Health Mess

The Health Care Mess, Julius B. Richmond M.D., Rashi Fein, Ph.D., 2005

Broken Health Care

Here is a compact look at the U.S. health care mess, its history and prognosis. The book starts with the Flexner Report of 1910 which called for reform in the education and training of doctors. This report and supporting grants from the Rockefeller Foundation from 1910 to 1928 helped to establish better and standardized curriculum for training doctors and for accrediting educational institutions. An unintended consequence of the reform was a sharp reduction in the number of schools and the number of doctors trained dropped by almost one half.

Also coming into prominence early in the Twentieth Century was the American Medical Association (AMA) who from the beginning opposed health insurance for the public (1917 and 1947) and acted more like a guild than a health care advocate interested primarily in restricting membership and maximizing the income of doctors. From the beginning the AMA has remained a conservative, slow to change organization, out of step with the health care needs of the nation.

In 1937, a “Committee of 430″ concerned Physicians issued a statement indicating that national public health requires the participation of government. The committee was attacked including personal harassment of individual members by the AMA.

During the depression and WWII, national priorities were elsewhere and doctors incomes were held down by outside events. After the war, the trend toward specialization of training and initiatives to attack certain problems such as the National Heart Institute and National Cancer Institute among others gained momentum. It was now politically possible to funnel government research grants to research universities and institutes. The Natinal Institute of Health (NIH), using a carefully selected board to select among grant applications moved research dollars freely into medical schools and universities, $1.5 billion per year by 1965. The AMA was fairly neutral about this activity.

The Great Depression hit hospitals hard as the public could no longer afford visits. In 1929 a hospital in Dallas came up with the idea of a prepaid group plan (PGP) . The plan was called prepaid to avoid insurance reserve requirements and was sold to entire groups such as employees of a company or teachers to minimize marketing and administrative costs. The idea spread quickly and the AMA threatened to blackball participating physicians, denying them appointments and key memberships. In 1943 the U.S. Supreme Court found the AMA guilty of restraint of trade and in violation of the anti trust act. By 1951, PGPs grew to cover 77 million Americans.

Ironically the very success of the PGPs was used by the AMA to help defeat Truman’s attempt to enact universal health coverage in 1947.

The large number of covered patients getting their primary health care at the hospital had the unintended consequence of requiring the building of ever increasing numbers of expensive hospitals. The research was at the same time resulting in the need to equip these hospitals with ever more and costlier technology. Thus the cost of providing PGP care was climbing fast.

But significant groups were left outside the PGPs. When LBJ won re-election in 1964 and the Democrats won control of both houses, the President pushed for a hospitalization plan to cover retired seniors, a politically powerful group already administered by Social Security. The AMA tried to defeat this plan by proposing an alternate limited plan to cover the very poor. To counter their move, the President and Congress expanded the Medicare Plan A hospitalization plan with an optional Plan B to partically cover physician and outpatient services and additionally created a Medicaid Plan to cover the poor. Both programs were enacted in 1965.

This AMA defeat has to stand as one of the biggest strategic backfires in the history of legislation. The AMAs lack of public concern and consequent isolation of physicians from the public health debate caused Medicare to be located within Social Security and Medicaid to be located in Welfare Administration rather than the more logical U.S. Public Health Service. Membership in AMA fell from 75% in 1975 to 29% in 2005. Along the way, the AMA was sued for breach of contract with Sunbeam over their “Health at Home” products and settled for $9.9 million and they dismissed the 17 year editor of their JAMA over a truthful scientific article the directors disagreed with. All this left the medical care community largely outside of national health care policy decision making. Today, doctors do not have a respected national organization able to represent their views effectively.

Alper Alper

The last major leglislative change in health care was passage of the 1973 Health Maintainance Organization (HMO) act, enabling private companies to build organizations modeled after California’s Kaiser Permanente PGP, although HMOs could contract with physicians and hospitals to provide their care and not own the whole health structure including the hospitals.

Debates over National Health Insurance (NHI) again surfaced in 1974 with Edward Kennedy and Nixon making competing proposals neither of which were passed. Carter tried again in the late 1970s and the Clintons in 1993. With Medicare and Medicaid already in place, the uncovered were largely wage earners not qualified for Medicaid. With this weak constituency, all NHI proprosals failed. The 1993 Clinton effort suffered from fatal problems; noone in Congress least of all Edward Kennedy was consulted nor was Jimmy Carter; Bill Clinton mandated no tax increase; 500 experts developed a plan of nightmare unworkable complexity; the Clintons unlike LBJ knew almost nothing about the workings of Congress. Their proposal didn’t make to the floor of either house of Congress and the Clintons forever abandoned the effort to reform health care.

Attempts were made to weaken Medicare by moving some subscribers to Medicare + Choice HMO programs. Participating HMOs cherry picked only healthy subscribers leaving sicker subscribers to traditional fee-for-service Medicare. With this program, Medicare found itself paying more per subscriber for traditional Medicare and also paying large sums to the HMOs. From 1999 to 2003 enrollment in + Choice HMOs dropped from 6.3 to 4.6 million subscribers. Medicare also limited inflationary increases in payments to HMOs to 2% at a time when costs were rising 12%. Most HMOs felt they needed to drop out. To save the program “reforms” were adopted in 2003 to greatly increase subsidies to HMOs under the program now renamed Medicare Advantage. The result of this meddling has been to drive the subscriber monthly and copayment cost of traditional pay-for-service through the roof. The Part B premium went from 66.60 in 2004 to 77.80 in 2005, an increase of 17.4%. the COLA cost of living adjustment for social security in 2004 was 2.1%. The monthly premium started at $3 in 1966 and remained under $10 until 1981. Premiums will become $93.50 in 2007, more than double the premium in 2000.
medicare advantage

From 1974 forward health care policy debate focused primarily on the runaway costs of health care that grew from 4.5% of GDP in 1945, to 5.7% of GDP in 1960, to 16% today and projected to reach 17% of GDP soon. Debates about NHI focused primarily on the cost controlling potential impact of the various suggested programs. Ironically, Medicare, Medicaid, and the HMOs, meant to control costs, seemed to drive costs ever higher. In an environment of deregulation (Airlines, Telecommunications) started under Carter, deregulation of health care seemed only to spiral costs (and profits) ever higher.

The HMO based system set up a “market” system that “destabilized” health care. In a traditional market system the buyer is the consumer. With HMOs, the buyer is the employer looking for the lowest cost system. The seller, the HMO, in turn, is not the producer. The producer is the physician or hospital. Lost in this equation somewhere is a patient seeking and receiving proper health care. Hence the destabilized market.

In 1985 3/4 of persons enrolled in health care plans were not-for-profit. By 1999 2/3 of persons enrolled were in for-profits. This change resulted in capital drying up for non-profits as for-profits showed potential to make real money. Again, lost in here somewhere is a sick patient looking for help.

Looking at statistical gains in health, the authors attribute 90% of improvements to a better informed public benefiting from research such as the landmark studies linking cigarette smoking to lung cancer. The improvements are largely due to changed behavior (better diet, more excercise, no smoking) on the part of an educated public. In other words, 16% of GDP buys us a 10% improvement in health care.


The book briefly discusses the mess that is malpractice. Modern profit driven HMO medicine gives patients little opportunity to get to know their doctors as caring individuals. This lack of relationship greatly increases the distrust between patient and doctor that can lead to misunderstandings and lawsuits. Doctors are forced to carry malpractive insurance although premiums very widely such as $10,000 a year for a surgeon in Minnesota and $175,000 for a surgeon in Florida. Lawyers specializing in malpractice instigate many suits knowing full well most will be dismissed. If they win before a jury, the damages can make all the failed cases worth while. Insurance companies may settle small cases out of court making the insured doctor look as if he/she is guilty of malpractise. The insurance policy gives them no say in the matter. Very few patients actually experiencing malpractise are compensated under the system. Small but real claims are lost in the system. Most bad doctors go unpunished largely because in an adversarial environment the doctors and hospitals stand together to fight off the lawyers and malpractise continues. The author’s don’t show a way out of this mess but seem to believe that there are reforms possible.

They also briefly discuss the trend toward private support and proprietary development within our universities and other research organizations. Proprietary products and trade secrets is a radical departure from the past when government sponsored research results was freely published and open to all. The authors believe this emphasis on secrets greatly detracts from the educational process and greatly devalues our important educational institutions. They laud the Internet for making research and medical education information universally and instantly available.

Their discussion of options is centered around key debate items. I have added my answers in parentheses.
1. Does the system require a comprehensive overhaul or can it be fixed in icrements? (comprehensive)
2. Do employers belong in the middle as buyers of health care on behalf of employees? ( no)
3. Do private insurance companies have a role providing universal health care? (no)
3b. Should the system support risk adjustment; that is different premiums for different subscribers depending on factors like general health, health history, and age? (no)
4. Should for-profit hospitals nursing homes and other facilities be converted to non-profit? (yes)
5. Should the system offers subscriber choices? The authors admit that offering choices noone understands like the Medicare drug benefit produces sham if not outright fraud. (probably not)


The authors recommend a single payer, universal coverage, non risk adjusted system. This is the only system simple enough to work and yet to cover everyone without discrimination. In interacting with the health care system, (the providers), the system should emphasize regionalization and rationalization of delivery as a way control costs and eliminate waste. Serious consideration should be given to reconverting all hospitals, clinics and nursing homes to not-for-profit.

The authors then ask whether such a system can be realized in the current political climate. They admit that existing for-profit vested interests have enormous political leverage and influence. They also point to the failures from 1974 to today to reform the system. They also point out that the last successful initiative, Medicare, did not have opposition from vested for-profit insurance because by and large social security subscribers had no insurance to displace.

They finish with some creative suggestions for how we might be able to get from here to there in the current political climate. Unknown in this discussion is the state of political will.


Most Americans know the existing system is a mess with marginal access to real care and skyrocketing cost for the insured and large numbers (45-50 million) now left with no coverage at all. Will this translate into pressure on the new President and Congress to undertake a major comprehensive restructuring? Judging from the Democratic candidate’s announced “Health Plans”, little will be done to fix our fundamentally broken system. Maybe only campaign finance reform with government support of candidates and mandated access to media will free our politicians to attack some real problems and not just pander to the special interests which in health care are formidible.

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