Hospitals

      The history of medical and dental insurance began in the late 1920s with the creation of hospital insurance. According to John Steele Gordon, in an article published in the May/June 1992, issue of American Heritage, entitled, "How America's Health Care Fell Ill," hospital insurance was a plan originally devised to bring more patients into hospitals and thus save their labor-intensive and expensive-to-operate businesses.

      "The first hospital plan was introduced in Dallas, Texas, in 1929. The subscribers, some fifteen hundred school teachers, paid six dollars a year in premiums, and Baylor University Hospital agreed to provide twenty-one days of hospital care to any of the subscribers that needed it." Hospitals soon recognized the advantage to their bottom line and the idea quickly spread. They joined to offer such plans to other large groups of participants. ..Giving subscribers a choice of which hospitals to use.”

      This became the model for Blue Cross that first operated in Sacramento, California, in 1932. This was the first major medical plan offered in this country. Gordon continues, "Although called insurance, these hospital plans were unlike any other insurance policies. Until then, insurance had always been used to protect against large, unforeseeable losses. But the first hospital plans didn't work that way. Instead of protecting against catastrophe, they paid all costs up to a certain limit, designed to guarantee a regular cash flow and generate steady demand for hospital services." Soon physicians and hospitals joined forces to help each other. After all, it takes a physician  who is affiliated with a hospital to admit a patient there.

     Because of the primitive nature of medical treatment available at that time, 21 days of hospital care was more than sufficient to treat patients with their varied problems. Gordon, again, "The daily cost of hospital care was the same whether the patient had a baby, a bad back or a brain tumor." That type of insurance only paid for treatment in a participating hospital. This resulted in the subscribers' medical problems being treated in hospitals; needed or not. To leave the doctors out of this money making plan upset the ADA and the AMA and all their dues paying members.

            Hospitals since then, thanks to the many technological improvements in diagnosis and repair, have learned how to fill more beds with more needful patients. The hospital makes money from the days spent there by the patient and the amount of treatment prescribed by the attending physician, in conjunction with the technology provided by the hospital. The doctors make money by treating their patients in a hospital, thus justifying their higher fees. After all, if the patient is admitted to a hospital, rather than treated in an office visit, the medical condition must be very serious. The more serious the medical condition, the higher the fees. 

            When the Emergency Room was invented, it provided hospitals with a more efficient way of treating trauma and other types of emergency visits. It also provided the hospital with yet another stage of medical billing; from the ER to the semi or private room. What ever happened to wards? Hospital wards were popular before World War II. They were like dormitories and very inexpensive. But hospitals wised up to the fact that more money would be made with private and semi private rooms.

            Hospitals have also attended business schools and learned that by combining, two or more hospitals joining together on paper, they would achieve savings by reducing duplication, and through economies of scale. Again, the villain is fee-for-service. Just as doctors make more money by doing more procedures, so do hospitals.