Are Large Hospitals the Problem with US Healthcare?
Is the main problem with the US healthcare system that hospitals have gotten too large since the 1990s? That seems to be the remarkable conclusion of two of the nation’s most distinguished health-policy analysts, David Dranove and Lawton R. Burns. Dranove is an economist and Walter J. McNerney Distinguished Professor of Health Industry Management at the Kellogg School of Management at Northwestern University. Burns is a sociologist and James Joo-Jin Kim professor of health care management at the Wharton School at the University of Pennsylvania. Dranove and Burns’s joint effort, Big Med: Megaproviders and the High Cost of Health Care in America, purports to offer special insights into the pathologies of the American healthcare system via an interdisciplinary approach.
I. From Hospitals to Integrated Delivery Networks (1811–2000)
The following is a summary of the complex evolution of hospitals in the US from 1811 to 2000, broken into four parts.
A. Hospitals (1811–1960)
The hospital story in the US begins in the early nineteenth century with the founding of Massachusetts General Hospital in 1811. More than a half century later, New York Presbyterian was founded in 1868 and Presbyterian Hospital was founded in 1893 (not 1883, as Dranove and Burns claim) to become no less than the flagship facility of today’s massive University of Pittsburgh Medical Center.
As Dranove and Burns aver, American hospitals in the nineteenth century were institutions where the sick were isolated from the rest of society or the injured or infected had their limbs removed. Hospitals only slowly evolved from dungeons of death and dismemberment to oases of life-saving treatments after the steady arrival of many innovations: the first and increasing use of nitrous oxide and ether as anesthetics (1844–46); the first use of vaccines for cholera, anthrax, rabies, typhoid fever, and plague (1879–97); the development of ABO blood typing and the first successful blood transfusion (1901–07); the use of insulin for the treatment of diabetes (1922); the first blood bank (at Cook County Hospital in Chicago, 1937); the use of penicillin from first dose to a production level of 650 billion units per month (1942–45); the first cardiac pacemaker (1952); and the first kidney transplant (1954).
B. Hospitals and Their Economic Enemies (1960–93)
The second era in hospital history consisted mostly of hospitals fighting or adapting to five major nemeses: health maintenance organizations (HMOs), price and supply controls, outpatient surgery centers, and selective contracting, ending with the Health Security Act of 1993.
HMOs. HMOs offered care that was prepaid and provided by staff working in teams. There was also an emphasis on illness prevention in some of them—hence the name “health maintenance organizations.” By 1950, they had caught on mostly in the West Coast states of California and Washington. Despite this limited success, hospitals and doctors saw them as serious threats to their incomes and profits and thus swung into action, lobbying state legislatures to forbid HMOs from advertising in any medium. HMO physicians came under severe persecution: many saw local medical societies revoke or deny them membership while some hospitals cancelled or denied them admitting privileges. Nevertheless, the industry slowly grew with the help of the HMO Act of 1973 and several regulatory and court victories.
Price controls. The back-and-forth fight between governments and the healthcare sector over the level and rate of healthcare spending came after the passage of the Medicare and Medicaid programs in 1965. Medicare overnight became the top buyer of health services in the nation while Medicaid became one of the largest components of each state’s budget. With federal and state budgets experiencing immediate stress and hospitals being a prime factor behind spending (more than a third by 1970), governments targeted hospitals. According to Robert Murray and Robert Berenson’s 2015 Hospital Rate Setting Revisited: Dumb Price Fixing or
Article from Mises Wire