted of lobbyists, led by two indomitable ladies, Mary
Lasker and Florence Mahoney, and others less free from self-interest;
congressmen and senators, led by Representative John Fogarty of Rhode
Island and Senator Lister Hill of Alabama; and research administrators.
These lobbyists succeeded in increasing congressional appropriations for
medical research, channeled through the National Institutes of Health
(NIH), from $7 million in 1947 to over $1 billion twenty years later. In
sixteen out of those twenty years, Congress actually reversed its normal,
stern, budget-cutting inclinations of those years, and appropriated more
money than the Administration was asking for. [See Endnote 2]. Not
coincidentally, in the late 1950s and the early 1960s, the public began to
read more and more about the wonders of arcane medical technology: about
miracle drugs, and magic surgery and electronic aids to diagnosis, and
eventually about "space age medicine."
Dr. Jack Geiger was strategically situated to observe this phenomenon. He
had run OEO-funded health centers in Mississippi and Boston before heading
up SUNY's new medical school at Stony Brook. But before going to medical
school he had been a science reporter for UPI, where it was his job to
chronicle the marvels of the new medical technology. As a result of that
experience he is convinced that inflated propaganda during those years led
eventually to a backlash of skepticism about what technology could achieve
in medicine.
"There was endless publicity about the cure for cancer, the cure for heart
disease, and so on," Geiger said, putting audible quotation marks around
the word "cure." "People began to feel it was only a matter of time before
the brilliant, dedicated doctors discovered a cure for death."
He was hardly exaggerating. In 1961, President Kennedy was interviewed on
NBC's Today show by Dave Garroway, who asked him: "Will we eventually cure
everybody? Will the health of the nation approach perfection someday, by
care and research?" And it wasn't only gushing television interviewers who
seemed in the early 1960s to assume that research would "cure everybody"
someday. For Mary Lasker, Stephen Strickland has written, "the conquest of
disease was...an obtainable goal," while many senators thought that
conquest was "assured, if not imminent."
And yet, after twenty years of these unprecedentedly high expenditures on
research, American medicine, far from "curing everybody," was unable to
prevent public health standards from slipping behind those of many other
countries with far smaller resources. By the time the l970 United Nations
Demographic Yearbook was published, the United States was seventeenth in
the international league table in infant mortality, behind Hong Kong,
Western Samoa, and Fiji as well as most countries of Western Europe.
Twelve countries, plus two of the constituent republics of the Soviet
Union, the Ukraine and Byelorussia, claimed a higher life expectancy for
females, and another six came within one year of the U.S. figure of
seventy-four years; while in life expectancy for males, in spite of all
the money spent on research into cancer, heart disease, and stroke, the
United States ranked thirtieth, behind Spain, Greece, and five countries
in Communist Eastern Europe. [See Endnote 3].
A reaction against the prevailing faith in technology was to be expected,
and it came. Doctors and laymen began to wonder whether American medicine
was not placing too heavy an emphasis on drugs, surgery, and research, at
the expense of primary and preventive health care. Medical academics began
to show a new interest in foreign medical practice. The National Health
Service in Britain, once beyond the American pale because it was
"socialized medicine," has probably been more comprehensively studied in
the last five years by American than by British scholars. Scandinavian
public health has attracted almost as much attention.
These comparative studies came back with some disturbing information. One
study [See Endnote 4] found, for example, that twice as much surgery was
performed in proportion to population in the United States as in England
and Wales. This might have been taken as comforting proof of the
old-fashioned reluctance of British surgeons to operate--except for the
awkward fact that rates of surgery in American group health plans also
turned out to be half those reported for Blue Shield fee-for
service practice. In other words, those American surgeons who earn a fee
every time they operate perform twice as many operations as British
surgeons. And worse, When American surgeons had a financial incentive to
operate, they did so twice as often as when they had none. Another study
showed that the incidence of tonsillectomies in California was twice as
high as it was in Sweden, a country with outstandingly high standards of
health care for children. Numerous other studies, not on an international
comparative basis (a study of New York teamsters' and their families'
health, for example), supported the suggestion that a disturbingly high
proportion of elective surgery was unnecessarily performed.
Another trend fed the new skepticism: a galloping increase in
specialization within the health professions. "Virtually all the
attributes and the attending problems of modern American medicine," the
medical sociologist Rosemary Stevens wrote in 1970, "spring from the
gigantic technological achievements...which both precipitated and were
facilitated by functional specialization." The general practitioner was
becoming extinct. By 1970, there were twice as many men and women training
for a single surgical specialty--orthopedic surgery--as for general
practice. By 1968, 70 percent of all the physicians in the country claimed
to be specialists. A majority of doctors, perhaps, continued to equate
increased specialization with increased skill. And yet there was a growing
awareness that while specialization, like research, had undoubtedly raised
the standard of the best treatment--in the sense that sophisticated
diagnosis, medication, and surgery were available--progress in these
fields had failed to bring a commensurate improvement in standards of
overall care, in contrast to those of other countries.
In 1969, for only the second time in two decades, Congress slashed the NIH
budget. The cuts were a consequence of two unrelated events: the Vietnam
squeeze on domestic spending and stinging criticisms of NIH's financial
management by a House subcommittee headed by Representative L. H.
Fountain, Democrat of North Carolina. The cuts, while not very large,
signaled a change of mood. By the end of the 1960s, the prevailing
disposition in Congress, and among those in the general public who thought
about medical policy, was to concede that research remained important, but
to insist that improving the delivery and reducing the cost, of health
care must have priority over the litany of "cancer, heart disease and
stroke."
A similar sequence can be traced in attitudes toward the hospital as an
institution. Most of the high technology medicine is practiced in
hospitals, so that for a time they, and their fund-raising efforts,
benefited from the prestige of the new miracles that were being performed
in them. Moreover, with the proliferation of specialists, many thoughtful
analysts envisioned a greatly expanded role for hospitals as medical
centers, coordinating the diagnosis and treatment of both in-patients and
outpatients.
But by the end of the decade, attitudes toward hospitals were changing.
Too many people were being hospitalized, partly because of technological
trends, but even more because of the way insurance policies were being
written. The average cost of hospitalization increased by 75 percent
between 1966 and 1969.
Just at this moment, for largely professional reasons, a new wave of
liberal and radical medical academics (many of them students of "social
medicine," a new discipline for which universities and medical schools
were setting up departments during these very years) wanted to see the
hospitals' role diminished. "The principle of the hospital as the center
of care, including ambulatory care, is being challenged," wrote Dr. Jack
Geiger at about this time. "People shouldn't go to the hospital unless
they have to," said Dr. Victor Sidel of Montefiore in the Bronx. "Why
not?" I asked. "Because hospitals are dangerous places." He went on to
explain that hospitalization may serve as a depressant where patient
morale is concerned, and that the danger of infection persists in even the
best-run modern hospital.
Hospitals were also being assailed from without. They were being attacked
by poor people, especially poor black people, and by their radical allies,
black and white. The charge was that at best they were unresponsive to
community needs, and, at worst, arrogant and racist. The attack was made
at many levels: in sophisticated academic argument; as part of radical
confrontation tactics; and in the heat of spontaneous outbursts of anger
and despair.
In 1970, Barbara and John Ehrenreich, who had been associated with a group
of radical medical reformers called the Health Policy Advisory Center
(Health-PAC), distilled the radical critique into a forceful and
provocative book, The American Health Empire. Their thesis is one of
alluring simplicity. Liberals, they say, are always lamenting the lack of
system in the American health industry, or complaining that "the system
doesn't work." They are wrong, say the Ehrenreichs. There is indeed a
health system in America, and it works efficiently enough. The catch is
that its primary objective is not to provide good health care for the
American people. The FIRST priority of the system, say the Ehrenreichs, is
to make money; and this the health industry does in a highly efficient
manner, for doctors, drug manufacturers, insurance companies, and the rest
of the medical-industrial complex, including "nonprofit hospitals, which
take their profits in power, in salaries for administrators and medical
staff, and in real estate."
The second priority, the book goes on to argue, is research, which the
industry needs to make profits, and which requires the clinical data
provided by patients, especially in hospitals. The third priority is
training more doctors, to perpetuate the system. Here, too, a supply of
patients, preferably poor patients with "interesting" conditions, is
required. [See Endnote 5]. Some doctors will go on to do research Some
will teach. Most will make money, for themselves and for the medical
industrial complex. And, incidentally, they will have to provide health
care for the American people.
This cynical but compelling analysis is supported by a historical
interpretation. The Ehrenreichs argue that a three-stage revolution of
scale has occurred in American medicine, analogous to the development from
small business to corporation to giant multinational conglomerate. First,
the individual doctor in private practice began to give way to the
hospital: by 1969 less than 29 percent of the nation's health expenditures
went to individual doctors. Then, even before this process had run its
course, individual hospitals became dependent on the medical schools and
teaching hospitals. In the last twenty years, almost all hospitals and
health centers in New York, and a very large number of doctors in
practice, have come under the medical and organizational influence of
Columbia-Presbyterian, Einstein-Montefiore, and the city's five other
major teaching hospital complexes. The same process has occurred in
Baltimore, Philadelphia, Boston, Houston, Los Angeles, and other major
cities. The resulting networks of affiliated institutions the Ehrenreichs
call "health empires," and they argue that these empires have an
institutional compulsion to expand, in order to attract the talent and the
money--both from the federal government and from private foundations and
bequests--they need to stay on top.
Radicals like the Ehrenreichs generally argue that these newly emerging
giant medical institutions carry within them the seeds of their own
destruction. Almost all of them are located in the inner
city--Columbia-Presbyterian, for example, on the fringes of Harlem--where
the contrast between their wealth and privilege and conditions in the
surrounding community will inevitably lead to dialectical contradictions
and ultimately to conflict.
To a limited extent, the people of the ghettos began to verify this
prediction. However, just as in ghetto rioting between 1964 and 1968,
small, local businesses were attacked while major symbols of social and
economic power--like the General Motors building, an oasis in the flames
of Detroit--were left untouched, old, poor hospitals bore the brunt of the
trouble, not the rich, expanding medical complexes. Confrontations have
occurred between administrators and insurgents in several big
city hospitals: Lincoln Hospital in the Bronx, Cook County in Chicago, San
Francisco General, and D.C. General in Washington, for example. The
insurgents in each case were young, mainly white, middle-class radical
doctors; or community militants; or some combination of these.
The suspicion that, for all its technical achievement, American medicine
was falling away from both professional ethics and the concept of social
responsibility was not confined to radicals or to the young. Consider, for
example, the following harsh judgment on the quality of treatment
dispensed to recipients of Medicaid:
"The task force, along with what is possibly a majority in the health
profession and certainly a majority of the population interprets the
recent Federal enactments [those, that is, establishing Medicaid] as
intending that access to basic medical care shall be a right or
entitlement....That right or entitlement is not fulfilled when millions in
the population...are given a kind of service that is woefully inferior by
every standard known to man or doctor."
That statement is taken from no radical diatribe. It is a quotation from
the official report of a task force set up by the Nixon Administration to
study Medicaid, with staff support from HEW, and chaired by the president
of the Blue Cross Association of Chicago, Walter McNerney. In a paper
written in 1972, Dr. Victor Sidel summed up the anguished reassessment
that had been taking place in a thousand lectures, papers, and medical
conferences: "Everything that we have learned about how clever we are, how
important we are, how relevant we are, how trusted we are, how
self-sacrificing we are, will have to be re-examined."
Besides speeches, reports, and articles, the wave of dissatisfaction with
medical practice manifested itself in a variety of ways, on the part of
both doctors and their patients. Doctors demanded peer review of each
other's professional performance. Many medical experts argued for the
development of a paraprofessional class, to relieve doctors of some part
of their medical monopoly. Most significantly, malpractice suits against
doctors rose sharply, and courts increasingly had a tendency to find for
the plaintiffs, the patients.
Writing in the Spring, 1973, issue of The Public Interest, sociologist
Nathan Glazer discussed this last phenomenon and expressed a concern felt
by many Americans in the years of the great medical bonanza. He pointed
out that the incidence of malpractice suits in England or in Sweden had
not greatly increased, and asked
"why the best-paid doctors in the world--at least some of them--seem
to find it necessary to engage in barely legal or illegal practices in
order to force their incomes higher? Or is it indeed because they are the
best-paid doctors in the world that so many have engaged in profiteering
at the public expense?...Is it possible that the somewhat greater distance
between healing and monetary payment that generally prevails in England
and Sweden contributes to a morally healthier medical profession?"
In that same article, reviewing recent academic studies of the American
health system, Professor Glazer reports a "recent backlash of defense for
the American health system."
If, in the late 1960s, congressional faith in Unlimited research
expenditure wavered under the influence of a new concern with the human
problems of health care delivery, and a new skepticism about technology,
that skepticism was rather short
lived. The "dread disease lobby" soon reasserted itself. In January, 1971,
President Nixon proposed (with the support, incidentally, of Senator
Kennedy) to set up a new, separate National Cancer Institute. He advocated
it with the old can-do rhetoric about the need for the kind of effort
"that split the atom and took man to the moon." The rest of the medical
research community was strong enough to prevent this dismemberment of NIH.
But by the end of 1971, Congress enacted, and the President signed, a new
Cancer Act, authorizing $1.6 billion over three years for a new "assault"
on cancer. At the medical schools, the high tide of radicalism is said to
have crested.
Even before its attention was distracted and its energies paralyzed by
Watergate, the Administration had lost any sense of urgency about national
health insurance. Indeed it had all but abandoned its plans in their
original form. Before he left HEW on his way to the Justice Department via
the Pentagon, Elliot Richardson had his staff prepare what came to be
called the Mega proposal. This was a secret plan for comprehensive
"simplification and reform" of the more than 300 HEW categorical social
programs. In general, the plan followed the lines of the Administration's
general philosophy of revenue-sharing and "the New Federalism"--not to
mention its desire to cut back domestic spending.
The health section, which soon leaked out, proved of special interest. For
one thing, it contained a harshly explicit critique of the
Administration's own national health insurance proposals. "Many billions,"
it said, would be needed to convert these into a "true universal
entitlement plan with a comprehensive benefit plan." In its place, the
Mega paper suggested a new concept: Maximum Liability Health Insurance. In
effect this was a much liberalized version of the concept of "catastrophic
insurance." The government would provide cover from the "catastrophic" end
of the scale down to a maximum liability fixed for each individual
according to his income. Below that level he would be on his own, at
liberty either to pay his own bills or to insure himself in the market.
This scheme derived largely from the theories of Dr. Martin Feldstein, the
Harvard economist who worked as a consultant on the Mega proposal.
Feldstein has now spelled out the maximum liability concept under another
name ("major risk insurance," or MRI) in an article in the June, 1973,
issue of the AMA magazine, Prism.
"Every family would receive a comprehensive insurance policy with an
annual direct expense limit...scaled so that families with higher incomes
would be responsible for larger amounts of their medical bills...the
expense limit might start at $300 per year for a family with an income
below $3,000. It might be ten percent of the income of persons earning
between $3,000 and $10,000 and $1,000 for incomes above that level. MRI could be improved by introducing a
coinsurance feature above that basic deductible...."[See Endnote 6].
Feldstein argues that his scheme would not only prevent financial hardship
for individuals but would also save billions of dollars in public money,
both by removing the existing tax deductions for medical expenses (though
of course these could be removed in conjunction with any other reform) and
by making people "more cost conscious in spending their own money and this
in turn would help to check inflation."
Feldstein is an economist, but his analysis seems almost oblivious to
noneconomic factors. In one of his papers, he attributes rising costs
primarily to rising demand on the part of patients, brushing aside the
degree to which it is doctors, and not patients, who make the effective
decisions about the demand for treatment. He argues that the best way to
measure the benefits of hospital care is in dollars! In short, he, and
others of his school, analyze the medical system as if it were a
marketplace like any other. They advocate "deductibles," "coinsurance,"
and other devices to make the patient spend his own money when he needs
medical care precisely because such devices help to turn medical decisions
into economic ones.
The revival of respect for essentially economic prescriptions for the
health care crisis was to be expected. But it marked the end of a period
in which economic problems caused a revaluation of the noneconomic
deficiencies of the medical system.
Both the shift to the left in the late 1960s and the subsequent reaction
can be explained by factors intrinsic to the health care system--up to a
point. There is, as I have tried to show, a great deal of evidence that
the way Medicare and Medicaid were introduced led to a rapid rise in
medical inflation, and that inflation led to reassessment, to a sense of
crisis, and to a change in the whole climate for reform of the system. The
reaction can also be explained in terms of developments within the world
of medicine. If rapidly rising costs led to a sense of crisis, then it can
hardly be irrelevant that inflation of health costs has slowed down. Harry
Schwartz, in his spirited 1972 book called The Case for American Medicine,
claims that "between August 1971 and August 1972, the medical price index
rose only 2.2%, substantially less than the cost of living rose in the
same period." Checking with other health economists, I found that there is
some dispute about the extent to which government policy from Phase I to
Phase IV braked the inflation of medical costs, but it is not disputed
that the sharp rise of the late 1960s is now over. Indeed, to the extent
that the sharp inflation was caused by fee increases that would not be
repeated for some time to come, it would be odd if the rate of inflation
had not slackened off. And again, to the extent that the rise in costs
created a new propensity to ask fundamental questions about the system,
the passing of the wave in medical costs would naturally be expected to
presage some calming of the clamor for reform.
But I suspect that something larger is also involved. The striking thing
is how closely the changes in political and intellectual attitudes to the
health care system have mirrored the changes in other areas of American
life.
A parallel from the history of higher education may illustrate what I
mean. In August, 1967, Christopher Jencks and David Riesman finished
writing a book about American universities, which they called The Academic
Revolution. In January, 1969, they sat down to write a preface to the
second edition. In the intervening seventeen months, all hell had broken
loose on American campuses. The "revolution" of their title, to the extent
that it was more than merely metaphorical, had been a slow, gradual
affair, transforming universities over a couple of decades. Now, to the
embarrassment of Jencks and Riesman, people were rushing out to buy their
book in the hope of getting some understanding of what looked like an
all-too
literal academic revolution.
This experience set Jencks and Riesman to measuring, in their second
preface, the sheer speed of change in American attitudes to higher
education since they had started studying it at the end of the l950s.
Then, they recalled,
"both educators and laymen seemed appallingly complacent about
American higher education...the only widespread complaints about higher
education were that Americans needed more of it...Almost all educators
accepted the legitimacy and authority of the academic profession a few
years ago, even when they criticized specific aspects of its operation.
Today all this has changed...the public is becoming more skeptical about
educators' claims...educators are far less sure than they were that their
traditions and values are worth defending...a small but growing minority
seems convinced that the academic system...is not just blemished but
fundamentally rotten."
Change only a few words--"educators" into "doctors," "academic" into
Medical," and so on--and this could stand as a summary of what happened in
American medicine in the late 1960s. It was as true of American medicine
as of higher education in the 1950s and the early 1960s--probably more
true--that "the only widespread complaints were that Americans needed more
of it."
The crisis of confidence of the late 1960s, in short, seems to have
followed the same course in the universities as it did in medicine, and in
fact as it did in the life of other social institutions as well. Doubt,
criticism, crisis, radical challenges to old assumptions and established
structures of authority and a willingness even on the part of
conservatives to move out of entrenched positions and accept a surprising
degree of change: these were the characteristics of the years from l966 to
l970. Then the old assumptions, the defenders of the status quo and the
doubts about the doubts began to have their turn once again.
The reasons for this pattern, I am suggesting, lie only partly inside the
medical system itself, in the consequences of Medicare, or in the
operation of demand-pull and cost-push. For, much as some of its leaders
would like it to, the medical system does not in the end operate in
isolation from the general mood of American life. In the most specific
ways, medical institutions, like other institutions, felt the impact not
only of liberal reform but also of the Vietnam War, of inflation, the
civil rights movement, feminism, student dissent, and ghetto anger. It
also felt the reaction to the great national crisis of the 1960s: the
disillusionment with rising federal budgets, the impatience of the white
middle class with strident radicalism, the counterattack of organized
interest groups, and the stubbornness with which conservative
intellectuals have patched up intellectual defenses of the free enterprise
status quo.
Yet most of the things that were wrong with American medicine when
President Nixon thought the system faced imminent breakdown are wrong with
it now. Americans still spend far more on their health than people
anywhere else in the world, and live shorter lives than do the inhabitants
of many of the countries Americans' ancestors emigrated from in the
nineteenth century.
What are the prospects for change at this time? The initiative for health
care reform having passed to Congress, the eventual shape of national
health insurance will emerge from the tete-a-tetes between Senator Kennedy
and Chairman Mills. Even if they do succeed in drafting a bill by the
fall, it will have to wait in line behind both tax and trade legislation
in what have become overcrowded sea-lanes leading to the Ways and Means
Committee. Even if legislation is drafted late this year, it is realistic
to guess that it would not become law before, say, 1977. Perhaps five
years have been lost.
This is not the result of any obstructionist desire on the part of Wilbur
Mills. The chairman may be an old gray fox, a pragmatist who keeps his
cards up against his chest until he plays them. But he is also a positive
man, a master craftsman of consensus. He personally wants to pass a
historic--which means a substantial-
national health insurance bill before he retires. He has steered thousands
of pieces of legislation through Congress. But Medicare was to have been
his monument. He sees that monument as slightly tarnished, by inflation
and by the suggestion of incompleteness. National health insurance would
be a fitting crown for one of the great congressional careers.
Mills does not think such a bill can be passed unless it includes a
role--some role, however limited--for the insurance industry. On the other
great issue, the method of financing, the evidence is that neither Kennedy
nor Mills has yet committed himself. And there are good reasons why they
should not commit themselves yet. The deficit is so high that it would be
hard to finance a major measure through the budget. Social Security is so
high that it would be hard to increase that for a while. And the
"mandated" employer-employee approach has several disadvantages--not least
that it belongs to the Republicans. No wonder many experts are turning
toward some gradualist approach to national health insurance. They want to
crawl up to it unobserved, and wave the flag only when there is a victory
to announce.
One such gradualist tactic would start with the catastrophic approach and
transform it bit by bit. If the Long bill took effect, not at $2000 and
sixty days, but at $100 and a week, we would wake up one morning to find
that Congress had amended it into national health insurance. In theory,
Martin Feldstein's idea of starting at the top and working down could be
extended piecemeal even more effectively. A third approach, which both
Mills's and Kennedy's staff have examined, would be to start with mothers
and children--for example, with federal coverage of prenatal care,
delivery, and postnatal care up to the age of five. That would have
numerous advantages. Good health care in the first five years of life is
cheap--it need cost no more than $5-7 billion a year, Dr. Rashi Fein
calculates. It also reduces the need for more expensive care later in
life. And motherhood is notoriously hard to oppose politically.
Senator Kennedy admits the attraction of such gradualist ideas. But for
him they all suffer from the same philosophic weakness. They give the
government no leverage to reform the health care system as a whole and
they therefore risk repeating the experience of Medicare. His personal
preference is for Social Security as a method of financing, and for an
interesting reason. His thinking goes back to what was perhaps the most
important single cause of the mood of reaction we have been witnessing
recently: the feeling on the part of many middle-class people that they
were left out by the liberal reforms of the 1960s. Again, it is worth
noticing that the argument is in no way specific to the medical field; it
applies to social policy as a whole. Kennedy told me:
"I think there's one lesson we learned in the 1960s and that is that
programs which are directed toward alleviating social needs ought to be
targeted in a universal way. What is the most successful social program we
have in this country? Social Security. And why? Because it's universal. A
policeman in Boston, for example, isn't going to be against a particular
program that helps the blacks, so long as he's being helped too. Once he
feels the pressures on him are being taken care of, I think he's
enormously tolerant of doing something for the disadvantaged--so long as
he feels that things are moving along for him too."
That is the language of consensus politics. It is, interestingly,
identical with the view of Irving Kristol, who, through his editorship of
the journal The Public Interest and friendship with Ambassador Daniel
Patrick Moynihan, had a considerable influence on the social policies of
the first Nixon Administration. And it may well be true that it will take
a return to consensus politics, on Capitol Hill and perhaps in the White
House too, if the Democrats can recapture it, before a major national
health insurance measure is passed.
But the important weakness in the American health care system which the
crisis of the late 1960s revealed was not the organizational and financial
crisis which a cautious, compromise brand of national health insurance
would deal with. It was the entrepreneurial concept of the doctor's social
role, the intimate relationship, in Nathan Glazer's formulation between
healing and monetary reward, which has prevented a real, indeed a
brilliant, improvement in medical technique from being translated into
commensurate improvement in medical care. Cleansed of the entrepreneurial
temptations which the Administration's interpretation has allowed, the
Health Maintenance Organization could develop into the key institution in
a transformation of the economic structure of medicine which would
diminish the conflict between the doctor's and the patient's interests.
Probably the best hope of spreading the HMO system would be by linking it
with a national health insurance system; and there are certainly ways in
which this could be done. But it is clear that in the crisis of the 1960s
an opportunity for reforming one of the least attractive aspects of
American life arrived, and was lost.
ENDNOTES:
1. For example, Dr. Martin Feldstein,
in The Rising Cost of Hospital Care,
National Center for Health Services Research and Development, 1971.
2. The operation of the medical research lobby was analyzed by
Elizabeth Drew in The Atlantic of December, 1967. Mrs. Drew
pointed out that cancer, heart disease, and stroke,
which received the lion's share of congressional attention,
happen to be the major medical threats to elderly, middle-class males,
the demographic category to which all the key congressional figures belonged.
The story has also been well told in detail by Stephen P.
Strickland in Politics, Science and Dread Disease (Harvard
University Press, 1972).
3. These international rankings are not absolutely precise,
for two reasons. National statistics do not all date from
the same year. And not all territories included in the U.N.
data are sovereign nations. I have, for example, excluded
Northern Ireland and the Ukraine (both of which have higher
life expectancy than the United States). Interestingly,
two U.S. dependencies, Puerto Rico and the Ryuku Islands,
also have higher male life expectancy than the United States.
4. By Dr. John Bunker, New England Journal of Medicine, 1970.
5. The revelation in 1972 that a federally sponsored research project
in Tuskegee, Alabama, had been paying black syphilis patients to forgo
treatment in the interests of research illustrated how far medical
researchers were prepared to go. It also stimulated debate among civil
libertarians and on Capitol Hill about defining new canons of research
ethics.
6. The Rising Cost of Hospital Care, National Center for Health
Services Research and Development, in 1971. Feldstein complains
that "the role of increasing demand as the primary cause" of
cost increases "is not generally understood," in spite of the
fact that he has taken the trouble to demonstrate it with "a
formal mathematical model." Yet at times he seems a little confused
on this point himself: he concludes his paper by saying that "our
current methods of hospital insurance have encouraged hospitals...
to increase the sophistication and expensiveness of their product
more rapidly than the public actually wants." The trouble, in fact,
has come from a special type of "demand," usually known to those
unfamiliar with Feldstein's formal mathematical model as
"supply."
Copyright © 1973, Godfrey Hodgson. All rights
reserved.
The Atlantic Monthly, October, 1973, issue.
Volume 232, Number 4 (pages 45-61).
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