Continuing on our series of the 1932 Report of the Committee on the Costs of Medical Care, this section examines the organization and of the health care system, critiques practices that sound much like current hospitalists, and how to organize health care more economically and efficiently.  This analysis and subsequent recommendations were probably what doomed the final Report.  Especially the final part of this section on the Costs of Complete Medical Care and the medical needs that must be met.  Read on!

Complexity of Medical Practice:  One driver of health care costs was the complexity of the health care system.  The Report listed the increasing complexity of medical facilities and practices, except in small communities.  “A considerable proportion of physicians, amounting in some communities to 30 per cent, limit their practice to a specialty, and almost as many more tend toward specialization.  Some twenty-five different specialties of medicine are now recognized.” (CMCC op.cit. pg. 29)

A major concern at the time was the shift from rural living to urban living, modern transportation, and increased mobility of the population, which the Report said contributed to the decrease in the frequency “of continuous personal contact between individual families and physicians. Many individual families, particularly in urban areas, find it difficult to discover a satisfactory family physician, and often unwisely choose specialists without the guidance of a general practitioner.” (CCMC op.cit.)

The Report also noted: “There is a wide-spread public demand for useable information. The increased proportion of illnesses cared for in hospitals forces many patients to choose between home and hospital, a choice which they are not always in a position to make wisely. Many persons are confused by these and other complexities of medical practice.”  (CCMC op.cit.)

Organization of Medical Service:  The Report also examined how health care services were organized and delivered.  It observed that medical professions were very well organized in professional associations at the national, state and county levels, and they “exercise an immense and wholesome influence upon standards of training and practice. Many local and national organizations of specialists stimulate both scientific and practical advances.  About two-thirds of the 142,000 physicians of the United States are members of their county medical societies and thus of the state associations and the American Medical Association. These organized medical groups are of the first importance as expressing professional standards and opinion, and they play major parts in representing the profession in its relations with educational, industrial, philanthropic, public health, and governmental  bodies.”  (CCMC op.cit. pg. 30).

However, the Report noted that there was a new type of organization developing: about two-thirds of all physicians were then associated with hospitals and clinics.  National professional organizations were working on how to make the hospital staff organization work effectively with other physicians to create efficient patient care and “effective relationships among staff physicians.”  (CCMC op.cit.)

The Report, however, went on to say:  “On the other hand, in many ways the growing complexity of medical services has outrun the development of its organization. The fact that medical care may now be obtained through an increasing variety of practitioners and agencies tends to create a lack of continuity in the medical care of the individual.  During the course of a single year, he may receive from several different specialists services which are not coordinated by a family physician. If he goes to the hospital, he may pass under the care of a physician who was not previously acquainted with his case; and on his discharge from the hospital, the information concerning his hospital diagnosis and treatment may not be available for the physician or clinic which becomes responsible for his subsequent care.”  (CCMC op.cit.)

Health care, the Report noted, is also unorganized from a community perspective:  “The educational facilities of a community, on the contrary, are planned and distributed on the basis of the number of children of various ages. The community’s expenditures for education are budgeted, and the relative merits of expenditures for buildings, for equipment, and for teaching staff are discussed and agreed upon.  A definite attempt is made to eliminate waste and to maintain standards. Increasingly, building programs for public schools are planned for five, ten and fifteen years in the future, and this is true not only in metropolitan areas, but also in smaller cities and rural areas. The various persons and agencies concerned—school boards, superintendents, teachers, special consultants—are organized to promote effectively their common efforts in a common task.” (CCMC  op,cit. pg 30-31).

Noting there are differences between education and medical service, the Report went on to say: “The analogy is useful, however, to show that, although medical service is as essential to the national welfare as public education, the task of providing it to all the people has not yet been tackled in an organized and coordinated way.”  (CCMC, op.cit. pg. 31).

Cost of Complete Medical Care:  “If services were organized economically and efficiently and were sold to representative groups of the population, among whom there is not an abnormally high rate of sickness, all needed medical care of the kind which people customarily purchase individually could be provided, in urban areas at least, at a cost, excluding capital charges, of $20 to $40 per capita per annum.  Included in this care would be the services of physicians, dentists and other personnel and the provision of hospitalization, laboratory  service, x-ray, drugs, eyeglasses, appliances and other items.”  (CCMC op,cit.)

They noted that this estimate was based not only on theoretical computations, but on the experience of real organizations “now providing complete or nearly complete service for weekly or monthly fees or without direct charge to the beneficiary.” (CCMC op.cit.)

The Report then cited the actual costs from groups that offered complete medical care:  Family population of Ft. Benning, Georgia; Endicott-Johnson Employees;  Roanoke Rapids employees; University of California students; Employees of Homestake Mining; Families subscribing to Rose-Loos medical service. 

The Report noted:  “Each of these organizations provides its patients with a substantially larger volume of services that most persons receive for approximately the same expenditures. This is made possible:  (1) by the organization of the services so that the time of practitioners is conserved and the medical facilities are used efficiently; and (2) by the provision of service on such financial terms that patients are encouraged to obtain care in the early stages of disease, thus reducing somewhat the number of difficult cases.” (CCMC op.cit. pg. 32).

The Report concludes it’s first chapter with a list of the medical needs that should be met:

a)      The people need a substantially larger volume of scientific medical service than they now utilize.

b)      Modern public health services need to be extended to a far greater percentage of the people, particularly in rural areas, towns and small cities.

c)      There is need for geographical distribution of practitioners and agencies which more closely approximate the medical requirements of the people.

d)      In the rural and semi-rural areas, the current expenditures for medical care are insufficient to insure even approximately adequate service, to support necessary facilities, or to provide satisfactory remuneration to the practitioners.

e)      There should be an opportunity for many practitioners to earn larger net incomes than they now receive. ….The incomes of general practitioners and of specialists should be more nearly equal than at present, and the opportunity and incentive for ‘fee-splitting’ should be removed.

f)       There needs to be better control over the quality of medical service, and opportunities should be provided for improving quality as rapidly in the future as it is has been improved in the past. Practice by unqualified ‘cult’ practitioners should be eliminated, and control should be exercised over the practice of secondary practitioners, such as midwives, chiropodists, and optometrists.  The practice of specialties should be restricted to those with special training and ability; more opportunity for postgraduate study should be available for physicians, particularly rural practitioners; and there should be constant chances for physicians to exchange experiences and assist each other. ….

g)      There should be more effective control over the number and type of practitioners trained, and their training should be adjusted so that it will prepare them to serve the true needs of the people.

h)      There is a need for reduction of waste in many different directions.  Substantial sums are wasted on unnecessary medication, on the services of poorly qualified or utterly unqualified ‘cultists,’ in the idle time of physicians, dentists, nurses, and other practitioners, in the high ‘overhead’ of private medical and dental practices, in unused hospital accommodations, and in the time of patients who go from place to place seeking medical services.

i)        The prevailing methods of purchasing medical care have unsatisfactory consequences. They lead to unwise and undirected expenditures, to unequal and unpredictable financial burdens for the individual and the family, to neglect of health and of illness, to inadequate remuneration of practitioners. There needs to be some plan whereby the unequal and sometimes crushing burden of medical expenses can be distributed. …

 “…it is amazing so much is done. Physical facilities are duplicated between hospitals and the offices of practitioners and are insufficiently utilized in both. Hospital beds are empty and much of the physician’s, dentist’s and nurses’ time is idle while persons suffer and many die for lack of medical attendance. Misdirected expenditures, competition and excessive specialization among practitioners, and the absence of community planning and the integration of services and facilities contributes to excessive waste.” (CCMC op.cit. pg. 33-34).

 Responsibility for Present Situation:  Despite this indictment of the health care system, the Report pointed no fingers of blame. “….medicine is to a considerable extent dependent upon the whole social fabric into which it is woven. The social attitudes, the habits of mind, the cultural standards, the economic activities, the monetary returns, and the spending habits of the people all affect the practice of medicine.”  (CMCC op.cit, pg. 34).

All this work led the CCMC to one conclusion:  “None of the major problems of medical care can be solved by any one group alone. Those who furnish the services on the one side and those who receive and pay for them on the other, must cooperate if either is the meet the needs which they perceive or to attain the benefits which they desire.”  (CCMC op.cit., pg.35). 

Coming Next Week:  The Essentials of a Satisfactory Medical Program.  In this Chapter, the Report outlines the six essentials for a health care system, how care could be offered through organized groups and how costs could be distributed.   This maybe what triggered the intense opposition from the AMA. 

Last week we explored where health care dollars were spent in the 1920’s and 30’s.  This week we look at the Committee’s concerns about the uneven distribution of medical costs.

Health care costs in 1929 were $3.65 billion. Of that, $1.09 billion went to physicians in private practice.  Their income is listed as being private pay from patients, with only $50,000,000 from ‘industry,’ and no payments listed from governments or philanthropy.  In fact, the only listing for medical care from government and philanthropy were for hospitals and public health. Government funds for hospitals  were listed for ‘operating expenses’ and ‘new construction.’  Public health listed no patient income, but did have funds from both government and philanthropy, primarily for charity care. (CCMC pg. 14)

The problem in 1928/29 was the distribution of health care costs and their adverse impact on families.  In 1928, about 50% of all families with two or more members had annual incomes of $2,000 or less and 40% had incomes of $2,000 to $5,000. Only 3% of families had incomes exceeding $10,000. (CCMC pg. 16)

This income, however, was unevenly distributed by geographic region.  In 1926, for example, the average per capita income was $735, but this income varied by region with the Middle Atlantic states averaging $1,039 and East South Central States (Kentucky, Tennessee, Alabama and Mississippi) averaging $369.  In 1919, ten states had incomes ranging from a low of $321 in Alabama to a high of $408 in Florida.   (CCMC op.cit.)

“By 1926 substantial changes had not occurred in the per capita incomes of the regions in which these states are located.  Even less than average charges for medical services, therefore, are more than many of our families can bear.” (CCMC op.cit.)

Distribution of Costs:  “The primary reason why the costs of medical care cause complaints is that the costs are uneven and unpredictable.” (CCMC op.cit.)  The CCMC conducted a study to learn more about the impact of medical costs on families.  In its study of 9,000 White Americans, the Committee found that 80% of the families earning $1,200 or less had medical charges of $60 per year and 2.5% had medical charges from $250 to $500.   

Consequently, the problem to the CCMC became one of “….equalizing the financial impact of sickness….But, the unpredictable nature of sickness and the wide range of services render budgeting for medical care on an individual family basis impractical. On the present fee-for-service basis, it is unreasonable for 99 per cent of the families to set aside any reasonable sum of money with positive assurances that that sum will purchase all needed medical costs.” (CCMC pgs.18 -19).

Responsibility for Uneven Costs:  Given the low family incomes and the high care costs, medical care was virtually beyond the reach of most families and hospitalizations were financially catastrophic.  Consequently, the CCMC began to look at insurance principles whereby “average charges are substituted for actual charges….much of the variation was eliminated by this procedure..”  (CCMC , pg.19-20).

Another reason for the variation in costs was the size of the community.  Health care costs decreased as the size of the community decreased.   It appears the CCMC thought that an insurance model for health care was the only way to eliminate variations in care.  However, to eliminate the variations in care, the Report suggests that all four basic types of health care services needed to be included: physician,  dental, health examinations and immunizations (public health), and hospital care.  Without having insurance for every family, however, meant that variations in care would continue.

This led the CCMC to examine:

Professional and Institutional Incomes:   The CCMC went on to observe that just because medical costs were too high for many families, did not “necessarily mean high incomes for practitioners.” (CCMC pg. 22).  In 1929, the average net income for a physician in private practice was $5,300. Also, physician income was much less evenly distributed than in comparable professions.  “….in 1929, one-third of all private practitioners had incomes of less than $2,500.  For every physician with a professional net income of more than $10,000, there were two who received less than $2,500.  The practice is especially great between general practitioners and specialists.” (CCMC op.cit.)

Physician income also varied by geographic location as well as by specialty.  The income of physicians in rural communities was less than half of their urban counterparts.  The Report concluded that a simple averaging of physician incomes would not be a solution to the cost problem.

Compounding the variation problems in costs are the large overheads in physician practices.  The average gross income for a physician in 1929 was $10,000. “Approximately 40% of this income goes for professional expenses, such as office rent, maintenance and replacement of equipment, salaries and wages of nursing and office personnel, transportation and other items. This large overhead of private practice adds to the cost of care to the patient, without financial return to the practitioner.” (CCMC pg 22-23.)  [Note:  malpractice insurance was not listed as an overhead item.]

While malpractice may not have had a financial impact then, but, indeed cost-shift did. When examining the practice of physicians offering free care,  the Report indicates that “….the institution of free work would be socially objectionable as a method of distributing the cost of free service, since it would assess this cost on only a section of the well-to-do—those who happen to fall ill.” (CCMC op.cit.)

But, one of the most slamming indictments of the fee-for-service system is how physicians are paid and the consequence of that payment system:  “One of the worst results of the present method of remunerating physicians is that practitioners may have, or have, or may be thought to have an economic incentive to create unnecessary medical services or to prolong illness. …as a consequence, some medical cases are prolonged unnecessarily; some unnecessary operations are performed by surgeons who are selected because of the size of the rebate which they secretly give to the referring family practitioner. ‘Fee-splitting,’ although strongly condemned by the medical profession, has arisen in part because of the unjust difference in many cases between the fee of a general practitioner or internist and the fee of a specialist. While fee splitting tends to overcome this inequality, it increases the costs of professional care, degrades the profession, and in effect puts the patient in the hands of the highest bidder. Furthermore, it weakens the incentive for skillful and careful work on the part of the specialist.” (CCMC pg. 24).

Observation:    Some 80 years later, how we pay physicians, the variations in care, cost and using patients as ATM machines is still alive and well, as reported by Atul Gawande, MD, in June 1^, 2009 New Yorker article on Cost Conundrum:  http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande

Coming Next Week:  Nursing shortages, capital investments in medical practices and the challenges in the organization and complexity of medical care. 

I am beginning to see where this report is going and why it is going to spark an outrage in the medical community.

In The O’ConnorReport’s continuing review of the Committee on Cost of Medical Care’s  (CMCC) recommendations , we now look at how preventive care fared in 1929 and where health care dollars were spent. The Committee’s focus on prevention is key to some of their future recommendations. 

The CCMC also spent some time examining the crisis in access to dental care services, which we will examine later.

Context:  Prevention:   This is 1929. The Stock Market has crashed, sparking the Great Depression. Health insurance does not yet exist, although its first forms will emerge because of the Depression.   This is also before penicillin and antibiotics, before diseases could be cured.  

“Although many practitioners suffer from enforced idleness, the American people need far more of the health care services which could be provided on the basis of present knowledge and facilities. This is particularly true of preventive serives.”

The Report notes that in any given year less than 7% of the public had a partial or complete physical examination. 

Less than 5% are vaccinated against diphtheria or other diseases.

A White House Conference on Children in the 1920s or 30’s found:

• Only 51% of city children and 37% of rural children had had one or more health examinations prior to their sixth birthday. 
• Only 13% of children had a dental exam by their sixth birthday
• Only 21% of urban children and 7% of rural children had been vaccinated by the time they were six. 

 The Report suggests many factors limit preventive care:

• People hesitate to see a doctor unless they are sick
• Fee for service payments is an economic deterrent to preventive services that are not therapeutic in nature
• Too few practitioners live and practice in rural areas
• “The training of many practitioners and the avowed scope of many hospitals and clinics cause them to pay little attention to the preventive aspect of services.” (CCMC, pg. 12)
• “…a physician who is aware of a patient’s needs for preventive work may refrain from urging it because he does not wish to appear to solicit practice.”  (CCMC. op.cit.)

The Report also noted that American communities “have been pitifully backward in utilizing modern public health procedures.”  (CCMC, pg. 13).  It further indicated that of the $30 per capita spent on health care,  only $1 was for public health services. “Niggardly appropriations for public health work not only seriously limit present activities, but also hamper medical schools in their efforts to attract competent students to public health careers, thus weakening the public health work of the future.” (CCMC, op.cit.).

Where the 1929 Health Care Went

Context:  In 1929, most physicians were in private practice, commercial pharmaceutical products did not exist as we know them today. Indeed, the current  PhRMA (Pharmaceutical Research and Manufacturers Association) was not formed until  1958.   The Report uses terms such as ‘cultists’ and ‘patent medicines’ to describe some health care provider and services while not defining them in any specific way. 

 The Report outlines a private medical system and it speculates it will remain a largely personal service. It did go  on to add, however:  “Contrary to the trend in most other human services, an increased division of labor (specialization) and a larger capital investment in buildings and equipment have in general tended to increase costs rather than decrease them.” (CCMC,pg. 13).

Comment: This is essentially what is said today about the increasing use of MRI and other medical testing.

The Report continues:  In 1929, the US spent $3,656 million (or $3.7 billion) for health care services, “including those purchased indirectly through taxes and other community funds.”

 As the Report says: “This represented 4% of the GDP.”  This was not an excessive cost, according to the Committee when compared to what was spent on other parts of the economy:

$5.8 billion—tobacco, toilet articles, and recreation;  $9.5 billion—automobile use and other travel (CCMC pg. 14)

 “It is probable that, with a better distribution of the burden and growth of national income which is probable in the next two to three decades, far larger amounts will be spent advantageously and without hardship. An increased national income can be used in only three ways:  to purchase more  consumer ‘s goods, to purchase more services or to provide savings.  Since the country is now suffering, in part, from an excess of savings in the form of capital goods, a large increase of productive facilities is not called for.

While there is at present an under consumption of food, clothing, housing and commodities in general, the increase in national income during the next ten or twenty years would yield the largest satisfactions if a large proportion of it were spent for services, especially for medical care, education and cultural pursuits.”  (CCMC  pg. 14)

 But the Report suggests re-directing some parts of the nation’s expenses:  “Of the $3,566 million spent annually for medical service, $125 million is spent on chiropractors, naturopaths, and allied groups, and faith healers and $360 million for ‘patent medicines.”  (CCMC  pg.15).  The Report suggested re-directing these dollars, but did not specify where.

 Health Care Spending 1929

1929                                                                                        2007

• Physicians            29.8%                                                   Hospitals                 30.8%
• Hospitals             23.4%                                                    Physicians               21.2%
• Medicines           18.2%                                                    Other                        16.4%
• Dentists              12.2%                                                     Other personal                
• Nurses                  5.5%                                                           health                 13.0%
• All others             4.2%                                                     Prescriptions            10.1%
• Cultists                3.4%                                                     Nursing homes           6.1%
• Public health      3.3%                                                     Home Health              2.2%

(CCMC pg.15)                                                            Source: Kaiser Family Foundation

 2007 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/

iNote: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc.

Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc.

Coming Next Week:  CCMC’s Family income and Disproportionate Distribution of Health Care Costs