A Historic Review of Modern Medicine


Modern day medicine in the USA began at the end of the 19th century with the development of Medical residency training programs at John’s Hopkins University and the Mayo Clinic. Both institutions were run by physicians and administered by Catholic Sisters. The majority of their patients were indigent and couldn’t pay for their services. Fee for service thrived in this setting despite the large majority of non-paying patients. The 1st Medical School in our country was started at the University of Pennsylvania with several of our Founding Fathers helping in solidifying its status as an institution to take care of sick patients. Phillip Physic and Benjamin Rush served on its Board.

Throughout many waves of immigrant migration and several public health crises in the 18th, 19th and 20th century, physicians and private institutions served the majority of paying and non-paying patients. The 1st public institutions designed for the care of the indigent offered services to retired and disabled military sailors, soldiers and Marines. One is still in existence in Portsmouth Virginia.

After World War II with almost one million military personnel coming home, there was a freeze placed on wages for almost 5 years. The only way major companies could attract labor was to offer benefits such as healthcare, disability, and retirement—but note that those benefits were offered by the public corporations and not the government.

A rift between doctors and hospitals evolved rearing its ugly head between 1935 and 1945. What this really entailed was a fight to control the access to patient populations and thus control the market. Third-party payers—Blue Cross—hospitals and Blue Shield doctors offered third-party risk assumption for patients and then large organizations like unions and large companies. In many cases today these organizations are self-insured and the carriers manage the health care plans without assuming economic risk themselves.

Starting in 1965 with the creation of broader reaching Medicare and Medicaid the government took an ever-increasing role in assuming economic risk for medical and hospital services. The Medicare Act of 1965—part of the Great Society Legislation also created a means for Medical Higher education to be funded via the Federal government. When we talk about health care costs assumed by the government we need to understand that this is both an assumption of health risk and a funding for medical education. When Medicare was 1st deployed during the depression less than 3% of the population was covered by government health care including Indian Health services and military dependents. Today that number is over 55%. In the mid 50’s health care as a percentage of GDP was about 5%. Today it is approaching 20%. After the depression over 100 workers arbitraged benefits for 1 person on Medicare. WE will be approaching a 1:1 ratio around 2050.

With fewer working people available to support non-working people reimbursement for providers and carriers has to find other ways to “cost shift” and make well patients pay for unwell patients.

The ACA severely limited the carrier’s ability to underwrite risk. Mandates for coverage and for specific services also increased costs. Underestimating the number of people who would be enrolled in government subsidized programs and underestimating the cost of coverage in out years acted as a double-edged sword in multiplying the demand effect.

Subsidizing providers while at the same time limiting supply with economic incentives to consolidate medical and hospital practices while at the same time creating new economic incentives that would encourage carriers to consolidate are both ways that our government has incentivized the move of the aggregate supply toward more not less scarcity (the supply curve moved up and to the left) while at the same time increased demand moved the demand curve up and to the right (demand was subsidized) Basic economics should have informed us that prices under these conditions would only go up with the ACA and they, in fact, did dramatically.

As false economic incentives were placed into the system—suppliers (hospitals) with DSH payments and activation fees and the gaming of provider codes by both doctors and hospitals, and the charging of facility fees by institutions that employ providers—independent doctors cannot charge those fees, so that the 50 cents on the dollar they would get from Medicaid became more like 80-90 cents on the dollar, and as insurance carriers received increasing subsidies from government—APTCs, CSRs, risk corridors and government subsidized reinsurance, the technical process of finding a true equilibrium price becomes impossible which benefits anyone on the supply side of the equation and hurts those on the demand side—patients, constituents, taxpayers—who pay for the incentives in addition to paying for higher premiums because of the higher costs.

Finally, there is the issue of Governance and accountability. The systems designed by lawyers and hospital administrators under the guise of “value and quality” have only been exploited to create more profit. An example could help explain. Over the past 18 years, the Electronic Medical record has been touted as a cure-all for medical errors and a way to create efficiencies in medical record keeping. Today 75% of clinicians-PS, FNPS, and doctors despise the EMR—WSJ Monday 3/19/18. Over 60% of their time is used for entering data in the EMR—health professionals are the highest paid clerks and medical entry employees in the country and think of the opportunity cost loss of a doctor spending 60% of her time with the EMR and not talking to patients—maybe waiting lines could go away if we stopped using the EMR. The marriage between the EMR and the various coding systems is an under-recognized and over-utilized way the system is gamed and that causes increased costs.

Included in governance reform I might suggest that we look at the symbiotic relationship between government, insurance carriers, and hospitals and their employed physicians. In our State, they actually sit on each other’s Boards and the Board members from the carriers actually have access to proprietary information from their customer the hospital and vice versa.

Finally, there is the issue of government elected officials being dependent on campaign contributions from trade organizations like the IMA/IHA/IACIetc. Are these organizations looking after the best interests of patients or of their members? And when they give large campaign contributions to politicians or PACs that support political campaigns are the politicians not influenced by their support?

So in the end when the argument is made that medicine in our country costs too much or that we should move to a single payer system we should point out that there has not been a free market allowed to operate in the Medical sector for at least 60 years. If you want to see cost overruns and inefficient care, and a problem with access and value just look to how our government runs military VA, and Indian Health Services are run. Why does anyone think for a minute that government can do better?

So here are some things that I think might help. They need to be implemented slowly so that what is left of an existing market today won’t over-react to the changes.

  1. Barriers to entry for providers need to be fixed. A consortium of States should be able to grant temporary licenses for PA’s Doctors and FNPs while the SBOM proceeds with its process. Reciprocity of licensure of States within the consortium would be beneficial. Retired doctors—600 currently should be indemnified so they can work in public and community health clinics without the risk of their retirement being put in jeopardy by a malpractice lawsuit.
  2. “Any willing provider” legislation should be readopted allowing providers access to out of network patients if they charge the same network fees and patients should not be at risk for going out of network.
  3. “No compete” legislation should be liberalized so doctors whose expertise and expense at obtaining that expertise and have no proprietary advantage gained by the circumstances of their employment, should be able to leave after the end of a contract and set up practice in the community where they reside. They should not have access to current patient rosters, but if patients want to come to them because of being familiar with them that should be allowed.
  4. Looser pays mal-practice reform should be adopted.
  5. Finally any non-profit institution including insurance carriers and large hospitals and their networks that makes over $100 million in government transfer payments should be required to submit an independent signed partners audit to the people of Idaho (via the legislature) who confer upon them their tax-exempt privilege. These people are by the way patients, citizens, and constituents. Many smaller non-profits in our State do this as a matter of good business practice-The Boy Scouts, The YMCA, American Red Cross, Food Bank and Mission Services. And oh by the way IRS Form 990 is NOT an AUDIT.
  6. Symbiotic relationships between Board Members need to be identified on the governance section of the audits.

I believe in “entrepreneurial capitalism”. Cronyism is the 1st step toward Crony capitalism is a step to an unnatural monopoly. Healthcare in the USA has failed not because of free markets, but because it is evolving toward crony capitalism and socialism.