Academic journal article Journal of Economic Issues

Groping for Autonomy: The Federal Government and American Hospitals, 1950-1990

Academic journal article Journal of Economic Issues

Groping for Autonomy: The Federal Government and American Hospitals, 1950-1990

Article excerpt

The contemporary U.S. health care system seems far removed from the pattern of professional dominance that characterized health care policymaking for most of the twentieth century. Prior to the 1960s, government involvement in the practice of medicine and in the financing of health care was severely limited in scope [Starr 1982; Somers and Somers 1961]. Hospital reimbursement was managed by providers through a private bargaining process with third-party payers. Blue Cross plans were the dominant third-party payers in most states by mid-century, but neither the Blues nor commercial insurers exercised significant countervailing power [Galbraith 1956] as purchasers of health care. Blue Cross plans, in particular, were created as "hospital service corporations" to provide the hospital industry with a stable revenue stream and were not predisposed to challenge the autonomy of providers [Stevens 1989]. Doctors and hospitals accepted new federal spending for hospital construction, medical research, and improved access for the poor and elderly but successfully resisted government efforts to regulate how these funds were spent.

This article chronicles the slow but steady emergence of countervailing power in the hospital industry since mid-century. The transformation of American health care policymaking reflects the federal government's growing fiscal obligations as the single largest purchaser of health care. As John Kenneth Galbraith [1956, 113] notes, "Power on one side of a market creates both the need for, and the prospect of reward to, the exercise of countervailing power from the other side." The federal government's effort to exercise countervailing power over health care providers shows no sign of abating in the future, for Medicare and Medicaid costs threaten the stability of the balanced budget agreement negotiated by the Clinton administration and the Republican leadership of the 105th Congress.

Concerns about rapidly rising health care costs led to the development of new institutional arrangements that infringed upon the autonomy of hospitals over the past three decades. In effect, Congress authorized Medicare and Medicaid programs to exercise countervailing power in health care financing in an effort to control the spiraling cost of federal entitlement programs. Policies that would have been unthinkable in the past - from the development of elaborate rate-setting methodologies to limitations on the capital investments and services of hospitals - were commonplace by the early 1980s [Brown 1986]. As health care costs continued to rise, hospitals chafed under an ever-increasing number of government regulations and controls. By the 1990s, decisions about the pricing and allocation of health services, standards of medical practice, and the profitability of providers increasingly rested in the hands of federal policymakers.

The Birth of the Health Care Technostructure

Health providers have successfully resisted frontal assaults on their professional autonomy for decades. Efforts to enact national health insurance, which would place the federal government in the position of a monopoly purchaser of health care, met with vociferous opposition during World War I and again in the 1930s and 1940s [Kelley 1956]. Opponents of national health insurance succeeded in defining public debate as a struggle between liberty and socialism, which threatened both the quality of patient care and the core values of American society [Numbers 1982; Hackey 1997]. Although demand for health care declined during the Great Depression as consumers' purchasing power fell, few institutions existed to empower purchasers in the 1930s.

Instead of bowing to federal control, health providers crafted new institutional arrangements to finance continued expansion of the health care system. As in other policy arenas, purchasing and regulatory institutions were organized and controlled by the providers themselves [see McConnell 1966; Lowi 1969]. …

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