A Short History of Health Care in America

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

2. “Who knew healthcare was this complicated?” Photo: http://www.politico.com/story/2017/02/trump-nobody-knew-that-health-care-could-be-so-complicated-235436

3. Some Disasters are Natural…

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

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

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

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

8. Unique American Culture

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

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

11. Emergence of a Powerful Medical Profession

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

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

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

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

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

17. Standardization of Training RESULTS As REPORTCARD 82 Bs “Imperfect, but redeemable” 46 Cs “Beyond repair” 32 • John’s Hopkins opened in 1893. It had a 4-year program • AMA makes educational reform a top priority • 1904 Council on Medical Education • 1906 inventory and grade medical school

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

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

20. Central Function of a Hospital

21. Transformation of Hospitals Past Modern Johns Hopkins

22. How many hospitals in US?

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

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

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

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

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

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

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

30. Escape from Corporatization

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

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

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

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

35. Evolution of AmericanHealth Insurance

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

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

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

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

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

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

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

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

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

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

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

47. Cost Crisis

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

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

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