From Fee for Service to Salary, Coordination and Planning

More of Our Continuing Series on the Committee on the Costs of Medical Care, 1932

Distribution of Costs and Fee for Service Health Care:   The Committee consistently found in all its studies, that the key problem was the uneven distribution of health care costs. The Committee thought that these uneven costs could not be fixed while a fee for service system remained.  To fix the uneven distribution of costs, the Committee recommended a group practice model for health care services.  There were two ways to fix costs:  insurance and taxation.   But, the Committee did not recommend health insurance companies.

Insurance Companies.  The participation by commercial insurance companies in the forms of insurance against the costs of medical care which are recommended in this report would, the committee believes, tend to increase the costs and not to improve the quality of service….arrangements will be more satisfactory to all parties, if, in financial matters, the practitioners can deal directly with patients or their representatives, than if they must deal only through an intermediate business agency. Administration by private insurance companies would largely, if not entirely, forfeit the most important element in the establishment and maintenance of quality, namely: effective professional participation in the formulation of policies.”  (CCMC op.cit. pg 50-51)

The radical element of their recommendations—salaried physicians in group practices tied to a specific hospital was one of the reasons for its eventual demise.  For an account by one of the funders:  The Milbank Memorial Fund, see their Centennial Report, and their comments on the CCMC starting on page 13.

Taxation: The Committee noted that tax dollars currently accounted for 14% of the nation’s annual health care expenses.  This was for care in county hospitals, public health, special hospitals, such as TB and chronically mentally ill.  This sum also included military personnel, prisons, ‘wards of the state’ and other indigent care. “These are accepted forms of ‘state medicine,’ a term which the Committee uses to cover the provision of medical care by the government… should be observed, however, that the mere use of tax funds as a means of paying certain costs of medical service does not of itself constitute ‘state medicine,’ since some tax funds pay for medical service which is administered in voluntary hospitals or by physicians in private practice.”  (CCMC, op.cit. pg 52)

Most of tax supported health care was for hospital care. More than half of all hospital care in the 1930s  was paid for by tax dollars.  “There is substantial agreement that it is proper to use tax funds to provide organizational preventive work and care of certain diseases, namely: those like tuberculosis, which are a menace to the community, and those, like mental disease, which can be adequately cared for no other way.”  (CCMC op.cit. pg 53).  The Committee believed the financing of health care should be local, but called for federal support where local funds were insufficient.

Planning and Coordinating Services:   The Committee also believed waste and redundancy was rampant because of the lack of coordination at the community level.  “Even when each individual hospital in a locality is efficiently administered, waste and inefficiencies often exist in the hospital system of the community as a whole.  These are largely due to the failure to coordinate institutions, and to the lack of any planned development whereby the amount of investment, and the location and distribution of hospitals would be determined in view of known present needs and careful estimates of future requirements. The increasing number and variety of specialists, and the uneven geographical distribution of practitioners and agencies have been previously discussed.”  (CMCC op.cit. pg 53).

The Committee thought, therefore, that each community should have a group composed of citizens and professional groups that provided services would plan, consult, and act “in behalf of the best provision of medical resources which the community can afford….the principal problem is not geographical but functional, namely:  to break down the institutionalism of agencies and the sectionalism of groups which waste effort and money and leave some areas uncovered.” (CMCC op.cit. pg 53-54).

The Committee also thought the state would be the best body to insist on quality standards. While they recommended that the medical professions develop the standards, therefore, the Committee thought a separate state agency should enforce those standards.

Comment:  This was providing another nail in the coffin of the Committee’s Report: health care services should be a blend of public and private funding, and have lay and professional oversight to coordinate and plan at the community level.  The Committee leaned toward private insurance, but not insurance companies; salaried physicians rather than fee for service; and local planning, based on the community’s need, not an individual practitioner’s practice interests.  At the time, most physicians were in individual private practice. Today, of the 650,000 physicians, nearly 50% remain in individual or two physician fee for service private practice.

Coming Next:  The Committee outlines how services should more specifically be organized, coordinated and financed.

About Kathleen

Kathleen O’Connor: 30+ year health care consumer advocate, non-profit executive and author. For more information about Kathleen, please see "About" on the main content bar above.
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