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CHAPTER 1 Introduction This is a book about the merging of six of America's leading teaching hospitals, where the faculties of five of the country's most distinguished medical schools instruct their students and trainees in clinical medicine. The force driving the mergers was economic, and the name of the force was managed care. Insurance for Health Care Payment for health care on a large scale by someone other than patients began in the United States with the formation of the Blue Cross insurance plans during the Great Depression of the 1930s1,2 as hospital income from patients and philanthropic donations plummeted.2,3 A few doctors tried to develop prepaid medical plans, but these met with concerted opposition from the leaders of the state medical societies and the American Medical Association, which asserted that they constituted "corporate medicine,"4 were "unethical, inferior to fee-for-service,"4 and interfered with the private practice of the profession. Despite this opposition, the courts favored the group physicians and protected them from harassment ,2 so while the national battles raged the prepaid group practice movement continued to grow at the locallevel.2 Organized medicine saw the Blue Cross insurance programs for hospital care, which were founded in 1934,3 as less threatening and came to accept them as the lesser of two evils compared to prepaid medical plans and their characteristic consumer control and salaried physicians.2 Also acceptable to the state medical societies were the Blue Shield programs for doctors' fees, which some of the societies founded in the late 1930s. Blue Shield, as they saw it, prevented "the need for government ... to pay for physicians' services."3 "It is doubtful," writes the medical economist Eli Ginzberg, "that private health insurance would have become a potent force if not for the boost that it received from the war [World War II]."5 The War Labor Board, which had frozen wages to contain war-induced inflation, 2 Mergers of Teaching Hospitals permitted trade unions to bargain with employers for health care,s and paid premiums for medical insurance was one of the benefits won for the workers.I ,3 The burgeoning postwar economy that followed allowed employers to grant health insurance to increasingly more workers. That the Internal Revenue Service exempted these benefits from federal income tax helped increase their popularity.3,5 By the time Medicare arrived in the mid-1960s, American doctors and hospitals had become accustomed to charging and receiving most of what the market would bear. Under the indemnity* or "fee-forservice " health insurance policies then held by most workers, doctors and hospitals rendered their charges, the insurance carriers paid most of them,t and the patients paid the rest. The reckoning began in the 1970s as corporate profits declined due to increasing competition with other economies, and the cost of medical care grew in excess of the rate of inflation for other goods and services. With their profit margins squeezed, the leaders of America's largest companies looked for a means of containing the rapidly rising costs of providing medical care for their employees.6- s Unlike the historical model, the revolution they fomented came from the top, not, as observers of the phenomenon suggest, "from the downtrodden -low income and disabled patients or underpaid hospital and nursing home workers."1 Initially, employers reduced their costs by increasing the portion of the insurance paid by their employees.J.7 Some employers, particularly smaller ones, decided not to insure their employees at all.1 These and other measures, however, reduced the employers' expenses relatively little. From 1960 to 1990, spending on health care grew at a rate of 6 percent per year, adjusted for inflation, more than double the rate of growth in the rest of the economy.9 What accounts for this extraordinary rise? "By far the most important factor," writes health care economist Victor R. Fuchs, "is the change in technology ... used for diagnosis and treatment [which] are more expensive than in the past."10 Many patients, only seeing their premiums rise, do not understand the reasons for this change. I am reminded of the patient who, returning for her second hospital admission and now being examined with the latest scanning device, observed that the human body must be growing more complicated if such equipment was now required to study it. *Indemnity insurance provides protection against hurt, loss, or damage. tThis involved a method that those involved in the process called "retrospective reimbursement" since the...

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