How Did Health Care Get to Be Such a Mess?

This contrasts with current examples of such financing arrangements. Where physicians earn a preset salary — for example, in Kaiser Permanente plans or in the British National Health Service — patients frequently complain about rationed or delayed care. When physicians are paid on a fee-for-service basis, for every service or procedure they provide — as they are under the insurance company model — then care is oversupplied. In these systems, costs escalate quickly.

Unfortunately, the leaders of the American Medical Association saw early health care models — union welfare funds, prepaid physician groups — as a threat. A.M.A. members sat on state licensing boards, so they could revoke the licenses of physicians who joined these “alternative” plans. A.M.A. officials likewise saw to it that recalcitrant physicians had their hospital admitting privileges rescinded.

The A.M.A. was also busy working to prevent government intervention in the medical field. Persistent federal efforts to reform health care began during the 1930s. After World War II, President Harry Truman proposed a universal health care system, and archival evidence suggests that policy makers hoped to build the program around prepaid physician groups.

A.M.A. officials decided that the best way to keep the government out of their industry was to design a private sector model: the insurance company model.

In this system, insurance companies would pay physicians using fee-for-service compensation. Insurers would pay for services even though they lacked the ability to control their supply. Moreover, the A.M.A. forbade insurers from supervising physician work and from financing multispecialty practices, which they feared might develop into medical corporations.

With the insurance company model, the A.M.A. could fight off Truman’s plan for universal care and, over the next decade, oppose more moderate reforms offered during the Eisenhower years.

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