Policy Entrepreneurship in the Social Transformation of American Medicine: The Rise of Managed Care and Managed Competition

The failure to rationalize medical services under public control meant that sooner or later they would be rationalized under private control. Instead of public regulation, there will be private regulation, and instead of public planning, there will be corporate planning.

—Paul Starr, The Social Transformation of American Medicine

In the closing chapters of The Social Transformation of American Medicine (1982), Paul Starr weaves a tight, apparently seamless story of economics, politics, social movements, and organizational change in the U.S. health care system. Throughout the 1960s, even as liberal reformers mount one federal initiative after another to expand access to health care, their efforts are compromised by the "politics of accommodation." The medical profession manages to retain its cultural authority and in fact improves its economic status because public policies, in Starr's analysis, emphasize "redistribution without reorganization" (363-378).

By the start of the 1970s, however, tensions develop between "a medical system geared toward expansion and a society and state requiring some means of control over medical expenditures" (380). Conservatives as well as liberals demand reform, and a new round of governmental initiatives begins with the primary goal of cost containment. By the late 1970s, the "conservative assimilation" (393-405) of health care reform is nearly complete. Apart from a final, futile effort at hospital rate regulation during the Carter administration, federal policy proposals increasingly rely on economic incentives and market competition, which their advocates regard as both theoretically superior and more practical than comprehensive planning and regulation (e.g., Enthoven 1977, 1980).

Even as major reform proposals stall in the late 1970s and early 1980s, medicine must still confront increasing skepticism and encroachments on professional sovereignty. Starr bears witness to the emerging corporate transformation of medicine, which he presciently argues will greatly diminish physicians' cultural, economic, and political power with or without further governmental intervention.

Starr's narrative incorporates the basic ingredients in the transition from a massive expansion of the health care system to the persistent search for ways to rationalize the financing and delivery of services. Yet it presents a puzzle that must be pieced together to fully understand the actual form and pace of the corporate transformation he anticipates.

Starr highlights two main threads of the corporate transformation of medicine. The first is built on horizontal integration, privatization, and changes in ownership with large regional or national investor-owned companies replacing more local, proprietary, or not-for-profit providers and health insurers. The second is the vertical integration of health care financing and delivery through health maintenance organizations (HMOs), preferred provider organizations (PPOs), and other alternative delivery systems.

The forces of horizontal integration and privatization were moving quickly as the book went to press. Some observers had called into question the appropriateness of these developments, particularly the growth of for-profit enterprise (Relman 1980). Starr raises another issue, that these new, distinctly nonprofessional forces in medicine do not address the main problems in the health care system:

The industrialization of episodic medicine was not the original intent of the market idealists of the early 1970s who favored health maintenance organizations. Many of them regard chain hospitals and emergicenters as the antithesis of what they had in mind. They wanted corporate involvement to change the nature of health care; it seems more likely, in the foreseeable future, to reproduce the defects of the traditional system on a grander scale.

(443-444)

In contrast to horizontal integration and corporate conversions to for-profit status, vertical integration of the health care delivery system lagged considerably behind. Starr reviews the many challenges to the development of HMOs and their disappointing growth in the decade after federal legislation was passed in 1973 to foster them. He notes that HMOs had perhaps reached a "take-off point" in some jurisdictions, but nationally, only 4 percent of the population was enrolled and the Carter administration projected only 10 percent by 1990 (415; Brown 1983: 31).

Yet in the final chapter, Starr correctly anticipates that HMOs could potentially be powerful engines of change in the health...