Janus, the Roman god of doorways, reminds us of the importance to see the past and look toward the future.
The statues and pictures of Janus portray him as having eyes, a nose, and a mouth on both the front and back of his head. The rationale for this unique portrayal is to show that a doorway is simultaneously both an entrance and exit. As Janus stands in the doorway -- the present -- he can look forward and backward at the same time.
The month of January is named for Janus, as it indicates the end of the old year and the beginning of a fresh new one. Just like Janus, we too can learn from where we’ve been while keeping our eyes focused on where we are going.
Looking Back
Between 1830 and 1910, a situation closely resembling a free-market system existed in the U.S. It was a time when the medical profession was unlicensed. Medical schools were privately owned and operated and admission was easy to gain. With admission to medical schools readily available, large numbers of men entered the profession.
During this period, American companies pioneered the contracting of medical services even before the beginning of the 20th Century. This innovation came from industries such as railroad and lumber, whose operations often took place in isolated areas, and for whose employees medical care would otherwise be unavailable. Some companies went so far as to build and operate their own hospitals, and staffed those hospitals with physicians who were paid out of the company payroll. By the early 1900s, contract medicine was commonplace in the United States, and was conducted by many kinds of organizations – not only by companies (both large and small), but also by multitudes of fraternal orders and lodges, which began offering subscription medical services to their members. Soon the federal and local governments were also contracting for physician services on behalf of their employees, prisoners and wards of the state.
It is interesting to note that such “modern” ideas as capitation (the providing of medical care for a fixed annual fee) and the corporate practice of medicine (medical practices controlled by companies, not by doctors) are actually much older than we might think. It should not be surprising that organized medicine was not crazy about any of these developments. The lack of credentialing and contract health care even back then was less then warmly received. This type of health care placed too much control into the hands of third-party payers. Where have we heard that before?
The AMA was formed in 1847 with two goals in mind: doctors should receive a suitable education, and there should be standards for the requirements of earning the degree of MD. Well, that was part of the reason. The main goal was to build a government-enforced monopoly for the purpose of increasing their stature and increasing their income.
It was a difficult time for the profession. They sought to achieve the stature of an actor or star athlete. Unfortunately, their reputation suffered given their proficiency for killing their patients through such crude practices as bloodletting and injections of mercury. Their income was declining due to competition from homeopaths, pharmacists, midwives, nurses and, later, chiropractors. Most Americans were interested in non-orthodox treatments and believed they should be allowed to compete in the marketplace. Organized medicine claimed people were being fooled.
To increase income and gain stature with the public, the AMA developed a two pronged plan. First they planned to use the power of the State governments to limit the practices of their competitors. Second they wanted to restrict entrance to the profession by limiting the number of approved medical schools, thus reducing the number of students graduating.
The AMA created its Council on Medical Education in 1904. The goal of the Council was to shut down half of all the medical schools in existence. Within six years, the Council, including its secretary, N.P. Colwell, managed to close down 35 medical schools. It became apparent to many that what was going on appeared to be a conflict of interest.
“The curse of medical education is the excessive number of schools.”
-- Abraham Flexner, 1910
Founded by Andrew Carnegie in 1905 and chartered in 1906 by an act of Congress, The Carnegie Foundation for the Advancement of Teaching has a long and distinguished history. It is an independent policy and research center whose primary activities of research and writing have resulted in published reports on every level of education. Eight presidents have guided the Foundation through its history. The foundation was just what the doctor ordered.
Abraham Flexner realized that he was too old and little-known to secure a prominent professorial post. But, wanting a role in influencing education, he decided to write a book that would highlight his views on collegiate education. So in 1908 he joined the research staff of the Carnegie Foundation for the Advancement of Teaching and in 1910 wrote a report, “Medical Education in the United States and Canada,” which is generally called the Flexner Report. It hastened much-needed reforms in the standards, organization and curricula of American medical schools. Henry Pritchett, president of the Carnegie Foundation, tapped Flexner for what is known as one of the strangest appointments in education history.
With no experience in educational surveys, little-known around the country, little knowledge of medicine and only one weakly-received book to his name, Flexner was hired by Pritchett to examine the state of medical education throughout the United States and make recommendations for its possible reorganization. The study would be supported by one of the newest players in American education, the philanthropic foundation.
In 1909 Flexner began his trek around the U.S. In eight months, or approximately 240 days, Flexner had to make 157 site visits to geographically dispersed schools. Abraham Flexner was accompanied on his inspection by the AMA's N.P. Colwell, who took care to make sure that the new report would mirror the AMA's 1906 findings. Finally, Flexner spent a great of deal of time at AMA's Chicago headquarters preparing his report. In numbers, medical schools went from a high of 166 around the time of Flexner to just 77 by the 1940s -- a 54% reduction. The ultimate effect of the report was to keep the number of doctors per 100,000 people in the U.S. by 1963 -- 143 -- at the same level it was at in 1910.
Hospitals were being transformed as well, especially for-profit institutions. In areas where they weren’t outlawed, there were roadblocks, especially regulatory burdens not faced by the non-profits. These advantages took the form of exempt status from income and property taxes. Non-profits received government subsidies and tax-deductible charitable contributions. All of these advantages took their toll on for-profit hospitals. At the time of the Flexner Report, almost 60% of hospitals were for-profit. By 1968, only 11% of hospitals were for-profit institutions, and they accounted for only 8% of hospital admissions.
There are those that believe that non-profit hospitals were a better fit. You see, for-profit hospitals in those days were controlled by owners and shareholders who only cared about one thing: efficiency in the delivery of services to help maximize profits. It was felt that non-profit hospitals were more apt to fund more expensive medicine. It should also be noted that the directors of non-profits were very often the high-profile doctors in the area, thereby being in the position to make policy. A very common policy of the time was to fund medical schools and limit entrance to the profession, thereby keeping incomes for those in the profession elevated.
By the time the 1920s came around, contract medicine was history. The medical profession had successfully created a “guild” in the classic sense. Physicians had created a monopoly, successfully squashing competition and preventing outsiders from having anything to say about how medicine was practiced.
It was mentioned earlier how the timber industry was among the first to bring medicine to its employees through contract medicine and fee for service. These medical claims were closely scrutinized by adjusters and hospital stays were closely monitored. A group of physicians in Oregon didn’t particularly like the scrutiny so they began their own fee-for-service plan. It was very successful and pretty soon other plans of the same design sprung up throughout Oregon. In 1939 these plans came to be known as Blue Shield. But I am running ahead myself.
By the 1920s the medical profession had largely vanquished contract medicine and created a guild. The physicians helped to make the regulations and set the standards for their trade. They controlled their competition and established a monopoly over their realm.
Most economists would agree that an ideal health system is one in which the patient pays directly for his health care. The patient freely chooses his physician and, together with the physician, medical decisions are made, always mindful that the costs are theirs to pay. Therefore, cost controls are automatic. During the 20s this was the system that was in existence. What also made it an ideal time was that doctors had very little to offer in terms of expensive treatments. Patients’ expectations were also very low, so rarely was anyone disappointed.
In 1929 Justin Ford Kimball, a former superintendent for the Dallas school system, became an administrator at Baylor Hospital. He found himself confronting some of the same problems he faced as an educator. Reviewing the ever growing accounts receivable, he recognized many of the names of Dallas school teachers.
He knew from experience that many of these low-paid teachers would never be able to pay their bills. He began the not for profit Baylor Plan, which allowed teachers to pay 50 cents a month into a fund that guaranteed up to 21 days of hospital care at Baylor Hospital. The Baylor Plan was the beginning of modern-day health insurance. The success of this plan caused many hospitals across the country to set up similar plans. In 1944 the Baylor Plan became known as Blue Cross Blue Shield of Texas.
Then came the 1930s. Problems began to occur when contracting between patients and their doctors ran into trouble during the Great Depression. Hospitals and doctors began to suffer when patients were unable to pay their bills. Even though the physicians objected, financially stressed hospitals prevailed on state legislators to legalize insurance schemes know as Blue Cross. The physicians were able to have the Blues created as a non-profit, provider-oriented insurance organization.
“Provider-oriented” meant Blue Cross did not try to tell physicians how to practice medicine. Physicians would be free to practice as they saw fit and the Blues would just pay the bills on a fee-for-service basis. Most important, the boards of the local Blue Cross organizations were made up of prominent local physicians and hospital administrators.
This system preserved the patient-physician relationship and paid the bills more reliably than patients themselves. Soon physicians were for the formation of insurance companies as long as they followed the same general guidelines set by the Blues.
Then the '40s arrived. Unemployment during the war years reached a low of 1.2%. It was difficult to attract employees. To make matters worse, the government instituted wage and price controls. You could not use wages as a means of attracting new employees so businesses began to offer health insurance in lieu of higher wages. After the war, American labor unions began to demand that employers provide health insurance as a benefit of employment.
Then along came a major turning point in our story, one that has had and will have a profound effect on health insurance up to the present. The government liked the idea of business providing health insurance. In fact, they liked it so much, they changed the provisions of the tax law to make it attractive to offer these benefits. It’s very important to note that this new tax policy created a fundamental change in how health care was to be paid. In effect, it shifted a large chunk of the cost of health care to the taxpayer.
Before his death in 1945, Franklin Roosevelt came out in favor of universal health care. In November 1945, Harry Truman asked Congress to enact a national insurance program “to assure the right to adequate medical care and protection from the economic fears of sickness.”
Lobbying was nothing new back then and the AMA fired back with a brochure titled “The Voluntary Way is the American Way.” There were 50 questions answered about compulsory health insurance. The brochure was nothing short of mom and apple pie. On the cover was an eagle perched atop the American flag. Here are some of the questions included within:
Q. Who is for compulsory health insurance?
A. All who seriously believe in a Socialist State -- every left-wing organization in America…the Communist Party.
Q. Who is against it?
A. The American Legion, The Daughters of the American Revolution.
Q. Would socialized medicine lead to socialization of other phases of American life?
A. Lenin thought so. He declared socialized medicine is the keystone to the arch of the Socialist State.
You get the idea. Truman’s plan never saw the light of day. Oh, I forgot to mention the pamphlet was printed on pink paper!
The 1950s turned our attention to the Korean War. There were proposals made in Congress to pass legislation on health insurance, but none passed.
A key change took place in this decade regarding technology. Many more medications were made available to treat a full range of diseases, including infections, glaucoma and arthritis. New vaccines became available to prevent Polio and other childhood diseases. The first organ transplant was performed. The spread of health insurance from less then 10% of the population in 1940 reached 70% by 1955. The price of hospital care doubled.
In the 60s it became difficult, especially for the elderly, to afford health insurance. There were over 700 companies selling health insurance at this time. Then President Lyndon Johnson signed Medicare into law. This was the beginning of spiraling medical costs. A single-payer system had finally been introduced in America.
In the 1970s health care costs began to escalate rapidly. This was partially due to unexpectedly high Medicare expenditures. There were major changes in medicine, including the greater use of technology, medications and a more conservative approach to medicine which helped to extend hospital stays. American medicine was seen as in a crisis. President Nixon came out with a plan for national health care. It was soundly rejected by both the liberals and the labor unions. He did declare a “War on Cancer” and centralized research at the National Institutes of Health.
1973 did bring us the HMO Act, which provided funding for start-up managed care organizations. It attempted to reward physicians for cost-containment. The Act required employers with 25 or more employees to offer two federally qualified HMOs, in addition to fee-for-service health insurance coverage. Between 1977 and 1987, HMOs experienced a four-fold increase in membership, from 6.3 million to 29.3 million covered lives.
The 1980s were a time of rapid growth and profits. Corporations began to integrate the hospital system (previously a decentralized structure), enter many other health care-related businesses, and consolidate control. Overall, there was a shift toward privatization and corporatization of health care.
Under President Reagan, Medicare shifted to payment by Diagnostic Related Group (DRG) instead of by treatment. Private plans quickly followed suit.
There were growing complaints by insurance companies that the traditional fee-for-service method of payment to doctors was being exploited. "Capitation" payments to doctors were becoming more common. Enter the PPO.
The 1990s proved that it was possible for health care inflation to more then double the rate of inflation. Managed care helped to moderate the increases in health care costs, yet the Clinton Administration tried to pass legislation that would create a single-payer government system. The insurance lobby and a Republican Congress helped to defeat the plan. Still, by the end of the decade, there were nearly 44 million Americans, or 16% of the population, without health insurance.
You remember those doctors in Oregon? Well, their ancestors are still trying to change health care. The Oregon initiative, called “Health Care for All Oregonians” and embodied in a ballot proposition called Measure 23, promised “access to affordable quality health care for all.” This measure also went down to defeat but we are seeing initiatives in a number of states that are trying to pass a single-payer solution.
Well, that just about covers 170 years of the history of American health care. It is said by some that the most neglected men in history were Whistler’s father and Lord Godiva. Should we add Abraham Flexner to that list?
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