Groping for Autonomy: The Federal Government and American Hospitals, 1950-1990

Abstract

The contemporary U.S. health care system seems far removed from the pattern of professional dominance that characterized health care policymaking for most of the twentieth century. Prior to the 1960s, government involvement in the practice of medicine and in the financing of health care was severely limited in scope [Starr 1982; Somers and Somers 1961]. Hospital reimbursement was managed by providers through a private bargaining process with third-party payers. Blue Cross plans were the dominant third-party payers in most states by mid-century, but neither the Blues nor commercial insurers exercised significant countervailing power [Galbraith 1956] as purchasers of health care. Blue Cross plans, in particular, were created as service corporations to provide the hospital industry with a stable revenue stream and were not predisposed to challenge the autonomy of providers [Stevens 1989]. Doctors and hospitals accepted new federal spending for hospital construction, medical research, and improved access for the poor and elderly but successfully resisted government efforts to regulate how these funds were spent. This article chronicles the slow but steady emergence of countervailing power in the hospital industry since mid-century. The transformation of American health care policymaking reflects the federal government's growing fiscal obligations as the single largest purchaser of health care. As John Kenneth Galbraith [1956, 113] notes, Power on one side of a market creates both the need for, and the prospect of reward to, the exercise of countervailing power from the other side. The federal government's effort to exercise countervailing power over health care providers shows no sign of abating in the future, for Medicare and Medicaid costs threaten the stabil-