The house that Medicare built: remodeling for the 21st century.

The current American Medicare system can be viewed as a house designed and built to fit on a very strangely shaped lot. The metaphorical building site that created the constraints within which the Medicare system was designed was the strange American fee-for-service (FFS), private practice, health care system of the early 1960s. Medicare's basic design flaws, shaped by those unique constraints, led to the inevitable problems that have emerged as the Medicare system followed the bulk of the American health care system into its destructive nosedive. I'll take this opportunity to develop some thoughts on the future of the relationship between Medicare and managed care, rather than cataloguing, in exquisite detail, where that relationship has been and what the current state of the relationship is. However, in order to think about the future of this relationship, it is necessary to frame it within the context of the larger American health care system. In order to provide this frame, I'll reflect on the nature of the health care system and review some of the significant changes in the system, comparing the system at the time Social Security was first implemented with the time of Medicare's 20th anniversary. Then, as I propose a remodeling of the house that Medicare built, I'll speculate on the future of the health care system, particularly as it applies to the elderly in America. This reflection is of special value in contemplating the future of the relationship between Medicare and managed care, because that relationship will continue to be shaped by the role of the population-based clinical practice models in the overall health care system. Let's look first at the structure of the health care system in 1935, the year of the passage of the Social Security Act. The national Social Security system had been designed for implementation without a health care component. The Nation was in the depths of a major depression. Unemployment was extremely high. Americans lived in a world without much in the way of social safety nets. Physicians practiced almost entirely in solo practice settings and the payment mechanism was entirely out-of-pocket. Many people had no access to care. When World War II began in 1941, a very large proportion of the military inductees examined were seeing a doctor for the first time in their lives. When medical care was given, it was given in the doctor's office, or perhaps in the patient's home. The role of technology was extremely limited and the function of medical care was just that, caring for sick patients. Because of the lack of technology and the focus on caring for sick people, the system and its practitioners were evaluated on the basis of how nice it was (or how nice they were). But 50 years later, by 1986, things had changed dramatically. This was the middle of the Reagan years in America. Medicare had been in place for 20 years, but two major attempts at overall national health care reform had been defeated. There had been a dramatic expansion of medical school capacity, and medical care expenditures were eating up more than 12 percent of the U.S. gross domestic product. As a Nation, we were just beginning to doubt that we were living in a golden age, where everything was possible for all people, as we had believed at the implementation of Medicare in 1966. Medical care took place in small-to-medium-sized practices, with most doctors practicing in some form of organized group. Payment for medical care was covered by Medicare and Medicaid, by private insurance, or to some extent was paid out of pocket. We were witnessing the point of maximum coverage by private health insurance—more than 90 percent of the population were covered for hospital expenses, and about 80 percent were covered for physician expenses—and we were just starting to see the downward curve that has continued ever since. The dominant site of care was the hospital. The role of the government in health care was as the payer of last resort. The form of physician payment in 1985 was mixed, with the major proportion still coming from FFS, but the fastest growing segment included capitation or salary arrangements. The future of managed care systems was beginning to look very bright, as a variety of new models were coming into the market, and a plethora of investor-owned corporations was bringing enormous amounts of capital into the field. The role of technology was growing, but technology was mostly in the hospital and was mostly in the form of technologies of failure, such as coronary artery bypass graft surgery or diseased-organ transplantation. The function of the medical care system was curing disease or at least interfering with the disease process. The system (and its providers) was measured by how technical it was. For example, much of the dispute in malpractice cases was (is) around whether all appropriate/possible diagnostic tests were ordered in any situation. And finally, by 1985, the nature of the physician's obligation to patients was becoming increasingly unclear. Insurance had so sufficiently intervened between the doctor and the patient that the doctor's strong sense of obligation to the patient, at least with regard to economic issues, seemed to have become eroded.