High costs, frustrations, and low service levels
have characterized many people’s experiences with the healthcare industry. When patients see their doctors, they hope to receive
answers to their questions and a clear understanding of the options available
to them. Instead, they are shuttled from waiting room
to examination room and back to the reception desk with a feeling that they have
been rushed through or that their questions have only been partially addressed.
Much of the healthcare industry is
bewildering and frustrating to patients.
People are left asking, how did things get to this point and why is it
costing so much? This paper attempts to answer
that question by providing a historical perspective to the healthcare industry.
Over the past hundred years or so, the nature of
the healthcare organization has changed from a peer-to-peer structure where
doctors had a relatively intimate relationship with a small body of patients to
a hierarchical structure where administrative organizations, such as hospitals
and managed care groups, act as a filter between patients and doctors. One of the consequences of this shift in
organizational structure has been a high degree of information asymmetry that
has resulted in rising costs. Furthermore,
the flow of information between doctors and patients has become highly
distorted. This paper explains how these
changes to the system occurred in terms of information flow and organizational
responses to an evolving system.
History of the healthcare system in
America
In the early 19th century the system
of American healthcare had developed into a truly free market. Between the 1830s and 1850s, congress
repealed most of the laws governing medical licensing which had been inherited
from the British colonial government (Goodman & Musgrave, 1992). During this period of time there were no laws
governing the education or licensing of physicians in the country. Theoretically, anyone could declare himself
or herself to be a doctor and start treating patients regardless of their
background or education. As Goodman and
Musgrave noted, “the exigencies of the market alone [determined] who would
prove successful in the field and who would not”(1992).
One of the consequences of such a free market
system was a large supply of physicians across the nation. Providing education to these doctors was a
large number of medical schools. With barriers
to entry being very low and medical education cheap and easy to come by, the
number of doctors in the nation was quite large. In fact, the nation had more than 40,000
practicing physicians and population of fewer than 20 million. This amounted to about one doctor for every
500 citizens. Accordingly, competition
was fierce and physicians were paid quite little. Even the most educated of doctors might not
expect to receive more than the “merest pittance in the way of remuneration”(Goodman & Musgrave, 1992).
During this period of time, the structure of
the nation’s healthcare system was very simple.
Doctors treated patients directly, and there were no intervening
agents. Physicians did not belong to healthcare
provider networks, and patients had no managed care plans. The relationship between patients and doctors
was a personal one. Furthermore, the
high ratio of physicians to patients meant that each doctor treated fewer
patients. One can conclude from this that
physicians would have had an intimate relationship with clients as they had few
patients to treat and more time to devote any one patient.
Because there were fewer formal organizational
barriers between doctors and patients, the nature of system as a whole would
have been one of many disconnected peer-to-peer type networks centered on the
physicians. There was no formal
structure to link fellow physicians together except in hospitals, and even
there the organizational ties were loose (Goodman & Musgrave, 1992). Such a loose organizational structure at the
macro level may have encouraged and facilitated the free flow of information
between patients and doctors as there were no organizational elements to act as
information filters. However, the
disconnected nature of the networks of physicians inhibited the flow of
information from physician to physician.
In 1847 the American Medical Association (AMA) was
founded by a group of physicians from the New York Medical Society and
representatives from 28 other states. The
AMA was founded with the goals of scientific advancement, standards for medical
education, launching a program of medical ethics, and improved public
healthcare (American Medical Association). An unstated, but by no means secret, mission
of the AMA was to enhance the financial wellbeing of its member physician and
to protect them from the competitive pressures of new entrants into the medical
market. At the very first meeting of the
AMA, the body of delegates endorsed the Code of Medical Ethics:
Some general rules should be adopted by the faculty, in
every town or district, relative to the pecuniary acknowledgments from their
patients; and it should be deemed a point of honor to adhere to this rule with
as much steadiness as varying circumstances will permit.
Later this code would be expanded to govern
over other activities such as: (1) “solicitation of patients, either directly
or indirectly," (2) "competition and underbidding," (3) “compensation
... inadequate to secure good medical service," (4) “interference with
reasonable competition in a community," and (5) “impairment of ‘free
choice’ of physicians." According
to Goodman and Musgrave, the AMA code of ethics was tantamount to endorsing a
medical cartel and making participation by physicians an ethical obligation (1992). Such actions were the first inroads towards
the creation of a regulated market for healthcare. In another example of AMA actions to create a
healthcare market favorable to physicians, the Journal of the American Medical
Association condemned the administration of free vaccinations as being, “inimic
to the best [financial] welfare of young medical men” (Goodman & Musgrave, 1992).
The AMA pursued its goals by lobbying both
federal and state governments to enact strict medical licensing laws designed
to restrict the supply of new physicians entering the market for healthcare
services. By 1901, all states and
territories with the exceptions of Alaska and Oklahoma had medical examining
boards. However, many of these
regulatory bodies had divergent standards for the education of physicians. In 1906 the AMA Council on Medication
conducted an inspection of the nation’s medical schools and found less than
half of them to be acceptable. In 1910,
in order to gain legitimacy for its findings, the AMA convinced the Carnegie
Foundation for the Advancement of Teaching to conduct the same study. This study, conducted by Abraham Flexner,
came to be known as the Flexner Report.
As Reuben Kessel said, “If impact on public
policy is the criterion of importance, the Flexner report must be regarded as
one of the most important reports ever written” (Kessel, 1958). With the
support of the Carnegie Foundation, the AMA had achieved their goals for
regulation of medical education. In
actions ostensibly designed to ensure the supply of qualified physicians, every
state enacted legislation over the next few years to license only those
physicians graduating from AMA approved medical schools. This is one of the largest impacts in the
history of regulatory action in the United States. Kessel explains:
The delegation by the state legislature to the AMA of
the power to regulate the medical industry in the public interest is on a par
with giving the American Iron and Steel Institute the power to determine the
output of steel. This delegation of
power by the states to the AMA, which was actively sought and solicited, placed
this organization in a position of having to serve two masters who in part have
conflicting interests. On the one hand,
the AMA was given the task of providing an adequate supply of properly
qualified doctors. On the other, the
decision with respect to what is adequate training and an adequate number of
doctors affects the pocketbooks of those who do the regulating as well as their
closest business and personal associates.
It is this power that has been given to the AMA that is the cornerstone
of the monopoly power that has been imputed by economists to organized medicine
(Kessel, 1958).
As a consequence of this legislation, many medical
schools that did not pass the new standards for teaching would be shut
down. This had the simultaneous effects
of reducing the supply of physicians and increasing the overall quality of care
provided by the average physician. As
one scientist of the era remarked, “It was about the year 1910 or 1912 when it
became possible to say of the US that a random patient with a random disease
consulting a doctor chosen at random stood better than a 50-50 chance of benefiting
from the encounter” (Cohn, 2007). Prior to this, the standard of care practiced
by physicians was divergent and vulnerable to quackery, unsanitary techniques,
and uneducated guesswork. In effect,
the AMA had achieved their goal of monopoly over medical education and greatly
increased the quality of the nation’s supply of physicians.
When examining the impact of the AMA on the
healthcare system from an information flow standpoint, the AMA acted as a mass
filter on the new information entering the system. Desouza and Hensgen define a filter as an
agent or device that removes “unwanted noise from the signal of interest” (Desouza & Hensgen, 2005). The AMA’s enforcement of standards on medical
education and practice had the effect of reducing the volume of questionable
practices and inconsistent treatment approaches from the field of public health. While the stated intent and purported purpose
of these actions was in the interest of, “advancing the science of medicine,
improving the standards for medical education and care, developing a program of
medical ethics, and improving the health of the public”(American Medical Association), the intent of these
actions have often been interpreted as self-serving and designed to elevate the
status and professional rewards of physicians.
As Desouza and Hensgen stated, “whether or not integrity is maintained
in the signal belongs solely in the domain and responsibility of the system
design and actually has little to do with the signal per se” (Desouza & Hensgen, 2005). While the message may have been intended
solely to benefit the state of public healthcare, the system AMA had created
was designed to enhance the prosperity of its members and this affected the
ultimate outcome of the AMA’s efforts.
As fewer and fewer medical schools were able
to meet the AMA’s criteria for licensure, they lost their accreditation and
were closed. As a consequence, the
capacity to train physicians was diminished. Graduations of physicians fell
each of the subsequent 20 years. This
had a disproportionate effect on minority physicians. African American physicians, once common,
were generally not admitted to AMA licensed schools, and African American
medical schools were systematically closed as they failed achieve AMA licensure
(Goodman & Musgrave, 1992). One of the effects of fewer graduates and a
tight supply of physicians was the development of a culture of insiders or a
‘guild behavior’ among physicians. Furthermore,
the costs of medical care, particularly in hospitals began to rise as physician
salaries and investments in hospital infrastructure increased. By the 1920s, the costs of treatment at a
hospital had become quite expensive by the standards of many Americans (Cohn, 2007).
It is during this period of time, that the
healthcare system as a whole began to develop its own organizational culture
and structure. By gaining the sole
regulatory ability to license the nation’s medical schools and set the standard
for practicing physicians, the AMA was beginning to impose a degree of order on
a previously chaotic system. At this
point, the nation’s system of medical education had developed a hierarchy at
the macro level were decisions came down from the AMA and impacted the medical
schools and physicians under its authority.
This change to the supply of physicians meant
that number of patients being treated by an individual physician would be
greatly increased. This in turn, caused
an increase in the complexity of the system.
As Desouza and Hensgen noted, in order to deal with an increasingly
complex flow of information, organizations have tended to respond by developing
hierarchical systems to manage, filter, and distribute the flow of information throughout
the organization (Desouza & Hensgen, 2005). The structural change imposed upon the macro
system by the AMA would have a ripple effect over the next several decades
leading to the development of ever more complex systems to cope with rising
costs and increasing complexity in the flow of information throughout the
nation’s healthcare system as a whole.
The concept of financially insuring oneself
against the possibility of future expenses is not a new one. Insurance has been around since the days of Babylonian
traders who feared that their shipments across the desert might fall prey to
bandits or other disasters (Cohn, 2007). In fact, Benjamin Franklin formed the Union
Fire Insurance Company in Philadelphia in 1752 (Public Broadcasting System, 2002). However, health insurance did not develop in
the United State until the early 20th century.
The development of health insurance in the late
1920s had it beginnings in, “isolated communities where employers provided
insurance to their employees and thereby were able to attract physicians to
take care of their workforce”(Richmond & Fein, 2005). Richmond
and Fein described the beginnings of health insurance in the United States as
follows.
“The growth of modern health insurance, however, began
in 1929 when an able hospital administrator, Justin Ford Kimball, wanted to
make certain that Baylor University Hospital would receive payment for services
provided to hospitalized patients. He
conceived of the idea of collecting ‘insurance premiums’ in advance and
guaranteeing the hospital’s services to members of groups, such as employee of
a railroad company, subscribing to this arrangement”(Richmond & Fein, 2005).
The concept of offering ‘hospital insurance’ as
an employment benefit soon began to take hold and employers and hospitals became
the focal point of health services. Initially
employers administered the plan, which had the effect of reducing overhead administrative
costs, and physicians or hospitals were contracted to treat the plan members at
a fixed rate. The result was a health
insurance plan where the contracted physician or hospital would fix as many illnesses
or injuries as necessary without charging extra fees. This was in effect, a prepaid healthcare
plan. With the onset of the Great Depression
in the 1930’s the prepaid solution even became popular with physicians because
it guaranteed them a salary at a time when few people had the financial resources
to see a private physician whose services were generally more expensive (Richmond & Fein, 2005).
Eventually this system would evolve to
encompass multiple hospitals. The
arrangement changed from one where a group of subscribers contracted with a
particular hospital to a system under which subscribers and contracted
physicians could select any hospital that was a member of the plan. Physicians were contracted with either
individually or as a group. Hospital association-sponsored
not-for-profit-plans, such as the Blue Cross soon began to develop. The not-for-profit Blue Cross associations in
different states accepted the responsibility of serving the entire
community. These plans developed a
community–rating system under which the one fee designed to reflect the average
costs in the community was charged to all members of the plan. Such flat-fee programs made generally equal
healthcare available to all those who could afford the premium regardless of
the resources they consumed (Richmond & Fein, 2005).
At the same time that the non-profit plans
were reaching maturity, for-profit healthcare plans were beginning to
develop. These plans were primarily
marketed to healthy individuals participating in Blue Cross-type plans who were
attracted to the lower premiums offered by the for-profit plan. Such plans offered lower premiums to low-risk
individuals and excluded high-risk individuals.
In this way they competed effectively with the Blue Cross’s system that
based it’s premiums on average community risk.
As low-risk individuals fled to less expensive plans, “The average risk
for those remaining with the Blues increased and, as a consequence, so did
their premium” (Richmond & Fein, 2005).
The introduction of employers and insurance
companies to the system added a new layer of complexity to the system. Furthermore, access to healthcare was
expanding, which also contributed to increased size and complexity. Before these developments, a consumer’s
interactions with the system were mostly limited to physicians and hospitals,
the providers of healthcare. With the
introduction of insurance companies and employer-sponsored health plans, the
number of entities a patient was required to interact with doubled. While this marked a distinct change in the system
from a patient’s point of view, the initial homogeneous nature of the plans
acted to minimize the complexity being added to the system. A consequence of this new model was that it
encouraged indifference in patients towards information related to the costs of
healthcare(Gordon, 2005, p. 360). For the most part, patients did not need to
understand the inner-workings of the healthcare plan as they simply paid their
fees and received unlimited services. This model would ultimately prove to be
financially infeasible as the demand for services and associated costs began to
escalate.
By 1933, the nation as a whole was beginning to
seriously explore the idea of a national healthcare plan. The Committee on the Costs of Medical Care
had conducted an extensive census of national healthcare and determined that
the majority of expenses were concentrated in a small high-risk percentage of
the population. However, since all
citizens run the risk of experiencing a medical crisis, the committee decided
to recommend that all Americans, “…assume some form of collective responsibility
for medical costs”(Cohn, 2007). This concept was not unprecedented. By this time, other nations had already begun
to distribute the financial burden of healthcare across all citizens and provide
universal medical insurance to their citizens. Cohn argues that, “…in these
countries healthcare was on it’s way to becoming a right” (Cohn, 2007),
rather than an article of trade.
However, universal health care had many
opponents. Morris Fishbein, editor of
the Journal of American Medical Association (JAMA) and a prodigious writer, was
a vocal opponent of national health insurance.
Fishbein was an advocate of the sanctity of the patient-physician
relationship and believed that a national healthcare plan would violate the
intimacy of that bond. Fishbein also
opposed corporate medicine, prepaid hospital insurance, and even fee-for-service
health insurance. To him all of these
threatened to interject a third party organization between the doctor and the
patient (Lundberg, 2001).
Fishbein’s concerns were well founded. As previously mentioned, third party
organizations such as employer-sponsored insurance and prepaid hospital insurance
plans had already interjected another entity into information flow between
doctors and patients. At this point in
time, those entities were causing minimal disruption to the information being
passed between doctors and patients.
Perhaps prophetically, Fishbein had predicted that these entities would become
major sources of distortion in the communication channel.
Throughout the 1940s and especially during
World War II, the number of insured Americans rose dramatically. This is in large part due to the National Labor
Relations Board’s 1948 ruling that health benefits were subject to collective
bargaining. By 1950 about 54.5 million
Americans, roughly one third of the population, had health insurance (Gordon,
2005, p. 360). Throughout this period of time and into the
1950s the healthcare system grew steadily while health care costs continued to increase
in the background. By the late 1950s the
postwar economic expansion had slumped, people lost their jobs, and suddenly the
predominantly employer-paid health insurance system left many previously
insured people uninsured. The growing
population of retirees was also largely without insurance(Lundberg, 2001, p. 31). Although this was not an unprecedented
condition, public expectations concerning access to healthcare had
changed. In response to the growing
demand for health insurance, the federal government created the Medicare program
in 1965 to provide health insurance to the elderly and the Medicaid program to
provide healthcare services to the indigent. Whatever services the government did not cover
could be obtained through supplementary Medigap providers who offered ‘first
dollar’, or fee-for-service, coverage.
Therefore Medicare beneficiaries who purchased the supplemental
insurance would have the same comprehensive benefits available to those with
employer-paid or prepaid insurance (Lundberg, 2001, p. 87).
During this same time period the demand for trained
physicians was beginning to eclipse the available supply. President Johnson’s administration proposed to
address this by doubling the enrollment at medical schools through a series of
generously funded federal programs designed to encourage the development of new
medical schools and expand the enrollment of existing schools. The plan also proposed to address the
shortage of physicians in rural areas through economic incentives and to lower
physicians’ fees by increasing supply relative to demand (Lundberg, 2001, p. 32).
During this period of history the regulatory
actions by the government induced more change in the system than at any time
since the Flexner report. Government
action had helped cause the rapid rise in the number of insured Americans and
the related expansion of the healthcare system as a whole. Furthermore, the creation of the Medicare and
Medicaid programs introduced the government as an agent directly involved in
the interaction between patients and healthcare providers. With the addition of Medigap and other
supplemental insurance providers, patients were now faced with two intermediary
agents in their interaction with physicians.
By this point, the structure of the healthcare system had become quite
complex and the chances for distortion in the information flow between patients
and physicians had been dramatically increased by the new developments in
health insurance and government intervention.
Contrary to its intent of producing more
general practitioners and lowering costs, the actions of the Johnson
administration dramatically increased the number of specialist physicians and
consequently the associated costs. Due
to the outflow of government spending in the Medicare program, physicians
specializing in eldercare became one of the fastest growing segments of the
healthcare industry. Rather than see a
family doctor, more and more elderly patients began consulting with geriatric
specialists. These physicians offered complex
and often expensive therapies with the promise of prolonged life (Lundberg,
2001, p. 87). Due to the rise of supplemental insurance
programs these patients paid little for their increased consumption of medical
services and were largely unconscious of the rising costs. This phenomenon was not restricted to
eldercare and repeated itself over-and-over across a variety of medical
fields. Historian David Johnson observed
that, “When you double the surgeons in an area, you double the number of
surgeries, but you do not increase the overall health care” (Johnson, 2009).
Johnson’s observation illustrates that the effect of increasing the
number and diversity of specialists was to increase the demand for their
services.
The demand for health coverage from employers
also increased. According to Lundberg,
to stay competitive employers were forced to provide healthcare plans offering
immunizations, prenatal care, periodic checkups, and preventative screenings. There was no opposition to this from
physicians or the AMA. Hospital based
doctors began to increase their fees on a regular basis and met little
resistance as most patients’ insurance plans did not require the payment of any
out of pocket fees (Lundberg, 2001, p. 88). Additionally, a new trend began to develop
among specialists. When some practitioners
set their fees as high as they possibly could, that became the base fee under
the ‘customary and reasonable’ method for setting fees used by the Blue Shield
and other insurance providers. These
practices quickly lead to the rapid inflation of fees for specialist
physicians. Conversely, general
practitioners met real resistance to ramped fee increases and were forced to
keep fees lower to remain competitive.
This reinforced the inclination of many new physicians to specialize
rather than enter general practice.
Soon the same obscuration of costs affecting
doctor’s fees began to affect the coverage of prescription drugs. Lundberg explains, “Once payments were made
by 3rd party payers, resistance to price increases diminished” (Lundberg,
2001, p. 88). Again, supplemental insurance programs were
obscuring the price increases from the consumer and pharmaceutical companies
began to steadily increase prices for drugs.
In addition to the obscuration of fees, the
payment model for physicians had nearly universally changed from a salary based
model to a fee-for-service model.
Doctors were now paid for the individual services they provided. This meant that the more patients a doctor
treated the more doctor would be paid, and the more expensive the treatment the
more the doctor would be paid. Lundberg
offers the following explanation.
“The incentives created difficult ethical
dilemmas. Here’s one obvious example. A
surgeon covered by fee-for-service insurance is confronted with a patient in
the middle of the night who has abdominal pain.
After an examination, the question for the surgeon is whether to
operate. Somewhere in the back of the
surgeons’ mind is the understanding that if he does operate he will be paid,
and if he does not operate he will not be paid. Either consciously or
subconsciously, there was always a bias to intervene in fee-for service
medicine. The same surgeon in a
traditional prepaid plan knows that no matter what he does, his income is not
involved. He is paid in the same fashion
come what may, so he might decide to wait until morning to consult with other
physicians about the patient’s condition or he might decide that an immediate
operation is necessary. Either way his
income is not affected.” (Lundberg, 2001)
It is at this stage in the evolution of the system that
information asymmetry becomes a real problem.
Information asymmetry is a situation where one party, the agent, conducts
work for the other party, the principal, yet for some reason, usually self
interest, does not fully disclose all relevant information. In the resulting situation, the principal has
less information pertaining to the topic at hand than the agent (Desouza & Hensgen, 2005). In this case, the insurance companies,
whether intentionally or not, have obscured the information pertaining to the
costs of medical services from the consumers.
The resulting situation is that consumers fail to resist cost increases
for medical services. Healthcare
service providers were quick to exploit the lack of resistance and rapidly
raised their fees. Goodman and Musgrave
noted that in 1991 alone physician fees increased by 9.3 percent – 50 percent
more than in any previous year(Goodman & Musgrave, 1992).
With coverage rates and costs increasing,
insurance providers both private and government based began to enact measures
to control raising costs of comprehensive care.
At some point in the 1970s, insurance providers began a trend of
reducing coverage and limiting benefits in an effort to curb their raising
expenses. Also concerned with continuously
escalating costs of comprehensive care, the federal government enacted a series
of laws designed to contained costs. The
Employee Retirement Income Security Act (ERISA), enacted in 1974, included
provisions to oversee health benefit plans and freed most employers from state
regulations regarding coverage standards.
Lundberg explains that, “Employers offering coverage through
self-insurance often used insurance carriers to administer their plans, using
restrictive networks and methods to constrain coverage” (Lundberg, 2001, p. 94). The ERISA laws protected these decisions to
restrict coverage and gave employers the leeway to choose less expensive health
plans. The eventual result of these
trends was the stabilization of insurance prices at the cost of reduced
benefits from comprehensive coverage plans.
This trend towards a reduction of benefits
continued to gain momentum into the 1990s.
Journalist and economist Robert Kuttner claimed that throughout the
1990s, “The most prominent feature of American health insurance coverage is its
slow erosion” (Kuttner, 1999).
Premium costs for health insurance both to individuals and employers
began to rise again. Furthermore,
businesses began to prefer hiring temporary or part-time workers to whom they
did not provide health benefits. Maximum
coverage levels began to decline.
Additionally, employer-paid insurance program began a shift away from
traditional Health Maintenance Organizations (HMOs) towards Preferred-Provider
Organizations (PPOs). While these plans
offered patients greater choice, they required higher out of pocket expenses (Kuttner, 1999).
Overall, the trend throughout this period has
been to place more of the financial burden for healthcare on the consumer. Additionally, the number of underinsured has
been on rise also. The underinsured
represent the portion of the population with some health benefits, but who must
forgo treatment because their healthcare plans will not cover medically
necessary treatments (Kuttner, 1999).
These individuals must either pay out-of-pocket for their healthcare or
forgo treatment. Another disturbing
trend is the increasing population of uninsured. Beginning in the early 1990s, the percentage
of the population without insurance began to climb moving from less than 15
percent in 1990 to a high of 16.1 percent in 1997. The rate dropped in the early 2000s, but rose
again to 15.3 percent in 2007 (DeNavas-Walt, Proctor, & Smith, 2008).
The previously described trends can be explained
as a reaction of the system to the changes in its previous state. The reduction in benefits coverage is an
organizational response to the rapidly increasing costs and information
asymmetry of the previous decades.
Employers and insurance companies acted in their own best interests to
reduce expenses without dramatically reducing the size of the insured
population. The asymmetry of information
in relationship between physicians, insurance providers, and their patients
also increased. Under the direction of
HMOs, some physicians would decline to inform patients of possible treatments
not covered by their health plans. In
effect, insurance providers and healthcare providers filtered and restricted
the flow of available information to patients.
With their access to information regarding the choices and consequences
of their medical treatment, patients now more than ever before are disconnected
from the physicians responsible for their treatment.
The American healthcare system is a very
complex organization with many stakeholders ranging from patients and doctors
to employers and insurance providers.
But in coming to understand the history of the system, it has been
possible to examine how changes to the organizational elements of the system
and how their interactions have ultimately resulted in the frustrations that
patients experience today. While the
revolution in medical science and the development of complex insurance systems over
the past century has dramatically increased the quality and accessibility of
healthcare in United States, the results have proven to be expensive as well.
In the early days of the American healthcare
system, the free market nature of the system kept organizational complexity
fairly low. Doctors and patients enjoyed
a less restricted relationship, and there were no other entities to distort the
flow of information between the two. The
founding of the AMA and the granting of monopoly power over medical education
to the AMA marks the beginnings of a pattern of ever increasing complexity and
expense in the system. Furthermore, the
AMA’s monopoly over medical education both increased the quality of medical
service in the nation and initiated a shift from a free market system to a
closed market.
The development of early models of health
insurance further increased the organizational complexity of the system. Furthermore, this marked the first time that
a third party was interjected into the flow of information between doctors and
patients. This marked the beginning of a
pattern of information asymmetry that would lead to escalating costs and rising
demand. Increasing government
intervention in the system further added to the levels of complexity and caused
a dramatic increase in both costs and insurance coverage that would further
exacerbate the asymmetry in information between doctors, insurers, and
patients. This chain reaction of
organizational changes and distortion of information has ultimately shaped the
healthcare system into what it is today.
Part of the problem in this system is that
Americans pretend to embrace a free market system in healthcare, but their
actions have created a closed market that encourages the obfuscation of costs. An essential component of a free market
system is consumer access to information regarding the costs of services. However, the system of healthcare this nation
has been designed to specifically hide the costs of services from consumers and
works to short-circuits competition in the market. The nation should embrace one clear direction
for the healthcare market. Whether that is
a free market system, a heavily regulated market, or a nationalized system, the
future of the nation’s healthcare system would benefit from a clear vision.
Future decision makers in the healthcare
system would be well advised to consider the implications of their actions on the
organizational dynamics and information flows of the healthcare system. All actions taken on specific parts of the
system will inevitably have consequences beyond the designer’s intentions. Future actions taken on the healthcare system
must take into account the effects they will have on the information flow
between physicians and their patients.
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