Conflict and Change in America's
Health Care System
Yaseen Hayajneh, PhD
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Major Actors in Any Health Care System
1.
Purchasers
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2.
Supply the funds.
Individuals, businesses, and government.
Ultimately individuals are the purchasers.
Government and businesses are major player as the
organize purchasers of health care
Insures
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Receive money from the purchasers and reimburse the
providers.
Assume risk
Government and businesses assume the rule of insurer
when they pay providers directly.
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Major Actors in Any Health Care System
3.
Providers
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4.
Hospitals, physicians, nurses and others.. who
actually provide the care.
HMOs may be viewed as Insurer and provider
Government as provider.
Suppliers
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Pharmaceutical and medical supply industries
Manufacture equipment, supplies and
medicaitons.
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The Basics
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Health Care Industry
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Insurers,
Providers and
Suppliers
Purchasers wish to reduce spending, while the
HC Industry wishes to increase spending.
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1945-1970: Provider-Insurer Pact

Independent hospitals and small private
practices.
 Limited supply of providers > Competition was
minimal between providers.
 HC industry was marked by an ALLIANCE
between Insurers and Providers.
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Many private insurers.
Blue Cross – American Hospital Association
Blue Shield – State Medical Associations & AMA
Providers dominated insurers, especially blue cross
and blue shield.
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1945-1970: Provider-Insurer Pact
Reimbursements for providers were
generous.
 Insurers paid without asking questions
 Purchasers (individuals, business, and
government) had relatively little power.
 In 1960s the pact was so strong

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Dictated the reimbursement provisions of
Medicare and Medicaid.
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1945-1970: Healthy Economy
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Businesses paid with little interest to question
increases in cost
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American businesses controlled domestic and
foreign markets without serious competition.
Economy was in a good shape
Government subsidized health insurance.
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Provider-Insurer Pact: Results

Costs of health care inflated at a rapid
pace.
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Between 1962 and 1978 costs had rised
about 10% per year.
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The 1970s: Tension develop
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Japan and Europe competed US for markets.
US economy weakened.
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Between 1970 – early 1990s, unemployment and inflation in
US.
Purchasers (especially government) become
concerned about costs of health care.
Under pressure from purchasers, insurers begin to
question generous reimbursements of providers.
Early 1970s control of hospitals and physicians over
the blues was loosened.
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The 1980s: Revolt of the Purchasers

Economy still in trouble.
 Late 1980s cost of health insurance jumped
about 40% in two years (1988-89).
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Self insurance: by 1991, 40% of employees
were self-insured by their employers.
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Percentage of total payroll paid on insurance is
about 10% (1988). Double that of 1976.
Businesses carried the risk for HC expenditures.
Businesses’ goal to control costs of health
care.
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The 1980s: The Rise of Managed Care
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Purchasers
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Private Insurers
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Businesses shifted to managed care (HMOs) as a cost-control
device.
Shift from FFS to Capitation
Shift risk for purchasers and insurers to providers.
increased dramatically premiums
Increased policy cancellations for chronic patients.
Government
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PPS and DRGs
Controlled Medicare hospital costs
Outpatient Medicare costs and private purchasers costs escalated.
Reduce Medicaid but was forced later to increase it.
Started to experiment with managed care.
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The 1980s: Revolt of the Purchasers
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Selective contracting
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Purchasers and insurers will do business only with
providers who keep cost down
Patients lost choice
Purchasers revolt led to
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Managed care became the dominant in heath care.
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The 1990s: Breakup of provider-insurer pact
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Providers formed networks
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Hospital systems instead of independent hospitals.
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Providers started to compete for contracts and
patients.
 Selective Contracting continued
 Patients’ choice of provider became limited.
 The 1990s was a period of purchaser dominance.
 Purchaser groups formed coalitions to negotiate with
HMOs
 Enrollment in HMOs doubled in the 1990 (40-80
millions)
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1990s: Bargaining Power

To improve bargaining power, purchasers,
insurers and providers consolidated.
 HMOs merged together.
 Providers also consolidated

By 2000, 80% of hospitals were members of multihospital systems.
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1990s: …Conclusion
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Price competition is introduced.
Large physician groups emerge.
Insurance companies dominate many
managed care markets.
For-profit institutions increase in importance.
Insurers gain increasing power over providers,
creating conflict and ending the providerinsurer pact.
Pharmaceutical companies…
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