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LIBRARY
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dissertation entitled

CONSUMER-SPONSORED HMOS:
CASE STUDIES OF SOCIAL CHANGE IN HEALTH CARE

presented by

CLAIRE HOFFENBERG KOHRMAN

has been accepted towards fulfillment
of the requirements for

Ph.D . SOCIOLOGY

degree in

 

 

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CONSUMER-SPONSORED HMOS:
CASE STUDIES OF SOCIAL CHANGE IN HEALTH CARE

By

Claire Hoffenberg Kohrman

A DISSERTATION
Submitted to
. Michigan State University
1n partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Sociology

1988

ABSTRACT

CONSUMER-SPONSORED HMOS:
CASE STUDIES OF SOCIAL CHANGE IN HEALTH CARE

By

Claire Hoffenberg Kohrman

In the early l9705, social activists gathered at playgrounds and
kitchen tables to develop consumer-controlled health plans--now called
heahm maintenance organizations (HMOs)--which would diminish the power
of the medical profession. This dissertation studies this social move-
ment begun by consumers, encouraged and then coopted by the federal
government, and finally, corporatized by major insurers and health care
untiunfions. The shift from consumer activism to corporate control is
exuMned with case studies of two HMOs in Illinois and Michigan and
analyzed in the context of the changing patterns of medical practice
and shifting political economic conditions from 1965 to 1986.

The methodology integrates extensive interviews, bureaucratic
documents, and media reports to explain how the activists' interests
converged with those of government and corporations to form an ironic
alliance with unintended consequences.

In spite of the differences in local community circumstances, the
two HMOs followed similar trajectories: first animated by the ideology
and energy of the consumer-founders, they then gained extensive PUD“-
city and membership in their communities, but finally fell into
f""a'lCialcrises that forced them to sell out to corporate insurers.

The "Wk explores both the intended and unintended consequences of the
HMO movement for the consumer activists, for the medical profession

they 1"tended to change, and for the health care syStem-

 

¥ __.__.__

 

 

The consumer founders were all from a particular cohort experi-
enced with the social activism of the 605; their first goals were
equitable access and consumer control in health care. But as they
sought legitimacy and funding for their HMOs they reluctantly relin-
quished their goal of equity, and were themselves professionalized. By
l986, most were administrators in health care insitutions or government
agencies.

Physicians in communities where HMOs now dominate report declining
sovereignty and altered relationships with hospitals, colleagues, and
patients. Health care delivery itself is in transition nationwide, as
control shifts from providers to managers who respond to corporate and
government payers.

To explain these unforseen shifts, this study highlights the

intersections of ideology, technology and the economy, reflecting both

the symbolic and substantive importance of the early consumer-sponsored
HMOs.

 

‘ Copyright by
CLAIRE HOFFENBERG KOHRMAN
l988

 

 

Dedicated, with gratitude, to the universities
which, because of their commitment to public
education, have made this work possible.

 

 

 

 

ACKNOWLEDGEMENTS

My graduate education began officially in l972, and this
dissertation has developed over many years, as I, like the activists I
write about, began to explore the territory beyond the focus of home
and family, and was drawn into the world of professions.

The path through graduate school to the completion of this work
has been long. So it pleases me to thank the many who have so
substantially helped me along the way. Family and friends, teachers
and colleagues first helped me to recognize my own deep wish to be a
social scientist, and then offered the respect and support that made it
possible. In addition, there are those who specifically helped me to
accomplish this study.

It seems right to start with my children-—Deborah, Ben, Ellen, and
Rachel--with whom I have grown up. It has been with and from them that
I have learned the most telling lessons about the social world, and
those things I most wanted to know about myself. Furthermore, they
have been my sidekicks on field trips; searched libraries for
references; provided coffee, custard and cookies when my energy lagged;
and talked with me long into the night about ideas.

Friends and other relations, too—~more than I can name here-~have
encouraged me with their expectations, their support, and their own
examples of excellence. I thank them all and mention here an important
few who prodded me at the beginning (David Klein), supported me

throughout the years (Elaine and Mike Bailie, Donna Edison, Shelli and

vi

 

 

 

 

 

Arthur Elstein, David Kohrman, Judy and Lee Shulman, Sherry Van Amburg,
V and Bill Neil), or sustained me at the end (Carol and Larry Gartner.)

One of the consumer activists whom I interviewed, musing about the
consumers' history, introduced an applicable phrase. She said: "we
were dogged with serendipity." And indeed, serendipity visited my
graduate education often. My first "trial" class, when I began to
explore the possibility of graduate school in 1972, was by chance with
Barrie Thorne, who would become, years later, the chair of my
dissertation committee. She won my respect in the first lectures and
my commitment to graduate school by the end of the social psychology
class. I, like so many of Barrie Thorne's students, found her weave of
the theoretical with the concrete enticing, and her mentoring
unmatched. I respect her perspectives, employ "her" methodology, and
cherish her friendship.

My dissertation committee as a group, and each member of it, has
had a lasting effect on this process and on me. I thank Rick Hill for
my rigorous first course in conflict and change, and for the frame that
that has continued to provide my work. And Gitte Jordan has for years
believed in my efforts, expanded my perspective, and modeled for me the
use of social science not only as a tool to understand medicine but as
a way to help the medical profession understand itself.

When, in l980, I tentatively ventured away from the shelter of
Michigan State University, I, again serendipitously, found Odin
Anderson just beginning a project on HMOs at the University of Chicago.
He willingly added me to his decades-long list of those he has "shown
the ropes" of health care research, and thus significantly expanded my

understanding and this dissertation. I am very grateful. Most

vii

 

 

 

 

 

 

 

 

 

 

 

 

 

 

recently Harry Perlstadt has added his thought and experience in
sociology and health care research; his support and his meticulous and
insightful reading of this dissertation have been invaluable.

Others, also, at MSU have had a crucial, though less Specific role
in my decision and ability to continue and complete this work. In
l974, I was offered the opportunity to teach writing at James Madison
College. At Madison, I taught with, thought with, and learned from
scholarly, committed, and often compelling teachers; I began to want
to count myself among them. I especially thank Ron Dorr (whose
convictions about writing find their way into most pages of this
dissertation), Richard Evans, Patricia Hummer, Peter Lyman, Jack
Paynter, and Katherine O'Sullivan See. And Mary McCormack, my
colleague at Madison as well as in graduate school, has for a decade
shared with me her thoughts, her books, her wit, her car and her price-
less capacity to remember what I forget-—be it a quote from Nietzsche
or where I left my keys.

There are also important specific thanks for contributions
directly to this study and its completion: above all, it is the
founders of Health Central and NorthCare, and the early staff and board
members named and described in this study, whom I thank for the content
of this work. They have searched their garages, their attics and their
memories for the stuff this study is built on. In learning about them I
have learned from them. I thank them and hope that in this discussion
of their efforts they see my deep respect and admiration, as well as my
gratitude.

I owe thanks to all who gave their time and thought in the many

interviews, and particularly Dr. Bonta Hisco for his earliest and

viii

 

 

 

 

 

 

 

ongoing encouragement to study Health Central, as well as Karen Heller
who provided her complete Health Central records and correspondence.
Also thanks to Millicent Lane, of the Lansing State Journal, who lent
me her files and her insightful observations.

I am grateful, too, to the Center for Health Administration Studies
at the University of Chicago which, at the gracious behest of its
director, Ronald Andersen, offered me a fellowship and thus the
company of good colleagues, a space to perch, and xerox priveleges, for
the final months of the writing.

And the writing would not have come to this reading had it not
been for Joyce Van Grondelle and Shirley Rhyne whose skill as typists
and cool heads when confronting the technology of wordprocessing,
production, and reproduction were indispensible.

Finally, I turn to that unique combination of colleague and
critic, friend and family, AFK. Since we met when he was l7 and
applying to medical school, he has made it possible for me to be a
participant observer in his profession and a participant in his life.
This finished work is in largest part a consequence of the life, both

intellectual and personal, which we began together 35 years ago.

ix

 

 

 

 

TABLE OF CONTENTS

Page
List of Tables . . . . . . .................... xv
List of Figures ......................... xvi
PART I. THE STUDY
Chapter l: Consumers Challenge Traditional Medical Practice
Patterns and Form an Ironic Alliance
Introduction . . . . . . .................... l
Prepaid Plans and a Developing Study
The Allies' Interest: The Costs of Health Care
Unexpected Allies: Unintended Consequences
Review of the Literature .................... l8
Consumers and Consumer Activism as Part of a
Social Movement
The History and Patterns of Practice of American Medicine
Interest and Influence of Corporations and the
State in Health Care
Questions and Plan of Analysis ................. 31
Chapter 2: From Multiple Methods an Integrated Methodology
Introduction . . . ...................... 35
Avoiding Phoney Wars
Overview of the Research Methodology .............. 4O
Observation . ......................... 43
Interviews . . . . . . ........... . ......... 44

Intensive Interview
Semi-Structured Interviews
Supplementary Physician Interview Data

Documentation ......................... 52
Instithtional Archives, Public and Private

Newspapers and Media

Professional Journals and Magazines

Federal and State Regulations and Legislation

National Survey Data and Statistical Abstracts

PART II. THENTIETH CENTURY AMERICAN MEDICAL PRACTICE

Chapter 3: Health Care in the United States, 1910 to

 

19705: The Traditional Dominance of the
Medical Profession

Introduction . . ....................... 57
Norms, Values, and Patterns of Practice ........... 6l
The Possibility of Group Practice ............... 63
Alternative Forms of Medical Practice ............. 68
Opposition from Organized Medicine .............. 71

Professional Issues of Historic and Political
Concern to the Medical Profession Converge in HMOs ..... 75

PART III. CONSUMER MOVEMENT IN HMOS, 19705 TO MID—T9805:

TNO CASE STUDIES .................... 8l

Chapter 4: The Community Context: Early 19705 in Chicago,

 

 

Illinois, and Lansing, Michigan

Introduction .......................... 84
Consumers .......................... . 88
Physicians . . ......................... 90
Hospitals . . ... . . . .................... 95
Employers ........................... 97
Labor Unions .............. . ........... 99
Insurers . . . . . . . . ........ . . . . . ...... lOl
Regulators . . . ....... . . . . . . . . . . . ..... 102

xi

 

 

 

 

Chapter 5- History and Development of the HMOs:

NorthCare and Health Central .........

NorthCare . . . . ...................

The Emergence of a Social Movement: The Origins and

Claims of Activists ................

At the Playground
Networks and Intersecting Interests
Legitimation: An Arena for Claims and Goals . . . .

Mobilization: Developing a Membership (Clientele)
and Beginning the Search for Financial Support . .

Formation of an Official Plan of Action: Issues of
Ideology and the Press of Practical Matters . . .

Implementation of the Official Plan: The Tension
between Ideology and Bureaucracy .........
The Language of Bureaucracy and Business
Mixed Commitments and Interests

Enrollment and Start-Up: The Test and Consequence of

Ideology .............. . . . . . . .
Financial Crisis: Restructuring for Organizational

Maintenance ...................
The Coming of the Corporation ............
Health Central ...................

The Collective Definition of a Social Problem and the
Emergence of a Social Movement: A Rumor and Claims

Legitimation: October 26 and 27, 1973 .......

Mobilization: Looking for Money and Models .....
More Volunteers and Supporters
Reshaping Definitions

Formation of an Official Plan of Action: Seeking
Support . . . . . . . . . . . . . . . . . . . . .

Implementation of Official Plan: $50,000 ......
Salaried Staff
Esprit de Corps
Networking
Signs of Tension

 

Planning .....................

xii

. . . . ll3

..... l21

..... 126

..... l34

 

.1.

 

 

 

 

 

facility Construction and Staffing: Efficient and
lhofessional . .. . .. .................. 163

The Start-Up Period ...................... 164
Financial Crisis: Tension Between Growth and Management . . . . 166

The Coming of the Corporation ................ 168

Chapter 6: 1986 Update: Case Studies and the National Context
Introduction . . . . . .................... 174
NorthCare/PruCare Update ................... 176

The Chicago "Market Area"
NorthCare/PruCare: "One of the Insurance Products"

Health Central and the Lansing Area Update .......... 179

The Lansing "Market Area"
Health Central

National Alternative Health Care Delivery Patterns
in 1986 ......................... 182

Types of HMOs and Sponsorship
Changing Plans: Many Options
Insurers Invest

PART IV. CONSEQUENCES FOR CONSUMERS, PHYSICIANS, AND THE
HEALTH CARE SYSTEM

Chapter 7: Consumer Activists: Careers and Consequences ...... 193
Introduction ......................... 19S

Characteristics and Earlier Activism of the Founders'
Ideology and Goals
Models for Action

The Consumer/Founders and the HMO Movement .......... 207
Overview of an Ironic Alliance
Consequences for Consumers
The Influence of Consumers on the Development of HMOS'

Implications: Potential Influence of Consumers as
ACtTViStSo O O O O O O O O O O O O O O O ..... O O O O O 214

xiii

 

 

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Chapter 8: The Changing Health Care Environment: The
Ascendance of Managers and the Impact of Payors

Introduction .......................... 220
Consequences for Physicians .................. 221

Medical Community, Minneapolis/St. Paul

Physicians and Patients: What about Loyalty
and Quality

Physicians and Physicians: Competition with
Colleagues is Culture Shock

Medical Education

Physicians and Hospitals

Medical Practice in 1986: Changing Practice
Patterns and Income

Consequences for Health Care Delivery ............. 242
Access
Quality
Cost
Conclusions: Recapitulation and Reflections ............ 250
Economy ............................ 251
Ideology ........................... 253
Technology .......................... 256
Reflections ......................... 261
Glossary . ............................ 266
Mbliography . .......................... 267

xiv

 

 

List of Tables

Page
Table 1.1 ............................ 16
Table 2.1 ............................ 42
Table 3.1 ............................ 76
Table 4.1 ............................ 87
Table 6.1 ............................ 18S

XV

List of Figures

 

Page
Figure 1.1 ............................. 11
Figure 1.2 ............................. 13

 

\/

xvi

 

 

 

 

PART I. THE STUDY

 

CHAPTER 1

CONSUMERS CHALLENGE TRADITIONAL MEDICAL PRACTICE PATTERNS AND
FORM AN IRONIC ALLIANCE

INTRODUCTION

Health care in the United States in the mid-19805 is in a period

of significant cultural and economic change--some say in chaos (Starr

 

1982; Freidson 1985; Mechanic 1985; Fuchs 1985; Ginsberg 1984). This
work focuses on a particular aspect of that change: the development,
the growth, and the significance of health maintenance organizations
(HMOs), particularly those sponsored by consumers in the early 19705.
In 1986, HMOs represented a significant encroachment on
traditional health care and on the professional occupation of medicine.
Nhile as recently as 1980 only eight million Americans were enrolled in
HMOs--and those were concentrated in a few geographic areas—-by 1984
enrollment had grown to 15 million. In 1986, 21 million Americans
throughout the United States had chosen to enroll in HMOs--instead of
continuing to be patients of their physicians who are in the
traditional private practice of medicine. In some communities, as many

as 50 percent of the population have chosen HMOs. Clearly, something

 

important is happening in the organization of medicine and is reflected
in the professional occupation of physicians.

Everett Hughes noted that “. . . investigation about occupations
t>ecomes investigation about the nature of society itself" (1958:87) and
that “most occupations rest on some explicit or implicit bargain
t><etween the practitioner and the individuals with whom he works and

tJetween the occupation as a whole and the society at large. . . .“

 

 

 

In the early 19705, that "explicit or implicit bargain" with physicians
was challenged by consumer activists as they asked questions in
medicine, as well as in other domains, about "the nature of society."
Consumer activists "sought (particularly) to reduce . . . power in the
hands of professionals“ (Ruzek 1978). These activists sought schools
that did not depend on professional teachers, food that did not depend
on grocers, divorce that did not depend on lawyers, churches that did
not depend on priests, as well as health care that did not depend on
doctors.

It was the effort of local activists in Lansing, Michigan, to
control the delivery of their health care by developing a community—
based, consumer-controlled health maintenance organization that first
drew my attention. In my research I was to find that the Lansing case
was one of a number of such efforts throughout the United States in the
early 19705 in which certain consumers—-most already experienced with
the social activism of the 19605-—became interested in health care.
Strengthened by earlier successes in confronting bureaucracy and
professional authority, such as the military, the school system, and
the church, these consumers examined the health care available in their
community and defined it as a social problem. Working from their
living rooms and kitchen tables, the lay people planned to wrest power

from the medical profession.

The medical care system they confronted was then, as it is now,
deep and complex, including layers of health care institutions and
F3!“ofessionals developed through distinct historic periods. The adult
<lonsumers of the 19705 had been born and raised to adulthood in the

Fleeriod between 1930 and 1965 which, for health care, is best

 

 

 

characterized as the "Era of the Third Party," a period of enormous
growth in the technology and distribution of health services as well as
of the "discovery... that hospital costs and surgery were insureable"
(Anderson 1985). As a consequence, in a period when consumers became
increasingly dependent on expanding medical technology and professional
services (Hughes 1984:123), they were also insulated by the third-party
payment system and became increasingly distanced from the workings and

costs of the complex system.1

The visible part of the system was the
medical profession and the consumers saw it as symbol and center of
health care.

In an effort to gain some consumer control over medical care,
activists of the 19705 confronted the medical system on a number of
fronts. They developed free clinics, drug education and treatment
centers, and a powerful women's health movement which included women-
care clinics, self-help groups, the home birthing movement, and so on
(Freeman 1975; Ruzek, 1978; Kohrman 1985). They built their plan on a
model of health care that had been present, although minimally, in the
United States, since the early 19005. And as in the Lansing area,
consumers also sought models, elicited support, developed networks, and
confronted widespread antagonism to develop small, marginal, and

unconventional prepaid medical groups.

Prepaid Plans

The medical profession long resisted prepaid plans, like the best
icnown Kaiser Permanente Foundation on the west coast and the Group
Fiealth Cooperatives in Washington state, in Minnesota, and in

Flashington, DC. Such organizations-~in 1970 named health maintenance

 

 

 

organizations (HMOs)-—provide, most simply, a comprehensive package of
services to a voluntarily enrolled membership for a fixed prepaid fee.
Thus HMOs combine in an organized system both health care delivery and
financing. Consumer activists sponsored them because they perceived
them as radical organizations in which, theoretically, consumers would
play a critical role in the development and management of their own
health care organization. Initially, and in an ironic way central to
this study, they financed their efforts with federal grants offered by
a politically conservative Nixon administration (Starr 1982).

The growth of HMOs was slow. In the ten years from 1970 to 1980,
only 207 HMOs were developed throughout the United States (from 33 in
1970 to 240 in 1980, in contrast to the 1,700 predicted for 1980 by
Elliot Richardson of the Nixon administration in 1972) and for every
two that opened, one closed (InterStudy 1980). And it was not until
1982 and 1983 that the dramatic accelerated growth noted earlier began.
In Illinois, for example, where until 1982 HMOs had found little
acceptance (Anderson et a1. 1985), 1983/84 saw an increased enrollment
of 49 percent, and Chicago which had 6 HMOs throughout the 19705, in
1986 had over 20. Experts now predict that 40 million Americans will
be in HMOs by 1990; already several metropolitan areas have enrollments
of 25 to 30 percent, and some even 50 percent of their population
(Minnesota Medicine 1986).

This seemingly dramatic success i5 39;, however, the outcome the
(:onsumers sought or foresaw. Although the medical profession now has
‘less power (Starr 1982; Kohrman 1986), that power has not been
tlransferred to the consumers. In fact, most activists who founded and

Served on the boards of consumer sponsored HMOs have left. They have

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become professionals themselves and pursue careers of their own while
the organizations that they founded grow, multiply, diversify, often
sell stock, and operate (usually with no consumers on their boards)
under conservative leadership (often of large insurers), the capital of

major corporations and the encouragement of the federal government.

Lansing, Michigan 19705

However, in the late 19705 in Lansing, Michigan, all of this was
not yet clear. At that time, when I became aware of the community
consumer project, it promised to become a Lansing health care
institution and seemed of considerable interest to local area residents
and the media. As I interviewed participants, I found that the group
had the vitality, commitment, and leadership associated with a social
movement (Mauss 1975; Killian 1964; Blumer 1971; Weber 1947; Michels
1962), and, indeed, it was challenging the accepted normative way of
practicing medicine in the area and was perceived as radical by the
medical profession.

At that point, I began to study the organization and its short
history through the media, interviews, and participant observation. I
would soon find that consumer activists had introduced the idea of a
health maintenance organization to the area in early 1973. The HMO, to
be known as Health Central, had had an exciting period of development,
oPened on schedule, rocketed to success with exceptionally high
enrollments, and then plummeted into financial crisis. In May of 1979,
the new HMO could not pay its bills. A5 a result of the financial
instability, and amidst great controversy and publicity, the consumer—

founded Health Central had been sold to Blue Cross/Blue Shield of

Michigan. In the bargain, the activists' central goal-~consumer
control—-had been lost. While the organization had survived, the
founders' dream had died; they hoped that my study would help them to
understand "how things could have gotten so untracked"--where "they
went wrong" ( field notes 1980). I, too, immersing myself in the data,
hoped I would understand where, while they had appeared to do
everything right, they had "gone wrong."

My early intention was to examine the HMO in three ways: first, to
follow Blumer's (1971:299) mandate and by examining the movement from
the activists' point of view, "study how society comes to recognize its
social problems"; second, to develop the natural history of the
movement from its earliest discernible moments. (I was alert to Jo
Freeman's [1975:81] warning that "most studies [are] of the decline or
institutionalization of a social movement and virtually none of their
origins and early development," and began at the beginning; and third,
to describe and analyze a movement that set out to change an
institution and, as Weber predicted, found "unintended consequences"
(Weber, in Gerth and Mills, 1979).

I gathered all the information I could on the brief history and
dynamic present of the newly emerged institution and felt, as the
founders themselves believed, that it was in the details of their many
and complex actions that one would find the explanation of the
outcomes. I was, like many sociologists, as Blumer (1971:299) wryly
notes, taking my "cue from the focus of public concern." And
certainly, early examination found a variety of ideological, historical,

economic, bureaucratic, and personal tensions within the organization

that seemed to promise a possible explanation of the unintended and
unforeseen events.

As I continued to document the founding and development of Health
Central, I moved to Chicago (just 240 miles from Lansing), which gave
me the opportunity to participate in additional research. At the
Center for Health Administration Studies of the University of Chicago,
we examined the development of HMOs and the medical profession from a
broader perspective.

The additional research and the time it took to complete it (until
1985) had a significant effect on the course of this dissertation,
because it offered a number of opportunities. First, I gained the
comparative perspective of the development of HMOs in different
community contexts (Anderson et a1 1985); and, second, it presented the
opportunity to study another consumer-sponsored HMO--Northcare in
Evanston--which was, in fact, the model that the Health Central
founders had turned to. Furthermore, I had a longer period in which to
observe changes in HMOs and health care.

While the first two additional opportunities expanded and deepened
my understanding of the consumer movement, of the medical profession it
was confronting, and of the development of the individual HMOs as I had
originally intended to study them, the extended period of time imposed
a larger context and an unexpected additional perspective that
demanded attention.

One should pause here to recall that the consumer founders of
Health Central blamed themselves for the “failure"--i.e., the
ideological failure-—of the now, paradoxically, thriving institution.

1 found that in Evanston also, the founders of Northcare had "failed"

Uicreate the consumer-navigated institution they planned for. They,
tmn searched into their actions and the internal workings of the HMO
niexplain their "failure" and their vulnerability to a "takeover"--in
theh'case by Prudential Insurance. Furthermore, I found other
umwumer movements in health that had made similar efforts with similar
outcomes.

For example, analyzing the Women's Health Movement, Ruzek (1978)
outHnes the goals and strategies of such activist groups. She says
thm:they sought to deinstitutionalize medical authority by . . .

(1) reducing the knowledge differential between patient

and practitioner.

(2) challenging the license and mandate of physicians to

provide certain services.

(3) reducing professionals control and monopoly over

related necessary goods and services.

(4) altering the size of the profession relative to

potential clientele.

(5) transforming the clientele from an aggregate to a

powerful and effective collectivity (p. 144).

This quote is evidence of the social movement to reduce medical
mnhority; however, it brings to attention not only what activists
mmceeded in doing, but also what they failed to do.

The late 19705 and early 19805 have revealed that consumer health
care movements have played an important role in accomplishing the first
fmn‘of the above goals, but not the fifth. The clientele--the
unwumers and patients—-did NOT gain the collective power by
mmomplishing the first four. During the activism of the social
Imwement itself, the clientele did form and act as a collectivity, and

(hfined themselves in opposition to the medical profession, but they

were not able to turn their collectivism to power. Rather, as they

tried to deinstitutionalize medical authority, their own efforts were
institutionalized.

In retrospect, one can see that consumers were not the only group
interested in weakening the perceived hegemonic professional grasp of
traditional medical practitioners; the consumer/patients and the
physicians were not the lone inhabitants of a closed system in which
power lost by one would pass to the other. Rather, larger economic
interests, both public and private, have reached in, benefited from
the efforts of consumer activists to weaken the authority of the
medical profession, and have intercepted, and now wield, the shifting
power for themselves.

In 1986, in geographic areas where a significant proportion of the
health care is delivered in HMOs (and/or in their expanded forms of
"managed care systems"), physicians 113 now required to be accountable.
However, they are _n_o_§ accountable to their patients; rather they are
now accountable to those powerful government and corporate forces--
Payers of health benefits-~and to the bureaucratic managers who run the
medical systems. In such systems, which are designed to respond to the
market demands of those payers, patients--as well as physicians—-become
"pawns" moved around in the health game by the "kings" who have the
health care dollars (Kohrman 1986). And so it has become clearer that
health care dollars and the large payers who spend them must be given
an important place in this analysis of the consumer movement to sponsor
and develop HMOs.

Contrary to interpretations which "revise" history-— such as
Mayer & Mayer in the New England Journal of Medicine 1985, cost

was NOT the principal concern of consumers sponsoring HMOs in the early

10

19705. Rather, the ideology of the activists was consistent with the
social movements from which they had just emerged; for example, with
thecfivil rights and anti-war movements.2 Access, equity, and control
repeatedly emerge as central themes when founders recall "the early
(hys'in interviews. In the early 19705 the efforts of the consumers,
mnch were based on these values and ideology, were to converge
irmfically, however, with those of the federal government and the major
unporations who were crucially interested in costs.

Thus, while I began this study from the perspective of the
uwmumer activists in the social movement (a micro perspective), I
fmum that the consumers' unanswered questions about their "failure,"
asvmll as my own academic questions, led me to search beyond the case
stmfies for an explanation of their development. I found it necessary
U)alSO consider the larger context of the social movement (a macro
Wflspective), that is, to examine not only the consumer activists and
thencdical profession whose power they sought to reduce (Ruzek 1978),
but also to examine the consumers' unanticipated allies—-"powerful
flutes arraying themselves against health providers . . . the insurance
hMustry, the employers, and the government itself" (Starr 1982). It
wasvfith these new allies that the consumers' interests converged, and
inner their influence that the HMOs developed. I sought to understand

theccmmon interests and conflicts of this unanticipated alliance.

Mllies' Interest: The Cost of Health Care
Economist Victor Fuchs offers a relevant analysis of the forces
and economic changes that have affected health care since World War II

(Hums 1985). "The health sector which in 1950 had used only 4.4

 

11

percent of the nation's output, had grown to 6.1 percent in 1965, to
9.4 percent in 1980, and 10.8 percent in 1983." Fuchs (see Figures 1.1
and 1.2) gives clear evidence of ways that rising health care costs
pressure the economy. Figure 1 shows the changes in expenditure on
health compared with the gross national product, adjusted for inflation

and population growth between 1951-1981.

Ganges in Expenditures on Health and Gross National
Product, Adjusted for Inflation and Population Growth,
1951—1981 (Five-Year Moving Average)

 

 

1 U 1 1'
O r- at
5 p T
5
c
5 ‘ " Expenditure: on Health
E 3 1- d
a.
1 - '-
Gross National Product .
1 b
a l a
0

 

 

Year

Figure 1.1

 

 

12

Figure 1.2 shows the pressures on the economy more sharply by
demonstrating the difference between changes in expenditures on health
and the gross national product. Fuchs explains that "this gap is the
measure of the rate at which labor and capital flow to the health
sector away from the rest of the economy." The now apocryphal anecdote
that illustrates that problem is that in 1975 "General Motors . . .
spent more with Blue Cross/Blue Shield (for workers' health care) . . .
than with U.S. Steel, its principal supplier of steel" (Crawford 1977).

Private corporations have felt an increasing squeeze as a result
of the rising costs of health benefits. "In 1950, health insurance
premiums were less than 6 percent of profits but by 1980 they were 40
percent. In the long run," Fuchs continues, "these payments come out
of real compensation for employees (in the form of lower wages or
higher prices). But unions resisted lower wages, and in the economic
recession of the early 19705, business could NOT raise prices and
continue to compete." One should note that while during this recession
American corporations went abroad for lower priced materials and
workers, they could not look overseas for less costly health care; they
suddenly became acutely aware of the rising costs of health benefits.3
A president of a UAW local in Michigan said that "in the old days the
auto industry was making so much it didn't matter what health care cost
.. . but in 1974, the UAW saw the handwriting on the wall . . . after
the gas prices everyone realized that the auto industry was never going

to be the same again."

l3

Fference Between Changes in Expenditures on Health and
055 National Product, 1951-1981
ve-Year Moving Average)

l‘

 

 

 

T l I
1 I I
1960 1970 1980
Year ‘
Figure 1.2

sure of increased health care costs was not limited to the
-. The federal government, which had been burdened since

with its commitment to Medicare and Medicaid, was

terable to the high costs. At the same time it had

> the 5pira1ing costs with a broad and not well supervised
iechanism for payment. Fuchs writes, “The macroeconomic

; have a special force within the federal government and

:ed to a sense of panic." This "cause for panic" is

 

 

14

illustrated in Table 1.1) By July of 1969 signs of this panic were
evident in President Richard Nixon's public statements. At a press
conference on health care he asserted:" . . . the problem is much
greater than we realized. We face a massive crisis in this area unless
action is taken both administratively and legislatively to meet the
crisis within the next two years . . . (Anderson 1985:203). And indeed
it was "within the next two years" that the Nixon administration
discovered and supported the concept of health maintenance
organizations, as it scrambled for a politically acceptable way to
confront both health care costs and the liberal Democrats, led by
Senator Edward Kennedy, in their campaign for National Health
Insurance.

The idea of prepaid health care plans as an effective way of
distributing health care in the 19705 is attributed to Paul Ellwood, a
young Minnesota physician who directed the American Rehabilitation
Foundation in Minnesota in the late 19605. He explained to me that,
particularly because he had worked with the chronically ill, he had
become convinced that fee-for-service health care was unmanageably
costly and that it perversely penalized the physicians who helped their
pMfients to become independent of them. A Nixon staff member heard
EHwood speak about the possibility of prepaid comprehensive care,
much would reverse the incentives to provide more care than necessary
a"dreduce costs. Ellwood was summoned to Washington, and at a
meeting, February 5, 1970 with Nixon staff, Ellwood proposed his
Strategy. This strategy, which he named "health maintenance
orDanizations," suggested a way to reduce the costs of health care by

Stimulating private sector initiatives rather than expanding government

 

 

15

bureaucracy. It appealed to the Republicans (Starr 1982). Ellwood's
political insight and energy. combined with his credibility as a
physician, armed him to be an important officer in the administration's

battle for HMOs and the reduction of health care costs.

Table 1.1

Federal and National Expenditures on Health, Total Federal Outleya, and
Gross National Product

1950 1955 I”; 1965 1970 1975 180
0-Year avenge- centered on aelecied yuan)

 

Oilhona o! 1“! dollars)

0) Federal apenditures at health 6 7 9 16 42 G3 .7
01 National expenditures on health 52 53 It 1‘19 176 228 5&2
011cm: federal outlays :70 245 295 559 663 87 095
. «1 Gross new product 1.175 1.40: 1.559 2.015 2.569 2.606 3.224
a) as percent of (4) 4.4 (5 5.3 5.9 7.4 5.5 9.4

m a pawn: of O) 12.5 11.2 11.2 13.4 24.2 27.5 25.7

m I patent of G) 3.5 2.9 5.2 4.4 5.2 11.5 12.5

 

“recs Council of Economic Advisers. Irene—m loan of m President Washington. D.C.: Govern-um Printing Office.
3.", nus 5—1. 8-73. Robert M. Gibson. Dame: R Waldo. and Katherine K. Lem. 'Nau'unal Health Matures.
‘3' Health Care Financing Inner 5 (Fall ”53) table I.

Fuchs asserts that this effort to control the costs of health care
hithe United states is the third of three revolutions in the financing
ofimalth care since World War II. The first he identifies as "the
enraordinarily rapid diffusion of private health insurance between
1945 and 1960" which increased the number of Americans with hospital
innnance from 32 million to 122 million, and with insurance for
(Certain) physicians' services from fewer than 5 million to 83 million

allin 15 years. The second, he says, was the 1965 legislation that

 

 

16

created Medicare and Medicaid. And, indeed, these earlier two created
the perceived need for the third.

But the third-~the control of costs--is a generically different
revolution. The first two movements "increased demand for medical care,
regularized payment, and made it more secure, and increased equality of
access." Neither movement was intended to threaten the traditional
system of organization and delivery of medical care. The Medicaid and
Medicare legislation stated specifically that there was to be no
interference with traditional practice.

But in the most recent revolution the intention has changed. Now,
says Fuchs (1985:l), "the third parties (government and business) who
have been paying the piper have decided to call the tune. Far from
promising NOT to change the system, they frequently have change as
their major objective." And it is with a series of alternative

programs including HMOs that they intend to bring about change.

Llflgxpected Allies; Unintended Consequengg

The consumer-activists, too, wanted change. They began a social
movement to bring about change in the traditional health care system by
gaining more control for consumers, but they encountered what Weber
described as "the paradox of unintended consequences." Weber predicted
that the course of a social movement would not depend so much "on the
subjective intentions of the followers or the leaders (as) on the
institutional framework of the movement and especially the economic
order." (Gerth and Mills 1979:54) This research found clear evidence

01' the influence of the "institutional framework" and of the power of

the "economic order. "

 

 

17

Both Weber's classical analysis of social movement participants
and Fuchs' contemporary analysis of the changing health care
environment emphasize the importance of the structural and economic
framework in which change--in this case, change in health care--takes
place. These analyses provide a crucial portion of this study, but
they are, by themselves, insufficient. They do not explain the
significance nor the impact of the consumer activists and their social
nmvement to confront the traditional institution and culture of
medicine.

Fuchs, for instance, does not distinguish between HMOs with
‘Umir deep ideological roots and other alternative competitive forms
(M health care delivery sprouting in the 19805. This research, however,
mmmnstrates that HMOs gig generically different; they are based on,
mulhave disseminated the idea, that medical care is ggt a mysterious
'tlack box" understood only by physicians. The activist sponsors of
HMOs asserted that physicians can be confronted and held accountable
mm health care can be managed bureaucratically, not mysteriously.

I noted at the beginning of this chapter that Everett Hughes had
(mserved that most occupations rest upon "some explicit or implicit
bar96in" between practitioner and individuals, and between the
occupation or profession as a whole and society at large. He continued

that this "bargain" is "about receiving, keeping and the giving out of

 

hfibrmation (emphasis CK) gathered in the course of one's work." The

'Hcense to keep this bargain is of the essence of many occupations. It
iseflso a fundamental feature of all social and moral division of

laMng thus of the social and moral order itself (Hughes 1958:81).

 

 

 

18

With this understanding, it is not surprising that in this
contemporary transformation of American medicine (Starr 1982),
"accountability," that is, "the giving out of information" about the
workings of the profession and about the patients the profession
serves, has become a central issue.

I found that parallel and interwoven with the ideologically and
economically stimulated demand for information (which had its origins
in the HMO movement), there is also a powerful technological
development of complex and sophisticated computerized information
systems. This synergistic development between the demand and
technological capability is crucial to contemporary changes that are
increasingly evident in health care delivery in the United States.

(See discussion in Chapter 8.)

REVIEW OF THE LITERATURE

To understand the emergence and significance of consumer sponsored
HMOs, this study traces and describes the intersections of three
dynamic and institutional themes. I will describe the literature that
informs this research in categories that parallel the themes: i.e.,
literature about 1) consumers and consumers' activism, as part of a
social movement, 2) the history and patterns of practice in American
medicine, and 3) the interest and influence of the state and
corporations in health care. (In the language of health economics
these are: consumers, providers, and payers.) (Additional literature
relevant to specific topics is included throughout this work.)

While categories 2 and 3 conceptually overlap, the practice of

American medicine and the political economics of health care have,

 

 

 

 

 

19

until recently, been studied by different disciplines and therefore,
with a few notable exceptions, have been considered in separate
literatures. This historical disciplinary dichotomy, which I believe
to be unnecessary and detrimental to the best study of health care, is

discussed in the second chapter.

Consumers and Consumer Activism as Part of a Social Movement

Social movement analyst Lewis Killian (1964:452) believes that
"The significance of social movements, of course, lies not in their
careers but in their consequences for the larger society and the
culture". However, participation in the career of the movement had
important consequences for the activists who participated, regardless
of, and in addition to the impact of the movement on the "larger
society and culture." Here I include literature about social movements
that analyses the consumers' actions as a group, as well as literature

that considers the effects on the consumers themselves, of their

activism.

Social Movement Literature

Consumer activism in health care is a clear and interesting
example of the social construction of reality (Berger and Luckman
1967). In Social Problems as Social Movements (1975) Mauss describes a
social movement as a "voluntary collectivity who perceived a social
Problem. The social problem was defined by the opinion, not the
problem." This describes well the emerging consciousness reported by
HMO activists. A founder of one HMO in a comfortable college town

described a meeting at which a collectivity who, she said, "had this

co"'"lu'll'tY-action-peace-activist-bond" decided that there was "a lack of

 

 

 

20

health care." ". . . that there was no care there for students-~they
mnnd have a terrible time, just terrible." Later in the interview she
added “We knew we were looking for health care but we didn't know what
kind.“ This is in some way consistent with Mauss' treatment of social
problens . . .which . . . reverses the causal connection of social
problems and social movements. He claims that "social movements
generate social problems" (1975 p. xvi). Noting that conditions, are
not themselves sufficient, Blumer (1971) asserts that social problems
ane"collective behavior, not objective conditions." Furthermore, and
wiUinotable relevance to the complex interests in the HMO movement, he

notes:

A social problem is always a focal point for the operation

of divergent and conflicting interests, intentions,and

objectives. It is the interplay of these interests, and

objectives that constitutes the way in which society deals

with any one of its social problems.

Blumer posits five stages in the development of social
problem/movements: (l) emergence, (2) legitimation--through the media,
etc., (3) mobilization (some succeed and others fail), (4) formation of
wiofficial plan of action, (5) implementation of the official plan.
His framework is a useful heuristic to guide my examination. This
amalysis may help discriminate strengths and weaknesses of consumers as
acthfists. It provides a systematic way to see "new social values and
ufllective arrangements made and unmade" and to see which are "not-yets
amididn't-quite-make-its..." (Hughes 1971:53). Hughes also notes the
1nlPortance of the environments of social movements-~the clientele,
Personnel, political environment, etc.

SPector and Kitsuse (1977:73-75) discuss the importance of

accmnnjng for “the emergence, nature, and maintenance of claimsmaking

 

 

 

 

21

and responding activities," as well as examining activities of
individuals or groups making assertions or claims with respect to some
putative condition. Particularly predictive for this work was their
assertion that the movement will not emerge unless and until activists
see the possibility of a solution to conditions that concern them.

To understand the development of these HMOs it is necessary to
understand not only the emergence of the problem and the movement, but
the career that it follows. As noted above, Weber (1921) anticipated
that a social movement would move from a period of zeal through a phase
(W bureaucratization in which a hierarchy of authority would be
developed, tasks would be distributed and the charisma of the leaders
would be routinized.

The issue of charismatic leadership and its routinization is of
particular interest in the social movement to develop consumer
controlled health care because not only did the movement begin with a
sense of its own charismatic members, but it was consciously
confronting what it considered the misuse of charismatic authority
among physicians. It was that which they wished to routinize.

Michels' (1962) view, often paired with Weber's, also illuminates
the consumers' behavior. He asserts that in such social movements the
original commitment to democratic decision making--characteristic of
the consumers' grass roots organizations in this study-—would move
inevitably (by "iron law") to a form of oligarchy in which a minority
(W the movement would enforce their perspective.

This classical analysis finds interesting elaboration and abundant
verification in a contemporary analysis by James Morone (1983). He

anahaed the role of consumers on the boards of Health Systems Agencies

 

 

 

22

(HSAs) which operated in the same 19705 period. Morone carefully
describes the HSA boards and demonstrates the power of the bureaucracy
and the cooptation of the consumers. (His work will be discussed in
Chapters 7 and 8.)

These theories are revealing and in some ways predictive; for
example, goals often 931 be replaced in favor of organizational
maintenance. However, these theorists do not deal specifically with
the environments external to a social movement nor with the ways that
branches of social movements may interact. These issues are discussed
elaborately by Zald and Ash (1965); for instance they describe a
cooperation between arms of a social movement: an example is found in
NorthCare's advice and council to Health Central. Furthermore, Zald
and Ash examine the traffic of members between social movements, also
exemplified by the activists discussed in this dissertation.

Review of the literature on specific social movements of the early
19705 offers interesting comparisons. As noted earlier consumers'
sponsorship of HMOs parallels other social activism of that time
(Freeman 1975; Ruzek 1978; Mandle 1979). For example, it was not only
the founders of HMOs who "sought to reduce. . . power in the hands of
Fnofessionals" (Ruzek 1978) and to return power to the people.

Writing about the politics of the women's liberation movement,
(Freeman 1975) notes that through public policy, government stimulates,

V‘esponds to, and/or curtails social change. Her analysis is helpful in
(Ionsidering how, unanticipated by the consumer HMO activists, the
Slowernment, as well as the corporate sector, influenced the consumers'
tiwm movement with an agenda ironically similar to that of the

(Zonsumers. Thus, unlike the government policy response to other social

 

 

23

movements, the federal HMO policy at first supported, then regulated,
and finally engulfed or coopted this social movement. Now in 1986 it
is necessary to explore what role those activists of the 19705 HMO
movement did have, or now have, in ameliorating the social problem they
helped to define. What role did the ideology of those who were so
early to publicly identify the now widely acknowledged problem play in
developing or affecting health policy?

The HMO movement had many parallel concerns as well as some
overlapping membership with the women's health movement. Yet there is
another ironic contrast of the consumers' HMO movement and the women's
health movement. Ruzek (1978:233) notes that "it is unlikely that the
imademic and professional women and agency insiders can be successful
change agents without the existence of a broad based--and generally
nmre radica1--social movement" because in most movements "the radical
f1ank of the movement is essential...to press for change....” However,
hithe HMO movement it was the conservative f1ank--corporate and
gownmment power-— which pressed for change and altered the movement.
lhe conservative administration at first supported the consumers
rnovement but then increasingly brought direct pressure for change on

‘Um medical profession.

Paul Starr (1982 ), whose book The Social Transformation of

flflflj££fl_flegigigg offers important information and analysis in all

 

Unee areas of this literature review, notes that the radical consumers

a . . . .
"d the conservative government formed an "ironic alliance" (1982), to

de
V9109 HMos. But because the two groups had very different purposes,

the . ‘
Changes wished by the consumers and pressed by the larger powers
Were seldom the same,

 

 

24

Drawing further on her comprehensive study of the women's health
movement until 1977, Ruzek (1978) draws attention to what in the long
run may have been the most far-reaching effort of the consumer group.
She optimistically asserts that "as powerful professions become more
like private governments...their governing power should be acknowledged
and balanced by organized consumer participation. Organized health
groups' willingness and ability to establish quality criteria and to

evaluate professional practice suggests that outside accountability

 

structures are both feasible and beneficial."

In 1986, there is no doubt that outside accountability structures
for medicine Egg being put in place, and that was, indeed, a goal of
the HMO movement. It is important, however, throughout this study to
consider that this social movement is enmeshed in a complex social and
economic context, and to ask: In what ways can it be seen to have
Egggglspecific change, in what ways did it mggig£g_change, and to what
extent did it largely reflect a broader change?

The social movement literature is enhanced by the work of Alice
Rossi(l980) and of Tamara Hareven (1978) who demonstrate that
attention to the life course and to cohort historical context can be
revealing for any group that shares age and historical experience.
The‘U‘Perspective illuminates not only the choices and actions of the
mwmumer activists, but also of the physicians, administrators, and
Futients whose attitudes and responses to the HMO movement were found
navary with their age group, i.e., to be "cohort specific."

Daniels and Ruzek (1972) also considered relevant cohorts as they
a"Alyzed the role of volunteerism, noting its place in the life cycle

and em h o o
a - - ‘
p S121119 "organizational structures" and "networks" in

 

 

 

v .
.-
—
I

i

I

 

bu.

 

 

 

 

 

25

volunteerism that often served as "stepping stones to a salaried

career."

The Histony and Patterns of Practice of American Medicine

 

In American Health Services--A Growth Enterprise for a Hundred
legggL Odin Anderson (1985) reviews the development of health services,
designating the period from 1930 to 1965 as The Era of the Third Party
and describing the enormous growth of health services in that period.
The period after 1965 he designates as the Era of Management and
Control. This analysis sets the context for the emerging HMOs which in
fact are mechanisms for managing and controlling health care delivery
and its associated costs. Anderson's analysis also calls attention to
the tension discussed by Bellah et a1. (1985) which is manifest in
conflicting health care policies between personal autonomy and group
responsibility -- personal health or public health. This theme is
cmflmal to the widespread ambivalence about HMOs among policy makers
amlproviders who echo the issues of the consumers discussed above.

The broadest and most synthetic understanding of health care comes
fV‘OmRosemary Stevens (1972) and Paul Starr (1982) who make major
cmnributions to our historical understanding of health care and the
Pnfiession of medicine. They trace the health, health professions, and
Imaltn Policies of the United States. Starr's analysis is the most

recent and thus most inclusive of HMOs and this turbulent period. He

 

fi - . . . .
rst describes the rise of medical power in this century, particularly
~ since World War II,

 

and then he documents the profession's resistance
tOr - .
eQUIation and public programs -- in fact, to any avoidable change--

and t - . . . .
hen its diminishing power. "The great irony," he says, “IS thAt

L

 

 

w...
..

 

 

 

26

the opposition of doctors and hospitals to public controls of public
programs, set in motion entrepreneurial forces that may end up
depriving both private doctors and voluntary hospitals of their
traditional autonomy" (p. 445)-

Starr and Stevens discuss not only the political behaviors of
physicians, but the professional behaviors as well. An extensive
literature on the professional behavior of physicians and their
socialization to the profession includes classics on professional
dominance (Freidson 1973), professional training (Becker et a1. 1969;
Fox 1977), professional mistakes (Hughes, 1971; Bosk, 1981),
professional practice (Mechanic 1985), and others including Hughes
(1971) and Crawford (1977). For example, Crawford describes the
cultural complexity of medicine. Although committed himself to
economic interpretations and "radical" perspectives, he states
'mmdicalization of society is based in cultural roots which extend far

amlbeyond professional imperialism." His particular understanding of

 

tm:socially constructed role of physician and is particularly relevant
nithe dissertation analysis. Crawford joins two important
perspectivesna cultural understanding of the profession and an acute
ecmumfic analysis. "Medicine," he observes, echoing C.W. Mills, "is
‘hmreasingly unable to perform the traditional role of resolving
smfietal tensions which emerge when people identify the social causes

(Public issues") of their individual pathologies ("personal

 

t
'mflfles"). (Crawford's work will be discussed further in the section

below.)

 

L

41

“We

27

HMOs
Until recently, there has been scant literature specifically

focused on HMOs. In 1980, when I began reviewing the subject,

 

discussion of HMOs in medical sociology texts was either absent (as in
Albrecht and Higgens, 1979) or brief, (one or two paragraphs e.g.,
Cockerham, 1978: Jaco, 1979; Rosengren, 1980). The brief discussion
in Jaco's (1979:367) text by Riska and Taylor noted that in their
survey of consumers in a midwestern area, seventy percent were unaware
of HMOs. Since 1980, however, there has been a notable growth in
interest which parallels the growth of HMOs themselves (Falkson, 1980,
Luft 1981, Brown, 1983, Anderson et al. 1985).

The term "health maintenance organization" was not coined until
1970 by Paul Ellwood, but others in health care studies had been
considering the concept (Donabedian 1969, Berki and Ashcroft 1977;
etc§)including, for example a careful "Evaluation of Unnamed Prepaid
GrmuiPractice" (Donabedian 1969). In 1970 Ellwood, who is considered
immutant in the growth of HMOs began to promote his growing interest
1“Prepaid health care (Ellwood March 1971, May/June 1971) and was
cmnted eagerly by the Nixon administration in need of a health care
RRUCY- Although, the idea of prepaid groups had had a long history,
(discussed in Chapter 3) it had never had a substantial following.

A number of discussions in the literature now provide the history
‘” ””05, and the increased number of articles in the professional and

”WNUAT Press both parallel and promote the growing interest among the
public.

 

(In 1985 the internationally respected New England Journal of

. Med“ '
‘7719152 [May9r & Mayer 1985] as well as popular and local publications

 

 

 

28

like Chicago Magazine [Star, 1985] included several page histories of

 

the development of HMOs.)

The structure and performance of generic HMOs is best discussed
by Luft (1981) and an extensive literature in academic journals on HMOs,
explores their characteristics and performance (Berki et a1. 1977,
Fleming et a1. 1978, Ellwood 1971, Goldsmith 1979, etc.). However, in
a period when the generic concept is being shaped by the competitive
market place, HMOs and their successors are likely to be followed in a
literature more fluid and responsive than books. Trade journals, such
as Hospitals and Modern Health Care, are more immediate and timely
sources of information than are academic journals.

Falkson writing in 1980 seemed optimistic, predicting 19 million
members in 440 HMOs by 1988. At the time he was writing there were
only 7.9 million in 217 plans (Falkson, 1980); however, after a
plateau, HMOs have grown at a rate of 20 to 49% per year. The 1986
enrollment of 21 million in over 400 HMOs has even exceeded Falkson's
prediction of growth (see discussion in Chapters 5 and 8). His
prediction however, that the HMOs would "yield over $20 billion in cost
savings" is still only a "promise." The financial consequences of the
changing structure of U.S. health care is a matter of vast interest and
little understanding. It will be discussed in Chapter 8.

Brown (1983) was less optimistic about the financial consequences
of HMOs or even their growth, but emphasized their crucial political
importance in mediating between the demands of rising costs and a
'hation...not ready, or at any rate not thought ready, to address these
Problems by means of regulatory controls " (p. 488) and national health

insurance.

 

1’"

t .u.

 

 

 

 

 

 

 

29

Anderson et a1. (1985) in a three year study in which I
participated, consider the development of HMOs in two metropolitan
areas with different histories of regulation and social organization.
The study demonstrates the importance of a community's history,
economy, social networks and professional practice patterns in the
develOpment of HMOs. We discuss the community interaction with HMOs
analyzing it in seven sectors--consumers, employers, unions, hospitals,
physicians, regulators, and insurers--and thus provide an
understanding of the Chicago metropolitan area where Northcare/Prucare
developed, and a framework for analyzing the Lansing Metropolitan area
of Health Central (See Chapters 2 and 7).

Interest and Influence of Corporations and the State in
Health Care

There is, of course, an extensive theoretical literature
concerning the workings and influence of both corporations and the
state. Some, although not themselves written in relation to health
care, offer potentially useful approaches to the analysis of the
increased influence of employers and the federal government on the
practice of medicine and the delivery of health care.

O'Connor (1973) notes " the tendency for government expenditures to
outrace revenues” and calls it "the fiscal crisis of the state."

His analysis of the sectors of the economy suggests ways of
thinking about the fluidity of the workforce in health care and
about the powerful influence of the state sector in determining
health care policies. (Such policies and their implications,

e.g., reimbursement plans for medicare patients, are discussed in

Chapter 8.)

 

 

 

:0...

nu,

 

 

 

 

 

 

 

 

 

30

Navarro's (1976) largely Marxist analysis of health care issues
(which, in part, builds on O'Connor's analysis of the U.S. economy into
the monopolist, the competitive, and the state sectors), has focused
attention on the real and potential power of employers in the health
care of their employees. This is a prominent issue now as employers
seek to control costs of employee benefits often through HMOs. His
analysis, however, clusters the professionals, including physicians, as
true upper middle class--the monOpolistic sector—-and does not predict

the confrontation between corporate power and the medical
establishment.

It is also interesting here to consider C. Wright Mills'
perspective on the power elite. For example, while until recently
health care has not been of great interest to the government, the
military, or the major corporations of the United States, the
dramatically increased costs of health care have raised it to a matter
of irrterest to that elite. The government and military do not want to
pay the high prices of health care. Furthermore, corporations not
onlj/ do not want to spend so much for health care, but now that health
care has become such a "high ticket item" (and over 11% of the GNP
passes through health care), corporations--particularly major
insurers --themselves getting into the business.

Fuchs (1985), an economist with a different perspective, offers an
explanation of employer behavior particularly related to employee
health benefits. Among other things he analyzes the increased economic
pressures on the government and corporations.

Crawford, (1977) too, identifies the growing concern of the

corporate sector and the federal government as health care costs

 

'as u
I

u. ,

u.-.

 

 

31

ballooned in the early 19705. From 1969 to 1975 the Federal budget
expended for health increased from 8.9% to 11.3%, Crawford notes, and
Standard Oil announced that its employee health expenditures tripled in
the same years.

While private employers were deeply affected by rising health care
costs, the federal government, which passed Medicare and Medicaid
legislation in 1965, also became increasingly focused on the
distribution and cost of health care. Falkson (1980) and Brown (1983)
have extensively analyzed HMO development as reflections of national
politics and changing Federal health care policy.

Finally, and in the most comprehensive way, it is Starr (1982) who
synthesizes the data on the changing political and economic pressures
on health care. He traces the general corporatization of American
medicine. The case studies of this report offer telling examples of his
more theoretical discussion. The HMOs are the product of an "ironic
alliance" between the conservative federal administration the consumer-
activists' social movement. They clearly exemplify what Starr calls
"the conservative assimilation of reform" (p. 396) and finally the

"coming of the corporation."

QUESTIONS AND PLAN OF ANALYSIS
The questions and analysis of this dissertation will examine

l) the emergence of the social movement to develop consumer sponsored

 

and controlled prepaid health care, and 2) the convergence of diverse

 

interests and the environment that shaped and changed the movement, as
well as the intended and unintended consequences for consumers,

physicians, and the health care system.

 

 

32

More specifically, the social movement questions include: How did
the social problem (the consumers' concern with access to and control
of health care) emerge? become defined? What was the course and impact
of the social movement? What was the relationship of the movement to
other movements of the same period , e.g., to home-birth, hospice, or
self;help groups? What was the effect on the consumer sponsors? That
‘is, what place and impact did the social movement have in the life

ccnirse of these activists? In what ways might the experience be
generalizable and in what ways was it specific to their cohort?

Questions about the nature of the interests and the effects of the

environment in which the activists were establishing the HMOs include:
What was the history, nature and re5ponse of the medical profession,
particularly regarding forms of practice, which the activists set out
to confront? What were the perceptions and roles of those community
members whom the HMOs actually or potentially affected, i.e.,
consumers, employers, unions, insurers, hospitals, and regulators?
What were the nature and influence of other powerful interests in the
national environment--that is, the economic interests of the state and
corporate sector, affected by and affecting health care delivery?
These questions will be explored with both historical and
contemporary analyses, as well as case studies of two HMOs and the
examination of a third medical conmunity. More precisely: Part I
irn:1udes this first chapter of introduction and Chapter 2 which will
describe the methods used to gather the data. I will explain the way I
have integrated multiple methods in this study and argue that
qualitative methods can provide excellent data about organizations.

Part II, the third chapter, will present a history and analysis of the

 

 

33

American medical profession and its patterns of practice from the early

19005 until the early 19705.
Part III includes chapters 4, 5, and 6; the Consumers Movement in

HMOs including the two case studies and a summary of Alternative Health
Care Delivery in 1986. Chapter 4 will examine the communities--Chicago,

Illinois and Lansing, Michigan-— which provided the context in which

the HMOs were founded and developed. I will describe the sectors of

each community relevant to the HMO: the regulatory environment, the

providers-~physicians and hospitals, the insurers, the employers, the

unions and the consumers. Chapter 5 will trace the historical and

development of the case study HMOs--their emergence, legitimation,

nuobi'lization, formalization, and implementation, as well as the story

of their "sell out" to well-capitalized insurers. Chapter 6 will

update the case studies as well as the national health care delivery

context in 1986.
Part IV includes Chapters 7 and 8 and discusses the intended and

IJfllthEfldEd consequences for the consumers, the physicians, and the

health care delivery system of the consumers' HMO movement. Chapter 7

recounts the experience of the social activists--the founders of the

lflhOs-and the effects of their participation on their own lives as

iruiividuals and as a cohort. Chapter 8 will first discuss the

consequences for physicians of a competitive HMO environment where

rnanaged care dominates. Finally, I will reflect on the changes found

iii the health care delivery system in 1986, and consider the role of
the consumer-activists, of their "ironic alliance with powerful forces

arraying themselves against health care providers“(Starr 1982), and of

the HMOs nurtured by that alliance.

 

 

 

34

END NOTES

1. Those interviewed often gave evidence of the consumer/ patients'

isolation from the realities of health care costs and the consequent
A labor leader in Lansing, Michigan, reported: "The

overutilization.
members didn't care (about the cost); they weren't paying. They would
go quick to the ER like they were buying shoes."

2. The implications of this ideology are reflected both in the
selection and decisions of the board of directors of Health Central and

NorthCare and are directly related to the outcomes of these HMOs
specifically and the consumer-sponsored HMOs in general. This will be

discussed in Chapter 5.
3. 'Thanks to Rick Hill for noting that particular aspect of the

constraints.

 

 

 

CHAPTER 2

FROM MULTIPLE METHODS AN INTEGRATED METHODOLOGY

INTRODUCTION

Research by "medical sociologists," grounded with field
experience, has given us memorable and instructive views of healers and
curers, the healed and the cured, and sometimes the incurables (Fox
1979; Bosk 1981). Less often, however, has such research been applied
tC) the systems in which the healing and curing is given, received . . .

and paid for.

On the other hand, research by those in traditional health service
research li_a_s_ provided extensive information about these systems--
usually broad understandings of certain groups' access to health care
systems, the quality of the health care systems, and most recently, the
cost of health care systems. This essential information is usually
based on quantitative information gathered in broad, often national,
surveys and evaluation studies (Aday and Andersen 1975; Aday et a1.
1980).

While health care research has become increasingly important
throughout this century, in the mid—19805 cooperative and comprehensive
research linking varied traditions seems critical, as health care has
become the repository--or at least the pass-through--of 11 1/2% of the
Lhiited States' gross national product.

In the previous chapter, I have referred to the history of this
dissertation and to the different sources of data that have contributed

to it. In this chapter, I will first describe the multiple methods

35

 

 

36

with which I gathered data as well as the levels of analysis, and then
I will argue that more than one methodological approach is necessary
for understanding health care and complex health care systems.

As noted above, I began this research by studying the development
of a consumer-sponsored HMO at the micro level; that is, by close
analysis of the perspective of the founding activists and the community
in which it was founded. Although that level of analysis was and is
crucial, it is also insufficient. Further research revealed the
influence of the larger context--the metropolitan areas and the
national political economy.

In the course of my research, I have made four general
observations about traditional sociological methods and the subject of
inedicine and health care: 1) sociological theorists have paid little
attention to the institution of health care; 2) medical sociologists
in general have demonstrated narrow interests; 3) health care research
has demonstrated a limited methodological range; and 4) medical
sociologists with their methods, and health care researchers with
theirs, have maintained a sharp disciplinary boundary and have rarely
collaborated. About the first, I can only offer an example; about the
others, I will offer examples and discuss ways in which my own research
strays from the traditional methodological path.

First, sociological theorists, even those who have made systematic
and effective efforts to demonstrate the complex ties of the American
economic system to all phases of American life, have neglected to
include health and medical care. For example, Edwards, Reich and
Weisskopf, writing in the 19705 described their 540 page book, _T_h_e_

Egapitalist System, as a "radical course in the American Political

 

 

37

Economy" or a "radical analysis of American society," but did not
mention or include the American health care system as one of the
fundamental institutions of American society. This in spite of the
fact that already, at that time, over 8% of the gross national product
and almost 10% of the federal budget were being spent on health.

Second, medical sociologists have traditionally studied health
care in the U.S. as an endless series of dyadic relationships. As
members of their culture, they seem to reflect, their American
subjects' predominant perception that good health care is realized and
understood in the doctor-patient relationship and that the health care
system is peripheral. Ignoring Blumer's (1971:299) caution not to take
their ”cue (exclusively) from the focus of public concern," well known
medical sociologists have focused on patients and doctors. Parsons
(1951) studied patients, defining "the sick role" for generations of
sociologists. Freidson (1973; 1975), Mechanic (1985), Fox (1979), and
Bosk (1981) have examined doctors and the doctor-patient relationship,
but have largely neglected the political and economic context in which
medical care is given. For example, as recently as 1979, Freidson
discussed extensively the roles and imperatives of health care without
ever mentioning the costs or administration of the hospital.

While medical sociologists have focused on health care very
narrowly, those in "health care research," who study the systems
broadly, have narrowed their choice of methodology. In fact,
qualitative field methods, which have been so effectively used to
tinderstand all micro settings and professional and patient

interactions, are rarely used by those studying systems.1 But,

 

38

qualitative methods Egg make an important contribution to understanding
the administration, the management, the finance, and the influence of
local communities on health care. The tendency of those in health care
research to study organizations and systems without attention to their
internal and cultural aspects--those aspects most accessible with
qualitative methodology--limits the usefulness of health systems
research. Although not all research projects can or should include
multiple methods as I have tried to here, all health care research
should, I would argue, proceed in the context of both.

Navarro, a Marxist sociologist, who does discuss the political
economics of health care, also notes the dearth of contextual health
care studies.

In trying to understand the present composition,

nature, and functions of the health sector in the United

States, one is hampered by a great scarcity of literature,

both in the sociological and medical care fields, that would

explain how the shape and form of the health sector--the

tree--is determined by the same economic and political

forces shaping the political and economic system of the

United State5--the forest. In fact, health services

literature reveals . . . a predominance of empiricism,

leading to dominance of experts on trees who neither analyze

nor question the forest but accept it as a given (Navarro

1976:136).

The paucity of methodologically-integrated studies reflects the
dichotomy in sociology between macro and micro analysis. Anthony
(Siddens, in The Constitution of Society (1984), discusses this
clichotomy as ”relations between social and system integration." He
l”€SlStS, he says, the familiar terms micro and macro sociological study
because:

. . . these two are not infrequently set off against
one another, with the implication that we have to choose

between them, regarding one as in some way more
fundamental than the other.

 

'- '4-
u...

l

"v I

 

 

 

a.-
l g?-
I \
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u
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'-
a' Aa

 

39

He notes, with what I observe to be regrettable truth, that with those
who study microsociology, such as Goffman, "there seems to lurk the
idea that in what he sometimes calls microsociology is to be found the
essential reality of social life." On the other hand, advocates of the
macrosociological approaches are prone to regard studies of day-to-day
social activity as concerned with trivia--the most significant issues
are those of a broader scope. But, Giddens concludes, "this sort of
confrontation is surely a phoney war if ever there was one." He says
that others also are concerned with the relation between the two
perspectives but he cautions against a reductionist perception like
Collins' (1981) "that 'macroprocesses' are the 'results' of
interactions in 'microsituations' . . . that the 'macrolevel' consists
only of 'aggregations of microexperiences'." He insists that the
inacrolevel has more than a "sham existence." Giddens perceives, as I
do, the importance of the complementary and interactive existence of
the two perspectives, i.e., ". . . institutionalized patterns of
behavior are deeply implicated in even the most fleeting and limited of
'microsituations'."

Avoiding "Phoney Wars"

In this research, the case studies are important and necessary for
understanding health care at the micro level--i.e., the experience of
‘the providers (physicians and other health care professionals) and of
the consumer activists (patients), as well as of the planners, the
inanagers, and the payers. I ask, for example, what is the interaction
aunong these actors? What and where is the resistance to change? And
liow does it vary, by actors and specific conditions? The complex and

r~ich qualitative data generated by such questions gain power and

0'.) .
-\l

u...
a.

stun

u'.

0-.

\
'v'

‘raa.

 

 

 

 

 

 

 

 

 

 

.
o‘-

.‘hl
.

 

4O

implication when we know, quantitatively, how frequently and how widely
these observations occur and the impact of that frequency. More
specifically, to consider HMOs effectively, one needs to examine the
circumstances of their individual development in order to understand the
implications for other such groups and efforts in other communities.

However, in order to understand HMOs' significance, this understanding

 

must be linked to and informed by information about the larger context--
the national, political, and economic conditions--that facilitates or

inhibits these health care delivery organizations.

OVERVIEW OF THE RESEARCH METHODOLOGY

The research began in 1978 as a narrowly focused qualitative study
of an HMO and its consumer-founders. It developed over time and through
space to include another HMO, three metropolitan areas, and aspects of
the political economy of the nation. The qualitative observation and
interview study expanded to integrate documents, news and journal
articles, federal and state regulations, legislation, and survey data
and statistical abstracts reflecting the health care changes across the
nation. Table 2-1, "An Integrated Methodology," summarizes the sources
of data and the levels of analysis. In the most general terms, the
research may be described as progressing chronologically from the upper
left corner to the lower right corner. The density of data collection
of a given kind is reflected in each cell. It should be noted that
almost all methods yielded valuable information for all levels of
analysis. That is, federal and state documents offered some information
about the individual HMOs and an unstructured phone interview with a

federal official at the U.S. Office of Health Maintenance Organizations

 

41

(OHMO), offered valuable insights on national HMO policy over time. One
can see that in this study newspapers and other media provided the most
consistent source of information across all levels of analysis and
different locations.

The data gathered for this research are both longitudinal and
comparative. In order to analyze the initiation, development, and
corporatization of the HMOs, I have examined the history of group and
prepaid group practice from secondary sources, and the history of the
HMOs which are the subject of these case studies from institutional
documents, media coverage, and especially from interviews and
observation at different points in time beginning in 1978 and continuing
through 1986. (Although the final writing is in 1987, all references are
to data gathered through 1986.)

I compare the development of two HMOs, not so much to compare the
HMOs per se, but to evoke and explore as fully as possible different
ways of examining this phenomenon. For example, NorthCare's affiliation
with and support from a hospital in Evanston suggested that I examine
an additional element in the development of Health Central in Lansing.
On the other hand, Health Central's affiliation with and support from
organized labor in Michigan suggested questions to ask in Chicago.
Furthermore, the contrasts between the two HMOs make all the more
striking their self-perception that they are very alike--one modeled on
the other. And so these similarities and differences, both externally
observable and internally perceived, fill out a picture of
consumer-sponsored HMOs, their development, and their impact.

The sources of data, the levels of analysis, and their interactions

are displayed in Table 2.1.

 

 

42

Table 2.1.

AN INTEGRATED METHODOLOGY
(from multiple methods)

 

LEVELS OF ANALYSIS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M
DATA M HMOs M Communities M National
SOURCES M -M---- M Political

M HC | NC M Lnsngl Chcgol MSP M Economy

M l —M — | ------ l- M
-------------- M-------1---—---M—-----I------!------M----——------

M ' M 1 I M
Observations M ** ' * M * ' * l * M ---

M ' M 1 i M

-—-M -------------- M ------ ' ------ I ------ M ------------

Unstructured M I M ' ' M
Interviews M **** 1 **** M * ' * ' * M *

M 1 M ' ' M

-M ------- 1 ------- M ------ 1 ------ 1 ------ M ------------
Semi- M 1 M I I M
Structured M *** 1 *** M **** : **** : **** M *
Interviews M 1 M ' ' M

M I - M ————-' ' --M ------------
Institutional M 1 M ' ' M
Archives M **** l *** M * ' * 1 * M **
pub/private M 1 M ' ' M

M I M --1 ' --M --------
Newspapers/ M I M I I M
Media M *** 1 *** M *** : **** : **** M ****

M 1 M ' I M

M --—1 ——M I I ------ M
Professional M I M ' 1 M
Journals/ M * 1 * M ** 1 ** I **** M ****
Magazines M I M ' 1 M

M-----—-£ ------- M ------ I ------ 1 ------ M ------------
Fed/State M 1 M 1 1 M
Documents/ M * I * M ** I ** I ** M ****
Regulations M ' M 1 l M
-------- M- -l-------M- I -I— M
Survey Data/ M ' M ' I M
Statistical M --- ' --- M ** i ** 1 ** M ***
Abstracts M l M ' l M

M ---1 ------- M ------ ' ------ 1- M

 

 

Not a source of data

* = Occasionally, though rarely, a source of data
** = Regular but not frequent source of data

*** = Important source of data

**** =

Principle and very important source of data

 

ha.-.
a

'.I(

 

43

OBSERVATION

A certain amount of observation was important in the initial phase
of my work with the HMOs, especially at Health Central in Lansing. I
visited and observed at a number of their sites and offices as they were
becoming established and expanding. At first, I observed regularly over
a three-month period in the spring of 1980 for a total of thirty-six
hours. Then, I returned to interview and observe once or twice a year
through l986. These observations made it possible to see the image that
HMOs were trying to develop--an image distinct from "clinics." I wrote
in my field notes about Health Central x-ray and lab waiting area:

. . . although (the room) was large there was an overall

tranquillity that was unexpected to me. It had the general

feeling of a small waiting room, like a dentist's office. . .

the furniture was practical but not institutional looking--

large brown upholstered cushions on blond wood . . . the

cushions gave the impression of being one-per—sitter, and

so, although if there had been no separations more people

could have sat on a bench (for instance), they did not. So

in general there was a sense of space instead of crowding

(Field notes 4/7/80).

Although considerable attention was given to the waiting rooms,
the children's playroom, and even the washrooms, the offices in which I
interviewed administrators were very simple and unpretentious. The
director's office was small and poorly soundproofed. Those
environmental differences in 1980 (which again are sources of
comparison for l986) established the impression that the patients or
"enrollees" as they are called, were the most important part of Health
Central. Observations were also particularly helpful in stimulating
and validating interview responses. In addition, I could observe the

value and status of different procedures and personnel by the

assignment of space. Observation was also indispensable in comparing

 

 

 

44

the communities as I visited companies and observed the role and status
of benefits personnel and the resources devoted to health benefit
management. For example, in Minnesota the status and resources of the
corporate health benefits departments were at a notably higher level
than in Chicago and Lansing. And in Chicago, observation at one
particular luncheon for labor leaders and invited guests provided major
findings about the difference in the written attitudes of national

leaders and the informal attitudes acted out by local leaders.

INTERVIEWS

At the center of this work are the case studies of the initiation,
development, and corporatization of NorthCare/Prucare in suburban
Chicago, and Health Central in Lansing, Michigan. I gathered much of
the data on the ideology, founding, and develOpment of Northcare and
Health Central through intensive, "unstructured" interviews-~i.e.,
interviews which have an underlying structure to the interviewer but
which permit the understanding of the activities and goals and life
course to emerge from the language of the participants (Whyte l9).
With such a method, for instance, I learned from an early interview how
the ever present issues of the delivery of health care emerged in the
early 19705 as a social problem. A founder of Health Central
reminisced:

. . . We all had this “Community-action-Peace-Activist-

bond,"and so we agreed there was a lack of health care. One

of the people had been related to "the Dec" (Drug Education

Center), and knew that "there was no care there for students

. . . they would have a terrible time, just terrible". The

founder then became animated about the "terrible" health

situation. Later she added about their group, “We knew we

were looking for health care but we didn't know what kind.

We didn't know the needs of the people" (Interview notes
May I, l980).

 

 

 

45

Intensive Interviews

In Lansing, I conducted intensive unstructured audio-taped
interviews with key informants, the founders, certain early staff and
administrators, and those identified in early interviews as important
to the initiation of the HMOs. In Lansing, nine of the twenty-two
important interviews were unstructured.

I was granted permission to interview and observe at Health
Central and later I successfully "made contacts" through the University
of Chicago HMO research to conduct interviews at NorthCare/Prucare.
The following is an excerpt from my letter of agreement with Health
Central:

I am sensitive to the ethical issues in such a study and I

will explain my research and obtain signed consent forms

from those I interview. I will ask for permission before

observing in any specific setting. In any spoken or written

public presentation of my work I will change names to guard
confidentiality. I welcome suggestions and observations

from those with whom I am working and will provide to Health

Central copies of anything I write for public distribution

including a copy of my dissertation.

Because it was the earliest part of the research, I emphasized
unstructured interviewing so that the issues important to the founders
and to the beginning of the HMO could emerge.

In Chicago, three years later, the overarching issues were
becoming clear, and I conducted unstructured interviews only with the
founders and medical director who had the most complete recall of the
organizational development. Through these unstructured interviews, the
issues that were similar as well as those that were different for

NorthCare than for Health Central emerged. In Chicago, five of the

thirty most relevant interviews were unstructured. The unstructured

 

 

 

46

interviews lasted from two to four and one-half hours and were often in
two or three sessions. I tape recorded and transcribed and/or
summarized the extended interviews, and then analyzed them by "constant
comparison" (Glazer and Strauss 1967). It is from these approximately
forty-five hours of tapes that the initial and persistent themes
emerged.

It should be recalled that much of the data gathered in Chicago,
including the thirty interviews, were part of the larger University of
Chicago study of HMO development in the Chicago metropolitan area which
included over 180 taped interviews. All of the data served as context
for my understanding, but for comparison in this study, I selected the
thirty interviews which were most relevant to the development of
Northcare/Prucare.

In the larger study, five staff members each did some
interviewing. My primary responsibility was to design the interviews
and later, to do the interviewing and analysis of the interview data.

I interviewed over one hundred subjects, including all those directly

related to the development of NorthCare.

Semistructured Interviews
I designed the semistructured interviews to elicit an understanding
of the context in which the HMOs developed. In each of the HMOs'

metropolitan areas, we interviewed key informants from the seven sectors

 

47

of the community proposed by Anderson and Kravitz (l968) to be most
relevant to health care:

Physicians

Hospitals

Employers

Labor

Insurers

Regulators

Consumers

The semistructured interviews included directed but open-ended

questions about community issues that had emerged in the unstructured
interviews and a set of general questions about the following topics:

1. Patterns of power, communication, and leadership in each
of the sectors.

2. Previous knowledge of HMOs and the prepaid concept.

3. Support and opposition to the local consumer-
sponsored HMO.

4. Interaction with the HMO.

The interviews were from one to two hours long, audio-taped and
selectively transcribed for analysis, again according to the methods
described by Glazer and Strauss (l967). The interaction of the
different sectors and their differential influence in the communities
in this study became clear from this analysis.

For the l982 studies, we had selected respondents for the
community interviews on a number of criteria: their position in a
relevant sector; reputation among those knowledgeable in their field;
the attention of the news media to them as decision makers; and the
recommendation of others whom we interviewed.

The selection and number of interviewed were grounded in the field
and the differences in the communities were reflected by the numbers of

interviews we found necessary. We began with a list of about ten

 

48

potential interviewees in each sector (physicians, hospitals,
employers, labor, insurers, regulators and consumers); other
respondents were added and interviews were continued until the
interviewers—-consulting with each other and other HMO staff members--
found that the information gathered was no longer new; at that point
the interviewers found they could predict the response; together the
staff could readily agree that they had completed interviewing in that
sector. Consistent with these findings, in the Twin Cities we found we
needed many fewer interviews in most sectors than in Chicago.2

The fewer interviews in Minneapolis—St. Paul reflect clearly the
more centralized and institutionalized community-wide networks of
communication; the greater homogeneity of response, and the tendency
toward consensus within all sectors. Conversely, the greater number of
interviews conducted in Chicago reflect fewer institutionalized
community-wide communication networks, greater heterogeneity of
response, and greater numbers of isolated and diverse activities and
responses. In Minneapolis-St. Paul, l4l interviews covered the range
of information; in Chicago, 184 were required. Based on the
information gathered in that exhaustive set of grounded interviews I
conducted a small set of semistructured interviews (thirteen
interviews) with representatives of the appropriate sectors in Lansing,
Michigan, focusing on community issues that had emerged as relevant in
the larger study.

I selectively transcribed and analyzed the Lansing interviews
(Glazer and Strauss l967). I compared the interviews with the data from

the earlier study as well as watching for new themes that might emerge

 

 

49

in Lansing. For example, it became clear that labor had a much greater
role in Lansing than in either of the other two communities.

Other examples of relevant and interesting data emerged among the
physician interviews in Chicago and Minneapolis-St. Paul. The
physicians themselves, who were chosen for interviews from a variety of
clinical, administrative, and academic settings--in solo, group, and
HMO practice--were revealing in their office interviews. Although
appearing to be very busy, they often extended their interviews to
discuss t0pics that apparently were very important to them. As project
staff analyzed those interviews, theory could sometimes be "discovered"
(Glazer and Strauss l968) clearly enunciated in the words of such
informants. For example, it was an assertion by a physician in private
practice that suggested an important theoretical element for comparing
and analyzing the three communities. He noted casually that it was not
the HMOs but rather the multispecialty group practices that had
introduced the competitive environment.

In his and subsequent interviews it became clear that before
present day HMO development, multispecialty group practices had already
altered the referral patterns in the Twin Cities; for many there,
prepayment seemed just a refinement and thus not the threat it appeared
to be in Chicago and Lansing. Armed with this insight, in Chicago we
found that multispecialty group practices were almost unknown. This
significant contrast was confirmed by the survey data and other
quantitative measures. This insight was again relevant in Lansing
where, as in Chicago, solo practice has predominated and physicians
strongly resisted new forms of practice they saw as threats to their

referral patterns.

 

 

50

Another important area of physician concern was clarified by the
complementary and productive interaction between the quantitative and
qualitative data in the Chicago/Minnesota study. Our initial
interviews with the Twin Cities physicians demonstrated physicians'
considerable interest in HMOs and in their ability to contain costs.
Cost was the only health care problem that was spontaneously discussed
by the Minnesota physicians. Physicians in Chicago, however, seemed to
have little interest in HMOs and did not spontaneously mention cost as
a problem. What, then, were they concerned about? That question
raised the subject that all Chicago providers and consumers became
animated about--the "two-tiered system" of health care--i.e., the
problem of providing health care to the poor. This problem, we will
see, perplexed the founders of NorthCare as they opened its doors.

The research team considered the communities' contrasting responses
to this question. Our overview of the economic conditions and
physician/patient ratio in the two metropolitan areas had seemed to show
remarkably similar conditions:

Chicago Minneapolis-St. Paul

Physicians/100,000 192 192
Income per capita $ 8,568 $ 8,666
Median family income $24,539 $24,646

But the interviews clearly stated that the respondents in the two
metropolitan areas were not experiencing similar conditions. We dug
further into the data and found quantitative validation and explanation
for the residents' qualitative experience:

Chicago Minneapolis-St. Paul
Families AFDC/1000 22 14

Families below poverty level 8.8% 4.9%
Infant mortality l6.9 ll.9

 

51

And in the largest urban counties, an even starker contrast:

Cook County Hennepin County
Families AFDC/lOOO 28 l5
Infant mortality l8.4 ll.8
Physicians/lO0,000 2l0 283

This interaction of field experience with quantitative data
revealed the divergent conditions in the two metropolitan areas: social
and economic homogeneity in the Twin Cities in contrast to the social
heterogeneity and economic polarity in Chicago. In light of this
discrepant distribution of resources and health problems, Chicago
physicians' persistent concern about two-tiered health care and their
inability to see the relevance of HMOs (which in 1983 served only the

young and employed) takes on a new logic.

Supplementary Physician Interview Data

The rich data on physicians from the l982 study provided an
excellent base for considering the effects in 1986 of the changes in
health care management on the medical profession (which the consumer
activists had intended to change). In order to understand the effects
of the changes on physicians in a medical comnunity dominated by HMOs,
I decided to interview physicians again in the Twin Cities in Spring of
l986. I reviewed the earlier interviews of 26 Minnesota physicians,
and selected six physicians whom I thought, with the benefit of
retrospect, had been the most observant, responsive and informative.
Again I chose representatives of public and private institutions, of
fee-for-Service and prepaid care, of Minneapolis and St. Paul;
furthermore, they included clinicians and administrators in both

individual and organizational settings, including the university and

 

 

52

the state and local medical societies, and those who opposed as well as
those who supported--even founded--HMOs.

In addition, I interviewed six other professionals in the
Minneapolis—St. Paul area who work with, administer programs for, and
write about physicians. These included academics and consultants as well
as staff at the state and local medical societies. All of the
interviews with these informants, with the exception of some short phone
calls, were audio taped. (I also examined newspaper, magazine, and
journal articles on health care delivery in the Twin Cities at that time

to understand physicians'attitudes toward HMOs in l986.)

DOCUMENTATION
Institutional Archives, Public and Private

In addition to the live words of informants in interviews I have
used extensive documents to gain insight into the development of the
HMOs. Some are specific to the HMOs themselves--institutional archives
that had been kept as a public record or in the personal files of the
participants. Particularly for Health Central, these were plentiful and
illuminating. In addition to all the publications and newsletters of
the Health Action League (HALE, the activist group that parented
Health Central) and of Health Central itself, there are complete
records of board meetings (to the extent that they were kept) and
correspondence with government agencies, providers, contractors, and so
on. Furthermore, I was given access to the personal files of a
founder, of an early board member and of the first executive director.

Fkn'NorthCare publications include newsletters, board and committee

 

 

53

meeting minutes and annual reports-—a substantial record though not as

deep as the data from Health Central.

Newspapers/Media

 

Fieldwork has its analogues in library research (Glaser and
Strauss 1967). Indeed newspapers, largely on microfilm, provided a
dense and unforgetting layer of data, sometimes about the HMOs
themselves when they "made news," but always about the community and
national issues that formed the baseline for the new organizations. For
example, while unstructured interviews discussing the development of
HMOs in the early 19705 seem to focus on the things that were

accomplished, the newspapers offer evidence that much was left undone.

 

The newspapers of l97l predict confidently that there will be national
health insurance and describe the factional disputes concerning which
‘kind to institute. Such information is an important part of the

national context in which one must build an analysis of the consumers

movement to develop HMOs.

Professional Journals and Magazines

 

Professional journals and the more timely magazines provide
important access to the attitudes, politics, and leadership of
professional groups concerning HMOs or general changes in health care
delivery. The following journals were important sources of historical
and contemporary information regarding the development of HMOS: Journal

of the American Hospital Association, journals of the American Medical

 

Association, the journals of the state medical societies in Michigan,

Illinois, and Minnesota, Group Health Association News and newsletters,

 

Modern Healthcare, Hospitals, and Business and Health. They only

 

 

 

 

54

occasionally had information about an HMO in this study but they give
the best sense of the dynamic nature of what is now the "health care

industry" and the changing actors nationwide.

Federal and State Regulations and Legislation

Less dynamic, but indicative of the efforts of government to
manage health care without nationalizing it are the changing rules and
regulations at the state and national level. A comparison of the
importance of state versus federal regulations for each state studied
was very illuminating. The focus of the government's effort to control
is always interesting and shifting. From regulations about access and
quality the government moved almost exclusively to regulations about
cost. In l986 the focus is about to shift again as there are heightened

concerns about quality.

The National Survey Data and Statistical Abstracts

The national survey data and statistical abstracts set the context
of the communities in which the HMOs developed--their size, their
workforce, their health care utilization patterns. Juxtaposition of
such data with the interview data highlights important social patterns
such as the skewed economic patterns and health care distribution of
the Chicago metropolitan area.
The following are sources from which the data are drawn:

l. American Hospital Association, Guide to the Health Care Field,
the 1976 and l98l Editions, Chicago A.H.A. I976 and I981}

2. American Medical Association, Distribution of Physicians,
Chicago, AMA I970, l975, l980.

3. U.S. Bureau of the Census, Census of the Population: l97O Vol.l,
Washington D.C.. U.S.G.P.O.,l973.

 

55
4. U.S. Bureau of the Census, Census of the Population:l980 Vol l
USGPO l983.

5. U.S. Bureau of the Census, County and City Data Book, l967.
Washington D.C., U.S.G.P.O., I967

6. U.S. Bureau of the Census, County and City Data Book, I967.
Washington D.C.: U.S.G.P.O., I967

7. U.S. Bureau of the Census, State and Metropolitan Area Data Book,
l982. Washington D.C.: U.S.G.P.O., I982.

8. U.S. Department of Health and Human Services, Bureau of Health
Professions, DHPA Area Resource File, December I980.

With these multiple methods, I approached the complex issue of
consumer activism to change health care. The next chapter discusses

the traditional medical system they set out to change.

 

 

56

END NOTES

l. Rosabeth Kantor's (I977) work on organizations and mobility within
organizations is an exception that draws attention to the fact.

2. Exceptions in Minnesota are discussed in HMO Development:
Patterns and Prospects, (Anderson, et al. I985).

 

 

PART II. TWENTIETH CENTURY AMERICAN MEDICAL PRACTICE

 

 

CHAPTER 3

HEALTH CARE IN THE UNITED STATES, I9I0 TO EARLY I9705:
THE TRADITIONAL DOMINANCE OF THE MEDICAL PROFESSION

To understand the efforts of consumers and others to introduce
alternative forms of health care delivery, it is important to consider
the nature and history of the complex social, economic, and scientific
institution they set out to change.

It is in this century that the status of the medical profession,
tied to that of science and technology, has risen dramatically. The
profession, which at the turn of the 20th century was composed of
physicians who depended largely on arts and crafts of comfort and
condolence, is now composed of physicians wielding the tools of
science--techniques and potions which seem often to halt once certain
death at the doorway. In this, the last quarter of the century, we
witness individuals saved by surgical procedures that replace defective
vital organs and whole populations protected by inoculations that stop
epidemics.

While this lofty level of health care is clearly the
accomplishment of many different professionals, scholars, and workers,
it is the medical profession which culturally has been most closely
identified with this progress. And it is physicians who, as
individuals, are most highly regarded among the general population
(Hollingshead I958).

In the early l970s the terms "medicine" or "medical care" were
most generally or synonymously used for "health care,“ and generally

medicine was equated with physicians. When in the early I970$ the

57

 

58

consumer activists in Chicago and Lansing, Michigan began to explore
the possibility of introducing prepaid health care, it was their
intention to broaden the understanding of health care and remove it
from the hegemony of physicians. For example, as the consumers in
Michigan began to publish statements about the Health Action League
(HALE, Health Central's predecessor) and its mission, they avoided the
words "medicine,“ "physicians," and patients, and emphasized the more
generic terms, "health care," "providers," and "consumers."1

One of their earliest publications asked:

Why do we need HALE?

Health Care is becoming more‘technologically
sophisticated, and providers of health care more
specialized. Decisions have to be made. . . . The consumer,
directly affected by all these decisions, should
constructively participate in the decision-making process. .

. . HALE is working to educate consumers and to increase

communication between providers and consumers (from Lansing

community circular, "Introducing HALE," I974).

Activism concerning health, of course, was not the only activism
in the late I960$ and early I9705, a time well known for notable
ferment in the United States. There was important disagreement and
activism concerning both domestic and international issues. Writers of
different times and interests--e.g., James Madison, Alexis de
Touqueville, and Tom Wolfe--have noted that Americans are not
homogeneous, but, rather, factional, and this period of social activism
illuminated the national heterogeneity. This heterogeneity is as true
of doctors as of any other segment of Americans and, in the early
I970s, there was a wide range of practice patterns throughout the
United States. Nonetheless, the health consumer activists approached

the profession of medicine as it seemed to them--homogeneous and

monolithic.

 

59

The analysis which follows discusses elements of medicine's
heterogeneity by recounting certain historical influences that shaped
the complex institution the activists wished to change.

The history of the American medical profession has over time had
multiple influences, including the far-flung geography of the United
States; the differing interests of private citizens, of business and
industry, and of government; as well as by the needs of rural, small
city, and dense metropolitan populations.

In spite of these diverse influences, dominant themes have
emerged. Physicians in general have, throughout this century,
demonstrated certain central unifying attitudes and values which
characterize their professional community-~described by Goode (I957) as
"community within community.“ These qualities are associated with
their selection to and training in medicine (Becker I969, Mechanic
I985, Freidson I975, Fox I979, Bosk l98I). But although their

attitudes and values are remarkably similar--reflecting their

 

homogeneous socialization to the medical community--their behavior is
diverse and is strongly associated with the nature of their geographic
community. In other words, one finds remarkably similar cautions,
commitments and concerns among American physicians nationwide, but
their behavior and practice patterns may vary according to the social,
political, and economic patterns of their geographic community
(Anderson I985).

In this chapter, I will briefly trace the development of the
medical profession in the United States from l900 until the early l970$
with particular attention to the attitudes of physicians, their

patterns of practice, and their professional convictions. It is these

 

60

elements which consumers sought to confront, and it is these elements
that physicians have sought to protect. I will trace the main themes
as well as the counterpoint, considering the history and implications
of solo versus group practice, and fee-for-service versus contractual
payment for medical care.

Although until recently American medicine has seemed dominated by--
almost synonymous with--soIo fee-for-service practice, close attention
to the history of the medical profession demonstrates that tensions
regarding group practice as well as prepayment have been persistently
present throughout the century.

During the first three-quarters of the century, prepaid group
practice (PGP) and its accompanying ideology born largely of the
American Cooperative Movement (Tompkins I982), has been a counterpoint
to the dominant theme and mode of American medicine. PGP, as well as
group practice, has both intensified and moderated in response to
political, social, economic, and scientific issues. Now, as noted in
Chapter I, that countertheme seems to resonate with certain broader
public perceptions and demands.2 Also as noted earlier, prepayment and
its implications have become, since the early I9705, increasingly
visible in health care. The consumers' contribution to this
development are discussed throughout this work. Here I will discuss
first the predominant norms, values, and patterns of practice of
physicians through the century; second, group practice and its place in
American medicine; third, the alternative themes of prepayment and the
response of organized medicine; and fourth, professional issues of

historic and perpetual concern to the medical profession.

 

 

6T

NORMS, VALUES, AND PATTERNS OF PRACTICE OF PHYSICIANS

In the I9805, when the 360,000 physicians in America enjoy a
relatively secure and autonomous role, "competition"--so closely
associated with HMOs as either cause or effect-—is seen as a new mode
for, and a challenge to, the profession. Before the 20th century,
however, the predecessors of modern medicine were required to compete
with naturopaths, homeopaths, and assorted patent medicine men and
faith healers, as well as with each other for the privilege of healing
late l9th century ills.

Starr (I982:7-8), considering simultaneously both the history and
structure of medicine, notes that "in the nineteenth century the
medical profession was generally weak, divided, insecure in its status
and income, unable to control entry into practice or to raise the
standards of medical education. In the 20th century, not only did
physicians become a powerful, prestigious, and wealthy profession, but
they succeeded in shaping the basic organization and financial
structure of American medicine.“ The structure of health care cross-
culturally is examined by Odin Anderson who notes that in other
countries also, physicians constitute a powerful and prestigious
profession. However, he asserts that in America the profession has had
notable freedom, not only in the "art and science of medicine,“ but
also "in the methods of organization, delivery and payment for their
services . . ." (Anderson I968). Official professional organizations,
representing the medical community, throughout this century have

developed an increasingly specific set of policies and official

 

 

62

statements to reflect but also to shape, the norms of practicing
physicians.

Physicians of the early 20th century faced dramatic challenges as
well as important opportunities as they saw an unprecedented rise in
both technology and bureaucracy. They embraced the elements that could
strengthen the profession and rejected those that might inhibit it.
Thus, in the name of professionalism, physicians allied themselves
ideologically with technology but fought doggedly against both
corporate and government bureaucracy.

American physicians began the century in disarray. Paul Starr
(I982:I98), summarizes the condition of their profession:

. . . beleaguered by unscientific sectarians and quacks

who preyed on the credulous sick; by druggists who

plagiarized their prescriptions and gave free medical advice

to customers; by too many of their own profession, turned

out in profusion by medical schools; by hospitals that stole

patients from them and denied them admitting privileges; and

by public dispensaries and health departments that offered

medical services to many people who doctors believed could

afford to pay.

But in the l900$ the AMA, in concert with university medical
centers, began purposeful efforts to standardize medical education and
Iicensure. Thus they improved the credibility of, as well as limited
the competition within, the profession. This effort was both
galvanized and symbolized by the FIexner Report of l9l0, which called
for tightened standards, led to the closing of many marginal
institutions, and thus, formalized medical education. By the I9205,
the freshly and rigorously educated, credentialed, and self-righteous
physicians had secured their position. "They claimed specialized

technical knowledge validated by communities of their peers" (Starr

I982:I99). As will be elaborated below, physicians as a group had

 

 

 

63

resisted the pressures of corporations to employ them and permitted the
repugnant touch of government only to license them. But the security
was not deeply felt nor permanent; the costs and complexity of their
dramatically growing artful science placed them on a shifting
foundation, and echoes of the century's early insecurities would be
heard as the medical profession continued (and continues) to defend its
position regarding patterns of practice and forms of payment.

Throughout the century the vast majority of physicians have been
solo practitioners reimbursed fee-for-service. They practiced their
science independently and they wanted no mediators interfering with the
way their practice was organized or the way that they were paid. They
interpreted any intrusion as a threat to their autonomy and to their
role with their patients.

Rosemary Stevens (I97I) explains that when physicians were able to
design their own practices, the practices were almost never
cooperative. As a consequence, although by I923 there were twenty-
three recognized specialty fields, "there was very little coordination
and cross reference of (physicians) skills." Stevens (I97I:I40), in
support of this contention notes that in the course of a year a patient
(trying to arrange for his/her own care might need to) call on . . .

five specialists . . . with little coordination of treatment. . . .“

THE POSSIBILITY OF GROUP PRACTICE

In addition to a bevy of physicians in solo practice, there was
another form of medical practice which could provide better coordinated
care. Private group practice by specialists was developed early in the

century before the first World War. The prototype was the Mayo Clinic

 

 

64

of Rochester, Minnesota, seventy miles southeast of Minneapolis-St.
Paul. Begun in the I880$ by three physicians, two Mayo brothers and
their father, by I9l4 the clinic had opened its own building with
seventeen doctors and eleven clinical assistants (Starr l982). The
Mayo clinic was, however, exceptional in its development; such group
practices were few and far between before the first World War. It was
not until WWI that "such patterns of cooperative practice were
experienced by many physicians" (Stevens I97I), but after the war,
I9I8-l920, there was an intense growth of private group practice.
Stevens (I97I:I4I) reports that in l9l9 both the acting chairman of the
Council on Medical Education, and the president of the AMA saw the
logic of group practice once physicians had "experienced the accurate
scientific work possible in the wartime group practices of
specialists."3

By I930, there were I,500 to 2,000 physicians involved in ISO
physicians owned and managed group practices. "In Minnesota, it was
claimed there were few towns of l0,000 or more inhabitants without one
or more private group clinics“ (Stevens I97I:I4l; Starr I982).

However, this surge was temporary, and although it is true that a
number of those group practices survived, as a movement specialist
group practice was strongly resisted by the profession because it
represented potent competition to other physicians. It alarmed both
generalists and specialists by threatening the viability and legitimacy
of general practice . . . . and by competing with specialists in solo
practice. As a result, by the mid-l9205 the "initial enthusiasm (for
specialty group practice) within organized medicine was replaced by a

Spirit of caution, followed by hostility" (Stevens I97I:I42). This

 

 

65

tension and change in the attitudes about group practice was occurring
within a period of even greater change for organized medicine. The
group practice conflict reflected a divisiveness in the AMA of the
l9205 which was just becoming evident. For example, although the AMA
editorial board wrote against group practice, another arm of the AMA,
the Council on Medical Education and Hospitals, concluded that concerns
about group practice were unfounded and that such practice had positive
values. And yet a third element, the House of Delegates, could not
agree. During I922, this tussle reflected a divergence in interests of
the medical educators and the medical practitioners. As Stevens
(I97I:I42) summarizes it, "AMA leadership was passing from medical
school faculty to the practitioners, and from progressivism to
conservatism."

Since that time, mode of practice has continued to be one of the
AMA's major political issues, and it has strongly supported solo, fee-
for-service, practice. Freidson notes “the term 'solo practice' is as
often ideological as it is descriptive" (Freeman et al. I979:299). The
practitioners' ideology is strongly guarded by the physicians at the
local county medical society level who, until the early I9505,
controlled National AMA membership. Admission was at the county
society's discretion (Freidson I970:29); thus, county medical societies
were able to deny membership locally and (thus) nationally to
physicians "who worked on an economic base repugnant to local members."
[Examples of such denial and restraint of untraditional physicians is
described below. They include those who practiced in the Elk City

Cooperatives and Puget Sound Cooperatives as well as the Health

 

 

66

Insurance Plan of Greater New York who were at one time denied
membership (Freidson I970:29)]. The form of practice and delivery of
care in a time of changing economy and technology drew the attention of
a number of influential thinkers. In I928, several philanthropic
organizations funded a study group of fifty prominent figures both in
and outside of medicine (Anderson I985). This "Committee on the Costs
of Medical Care”4 studied "the economic aspects of the prevention and
care of sickness, including the adequacy, availability and compensation
of the persons and agencies concerned." They discovered widespread
problems with the quality and financing of medical care and in I932
issued a twenty-eight volume report recommending in part:

that medical service, both preventive and therapeutic,

should be furnished largely by organized groups of

physicians . . . nurses, pharmacists, and other

associated personnel. Such groups should be organized,

preferably around a hospital, for rendering complete home,

office, and hospital care. The form of organization should
encourage the maintenance of high standards and the

development of personal relationship between patient and

physician. . .

The Committee recommends that the costs of medical care be

placed on a group payment basis, through the use of

insurance . . . taxation, or . . . both of these methods.

This is not meant to preclude the continuation of medical

service provided on an individual fee basis for those who

prefer the present method. . . .

The AMA “preferred the present method" and, as Stevens notes,
"under the watchful eye of the AMA Judicial Council, multispecialist
group practice has remained . . . in the background rather than in the
vanguard of health services, a possibility rather than the model for
organizational reform" (p. I42).

The AMA at that time was also resisting, although it would

eventually come to accept, a different approach to health care

 

 

67

financing reform which was to have great influence on the distribution
of American health care. It was in I929 that Baylor University in
Dallas, Texas developed the first Blue Cross third-party health
insurance plan--the form of health care reimbursement which was to
expand and dominate health care payment for the next fifty years.

The AMA's efforts to control the form of medical practice have
been reflected in many ways, ranging from peer pressure to extended
anti-trust law suits (Goldberg and Greenberg I977). The goal of the AMA
policy has been to prevent as much change as possible.

In I970, Charles Bornemeier, M.D., president elect of the AMA,
speaking at the Chicago Medical Society summarized the policy:

The physician has been trained in medical school and in

his practice to accept change slowly. Until material and

methods have been proved to be safe and effective, we

consider it dangerous to move too rapidly. If we as doctors

grasped each new suggestion before adequate study, we would

kill more people than we cure. We have earned the label of

conservative and we must continue to wear it wisely and

well. (Chicago Medicine I970).

Furthermore, as Freidson (I970) emphasizes, this policy "is
rationalized more on 'ethical' than technical grounds" (p. 3I).
Notably, while these are descriptive and organizational matters of
practice, they are discussed normatively in "The Principles of Medical
Ethics" (AMA I98I). Furthermore, although organized medicine
officially accepts the general principle of group practice and the use
of the insurance principle in financing medical care, its "Principles
of Medical Ethics" are predicated on a model of individual rather than
cooperative forms of practice, financed on a fee-for-service rather

than a prepaid basis (Freidson I970). In fact, not only in documents

but in conversations and interviews with physicians, political issues

 

 

 

68

of power and resources, i.e., who treats which patients and how are
they paid, are considered and discussed as moral issues--issues of good
and bad (Anderson et aI I985). Freidson writes: "Much of what has been
called 'ethics' and certainly the common rules of etiquette [right and
wrong] is designed to prevent 'unfair' internal competition and
preserve comparative equality of opportunity in the medical marketplace
at the same time as it preserves an impeccable front of silence to the
outside world" (Freidson 1975:245).5

But physicians have not been the only ones concerned with the form
of their practice throughout the century; others have had an important
interest in the distribution of medical care also.

Particularly, early in the I9005, in areas where medical care was
not available such as the Northwest, or where large portions of the
population could not afford traditional medical care as in eastern

cities, alternative forms of practice were sponsored.

ALTERNATIVE FORMS OF MEDICAL PRACTICE

Early in the century companies with many employees particularly in
remote areas had an interest in providing medical care to their
employees and in controlling the providers. Contracts for industrial
practice were developed particularly in the mining and lumbering
industries as well as in the railroads. Perhaps the first such medical
practice recorded was that of Drs. Thomas Curran and James Yocum in
Tacoma, Washington in l9l0. They had opened their Western Clinic in
I906 to provide standard fee-for-service care, but four years later, in
response to the efforts of mill owners and mill employees, they

contracted with the lumber industry to provide medical care for a set

69

fee of fifty cents per member every month. Prepaid practice was so
well received by employers and employees in the Northwest that a Dr.
Bridge developed the Bridge Company, a chain of twenty such clinics in
Washington and Oregon (Mayer and Mayer I985). Another historic fee-
for-service partnership, which switched to prepayment and served a
large employed population, was that of Dr. Donald Ross and H. Clifford
Loos. Their Ross-Loos Clinic, in I929, was asked to serve the Los
Angeles Department of Water and Power and, because of the success of
that venture, it began to serve other companies in the late I920$ as
well.

The economic depression of the late I9205 and early I930$ brought
serious financial stress to many families and comnunities, but it also
created a number of cooperative efforts. Certain farmer and consumer
cooperatives sponsored prepaid medical plans themselves and then became
models for others. Of historic importance was one begun two years
before the Ross Loos Clinic, in I927 in Elk City, Oklahoma. Dr.
Michael Shadid, in an effort to build a much needed hospital for the
farm community, sold shares in the hospital for $50 each. In I929, he
established the Farmers' Union Cooperative Hospital Association, which
became the model for a cooperative movement in medicine" (Kaiser I978).
By I930, such programs covered over a million employees and an
undetermined number of dependents in the West and Northwest. (The
resistance to the untraditional efforts of these physicians is a
crucial element in this devel0pment and will be discussed below.)

It was not only on the frontiers and plains of America that
innovative efforts to provide access to health care were developing.

In the more densely-populated industrial cities of the East, many

7O

immigrant groups, in an effort to reform the community, developed
lodges, mutual aid societies, and fraternal orders, which contracted
for medical care for their members. In the first decade of the
century, on the Lower East Side of New York City, there were I,500 to
2,000 societies and benevolent associations (Kaiser l978:9). In North
Adams, Massachusetts, 8,000 of the 22,000 citizens received their care
from lodge doctors (Kaiser I978:9) and, in I9ll, a Buffalo, New York
medical committee estimated that lodge practice covered l50,000 people
(Starr l982:207).

Other important prepaid groups were begun through urban and rural
cooperative societies "as ideological outgrowths of the cooperative
health care movement“ begun by the Farmers Cooperative Association
begun in I927. Group Health Association of Washington, D.C. began in
the East in I937, and Group Health of Puget Sound began in the
Northwest in I947. By I949, there were more than I00 health
cooperatives in twenty-one states (Kaiser l978:l3).

The most influential employer-sponsored prepaid plans began in
I933 when Dr. Sidney Garfield provided prepaid care for aqueduct
workers in the California desert. There he came to the attention of
Edgar F. Kaiser who, in I937, asked Garfield to provide contract care
to construction workers and their families at the Grand Coulee Dam.
After success there, Kaiser convinced Garfield to provide care for
90,000 workers at the Kaiser shipbuilding yards in the San Francisco
Bay area. These were the beginnings of the Kaiser-Permanente Health
Care Program, the largest HMO, which in l986 served over 4.7 million

members.

7I

And, on the opposite coast in the mid-I9405, another innovative
and dynamic individual was concerned about health care in New York
City. Mayor Fiorello LaGuardia initiated a study that resulted in the
formation of the Health Insurance Plan of Greater New York--HIP--which
now has over 900,000 members. Unions were also responsible for
developing prepaid groups, e.g., in I960 the UAW began Community Health
Association in Detroit.

But these prepaid groups, as suggested above, did not develop
without conflict or consequence. Many physicians felt threatened and,
represented by organized medicine, objected. Discussion of their

opposition follows.

OPPOSITION FROM ORGANIZED MEDICINE

In both the West and the East, in urban and in rural settings,
organized medicine has consistently opposed contract medical practice
throughout this century. Although early in the century medical
societies recognized the necessity of the contract practices to remote
areas, in other areas they considered it a form of exploitation because
it enabled companies to get doctors to bid against each other and drive
down the price of their labor" (Starr l982:203). They fought it. For
example, in I908, the physician who had been the company doctor for
Sears Roebuck felt obliged to resign from the company because the
Chicago Medical Society had excluded him from membership on the grounds
that his service to employees' families constituted "an unethical
invasion of private practice" (Starr l983:203).

The subject evoked considerable controversy and turmoil; only a

year earlier a committee of the same Chicago Medical Society had looked

72

into contract practice and reported that "many of the men working under
these contracts are desirous of improving the conditions of things,
that they are not wanton violators of ethical codes and that they are
willing to cooperate on any amicable solution of the question." Here
again one sees that often departures from the norm of private fee-for-
service medicine are defined by organized medicine as "unethical."6

In addition to censuring these disapproved forms of practice,
medical societies in areas like the Pacific Northwest, where contract
medicine was especially prevalent, competed by forming their own
prepaid plan. Known as medical bureaus, these plans offered care by a
member of a local medical society in exchange for a fixed prepayment to
the bureau. However, in these plans, individual physicians were paid
on a fee-for-service basis and patients were free to choose their own
doctor. Thus, organized medicine found a way to perpetuate its ethics
and protect its professional interests (Fitzmaurice I959). (These
bureaus were to serve as models and precursors to the contemporary
Independent Practice Associations.)

In a case characteristic of this effort to control the medical
marketplace, the King County Medical Society of Washington State
attempted to both compete with and censure physicians who did not
cooperate. Jonathan Tompkins describes these actions in his
organizational study of Group Health of Puget Sound (GHPS). In
Washington state in I933, as the County Medical Society recognized the
inevitable growth of prepaid medical care, it created a "bureau," the
King County Medical Service Corporation. With the open-panel prepaid

plan, "the Medical Society retained the usual structure of private

73

practice, including free choice of physicians, professional control,
and fee-for-service reimbursement'I (Tompkins l98I).

Tompkins further notes that competition with the closed-panel
plans was not the aim of the medical society; rather they intended to

eliminate competition. Simultaneous with the creation of the Medical

 

Service Corporation, the medical society changed its bylaws in order to
make the "Service Corporation the only health care plan recognized as
legitimate by the medical profession." For example, an amended bylaw
relating to disciplining of members read:

A member . . . who shall engage in contract practice

unless the same shall previously have been authorized by the

Board of Trustees of this Society, or who as physicians or

surgeon shall serve on the staff of or perform work for the

patients of, or shall perform work in, any institution or

group or organization unless such services or work shall

previously have been authorized by the Board of Trustees of

this Society shall be liable to censure, suspension or

expulsion. (Tompkins I98l:49).

This and actions like it led to court cases throughout the country at
local, state, and federal levels.

When Group Health of Puget Sound found itself unable to negotiate
an end to the blacklisting of its physicians with the King County
Medical Society, in I949 they finally pursued the matter in court.
They asked injunctive relief against restraint of trade as the King
County Medical Society "acted to discourage prepaid practice to bolster
its own monopoly. They lost the suit locally but the state supreme
court overturned the lower court ruling" (Tompkins l982).

GHPS was trying at the State level a case that already had been
laboriously won at the national level by the Group Health Association

of Washington, D.C. in I938. In that struggle, Group Health

Association (GHAA) battled at first the insurance commissioner of the

74

District of Columbia, but most importantly the District of Columbia
Medical Society, which impeded recruitment of physicians for GHAA
staff, limited access to hospitals for physicians in GHAA, and
threatened those who already had hospital privileges with expulsion
from the medical society (Mayer and Mayer I985). In one of the
'bitterest battles in the history of modern American medicine, the U.S.
Supreme Court decided in favor of Group Health." Furthermore, the
medical society was indicted for restraint of trade and "once again,
organized medicine was facing charges of antitrust violations" (Mayer
and Mayer I985).

However, physicians often claimed that it was not only they who
opposed contract practice at some level. For example, the unions,
generally favorable toward plans which guarantee comprehensive benefits
to workers, mostly distrusted prepaid plans as well as physicians who
were directly employed by their companies. They preferred to see
private practitioners, particularly in cases of industrial injury and
workmen's compensation which had been passed into law in I908. Union
leaders, embroiled in their early battles with industry for the loyalty
of the workers, opposed company medical care. For example, "the
American Federation of Labor opposed as 'paternalistic' all forms of
compulsory medical care through employers" (Starr l983:203). However,
some unions were satisfied to bring prepaid plans under their own
control, for example, Union Health Services in Chicago and the UAW's
Community Health Association in Detroit.

All in all, the strong views of physicians and the ambivalence of

the consumers continued to protect the traditional forms of American

75

medical practice. In spite of considerable efforts to establish
contract practices and medical bureaus, alternative forms of practice
were isolated, had little impact and set no precedent for mainstream
medicine.
PROFESSIONAL ISSUES OF HISTORIC AND PERPETUAL POLITICAL CONCERN TO THE
MEDICAL PROFESSION CONVERGE IN HMOS

Here I want to note that for organized medicine the explicit

concerns about group practice and prepaid plans are historically

interwoven with a recurring set of political issues that are perceived

 

as issues of medical ethics. These are particularly interesting when
considered in the context of HMOs, because although they have been
historically problematic in the absence of HMOS, HMOs do raise and
aggravate each of these concerns. The issues to be discussed in this
section are not only found throughout the historical and sociological
literature on the medical profession, but are consistently found in the
conversations of physicians who discuss their profession (Anderson et
al. I985). The concerns fall into two categories: I) issues regarding
interactions with those associated with but outside of the profession,

and 2) issues with others within the profession. (See Table 3.l.)

76

Table 3.I

PROFESSIONAL/POLITICAL CONCERNS OF THE MEDICAL PROFESSION

 

A. EXTERNAL: "ETHICAL" RELATIONSHIPS WITH THIRD PARTIES
I. Physicians should not be employed by:

a. Lay persons
b. Hospitals

2. Physicians should not be regulated by government
3. Physicians should supervise all paraprofessionals
B. INTERNAL: AREAS OF “ETHICAL" CONCERNS AMONG PEERS

I. Relationship between primary care physicians and
specialty care physicians

2. Appropriate referral patterns

3. Peer review

4 Form of payment

5. Advertising

Regarding the first set of concerns--those outside of the
profession--there are a number of areas in which physicians have worked
to establish what Starr (I978) calls professional authority or
sovereignty. Organized medicine has stated clearly as a first
principle that no third party should come between doctor and patient,
i.e., that physicians' professional roles cannot be under the authority
of others. Thus they oppose interference of three types: (I) they are
opposed to physicians working for (a) lay persons or (b) hospitals; and
(2) they are also opposed to government regulation of medical practice;

or (3) they are opposed to the independent operation or practice of

77

paraprofessionals, i.e., they must be under the authorization of a
physician (AMA I98I).

In the first argument, the medical profession (as represented by
organized medicine) asserts that it is unethical for physicians to work
for lay persons; only physicians can supervise physicians. This has
created a continuing argument against salaried physicians and is to
this day an unresolved problem in HMOs with lay board members. Study
of consumer-sponsored HMOs suggest that the "interference" of lay
persons continues to be considered a problem by physicians. Anderson
et al. (I985) report that both physicians and administrators comment
without hesitation that only a group made up exclusively of physicians
may deal with any professional issues of medical colleagues.

Secondly, there has been an historic if tenuous balance of power
between medical staff and hospital administration. The interviews
(Anderson et al I985) suggest that actions by both physicians and
hospitals regarding HMOs have been in reaction to real or anticipated
behavior on the part of the other. Even in Minnesota, where physicians
and hospitals appear to have a history of some cooperation, discussion
with physicians regarding their decisions to become participants in
HMOs reveals that they felt that, if they did not develop HMOs and
participate actively in them, the hospitals would develop HMOs and
physicians would be at the mercy of the hospitals.

The second focal point of opposition concerns the historic
attitudes of organized medicine toward government regulation of medical
care. This has included the AMA's major and successful campaign
against national health insurance, as well as opposition to federal

grants to HMOS, which I will discuss later. Much of both the explicit

78

as well as the subtle opposition to HMOs was based on the perception
that HMOs were "like socialized medicine" or "a step toward socialized
medicine." Freidson (I970:24) summarizes medicine's understanding: “to
the extent that medicine is dependent on the state for its position of
preeminence it is vulnerable to non-professional or lay controls which
are anathema."

Third, physicians have worked since the l930s to carve out a
position vis-a—vis paraprofessionals in which physicians are secure
from their potential competition. In the l930s "non-physician
specialists were subordinated to the doctor's authority“ (Starr
l982:223) and "their work (now) is given legitimacy (only) in relation
to physicians' work" (Freidson I970). But, here again, in the early
I970s HMOs were raising the spectre of paraprofessionals gaining more
status. In I974, Fuchs wrote optimistically and anticipated that there
would be an increased use of "physician extenders" (l974:75). But, in
fact, as the perception of a "physician glut" develops in the mid-

l9805, paraprofessionals are less needed and the I98l AMA Conference

 

Guide to Policy and Official Statements (l98l:60-62) includes two full
pages of cautions, caveats, and instructions regarding physicians'
assistants. The present response of physicians to these and other
elements of change in health care will be discussed later.

In the early I97OS, the interest of both certain consumers and
government in HMOs provoked physicians to think again about protecting
their boundaries against external assault. Furthermore, the spectre of
HMOs aggravated old problems internal to the profession (see Table I):
l) competition between primary care physicians and specialty care

physicians, 2) appropriate referral patterns, 3) peer review, 4) form

79

of payment, and 5) advertising. The issues of specialization and the
differing--sometimes conflicting--interests of specialists and primary
care practitioners are closely connected with the historically volatile
issue of referral patterns. The development of HMOs brought out old
arguments of “closed panels," "contract medicine," and "fee splitting."
It also intensified another aspect of the tension between the
specialists and primary care physicians: the differing interests in
teaching and nonteaching hospitals (Starr l982:425). In addition,
there had been a longstanding interdiction against advertising--since
the AMA decisions of the early l920$—-which has served as another way
of controlling competition within the medical profession by prohibiting
direct appeals to the public.

It is not difficult to see that in the early l970$ the insertion
of HMOs into the health care system would reawaken or keep alive these
earlier issues and offend values of the organized medical profession.
These historic issues of professional controversy, in fact, converged
in HMOs.

With this selective history as background, it is appropriate to
consider the case studies including the impact of the medical
profession of the Evanston/Chicago community and the Lansing/East

Lansing community on the development of the consumer-sponsored HMOs.

80
END NOTES

I. They were reflecting and repeating an earlier important linguistic
policy decision discussed in Chapter 8.

2. The origins of such altered perceptions and ideologies and their
role in change is discussed by Morone and by Crawford. They will be
discussed further in Chapter 7.

3. Throughout this research and other studies of physician practice and
attitudes the importance of wartime for physicians is underscored. The
pressures of war have brought about dramatic changes in both the types
of medical treatment and the social organization of that treatment.
Because American physicians after graduation from medical school have
traditionally been largely independent and thus isolated from each
other, (except within academic training centers), service in the
military has provided them the first opportunity to work
collaboratively as mature practitioners learning from each other and
Optimizing their results (Starr and Stevens). Not only medical and war
historians have described this phenomenon, in interviews that I
conducted in l982 and I983 with physicians about their professional
development, they themselves spontaneously harkened back to their war
experiences as pivotal in their ideas about ways to practice. However,
it is interesting that their decisions about practice as a result has
not been uniform; some who found the cooperation practice supportive
have chosen group practice; others who found the bureaucracy stifling
have become intensely comnitted to practicing independently (Anderson
et al. I985).

4. The discussion of this committee and quotes of proceedings are based
on the report of the Kaiser Foundation I978: II.

5. For a provocative and illuminating analogy, see Freidson's
discussion of physicians' group protection of their individual
independence and autonomy, and similar behavior among delinquent groups
of French school children (Crozier and Pitts I956:242-246).

6. "Economics and the Ethics of Medicine," published by the AMA in
I935, provides another excellent example of the intertwining of the two
(Starr l983:473).

PART III. CONSUMER MOVEMENT IN HMOS, I970s TO MID—19805: TWO
CASE STUDIES

PART III
CONSUMERS MOVEMENT IN HMOS--l970$ T0 MID I9BOS
TWO CASE STUDIES

INTRODUCTION

No social study that does not come back to

the problems of biography, of history, and

of their intersections within a society has

completed its intellectual journey.

C.W. Mills
This social study of consumer sponsored HMOs of the early l9705 is

best understood as complex intersections of biography and history. The

two case studies of HMOs developing in their communities exemplify two

such intersections. The biographies are of the founders of the HMOS--

 

NorthCare and Health CentraI--who were committed to changing health
care delivery, and of those in the communities who supported and
opposed HMO development. The history is of both national and community
concern about health care, and of the medical profession which has
traditionally provided it. Both the consumer/founders and the
traditional practice of medicine have been changed as they have met at
and passed through this historical intersection.

Chapters 4 and 5 together present case studies of NorthCare and
Health Central: Chapter 4 discusses the communities--the individuals
and institutions that formed the context; and chapter 5 discusses the
deveIOpment of the HMOs themselves-~intersections of historical
contexts and individual actions. In Chapter 6 I give an "update" to
l986, describing first NorthCare and Health Central, and then the
national context of the changing health care system. Part IV, (chapters

7 and 8,) will describe the other side of the intersection-- changes

BI

82

observed in the consumer/founders and in the traditional practice of
medicine and its institutions as a consequence of the participation in
and the development of HMOs (or their sequel, "managed care.")

While together Chapters 4 and 5 present the case studies of
the HMOS developing as "social movement organizations“ (Zald and
Ash, I966), Chapter 4 focuses on the environments, or the
community context, in which each of the HMOs developed. Zald and
Ash (I966) emphasize the importance of the environment of a
developing organization and consider the environment in two
segments: I) the broader group of potential supporters, and 2)
the "society in which the social movements exist--the target
structure or norms which the social movement wishes to change."
Everett Hughes (I957), discussing social movements, also
emphasized the importance of environment--particularly those
environments from which social movements or other going concerns
could get clientele, personnel, financial support, as well as
the political environments. Furthermore, in what seems like a
clairvoyant remark for this study, Hughes (I957:64) wrote,
"Another way of saying environment, I suppose, is to call it a
market.... we need more study of this sort of thing, which will,
incidentally, be more historical than sociologists are generally
inclined to be."

In this study of a social movement in health care, both
"market" and history are fundamental. Chapter 4 discusses the
community environments——or "market areas for health care--in
Evanston, Illinois (within the Chicago metropolitan area) and

Lansing, Michigan, as they developed and responded over time. I

83

consider the environment in seven sectors which interact with
health care: consumers (formerly called patients) who use health
care; physicians and hospitals, who provide health care; and
employers and unions, insurers and government agencies, which pay
for and regulate health care (Anderson and Kravitz, I968;

Anderson et al. I985).

CHAPTER 4

THE COMMUNITY CONTEXT: EARLY 19705
IN CHICAGO, ILLINOIS AND LANSING, MICHIGAN

INTRODUCTION

Chicago, Illinois and Lansing, Michigan provided very different
errvrironments for consumers to initiate and develop HMOs. Discussing the
ewr\r'ironment for such movements Zald and Ash (I966) note the importance
of” a: "strong sentiment base" and "low hostility" toward the movement.
Ir: ‘tzhis chapter I will present an overview of the environmental
"sentiment" , i.e., the support for and opposition to the two
developing HMOs in their communities.

Between l98l and I983 at the University of Chicago, in a study
di rected by Professor Odin Anderson, we compared HMO development in two
(“Dnnuwthnities, Minneapolis-St. Paul and Chicago (Anderson, et al. I985).

TT'fia :study demonstrated the importance of the seven sectors of the local
Cc"lilln'mmity environment, noted above, in the development of HMOS: the
CC>"1's.umers, physicians, hospitals, local employers, unions, insurers,
°"<3', finally, the regulators of health care.

While Zald and Ash (I966) state that the environment of a social
‘n"\'<ement divides into supporters, on one hand, and the larger part of
tk‘EE community which is the "target" of the movement, on the other hand,

we"found that that distinction is not sufficient to predict the support

and opposition of HMOs across communities. In one community a sector

(e.g., hospitals) may be the source of opposition, while in another a
source of support; and in fact, as the reader will see, the most

explicit "target" of the social activism, the medical profession,

84

85

offered very little response. I will briefly describe each of the

communities and then each of the sectors. This will develop a
comparative overview for the purpose of answering two general
questions: I) Which elements of their communities supported and
opposed NorthCare and Health Central? and 2) What were the

consequences of that support or opposition?

This descriptive analysis will reflect some aspects of the social
aricj economic nature of the communities in the mid-I97OS and will serve
as a base for the discussion of the emergence and the deveIOpment of
Nc>r~‘t;hCare and Health Central in the next chapter. I also include here
app ropriate references to Minneapolis-St Paul for the purposes of
fLJI"‘1CLheF comparison with a community which has been a leader and
"31:1“ onal model for the development of HMOS and presents something of an
ICIGE:E:I type. Table 4—I includes selected comparative social and
QCOnomic data as background for the discussion that follows.

In Minneapolis-St. Paul, for example, we found that in the
pc>D\Jlation of 2 million people there was relative racial, ethnic, and
ecOnomic homogeneity. All but 2% of the population was white and mostly
(if: similar Scandinavian or German heritage. The work force is largely

‘"I‘i'te—collar and there is relatively little unemployment, a very small
De"‘centage of the population on public aid, and historically plentiful
Ir‘e'sources. This mixture served as a fertile seedbed for the growth of

HMOS in the l9705.

In contrast, the population of the Chicago metropolitan area of
over 7 million people was notably heterogeneous. There was racial,
ethnic and economic diversity. Immigrants from other countries as well

as other parts of the United states have established boundaried ethnic

86

communities, often non—English speaking, throughout the city. Almost
half of the urban area is non-white and there is a very large blue-
collar and unemployed population. While the MM income is
slightly higher than the national average--similar to the Twin Cities
metropolitan area—- the numbers of Chicagoans below the poverty level
and an even greater number on public assistance (over twice the
percentage in the Twin Cities) draws attention to the skewed
dis tribution of resources in the Chicago area.
The Lansing-East Lansing metropolitan area, usually considered a
"trvi -county area" of three contiguous counties, had a total population
of under 400,000 persons. The non-white population had been growing;
1'1‘. doubled between I960 and I970 to 4 percent. Two percent of the
Permanent population was Spanish speaking, and summers brought many
“‘I grant workers, largely Spanish speaking, to the area. Loom
inCome in Lansing was lower than in the urban areas the Twin Cities or
C“ 1’ cago. The numbers below the poverty level and on public assistance
were considerably higher than in Minneapolis St. Paul, but distinctly
1O‘Ner than Chicago's. (See Table 4.l for comparisons of the three

Corrinunities in the early l9705.)

87

Table 4.I

Selected Characteristics of the Three Communities
(Early I970's): Minneapolis-St. Paul, Chicago,

 

 

 

 

 

 

Lansing.
Categories I Minneapolis- I Chicago | Lansing I
I St. Paul I I I
I I I I
Total Population | I,8l3,647 | 6,978,947 I 378,423 |
(SMSA), 1970 I I I I
% B1ack I I.8% I l7.6% I 3.9% l
(SMSA), 1970 I I I I
I I I I
x B 1 ack I I I I
(Urban County),l970 I 2.4% I 2I.9% I 5.5% I
I I I I
---— I —-—-— I I I
I I I |
Peer~ Capita Income I I l |
(Metro Counties), I $5,511 I $5,433 | $4,321 I
1974 I I I I
F - | I I I
arm lies Below I I I I
POVerty, (SMSA). I 4.5% | 6.8% I 6.l% I
I970 I I I |
x I I I I
Of Individuals I I I I
9" A.F.D.C., I 5.0% I 11.0% I 8.0% |
L"““laan County), I970 I I | I
_ I I I I
“- I I ------- ‘I ‘I
:hysician Per 10,000 I | | I
\Opulation, (SMSA), I 152 | 159 I 133 I
I I I I
COunties Include: I Ramsey I Cook I Ingham I
I Hennepin I Du Page I Clinton I
I | Kane I Eaton |
I I Lake I I

 

Source: U.S. Bureau of the Census, County and City Data Book,
I977. U.S. Government Printing Office, Washington, D.C.
20402;l978.

88

CONSUMERS
There is general agreement that consumers (called patients until
the consumer activism of the early I9705) are a central part of the
Inealth care system in all communities, but there is little agreement
at3c1ut the definition of a health care consumer. For the employer, the
en1;)'loyee is the consumer of health care, but for those marketing health
care, the employer is the consumer. Others may variously define
cc>r1 ssumers from their roles as rank and file union members, clients,
pat ‘ients, voters or enrollees. As Luft (I98l) notes, "the definition of
tire: consumer is open to various interpretations. Health plans may
(even) solicit individuals whom they desire to have serve on their
board of directors and offer them health plan memberships, thus
C1 assifying them as consumers." In addition to such instrumental
PeY‘ceptions there are distinctions in the ways that consumers behave
and define themselves.
Some consumers in Chicago and Lansing, as well as in Minneapolis-
St, Paul, are proactive: they have an ideological perspective which is
OFT-en associated with collectivism--such collectivism emerged in the
American farmlands in the early I900$ and spawned grain and dairy
cooperatives for both producers and consumers. Such consumer-activists
acrt; out of a commitment to certain beliefs and actions. It is from
tTYls group that the social activists who founded NorthCare and Health
Central came. One Chicago consumer-activist asserted her belief
about health, "Health care is NOT like buying a refrigerator." But for
other consumers, buying good health care may not seem so different than
buying a refrigerator. Their approach to health care is not ideological

but simply pragmatic. It may arise out of a specific health care issue

89

and/or a wish to correct a specific problem, e.g., high cost, poor
quality, or inaccessibility. They may not think of themselves as
health care consumers until asked to serve on a health care committee.
Such a social construction, for example, was established by the federal
law that requires I/3 of an HMO board to be composed of "consumers".
Th ‘i s legislation created a new role or reality for those who took such
"c:c>r1sumer slots”-- slots in which they would be empowered or coopted.
(lira Chapter 8 I will discuss the transition from the social activism of
tlaea I960$ to consumer activism of the l9705.)

As a result of my interviews with consumers in the comparative
study of Chicago and the Twin Cities, I recognized that consumers can
be considered to have two types of roles in facilitating or impeding
tI‘EB (development of HMOs: as citizens they both create and reflect the
nature and decision-making style of their community; as potential

Patients they accept or reject the emerging HMO.

Consumers, we found, were in some ways the most, and in others,
the least influential of the sectors that we interviewed. That is, the
"at ure of the community--its social history and decision making style
he] ped explain the emergence and development of HMOs in the Twin
Ci ties. The homogeneity, corporate leadership, and commitment to
C°nsensual decision-making supported the exceptional early development
9f HMOs. In Chicago, the heterogeneity, absence of centralized civic

leadership, and history of political contention and confrontation
inhibited the early spread of the health care innovation in the city as
a whole.

In the l982 study, both communities of consumers seemed strongly

influenced by the attitudes of their physicians and of their employers.

90

The Twin Cities respondents reflected the paternalism of the corporate

and largely white—collar employers, and accepted, with confidence,

their employers' positive view of HMOS. In Chicago, employees

reflected and shared their employers lack of interest in HMOs.
In the Lansing-East Lansing area, the consumers, as employees,

were not so much affected by their employers' views as by the views of

labor unions. In the highly unionized work force, the support of the

UAW, the AFL-CIO and the Michigan State University Employees'

As sociation had a major effect on the exceptionally high early

en rollment at Health Central.

PH Y SICIANS

American physicians' historic resistance to changes in their own

I)" actice and to competition from other health care providers has been

di scussed earlier. The consequences for medical practice in

Communities where HMOs, or associated managed care systems have, in

1tact, changed practice patterns are discussed in Chapter 8. That is,

i '1 Minneapolis-St. Paul, although physicians shared the norms and

" El'lues of the medical profession throughout the United States, they
'3" so responded to the norms of their progressive community. There,
hCNnogeneity reinforced trust and communication networks in an

eI'Wironment already predisposed to collectivism. Furthermore, HMOs

were seen as relevant to their predominant health care problem—-

escalating costs. (In the affluent and homogeneous community, with an

abundance of physicians, access and quality of care were not considered
a problem.) The interviews showed also the importance and the

predominance of group practice, especially multispecialty group

9I

practice. Where physicians and patients were already accustomed to

group practice, HMOs seemed only a change in the payment mechanism.
Where group practice was unknown or only associated with "clinics" for
tlie indigent, HMOs met great resistance from physicians and patients
al ike.
In Chicago, the qualities of cautiousness and traditionalism which
are characteristic of the medical profession were intensified by the
conservative, fragmented and adversarial nature of the metropolitan

area. Despite localized medical resistance or support, the overall

result was a virtual absence of impact on HMOs. While some physicians

re ported "frank reprisals" from physicians against "wayward HMO
Co 1leagues" who interrupted the general flow of referrals within the
ITheatdical community, most physicians interviewed in Chicago in l982 knew
1 1‘ ttle about HMOs. Furthermore, neither they nor their patients had
EXperience with multispecialty group practice except for those
ialsssociated with the six competing university medical centers that
'fTIthher fragmented (and continue to fragment) the Chicago medical
‘<2<3mmunity. Finally, Chicago physicians, who were concerned about
Eiccess and quality of care for the large poor inner city population,
<1‘id not see the relevance of health care plans they associated with the
young, the healthy, and the employed. (See number of physicians in the
Inetropolitan area. More recent studies have demonstrated the paucity of
physicians in the inner city and the density in the suburbs.)
In the mid to late I9705 most Chicago physicians' general lack of
interest in HMOs extended into Evanston. The founders of NorthCare
reported no direct opposition or support with the crucial exception of

Dr. Arnold Widen whose early and lasting interest has been a critical

92

factor in NorthCare's development. (In l986 he was still medical
director.) Although Widen does not reflect physicians' attitudes

toward HMOs in general, he had a positive effect on physicians'

attitudes toward NorthCare. It is interesting to note that in spite of

the fact that traditional medical practice was the explicit target of

the social movement, there was little friction between the movement

founders and physicians themselves. [This is in contrast to other

health activism of the time, e.g., the home birth movement, which

evoked vehement opposition from physicians (Ruzek I978)]. The

NorthCare founders believe that physicians simply thought they were

"crazy ladies'" and did not take them "seriously."

In Lansing, as in Evanston, practicing physicians were slow to
take the HMO movement seriously; multispecialty group practice was
unknown and physicians practiced alone or in small single specialty
groups. Although the two new Michigan State University medical schools,
one allopathic and one osteopathic, were reported to have introduced

new ideas to the conservative medical comnunity, many practicing

PhySicians had found them threatening. And although the medical

schools added numbers to the physicians' census, they provided more
teaching than practice and the community ratio of practicing physicians
to population remained low. (See Table 4.I; note that the ratio is
comDaratively low even with university physicians included.)

The medical schools, however, were supportive of the emerging
HMO, offering advice and some practical support services on the campus
In East Lansing. Furthermore, the dean of the College of Human

Medlcine assured the HMO founders that the school would provide

93

specialty medical services when the HMO became operational. The
medical schools had a less than naive interest in HMOs; they had

considered developing a university HMO but the idea never materialized.

.Sone interested physicians from the two medical schools served on

Health Central 's board.

The medical schools' response to Health Central was not typical of

tzraee physician community. The practicing physicians' attitudes are

(JLJ'intessentially represented by the county medical societies' written

r-ezssponses to Health Central's early request for a statement of support

15:)!” their feasibility study. The response of the Secretary of the

(:1 i nton County Medical Society is so concise that I quote it fully:

October I, I974

Dear Miss Abramson:

The Clinton County Medical Society has received your

letter and it was read and discussed by the Clinton
County Medical Society.

We find that we have no need for an H.M.O. in this
area.

I hope this will answer your request.

CI early the physicians of Clinton County, located just north of
Laxising, had no "felt need" to change their patterns of practice. The
Prfesident of the Eaton County Medical Society was less terse and more
carniid. His words represent well those of many physicians whom I

“Iterviewed. He speaks not only the conservative view of physicians but

9f "heartland" Republicans, as well. I excerpt from his letter:

....The whole concept of H.M.O. at the present time, I
feel, is unwise and unwarranted. The federal government is
now spending more money than they are taking in, and thus
are contributing immensely to our rate of inflation. H.M.O.s

94

across the country, even though guaranteed by the federal

government, are in no way breaking even. The government is

having to bail them out with tax dollars....I don't think it

is right that the federal government should undertake to

subsidize this type of private enterprize.

The Eaton County Medical Society would be interested in

H.M.O.s on a paying basis, self sustaining. This possibly

could be done; and in the future if we find there is an

organization which is self-sufficient and standing on its

own two feet without the taxpayer's dollar, we would be glad

to provide you with any assistance necessary.

The private practitioners whom I interviewed in both Lansing and
(:r1‘icago often expressed resentment--even hurt--that the federal
government would subsidize a competitor. (It seems ironic that both
tzrwea government and the physicians carried the banner of fFee
enterprise, both claiming the appropriateness of fair competition-~but
defining it differently.)

The president of the Ingham County Medical Society, representing
‘tf163 Inost urban of the tri-county physician groups, sent a formal but
11C>tL unfriendly letter. Representatives of the Ingham County Medical
Society, he said, had met about the HMO in March of I974. They offered
'tC) "continue to meet with representatives of HALE at times mutually

aCiceptable." He concluded, "We know you have a long difficult task
b€=:1"ore you and hope that your problems may be solved speedily."

Just as I observed about the NorthCare founders, in spite of the

Heiilth Central consumers' avowed interest in diminishing the power of
Physicians, their relations with the physicians were not problematic.
30‘31 the Ingham County and the Michigan State Medical Societies were

baSically supportive; their medical journals also discussed the HMO in

nOrb-hostile articles.

95

An early Health Central staff member gave her explanation which

mirrored the words of the founder in Evanston:
There was always rumored hostility from the local medical
society but it never materialized. I think because the
never took us seriously. They thought we were just flailing

at this windmill. If we had been a group of men the project

would have been in greater jeopardy. I think they got a lot
of giggles...

HOSPITALS

Zald and Ash (I966), writing a decade before the devel0pment of
hlc>rethCare and Health Central note that such social movement
c>rzgganizations exist "in an environment with other organizations aimed
at rather similar goals (which ) causes an uneasy alliance but also
<:r~eeates the conditions for inter-organizational competition." With
these words they perfectly anticipated the relationship of hospitals
axicj HMOs. Though challenged and changed by HMOs, hospitals cannot fill
their beds without them. Although some hospitals at first tried to
ignore, then to resist HMOs, others have developed competing HMOs
Either with their own administrative structure or in a joint-venture
Wl‘tli their medical staff. The following descriptions of the community
environments will demonstrate the wide range of roles hospitals have

PI ayed in the development of the consumer sponsored HMOs.

In the model community of the Twin Cities, the hospitals reflect
FOE! homogeneity and cooperative history of the community. Until the
incn~eased competition of the I9805, hospital administrators--most
trai ned in the same Minnesota institutionsumet together regularly as
an association of friends. This environment nurtured HMOs. Furthermore,
the early support of the HMO concept by business leaders, legislatorS,

and community groups would have made rejection by hospitals politically

96

and financially unwise. Therefore, many Minneapolis-St. Paul hospitals
gave active or passive support to HMOS including start-up financial and
technical support as well as discount and risk-sharing arrangements
(Morrison, in Anderson et al. I985).
In Chicago, hospitals have played a different and dichotomous role
il1 HMO deveI0pment generally. In the city of neighborhoods and
eaticlaves, hospitals, like churches, have sprouted everywhere. There is
‘l‘ittle communication or unity among them; in the late l970s and early
1 Si80s this resulted in a wide range of understandings about HMOs. In
f’aict, interviews with hospital administrators revealed rampant rumors
about HMOs. In contrast, however, to the general hospital ignorance of
Fih4()s, two of Chicago's major hospitals have sponsored and developed two
01r the city's most successful HMOs; ANCHOR, and the Michael Reese
Pieeialth Plan. Furthermore, and most relevant, Evanston hospital gave
Etcjwrice, support, and credibility to the emerging NorthCare in ways
vvf1i¢:h will be described in the following chapter. Despite the fact
that the hospital acted out of self-interest and, in fact, refused to
Contract with the HMO for a discount, the association with a respected
I1<Ispital~-and implicitly its highly credentialed medical staff--were
eissential to the development of NorthCare.

In Lansing in the l970s, the four hospitals--one Catholic, one
PY‘ivate osteopathic, one private allopathic, and one county hospital--
Were amiable competitors. One hospital director told me that the
I"DSpital administrators met regularly as colleagues--much like those in
'the Twin Cities--until the late l9705, when under the pressure of
COmPetition and "strategic plans," a "new guardedness" discontinued

their collegial meetings. At first these hospitals paid little

97

attention to the emerging Health Central. Then, as a comnunity

service, the Catholic hospital provided office space for the founders,

staff, and volunteers to meet and prepare their federal grant

applications. All of the Lansing area hospitals were unfamiliar with

HMOS; however, they were willing to sign contracts, but without

di scounts. The one hospital director recounted his relationship with

Health Central:

They were all delightful people and our working
relationship was very good....but then the receivables
began to build up to substantial amounts....

Fieeealth Central's ultimate financial crisis caused the hospitals to join
together as a group to demand and retain a "watch dog" seat on the
board of Health Central when it was newly constituted under Blue Cross.

In I980, in reaction to the competitive pressures, one of the
Pr‘i vate hospitals in conjunction with a medical staff group began

developing a competing IPA, Physicians' Health Plan. (The details and

Consequences are discussed in Chapter 6.)
EMPLOYERS

United States employers' interest in employee health benefits has
been increasing since the early 19405 when federal government policies
eXErnpted fringe benefits from wartime wage and price control which

PPOvided strong incentives to expand health benefits. Subsequently a

POSt World War II interpretation of the Wagner Act of I935 encouraged

t“If: proliferation of union health insurance plans. Employers have

Varied in their attention to these benefit plans. However, during the

eCOnomic recession of the early I9705, employers throughout the United

States became alarmed at the increasing costs of health benefits.

98

Employers' interest in health benefits is crucial to HMOs because
employers are, in fact, the first consumers to whom HMOs must market
their plan. Employers act as gatekeepers, and unless they offer a plan
to their employees, the employees cannot enroll. Furthermore, as I
iriterviewed employers, benefits managers, and HMO marketing
r'ezpresentatives, it became clear that employers are in an excellent
F>c35ition to ”sell" a given HMO, a competing health insurance plan, or
t:r1e company's own self-insurance plan.

In the Twin Cities, the employer community, with leaders from the
racewadquarters of Pillsbury, 3 M, General Mills, Honeywell, and other
c:()rnpanies, acted cooperatively and decisively. Employers say that in
1:I1ee early l9705 they became interested in HMOs "more to improve the
health care system" than to "get involved in reducing benefit
expenditure." (Anderson, et al. I985). They actively participated in
‘tlnee development of HMOs and encouraged their employees (as noted above)
to join them.

In contrast, in Chicago, the large, fragmented, and diffuse
business community showed little knowledge of or interest in HMOs until
the early l9805. They adopted a passive role as HMO consumers,

Y‘eSponded if they were mandated (under the federal I973 HMO
Iiagislation) to offer an HMO, but did not encourage their employees to
Enroll. The predominance of many small and medium size businesses
Sflattered over 3724 square miles made it difficult for Chicago HMOs
IIlcluding NorthCare to enroll employees.

In the Lansing area, however, employment is heavily concentrated
In three major groups of employers: the auto industry, including

General Motors, Oldsmobile, Fisher Body, and Motor Wheel; the State of

99

Michigan, with nearly I7,000 civil servants and Michigan State
University. Nonetheless, the employers themselves did not take an
interest in HMOs in the l970s. Like Chicago, Lansing has little
centralized civic leadership. (For example, one community resident
(:C)mplained that when the new Lansing-East Lansing cultural center was
tJLJiIt, donors included Ford and Chrysler [from other parts of the
st ate] but not General Motors, the largest employer in the community.)
In spite of employer apathy in Lansing, employees have strong
'I eadership; it comes from organized labor which has had various effects

c>r1 HMOs in the three communities.

L ABOR UNIONS

Health insurance benefits have been an important part of
<:c>1 lective bargaining since World War II and organized labor has shown
<2<>r1siderable interest in HMOs. The influence of organized labor is
‘f<)t1nd in each of the communities studied.

In Minnesota, trade unions offered ideological and financial
Support to Group Health Plan in the early I9505. Actual union
erlrwollment occurred later. Union representatives support and serve on
the boards of several Twin Cities HMOs. The unions also gave political
SL|I3port for the I973 Minnesota HMO legislation.

Labor largely expressed interest in expanded benefits, first

cIOIIar coverage, and 2221221 that is the opportunity to go to a
I"!Ysician of choice in her or his private office, i.e., middle
class coverage. Union representatives referred to anything else as a
"FOII back." Union workers with this viewpoint favor Independent

Practice Associations, (IPAs) and Preferred Provider Organizations,

Q

I

IOO

(PPOs) rather than staff model HMOS. This I found strongly expressed
when I interviewed labor representatives at union locals.

National labor leaders were early advocates and strong supporters
of staff and group model HMOS. Unions have developed their own prepaid
plans throughout the United States, and in Detroit the Unions alone and
‘together with Ford Motor Company facilitated the development of HMOs.
Tlie Union Health Plan was the first lasting HMO in Chicago, and it was
leabor that brought pressure on the Illinois legislature to pass the HMO

enabling act.
But there are conflicting themes in organized Iabor's interaction

w‘i 11h HMOs and disagreement among different elements of the movement.
That is, while labor representatives want to control the costs of

medical benefits, they insist on services and products of unionized

wo rkers. I witnessed a very angry public confrontation at a labor

un ‘ion luncheon in Chicago at which a speaker talked of using a

competitive hOSpital supplier and a member of the audience raged that

the supplier used non-union workers. And, in East Lansing, a union

official who is a long-time member of the Health Central board said
th at there was considerable tension when board members from the unions
'7 "S ”5 sted on installing union—made telephones in the HMO facilities.

In Lansing, unlike Chicago or the Twin Cities, labor was a
Gen tY‘BI, if not the primary source of the consumer-activists' support
for their HMO. Although no union representative was among the first
in ‘i t ‘i ators of the HMO, the first founders quickly turned to labor (with
"h i c2h most founders shared a Democratic party connection) and found
ear 1 .y and lasting support. The union representatives on the first

b
06"‘d of Health Central were still on the board in l986. And organized

IOI

labor in Lansing was not only instrumental in the development of Health
Central but also in gaining access to employers and encouraging
enrollments. The founders were interested to find, however, that local
labor support was not sufficient; for permission to enter the plants to
recruit members they had to "end up going through the state hierarchy"

of the United Auto Workers starting at Solidarity House in Detroit.

INSURERS

Insurers had a mixed, but generally quiet response to the
introduction of HMOs in the early l9705. One industry sponsored public
relations agency explained that the insurance industry did not want to
present a confrontational image to the public, preferring, rather, to
meet potential threats through "negotiation, compromise, and adjustment
of its own position." Instead of competing aggressively with HMOs, they
maintained the strategy suggested by the following recommendation of
the insurance association's Subcommittee on Health Care Delivery of the
Committee on Medical Economics in I969:

That insurance companies (should) continue to remain abreast

of developments in the prepaid group practice field and be

prepared to conduct experiments, the purpose of which would

be to determine the proper relationship of the industry to

this concept....It is important that insurance companies do

not place themselves in the position of impeding any such

sound developments (Health insurance Association of America,

I969) (Anderson, et al. I985:2l3)
Indeed, in the early l970s the insurance industry made small
arrangements--administrative and financial services, including stop-
loss insurance and claims processing, and in some cases offered modest
amounts of venture capital-- while they proceded to "determine the

proper relationship of the industry to this concept...." As Chapters 6

and 8 will demonstrate, their stance in l986 was very different.

I
n,‘
I.‘ .

r‘f

IDZ

Furthermore, it was with the consumer sponsored HMOS like those of
these case studies that they have been "prepared to conduct
experiments."

In Chicago three insurance companies helped or negotiated with
NorthCare as it developed. Blue Cross of Illinois, headquartered in
Chicago, was the most threatened by the changing health insurance
market; it offered advice and an alliance but was rebuffed by the
consumers who wanted to maintain control. Washington National
Insurance Company lent some financial support, and finally Blue Cross
of Rockford provided extensive capital in order to have a foothold for
competing with Blue Cross of Illinois. They demanded certain controls
that would later weaken NorthCare's financial position and make the HMO
more vulnerable to the ultimate takeover of Prudential Insurance which
was beginning to "experiment" with HMOS throughout the country.

In Lansing, insurers showed no interest in the emerging Health
Central. Insurance in the state of Michigan was dominated (and still
is) by eight separate licensed Blue Cross corporations; one insurer
explained that Michigan regulation is "unfriendly to national
companies." Blue Cross had earlier been associated with the early
"medicaid HMOS" in Detroit. When in I979 Health Central needed to be
"bailed out" of its financial calamity, Blue Cross resisted.
Nonetheless, the executive who was the "key person" to finally accept
the responsibility for the Health Central takeover has been rewarded
with an executive vice presidency in Blue Cross as Health Central has
flourished, expanded, and further secured the giant corporation's

position in the state.

103

REGULATORS

The regulatory sector at both the state and federal level was very
involved in the development of the HMOs, first through legislation and
then through grant programs. In Chapter l, I described the Nixon
administration's political interest in presenting a viable health
program and the federal government's need to contain the costs of the
ballooning Medicare and Medicaid programs. In l973, the federal Health
Maintenance Organization Act was passed to make it possible to provide
needed assistance to HMOs in the early stages of development. It
reduced the many legal, financial, and enrollment barriers that had
limited organizations like HMOs in the past. The legislation provided
specific supports: those HMOS which were "federally qualified" could
“mandate" employers, i.e., any employer with over 25 employees in the
HMO's geographical area could be reguired to offer HMOS as an option to
his/her employees. Furthermore, a developing HMO could apply to the
federal government for funding for several levels of health plan
development. The legislation was innovative in two ways: it was the
first federal act with the explicit goal of changing the medical care
system in the United States, and it presented a way in which the change
was to be accomplished--through competition (Herold, in Anderson et al.
l985).

The legislation, while innovative at the federal level, was in
fact, preceded by state legislation for the same purpose in Minnesota.
In Minnesota, as a consequence of the distinctive corporate leadership
and civic decision-making patterns already described, it was the
private sector that initiated the proposal preferential to HMOS, and

the public sector that codified and implemented it. Minnesotans

l04

perceive and are proud that they are often ahead of the federal
government. Furthermore, two opposing proposals, one for a proprietary
HMO bill and another limiting HMOS to non-profit plans were presented
to the Minnesota legislature. Supported by Group Health Plan and also
by farm, labor and cooperative organizations, the non-profit bill
passed, including provisions for consumer representation on the HMO
board of directors and primary regulatory authority to the Minnesota
Department of Health.

In contrast, in Illinois, where there was little private sector
interest in HMOs it was the public sector, the Department of Public
Health, that obtained sponsorship for state legislation from the
chairman of the Senate Committee on Public Health, Welfare and Safety.
The state legislation passed in l974 following the federal legislation.
The sponsor of the bill commented, "since no one in the Senate
understood HMOs there was no opposition." In Illinois, separate
regulation drafted by the Departments of Insurance and of Public health
split the responsibility for HMOs between the two agencies.

In Chicago, where so little was known of HMOs, federal HMO
regulations were used by HMOs to bring HMOs to the attention of
employers. However, it was not the policy of NorthCare to "mandate"
employers to gain enrollees. While NorthCare did not choose to use the
clout of government agencies (which often had negative political side~
effects), the developing consumers' group did apply for funds to both
state and federal agencies; first the Illinois Regional Medical
Programs (IRMP) and then the Office of HMOs (OHMO) in The U.S.
Department of Health Education and Welfare (HEW). As I will recount in

the following chapter, funds granted from IRMP were discontinued when

l05

the Nixon Administration cancelled the program. It was one of many
ways in which government agencies proved to be incompetent or
unreliable in their relationships with the emerging HMOs. NorthCare,
however, served frequently as a model for both state and federal
governments of the health care plans they were trying to promote.

In Michigan, too, the state and federal government proudly hailed
the development of Health Central. The founders of Health Central had
extensive interaction with regulators at many levels. As I will
explain in more detail in Chapter 5, Health Central founders' testimony
was important in the development of the Michigan HMO Law, which was
also meant to facilitate and regulate HMOs. In Michigan, also, the
responsibility was divided between the Department of Public Health and
the Department of Insurance. The state of Michigan had an early
interest in developing prepaid plans and picked up the newly coined
name immediately. The Governor of Michigan in his Special Message to
the Legislature on Health Care (May 8, l97l) said:

to hasten the establishment of HMOs in Michigan, I am asking

the Office of Comprehensive Health Planning and the Director

of the Department of Public Health to develop a state

program for health care. The purpose of this program will

include the design and encouragement of a health maintenance

strategy and action plan.
A Technical Work Group was established pursuant to this message and the
announcement attributes the name HMO to the Department of Health
Education and Welfare (HEW) in March of l970." (The new acronym had
barely been spoken when it was published by HEW.) A l97l state
document, which I read from the Health Central files, attributes the

program to the "health care crisis in America"-—l) rising health care

costs and 2) maldistribution of health care resources, e.g., manpower

l06

and facilities." I found it interesting that the former executive
director had penciled in the margin of the document a supplement to the
government's perspective. She wrote, "lack of comprehensive system of
health care delivery."

Both the state and federal government applauded, advised, and
counseled, with Health Central at regular intervals, but there is clear
evidence that their advice (for example about board members and
staffing) was illfounded and misleading. Furthermore, they were so
eager to see the success that neither the state nor federal regulators
saw nor warned of the financial difficulties that were undermining the
HMO and about to overwhelm it. Regulators whom I interviewed assured me
that the state and federal government had "learned a lot" from the
problems of Health Central and that "they do things differently now."
(Details of the events are in the following chapter, and analysis of
the interaction of government and the consumers' HMO movement is found
in the conclusion.)

In sum, the comparison of the seven sectors in the two communities
demonstrates certain similarities as well as significant differences in
the "sentiment base" (Zald and Ash l967) i.e., the context of support
and opposition for the development of NorthCare and Health Central.

Consumers as a group, with the important exceptions of the
activists themselves and their followers, responded to, rather than
initiating change in both the Chicago and Lansing areas. In Lansing,
however, many participants and much expertise came from Michigan State
University in East Lansing, while Northwestern University in Evanston

played only a minor role. In both the communities most physicians, it

l07

appears, did not take the consumer movement "seriously." It is
interesting and ironic to note that although their profession was the
"target" of the consumers' efforts, as individuals they offered no
resistance and some, in both communities, offered support.

The hospital context, in contrast, was significantly different in
the two communities. Evanston Hospital was the central source of
support and legitimation for the NorthCare founders. In Lansing, the
hospitals were mostly neutral observers of the Health Central
consumers' early efforts. And in neither Chicago or Lansing did
employers themselves have an important effect. (This was particularly
noteable in comparison to their central role in the Twin Cities.)

Unions, on the other hand, while of little influence on NorthCare,
had the most powerful conmunity influence on Health Central. Finally,
in both communities, regulators and regulation were integral to the
development of the HMOs. The complexities of their role, and the roles

of the other sectors will unfold in the next chapter.

CHAPTER FIVE
THE HISTORY AND DEVELOPMENT OF THE HMOS:
NORTHCARE AND HEALTH CENTRAL
INTRODUCTION

In this chapter, I trace the development of the two HMOs as social
movement organizations. I draw from a range of social movement
literature, synthesizing certain elements of the analyses to clarify
the largely parallel careers of the two social movement organizations,
NorthCare in Chicago, Illinois, and Health Central in Lansing,
Michigan.

The development of the HMOS is most clearly and completely
described as a combination of l) social movement stages and
interactions which dominated their early years (Spector and Kitsuse
l977; Zald and Ash 1966; Blumer l97l; and Hughes l957), and 2) the
bureaucratic stages of funding and regulatory agencies, which the
founders accepted as they institutionalized reform. They first sought
personnel and resources to establish their consumer-sponsored health
care organization, but once it was created and institutionalized, they
focused on organizational maintenance (Zald and Ash l966, after
Michels/Weber model).

The two distinct social movement and bureaucratic periods are
manifest in similar ways in the parallel histories of the two HMOs. In
both Evanston and in Lansing the founders created consumer groups--
Evanston Medical Consumers (EMC) and Health Action League (HALE)--based
on, and as a vehicle to foster, their ideological commitment; in both

cxmnmnities consumers sought equitable access to health care, consumer

l08

lO9

control in health care, and preventive medical services in a prepaid
health plan. These groups "captured the spirit of their time " that
health care was a right (Starr l983:389) and they sought to diminish
the power of the medical profession (Ruzek l978) and create a consumer-
physician partnership in place of physician sovereignty.

In both Illinois and Michigan the consumer/founders discovered
that to receive government funds to develop their goal the consumer
group would have to separate itself organizationally from the HMO they
had been working to develop. This separation--the consequence of a
federal regulation--marked both in fact and in symbol the change from
an ideological movement organization to a bureaucratic and instrumental
organization. Thus, ironically, as the social movement organizations
began to succeed in establishing their objectives, their goals were
institutionalized and bureaucratized in an infant organization which
then competed with its own parent organization for attention and
resources. EMC spawned North Communities Health Plan (NCHP or
"NorthCare") and HALE spawned Health Central. The newly born HMOs
became less influenced by the parent organization's ideology and
increasingly influenced by the demands of bureaucracy; the original
consumer groups exemplified Zald and Ash's description of social
movement organizations when their goals have been reached:

But what happens when the goals of the MO (movement
organization) are actually reached; what happens when a law

is enacted, a disease is eradicated....or social conditions

change thus eliminating the ostensible purpose of the

organization? Two major outcomes are possible: New goals are

established maintaining the organization or the MO can go
out of existence. (p. 333, l966)

llO

In fact both EMC and HALE did both. First they developed new consumer
health goals but soon found that their principle energy had come from
the interest in developing the HMO and after some time, each
discontinued.

There are a number of important differences in the development of
the two HMOs in part because of the different contexts (urban
metropolitan Chicago and middle-sized mid-Michigan town) their
different sources of support, and the symbolically different historical
moments when each emerged--l97O in comparison to I973. These
differences and others will be discussed more extensively later.
However, the overriding impression when comparing the histories of the
two social movement organizations is of similarity, and in this
discussion, similarities dominate.

Both social movement organizations emerged as a result of what
Spector and Kitsuse (l977:75) describe as "the activities of
individuals or groups making assertions and claims with respect to some
putative condition" which they defined as a social problem. They go on
to say that the sociologist's task is "to account for the emergence,
nature, and maintenance of claims-making and responding activites."

This chapter will describe first the emergence of the movement,
the nature of the activists (the early "personnel" drawn from other
social activism [Hughes l957]), and of their claims, as well as their
goals, activities, and interactions with individuals and interest
groups through which they were legitimated and supported. Blumer (l97l)
has suggested a series of five stages through which a social problem is
defined and a social movement may develop. These provide the useful

heuristic which guides the description of the early period of the

lll

consumers' social movement organizations--their stages of l) emergence,
2) legitimation, 3) mobilization, 4) development of an official plan of
action, and 5) implementation of an official plan. These stages are
interwoven with important themes of social movement development
including the nature of claims made by activists, the recruitment and
turnover of personnel and clientele, the sources of financial support,
and the influence of the political environment (Hughes l957).

As the organizations began to develop an official plan they needed
increased resources (beyond those that the consumers' best bake sale
could provide). Seeking support, the founders (the claimants) were
very cautious of professional power (the power of those against whom
they made claims [Spector and Kitsuse]) and avoided cooptation by the
medical establishment which they wanted to reform. However, in spite
of their earlier activist experience, they seemed unaware of the
possibility of government and corporate cooptation. To make themselves
acceptable to state, federal and private granting agencies, they
modified their goals; later, with the funds subsequently awarded to
them, they hired staff for the previously all—volunteer social movement
organization.

While at first salaried staff shared the ideology of the social
movement organization and worked hand-in-hand with the volunteer
consumers, over time the staff became increasingly committed to
organizational maintenance and bureaucratized the organization in the
name of perpetuating it. Furthermore, all of the founders were to some
degree professionalized (or coopted) as they worked with the new HMO,
and some left the board to serve on the staff. (Others would later

serve on the staffs of health care and government organizations

ll2

throughout the state and nation institutionalizing and disseminating
the reform.)

The two consumer sponsored HMOs appeared to be very successful,
but as they became increasingly large and complex organizations, their
success brought unintended consequences (Weber 1947). The staffs
became larger and more professional and gained increased control of the
financial reins of the HMO. Although the consumer boards continued to
espouse the original values of the social movement organization, they
were increasingly isolated from essential information and control.
Finally, in both NorthCare and Health Central (although with different
scenarios) an urgent, unescapable need for capital to pay creditors and
continue services to members led the consumer sponsored HMOs to vote to
sell themselves to major corporations.

The remainder of this chapter describes the individual ways in
which the two HMOs followed this pattern from consumer social movement

to corporate bureaucracy.

NORTHCARE
NorthCare, a health maintenance organization in the Chicago
metropolitan area, began, its founders say, on the swings of a local
playground in Evanston, Illinois. This story of the consumer sponsored
HMO is based on extensive interviews with its founders, community and

1 and documents, including media

health care observers and participants;
coverage, that reflected the development of the HMO. The founders'
words show that they saw the development of a prepaid group practice as

"a solution to certain conditions that they asserted existed" in health

ll3

care, and which they defined as a social problem (Spector and Kitsuse
l977:73).

In the case of NorthCare, its founders became active before HMOs
were a well known entity, or prepayment an explicit interest of the
federal or state governent. Thus, NorthCare developed in its earliest
stages, without the bureaucratic and regulatory influence, that
affected other HMOs. Health Central, for example, was aware of itself
in relation to bureaucratic and regulatory interests at its earliest
stages of development.

THE EMERGENCE OF A SOCIAL MOVEMENTzTHE ORIGINS AND CLAIMS OF
ACTIVISTS

At the Playground

 

Newspaper accounts and conventional wisdom would describe the
beginnings of NorthCare at a kitchen table in Evanston, and indeed much
of Northcare developed at kitchen tables. But Carron Maxwell, one of
the founders of Northcare recalls:

I remember the day this came up. We were all at

the playground. We had all the kids, and we were sitting

around in swings. I was sitting in a swing. The reason I

remember is because it seemed to me so astounding that we

did it so matter of factly....

The founders were four women in their early thirties with twelve
children who lived within two blocks of each other in houses near
Northwestern University. Three of their husbands were on the faculty,
and they all had college degrees. Three of them had been friends
since the early 60's and one, Kate Carey, though originally a

Chicagoan, had been living in California with her family and had

recently moved back to Evanston.

ll4

It was late summer l970; they all report they were "sitting around
talking about life“ and their families. Kate said she "could not find
a reasonable doctor" and they all said that they hadn't seen a
physician recently. "They didn't feel a real need" Kate says, but
"knew at some intellectual level that that wasn't smart.“ In
California, for ten years, Kate had been used to being a member of

2 and she

Kaiser (a large prepaid plan then only on the west coast)
asked "why the hell isn't there anything like that!" Mary Bruglierra
describes Kate's frustration: "After Kaiser she came out here and was
finding nothing, zero, zip, in Chicago.“

Although the others--Carron, Mary Bruglierra, and Patty Crosby-—
were not yet familiar with prepaid health care, and had not been active
in health care issues earlier, they were primarily responsible for
their families' health care and they had had extensive experience
working together for their families' good.

The most powerful memory for all of them, was their earlier work
together in St. Nicolas parish. Patty, Mary, and Carron, and their
families had been part of PEG, the Parents Education Group, which for
four years in the mid 60's ran programs for parish high school kids who
attended public schools. Mary Bruglierra had been the director.

Carron explains:
We became a unit, a group. We began to realize

that we were doing all this for high school kids and we had

a bunch of babies at home and we weren't doing anything for

them. So we started a church. An underground church... Patty

Crosby was trained in theology. She was the thought

leader.... Everybody in that group (about 25 families) will
date things in their life before and after that.

ll5

She goes on to make the connection:

(We) use it as a reference point. THAT was really the

backdrop of Northcare. It's hard to make that leap, but it

was. Let me tell you what it did. It taught us that you can

stand up against a very powerful organization and create an

alternative that is meaningful to human beings individually,

and that you can take power back from a big organization.

Kate explains that in "making God real to our children, in a non
institutional way, (we had learned) to take burdens on to ourselves,
not to put them off on others." But, she says, "it was beginning to
wane because...the children were growing up. That was beginning to
taper off."

They also reported having had a deep commitment of spirit and
effort to other social activism of the l9605: "We marched, sent
mailings, gave money, participated in demonstrations locally, though
(some of the 25 families) did go to Washington or Selma." Together
they developed a food coop and some were active in the Dewey Conference
(a group committed to racial integration).

It was with that as "backdrop" that they sat on the swings. Mary
Bruglierra told them about an article in the January l97O Fortune

Magazine on "Our Ailing Medical System," which discussed the Kaiser

plan, and Kate talked about a book review in the Chicago Sun Times by a

 

local Dr. Mendelson, on comprehensive care. They wondered aloud "why
don't we do something like that for us.£“
They all tell with nostalgic amazement how easily they decided:

"We just decided it was a good thing to do and we
would do it."

"OK, fine, we said, you read this, you read this, then
we'll call up this Mendelson person and go down and talk to
him. And we did."

116

Dr. Robert Mendelson invited them to one of his weekly staff
meetings which they went to in the winter, and though he himself showed
no further interest in the group the meeting began an important series
of connections. In Mary Bruglierra's words, "We were dogged by
serendipity!" Dr. Judy Benzinger, who had recently finished her
residency at Evanston Hospital was there. She said that the group
should talk to John McClaren, a vice president at Evanston hospital.
She called him and he called Pat Carey with an invitation to the group
to meet with him. They would later find out that Evanston Hospital had
been "under sharp criticism about not responding to the community, and

we were a group of women they could put down in their report."

Networks and Intersecting Interests

 

Also during the same late summer and fall the consumers came in
contact with national models for HMOs as well as local interests under
pressure to change. Mary Bruglierra had attended an annual consumer
education conference at The University of Chicago's Center for
Continuing Education. It was sponsored with a grant from HEW,
characteristic of the early l970's political support for consumer
participation. At a panel on prepaid care, Mary, vocal and
enthusiastic, met Helen Nelson. Nelson, who was an activist on the
boards of the Consumer Union and the Consumer Federation of America,
and also the director of the consumer affairs department at the
University of Wisconsin invited Mary to a conference in Wisconsin. The
brochure for that meeting listed the speakers for that conference,

which included Maurice McKay, an honored founder of Group Health of

ll7

Minnesota-—one of the most successful cooperatives begun in the l9SOs--
and others successful in prepaid health care. Mary explains :
With that little green brochure we sat down to call

(all the places listed) and we parcelled it out so no one

would have too big a phone bill. We said we'll call these

people up and ask them what we should do next!

At this point in her description Mary laughed heartily. Carron
too was laughing in retrospect as she told about standing in Mary's
kitchen and calling the long—time director of Group Health of Puget
Sound, in Seattle, Washington with the questionnaire they had "whomped
up," They say they asked questions about the size, payment mechanisms,
exclusions and coverage (particularly obstetrics), how the plan got
started, where the original money had come from and what role consumers
played in the plans. Although Kaiser's HMO had been important in their
early thoughts, they say that they never called Kaiser because they
"focused on consumer model groups."

When I asked them to reflect on what it was during those early
months that they wanted to change, they consistently listed what
Spector and Kitsuse (1977) would term "putative conditions": l)
insufficient access to primary health care, 2) no way to evaluate or
make judgments about the quality of health care, 3) no way to budget
for health care, 4) no consumer involvement in health care.

Early in l97l they had completed their "survey" and accepted the
invitation to visit Evanston Hospital where they met with
administrators Joseph Turenzio, who had been president of the hospital
for six months; Ernest Libman, director of planning; and John McClaren

a vice-president of the hospital who had called to invite them. In

spring of l97l, all three were very interested in this group. The

ll8

hospital had been feeling pressure from the outside community to
involve consumers, and within the hospital there was considerable
tension between the hospital adminstration and the staff physicians
over the consolidation of programs that brought together "poor people
and private paying patients."

There were a number of problems. One founder asserted, I'Joe
Turenzio really only liked New York and he didn't think much of
doctors." Libman was described as "a sort of 'new type' who cultivated
the image of an acceptable maverick," had not long before run a
sensitivity session with the hospital employees where he had "raised a
few peoples' consciousness (about racism) and made everyone mad."
Another founder offered her explanation for their welcome at the
hospital:

(while there was a lot of pressure to respond to

consumers,) it was unusual at that time (in Evanston) to

have middle class consumers. We were verbal and we weren't

mau maus.

Another founder said that McClaren, a physician who had taken the
administrative job after recuperating from a serious illness, was
helpful because "he was bored and we were an interesting group--if you
had to choose between us and drug salesmen." Libman was particularly
helpful. He offered them space, a secretary to type letters, a phone
and access to the library.

The administrators perhaps relieved that there were activists
whom they found it comfortable to work with asked the four women to

write a position paper and to meet with a committee of the Evanston

Hospital physicians.

ll9

LEGITIMATION: AN ARENA FOR CLAIMS AND GOALS

The Evanston Hospital and its physicians offered two important
elements to the budding social movement organization: l) an arena in
which the activists could make their "claims" against physicians,(the
"recipients of the claim" [Spector and Kitsuse 1977:79-85] and 2)
"social legitimacy"--"the necessary degree of respectibility which
entitle(d) (the social movement organization) to consideration in the
recognized arenas of public discussion" (Blumer l97l:303).

Everyone involved would remember this meeting as pivotal for three
reasons: l) they confronted the skeptical medical establishment; 2)they
set down in writing for the first time their Philosophies and
Principles; and 3) they met Dr. Arnold Widen, who would become their
partner in the development of their dream as well as the launching and
managing of the HMO.

McClaren had arranged the meeting with physicians from a number of
specialties including obstetrics, surgery, and internal medicine. Mary
remembers that the women "walked in and were met by awful faces--
suspicion." It was not until later that they would hear about the more
general problems and physicians' distrust of consumer groups, but the
physicians were not pleased with the women's presentation. Carron
recalled

When we sat down with the doctors and told them we

wanted some control over our health care they were

absolutely beside themselves; we have the best health system

in the world, they said. They were affronted.

In part the physicians were affronted by the written statement of their

"Philosophies and Principles" that the consumers brought with them.

Although these founders now all laugh at the naivete reflected in the

lZO

statement, it provides an excellent summary of their ideology and

understanding at the time, including evidence of their commitment to

challenge professional dominance (Freidson l975; Starr l983).
Philosophies and Principles

l. Quality health care is a human right. No human being is
to be penalized for his ill-health.

2. Medical consumers are partners with the physician
member in their own health care and maintenance. The
partnership is one of equality and cooperation.
3. Physician members of this cooperative shall be freed to
practice and deliver the best possible medical care.
They shall not perform non-medical tasks.
4. Paramedical personnel will be trained and employed for
all appropriate tasks, and clerical and/or volunteer
help be made available for record keeping, report forms
and similar routine functions.
5. A family health cooperative is concerned with the well-
being of the whole person. Accordingly, health team
members will be responsible for follow-up contact with
all patients and for house calls where necessary and
desireable.
Dr. Arnold Widen, the internist at the meeting recalls the meeting as
as "disaster." "The women had written up a manifesto!" But he was not
affronted; rather, he was interested in their ideas. Carron recalls:
He was provoked and he followed us out of the meeting
meeting,”now don't get mad; don't get mad. You people use
all the wrong words."
Not only was Widen interested, he was eager to help. So Carron and
Widen "spent four hours the next Sunday night rewriting that thing--
fighting over every line."
Widen would prove to be another of the "personnel" important to
NorthCare, who had been strongly affected by the social activism of the

60's. One founder described this upper middle class Jewish physician as

l21

a "man with a strong social sense" who had "been looking for a cause
all of his life" and was "slightly embarrassed by his own success."

It is important to note that although the consumers were making
claims against physicians, they were challenging not the principles of
medicine nor any individual physicians, but rather the power of the
profession to control the delivery of health care. They were not a
group demanding alternative therapies (e.g. natureopathy or homeopathy)
and they needed some aspect of the medical profession to legimate their
efforts. They recognized that Arnold Widen's interest in them was
"critical."

We would have needed a medical physician to do anything

and not only was he a physician, he was a peer among peers--

very well thought of ... That which we had thought would be

the most difficult came to us the most readily.

With Widen's help they modified their written statement to develop a
“workable" proposal. They were already changing the language of their
claims.

MOBILIZATION: DEVELOPING A MEMBERSHIP (CLIENTELE) AND

BEGINNING THE SEARCH FOR FINANCIAL SUPPORT

In the spring and summer of l97l things seemed to happen quickly.
With the sense that they were legitimate, the four began to develop a
consumer group i.e., to reach out to a new clientele (Hughes, l957,
l984z63):

We were having ten to twelve meetings a week.--the

Association of University Women, the PTA, the health

department people, others from the union, a book discussion

group, agroup of teachers... Each one of us would take

turns. There were 25 families (from the earlier church

group) so (there was always someone) you could drop your
kids off with.

(D

l22

They would later summarize that period in a grant application:

NCHP took its idea into the Evanston community. Representa-

tives spoke at nearly lOO meetings of neighborhood,

fraternal and civic associations, and through this process

more than 600 dues—paying members were recruited to the

organization.

[...the application for an Initial Development grant]

Near that same time the hospital paid for the four consumers,
McClaren, and Libman, to attend the Group Health of America
Asssociation (GHAA) annual meeting in June of l97l. There, Mary
remembers, in the lobby of the Shoreham hotel in Washington, they met
Morton Creditor, the director of the ILLinois Regional Medical Program
(IRMP). At that expansive time, when there was considerable support
for consumerism, IRMP was "taking their mandate broadly" and funding a
number of alternative delivery mechanisms. They had not had any
applications however, from HMOs (which were only just becoming heard of
nationally), and Creditor encouraged the women to apply for a grant.
(IRMP would later respond to the application with $47,800 to study the
feasibility of an HMO over a two-year period beginning September l972.)

In order to be able to receive funds, the activists incorporated
as Evanston Medical Consumers, and applied for tax-exempt 50l(c)(3)
status from the Internal Revenue Service. They then selected an
advisory board -"like minded people"—-from among their own friends and
associates. (About half were from the network of 25 families who had
earlier created the alternative Catholic church group.) They also
asked Arnie Widen to be on the board. Although his peers "gave him a

tough time,“ they say he responded: "thought you would never ask."

At this point the organization began to professionalize but carefully

l23

maintained and emphasised the cooperative, volunteer, family, and
community ideology. They say they realized that they needed space
"other than our homes, though we brought the kids with us." The
Democratic party in Evanston lent them a corner of their large loft
space. It was next to a dance studio and they all recall the thumping
and shaking from the ballet and jazz classes. Still holding a very
local, volunteer, perception of themselves, they charged $3 dues for
the growing membership and with that paid for printed stationery and a
telephone. They bought a desk for $l0 and took turns staffing the
office, watching each other's kids, and talking in the community.
During this period, the founders had increasing numbers of
professional encounters. They were invited to attend Illinois H05pital
Association Meetings, which, along with their office, made them more

visible. The Chicago Tribune published an extensive article on "the

 

housewives" complete with pictures of their husbands moving furniture
into the new office.

At their office they were visited by health care administrators
and entrepreneurs inviting their support or affiliation, but they
adamently protected their ideology:

Merv Shallowitz came to our office to offer us the
chance to join Intergroup (a group being formed under the
control of physicians)...(He wondered why we were getting
all the publicity) We could have what we wanted, he said, a
prepaid group plan. We said NO; we wanted a consumer owned
prepaid health plan. It was different. Basically different;
we never talked to him again....

 

Blue Cross and Washington National Insurance Company also visited them.

That was a dance with those two. They couldn't
understand those zany ladies in the board rooms. Blue Cross
saw the prestigious group from the Northshore as a future
Co-care (a satellite health center for Blue Cross.)

l24

By then the founders, now including Dr. "Arnie“ Widen, were recruiting
both board members (personnel) and consumer members (clientele)
wherever they could. They held board meetings in alternative spots
throughout the community, increasing visibility and affiliations. They
got support from the community's “Black hospital" but found that St.
Francis, the Catholic hospital, was not interested in their activities.
A St. Francis hospital administrator advised the founders that "their
doctors saw the plan to put up a professional building as close to a
communist plot, so it (the plan for an HMO) would fall on deaf ears."
Arnie Widen "buttonholed" physicians, some of whom were his own
patients, to support the HMO and commit to being staff physicians when
it opened. Some, he says questioned his sanity. "They didn't think it
was going to fly." He did, however, and accepted the role of Medical
Director for the planned—for HMO. The founders all spoke with great
admiration of his "courage" and willingness to stand up against "a lot

of (negative) reaction from his peers...a lot of pressure."

FORMATION OF AN OFFICIAL PLAN OF ACTION

Issues of Ideology and the Press of Practical Matters

 

Although the founders had accepted certain compromises from the
start without particularly noting them, in l973 they were confronted
with practical problems that explicitly tested their ideology. Funding
otheir goal was becoming a problem. The Regional Medical Programs had
been discontinued by the Nixon administration and their funding from
IRMP was cut off $7000 short of the grant they had been promised. Kate
Carey heard of, and wrote a grant for, the Robert Wood Johnson

foundation, which would supply much needed funds at the end of the

l25

year, but every other solution, with other insurance companies,
threatened compromise of their ideology. CNA insurance company had an
independent practice association (IPA) operating, but the consumers
were “wary of giving up the staff and group models." They also
negotiated with Washington National Insurance Company and Blue Cross to
possibly develop "cooperative marketing and a joint benefit package."
But although Washington National did give them some financial support
and Blue Cross offered important advice, they explain:

We felt we couldn't go with Blue Cross because we

would be giving away the consumer element. Washington

National ...disappeared from the picture and we had to

explore other possibilities. We had no collateral. We even

thought of getting money from the members like Puget Sound

(an early cooperative health plan in Washington state). But

things had become too expensive. It was no longer like the

early days of the Puget Sound Coop.

It is important to note here that while Puget Sound and other
cooperative prepaid health plans were the ideological models for the
consumers, the political and health economy had changed dramatically
since the 19505 when the earlier plans had been established, and there
were no models or mechanisms for consumers to begin a plan
independently.

They began to realize that in spite of their efforts to be known
in the conrnunity, they had not established ties among employers.

(This association was commonly "neglected“ or "avoided" in ideological
consumer groups at that time, including Health Central.) "On the board
we didn't have ANY busines poeple, zip, zero." In an effort to be more
practical and to move on with the feasibility study, in the summer of

l973 they added an important new dimension - "the second wave of

founders."

l26

Four new "housewives" were recruited at $25 a week to do a
marketing analysis--calling employers to ask about their understanding
of and interest in HMOs. They also surveyed other communities. Two
important issues of ideology are reflected in this period. In a
commitment to cooperation and to avoiding hierarchy, the four were all
hired as "associate marketing directors" with no individual in charge.
In their interviews, each of the four commented on that decision and
all felt that they were effective as a “team" and had had a very
productive summer.

Some of the information they gathered in their surveys raised
another important issue for the consumers. They found that in the
employers' minds, the group was too exclusively identified with
Evanston. They would have to change their name.

It was a real loss,...we had a terrible time...an hour
discussion at the board level, and then we changed the name.

This name change, to North Communities Health Plan (NCHP), was an early
(and painful) sign of a changing identity. Fall of l973 brought more
changes, and another loss. Patty Crosby, one of the original four,
moved out of the state. At about the same time there was a sigificant
financial gain. The Robert Wood Johnson Foundation provided $88,000 for
community education and planning and promised another $l00,000 in

matching funds.3

IMPLEMENTATION OF THE OFFICIAL PLAN: THE TENSION BETWEEN IDEOLOGY
AND BUREACRACY

'Now with ample funding-~further contributions from the Chicago
Community Trust and an anonymous donor had brought them close to

$l00,000 matching funds--they did not want to lose momentum. They felt

127

they needed to be more professional. They moved to a new office and
looked for a director with the right "credentials:"
We thought we should look for a man...you know, because
of the reception of "the housewives"...Carron didn't have
her MBA then, and we didn't have much place to go for help.
The man they found stayed only three months ("It was not what he
thought") and Kate Carey and Mary Brugglierra took on the
responsibilities and shared the salary of executive director. The
summer "module of housewives" became a "marketing staff"
"retained on a permanent basis to assume responsibility

for developing an enrollment strategy and for maintaining
and expanding employer and community contacts.

The Language of Bureaucracy and Business

 

The quote which describes the four women hired as associate
directors of marketing, is useful not only for its content but for its
form. It indicates the changes that were occuring in the consumers
group. It is an exerpt from an application to HEW for grant support of
initial development cost. As soon as the Federal HMO Assistance Act
was signed at the end of l973, The consumers submitted the grant for
NCHP. Their application is evidence of Blumer's (l97l) observation
that "outsiders...begin to influence the framing of the problem". The
language is an abrupt change from earlier written material and the
consumers' spoken language. It is characteristic of the passive voice
and marketing jargon ("enrollment strategy") throughout the application
and indicates the pressures internalized by the consumers to

professionalize.

128

Mixed Commitments and Interests

 

Nonetheless, the consumer/founders maintained their excitement and
(xmnfitment to a consumer controlled non-hierarchical partnership in
health care. The administrative staff of the health plan was selected
from committed activists in their fields. In an effort to avoid
hierarchy and emphasize the power of the consumer board, in place of
one executive director, the founders appointed three administrators as
a triumvirate. Bernie Libman, "bright, innovative and zany, willing to
try anything", formerly at Evanston hospital was appointed executive
director; Arnie Widen, medical director; and to emphasize the equal
role of nurse practitioners and other health professionals, Lynn
Sinclair as Health Associates Director. Each reported to the board. A
founder recalled, “We liked the idea of a troika; no one wanted to be
head honcho; it was a team effort."

In 1974, professionals were hired for legal counsel and for a
number of "consultative services," but the consumers' original ideals
were strongly evident. Even in the bureaucratic and jargon-filled
application to the federal government they reiterated their concerns
about community needs "...the special problems of the poor and the
elderly, as well as the middle class resident also burdened ...by
inaccessibility.“ The line was hard to hold however; they began the
same Narrative Statement by including, in a revisionist form, the
government's contemporary concerns as if they had been their own from
the start:

"NCHP was initiated in l97l by a group of Evanston

residents concerned with the unbudgetable high cost
and inaccessibility of personal health care.

l29

Although the activists in l974 were being pulled between the interests
of the funders and their original commitments, they remained very
active as a board. They developed several strong productive volunteer
committees: Medical Services, Physician Recruitment, Benefits,
Personnel, and Member Satisfaction.

In June of l974 Widen became full time with NCHP and soon after
they received a $270,000 Initial development loan from the federal
government to support them through the ten months prior to ”start-up."
They needed additional support and arrangements with an insurer. Again
their interests intersected the interests of other groups. Libman began
to talk with Rockford Blue Cross which was "interested in going to war"
with Chicago Blue Cross and saw Northcare as a means to break into the
Chicago market. "They were ‘up front' that they intended to make it on
the tails of NorthCare." Rockford Blue Cross loaned NorthCare $l.3
million which enabled them to become operational. November l4, l974
Northcare was chartered by the State of Illinois and shortly after it
received federal qualification. It was the second HMO in the US to be
federally qualified, and the first in the Chicago area. (By l975,
there were five other HMOs in the area, two sponsored by hospitals in
response to the demand of their unions, another sponsored by a union,

one by Blue Cross and another by a physicians' group.)

ENROLLMENT AND START-UP: THE TEST AND CONSEQUENCE OF IDEOLOGY

Federal regulations had important structuring effects on the
developing HMOS. They required that the health plan, when operational,
and the sponsoring consumers group have separate boards. This had

important symbolic and practical effects. The health plan was able to

l3O

provide service but could not receive educational funds. The reverse
was true for the consumers' group--then called a foundation. It would
later sell its name to the health plan for a symbolic dollar and change
its name to Consumers Health Group (CHP)—-another identity change.

Some of the founders I interviewed saw the different functions as
a reason for the two groups to work together closely; others saw it as
a crucial rift between ideology and practice. Some consumers held
positions on both boards; ten board positions overall overlapped.
Others remained on the board of CHP which sought new arenas for its
commitments, such as school health programs, education, senior citizens
health, but "went out of business" in l982.

It is characteristic of social movements that personnel change as
the movement is institutionalized. Some are innovators; others are
implementors; some begin as innovators and become implementors. For
example, Mary Brugliera was the board member assigned to recruit
Northcare's "member representative" who would be responsible for
complaints and grievances. In l975 when she still had not found an
appropriate candidate, "Libman said ‘you do it'" and she accepted the
position, resigning from the board and joining the staff in October
I975.

The new board of Northcare was different: "New people had been
added, powerful employer groups, VPs, etc, " and three seats belonged
to Rockford Blue Cross. But the consumers who remained on the board
say "...the dominant strain was still the ideological bent of the
original group.“ And indeed the enrollment process for the opening HMO

supports that claim.

l3l

By March of I975, members were waiting for enrollment. One founder
summarized everyone's recollection and the board's view:

We had a collection of 700 or 800 members who wanted to
join; now there were new (federal) prgvisions by which HMOS

could get a waiver of open enrollment , but we were committed

to those who had been faithful to our cause.

That commitment would be costly. After the open enrollment in March,
when the doors opened May l, I975 l200 people were waiting for
appointments, "many of them sick as hell.“ Of the over 2000 enrollees
l200 were open enrollees who had come in under no medical exclusions.
Some of them were the medical director, Dr. Widen's, patients who were
very sick. In fact, the board had determined that the enrollment site
should be accessible to those in wheel chairs and some patients
enrolled while on passes from the hospital! This very sick population-
-an "adverse selection" of patients--was said to be the beginning of
persistent financial problems for the new HMO.5 I will discuss this
commitment found in both NorthCare and Health Central in Chapter 7.

In thirteen months, the HMO had used up the Rockford money
budgeted for three years; they had been obliged to raise the premiums
and to limit the psychiatric benefits. And while they held an open
enrollment in l976, this time they required a "health statement" from
new enrollees. An early consumer, now professionalized (note choice of
language), looked back:

As we looked at the financial statement we were a
disaster. We had borrowed heavily into Rockford Blue Cross
and federal loans. There was poor control of utilization in

those days, part time doctors...they had an excellent
reputation. We were caught between a rock and a hard place.

 

We needed the credibility of Evanston hospital and the
private docs to enroll people, but they were used to
practicing in their own traditional (costly) way...

I32

The consumers, at that time, did not recognize the seriousness of the
financial difficulty, but it is important and interesting to note that
while the HMO would soon prove to be seriously unstable in I977,
outside examining agencies did not recognize the problems either. In
l976 the Illinois Dept of Public Health certified that Northcare
satisfied their requirements, and an independent study done for the
Teamsters by InterStudy, a health policy think tank, gave a very
positive report, concluding, "InterStudy highly recommends the North
Communities Health Plan, Inc. to potential consumers." The same
difficulty in predicting problems occurred in the case of Health
Central; it seems to have been a systematic problem early in the
development of HMOS, and a way in which regulatory and advisory

agencies failed to serve the HMOs well.

FINANCIAL CRISIS: RESTRUCTURING FOR ORGANIZATIONAL MAINTENANCE

In Spring of I977, in spite of appearances, the HMO was in serious
financial distress. Those I interviewed attributed it to a combination
of costly part-time physicians, inexperienced financial management,
growth in membership, and high referral and hospital costs, (Evanston
hospital never gave the HMO a discount). The second executive
director in two years was terminated and Arnold Widen, the medical
director--the only staff member who had continuity with the
organization and strong leadership within it-- was named the Acting
Executive Director. The Executive Director was able to obtain $l0,000
from an officer of Blue Cross to hire a consultant to make

recommendations to the board.

133

The resulting "Getty's Report' recommended changes in the health
center and the board of trustees which were both substantial and
powerfully symbolic. Many of the changes were implemented, including
the discontinuation of open enrollment. The incumbent trustees of the
board were asked to submit resignations as a sign of good faith to the
regulatory agencies that were now concerned about the HMO's stability.

The majority submitted their resignations and the board was
reconfigured. In place of those with the early ideological commitments
the board consisted of vice presidents and other senior figures in
Chicago businesses. Three members from the old board "remained for
continuity.“ Although the organization maintained its name and major
staff, interviews suggest that this restructuring alienated those who
had been principally identified with the early consumer goals and was
for them the significant step toward what would become the approaching
corporatization of the HMO.

Although the Getty's report had emphasised that an infusion of
capital would not be sufficient itself, capital was still essential.
In I978 the HMO sought federal loans but for an extended time Rockford
Blue Cross exercised its right to veto outside loans to the HMO.

During I979 and l980, the new executive director (Ron Lodder)
attempted to arrange an affiliation that would provide more capital for
the marginal organization. He negotiated with Kaiser Permanente for
l l/Z years. But Kaiser Permanente, they said, was under retrenchment
and although NorthCare had “understood that the vote was a shoo-in,"
the acquisition lost on a split vote. The executive director was
stressed not only by the need to find additional capital but also by

tensions with the medical group. Characteristic of physician groups,

l34

they resisted the executive director's efforts to centralize management
and impose performance requirements on the medical group. In the summer

the executive director resigned.

THE COMING OF THE CORPORATION

Late in l980, Arnold Widen attended a meeting of HMO medical
directors and the board of GHAA where he met and talked with the
president of Prucare, who was interested in "getting into a northern
Industrial city". Widen says he suggested that Prucare talk with the
NorthCare board. In January, Prudential executives visited NorthCare
and in April proposed acquisition. This created a powerful ideological
split, still discussed, although with less heat, six years later. Some
founders and board members felt that too much of the "deal" had been
arranged among the physicians before it was brought to the board.
Others, the consumers especially, strongly distrusted for-profit health
care organizations. One founder later wrote a summary of one last
argument to protect consumer ideology:

Three consumer members protested, citing conflict with

the history and original goals of the HMO, particularly its

long commitment to consumer governance and member control of

the grievance process. A proposal was made by these members

to require that within any agreement with Prudential, a

member controlled local advisory group be set up empowered

to adjudicate local member grievances. This motion was

defeated by a majority of the Board...claiming the

membership could adequately express their will through the

voting process.

On April 6, a letter was sent to the 20,000 members telling of the
proposed acquisition and announcing three open meetings for discussion
at the end of April. The disagreement was bitter and the media covered

it extensively while proxies were sent for a membership vote. Those who

opposed the acquisition complained that NorthCare staff encouraged

l35

patients to vote for the acquisition. Those in favor of the acquisition
said it was the only way to save the HMO and serve the membership.

The staff (who predictably would be invested in organizational
maintenance) were not, however, the only participants who favored the
acquisition. On May ll, l98l over one-third of those eligible voted
overwhelmingly in favor of acquisition. As one opponent of acquisition
ruefully wrote: "It represented the promise of unlimited expansion, as
well as an association with one of the most stable sources of capital
in the world." And as Starr (l982) suggests, it represented the "coming

of the corporation" to American medicine in the l980's.

HEALTH CENTRAL

It was a rumor about the old East Lansing Post Office that would
lead a group of Lansing and East Lansing social activists to define a
social problem and create a social movement organization to solve it.
This story of the development of Health Central in Lansing, Michigan is
well documented in newsletters, committee meeting minutes, grant
applications, legislative documents, contracts, and newspaper accounts,
but the emergence and the earliest devel0pment of the idea, and of the
"claims making activities" (Spector and Kitsuse l977) are best
discovered in the recollections of the earliest actors.

The interviews show that the idea emerged from the interests,
earlier experience, and convictions of the activists. But for the
founders of Health Central in l973, unlike for the founders of
NorthCare in I970, there was a ready stream of information formulated

about prepaid plans, already called HMOs. Although the Health Central

l36

founders sought models like NorthCare, Group Health of Puget Sound, and
other ideologically founded, consumer-controlled plans, the historical
moment placed them more quickly into the arenas of bureaucracy and
regulation. Thus the recounting of the development of Health Central
will move methodically from kitchen tables and borrowed offices through
the chambers of the state legislature and more quickly--albeit
reluctantly—- to the corporate board rooms.

COLLECTIVE DEFINITION OF A SOCIAL PROBLEM AND THE EMERGENCE OF A

SOCIAL MOVEMENT: A RUMOR AND CLAIMS

Late in l972 the rumor developed that the old East Lansing Post
office was available for a symbolic dollar a year to a worthy comnunity
group. It is Barbara Green who remembers the beginning of the story.
She had moved to East Lansing in I970 from Detroit where she had been
part of the community of social activists opposing the war in Viet Nam.
In East Lansing she became part of the Lansing Area Peace Group, and it
was a member of that group who called her with the "news" of the post
office. They called a meeting and a group of five people gathered at
Eleanor Holbrook's house to discuss the opportunity: Eleanor Holbrook,
an active local Democrat, nurse, and realtor; George Griffiths, a city
council member; Richard Conlin who was about to run for Public office;
Sally Schlegel from the Women's International for Peace and Freedom,
and Barbara Green.

I quote here fully from Barbara's description of the meeting
because it includes important elements of the movement about to
develop: I) it indicates the importance of the activists' past
relationships, 2) it exemplifies "claims" emerging about "putative

conditions”, and 3) it clearly identifies the activists' original

l37

"value oriented interests in others —- the people" (Spector and Kitsuse
l977), and 4) one also sees the selection of physicians as the "target"
(Zald and Ash I966). The activists' values are comparable to those
just discussed among NorthCare founders, and they undergo similar
pressures and revisions in the course of the HMO development. The
founder said:

We all had this "community-action-peace-activistbond; we
asked ourselves: "what does this comnunity need." We all
concluded that there were a lot of people who didn't have
access to health care, ...students who stayed on (after
graduating from the university), thousands of kids of
students,. (She spoke with increasing animation.) One of the
group worked at the DEC (Drug Education Center in East
Lansing) and knew there was no care for those students. They
would have a terrible time-~just terrible. At the same
time, it seems to me, there was a big push by the local
medical society to get doctors not to accept Medicaid
patients so there was a sense that the poor were lacking
resources; it was not just East Lansing Hippies that were
imperiled. We knew we were looking for health care but we
didn't know what kind. (Here 80 shifts in her chair and
looks very intense.) We didn't know the needs of the
peoplez but we knew it wasn't for just more of the same. We
knew we didn't want just more docs.

 

 

Shortly after, a slightly larger meeting was held at Barbara Green's
house to decide what to do with the old Post office. Jim Ward, also a
community activist who had been on the health Economics committee of
the area's Health Planning Agency (CACHPA), was invited and described
the participants:
Bob Carr (a congressman) was there, Lynn Johndahl (a

state legislator) was there, George Griffiths who was soon to

be mayor was there; (all Democratic party politicians) I

didn't know any of them then...(perhaps) union people.

Certainly university people...

And he restated the early ideology:

I38

Being a comnunity group they wanted to make it into a
sort of clinic for people who couldn't afford it, for
students and that sort....regardless of age or ability to
pay. To a lot of people in that group it was an important
issue.
In sum, he said they were
.... just an odds-lot collection of people, mostly
Democrats; ... at Barbara Green's house convinced that
medical care in the community was lacking.
Here Jim Ward, who became a central founder, identified a conviction
that was emerging in the community about insufficient access to care.
Unlike NorthCare's comnunity, in fact in Lansing there was a low

density of practicing physicians (see Table 4.I).

 

He continued:

There were not enough providers. That was an intuitive thing

that seemed to be known by a lot of people. You couldn't get

an obstetrician; it was tough to get a pediatrician; you had

to... everybody had to use the emergency room at that time.

You just couldn't get access.
He reflected for a moment about his perspective and continued
insightfully:

But that was more of an undercurrent at that time. It

wasn't an explicit thing; it became a more and more explicit

as we went on.
And just as soon as the group defined health care as a problem in the
area, they discovered that the availability of the post office had been
a rumor. But as Green would write five years later, "by the time we
discovered the dollar-a-year rumor was false, we were on our way!"
(Hale Newsletter June, l977). But of the "original group" of five,
Barbara Green was the only one who could continue. The others remained
supportive but their activities (and life stages) took them to other

responsibilities or other countries. Jim Ward, however, and others

drawn to the cause in the surrmer of l973, would , with Barbara,

139

develop their idea and gather promises to support it. That summer, on
the Michigan State University campus, Barbara “researched the
possibilities, and tapped into a network of support and information.

She explained:

a friend and neighbor said we could use the PIRGIM (Public
Interest Research Group in Michigan) office on the MSU
campus—-the telephone, the typewriter, xerox, paper and
everything else, and Bill Given's name was given to me at
OSHER (The Office of Health Service Education Research). He
had drawers full of information on HMOS from all over--
Interstudy; the one in Columbia, Maryland; Kaiser
Permanente; a plan in Rochester; and a think-tank in
Minneapolis, led by a guy named Walt McClure.

Networks and Models

 

Like the founders of NorthCare, the activists were excited
to find that the idea had a history and a growing literature,
including the influential early and excellent review of the
concept in the Harvard Law Review (1971).

In the university community, the word spread. For example, the
chairperson of the Visiting Nurses Association became active, and she
interested her husband who was a state representative also concerned
with health services. The two leaders described the building momentum
and their personal motivation:

Barbara: What is so wonderful; there are always
like-minded pepple. It's incredible--really
marvelous...and Jim Ward was one...
Jim: It was a new concept; it was a frontier
concept,and I'm always interested in working on
that frontier of organizations.
It is important to observe here that with different motivations

and in an environment in which the actual access to health care,

though deficient, had not significantly changed, the social movement

l4O

gathered momentum as they saw "the availability if not the promise
of.... reforms and solutions..." (Spector and Kitsuse 1977:84).

Although the sources of support of the Michigan founders
were different than those of the NorthCare founders, their tactics were
similar; from the PIRGIM office Barbara called "every known office of
HMOS." They connected to important sources in their own community,
also. Nancy Koert, then with the State of Michigan in the Department
of Social Service, was important because she brought expertise from
Minneapolis where she had important experience with Group Health, one
of the best known consumer sponsored HMOs established in the early
19505.6

In spite of a warm interest in the consumer group and her
advocacy of health maintenance organizations as an alternative health
care delivery system, Nancy chose to maintain only a professional
relationship with Health Central; she was not a "member" of that group
and thus adds a different perspective.

CK: Did you ever participate directly with Health Central?

NK: Well, yes, I used to meet with the Health Action League,

usually evenings. Little-~six, seven, or eight people
to discuss strategies or how we're going to do this or

that kind of thing.

CK: Did you consider yourself as participating from your
role in the state government or as a consumer?

NK: I think merely as an HMO person providing technical
assistance.

In Minnesota she had worked on the development of a neighborhood
health center and was then hired by Group Health Plan as an HMO
technical specialist. When she moved to Michigan "the only thing that

had anything to do with HMOs was in state government" and she took the

141

position in the state Medicaid agency which "contracted with various
HMOs for the delivery of health care for medicaid recipients."

Nancy Koert knew the complex history of prepaid plans in
Michigan--their early association with Labor, with Medicaid
recipients, even with Blue Cross. Furthermore she knew informed and
interested "HMO people." John O'Connell, who had worked with Nancy in
Minnesota and had been associated with a legendary consumer sponsored
HMO in Twin Harbors, Minnesota, and Calvin Lippitt, an HMO founder in
Detroit. All became sources of information and support to the growing
group. By the end of the summer they were "rolling," wanted more “hard

information,“ and "got this idea for a conference."

LEGITIMATION: October 26 AND 27, l973

The conference was held on a Friday evening and Saturday at a
local community center, Cristo Rey, and the Ingham County Health
Department. The founders gathered national and local leaders and
supporters of HMOs to lecture and give workshops. They included
representatives from the Group Health Association of American in
Washington D.C., Group Health Association of Northeast Minnesota, and
health Plans in Detroit. In addition, Nancy Koert, State representative
Lynn Johndahl, and Joseph Tuchinsky from PIRGIM gave workshops with the
national speakers.

While the meeting and its agenda was simple, it had an important
symbolic impact. It is to this conference that everyone who knew of the
movement in "the early days" refers. In Blumer's (1971) terms, the
conference became the reference point in the history of the

organization-~the point at which it attained "social legitimacy." The

142

conference signified that the social problem defined by the small group
described above had "acquired the necessary degree of respectability
which entitle(d) it to consideration in the recognized arenas of public
discussion" (Blumer l97l:303). Blumer's perspective offers an
explanation for the recurring references to this conference in the
interviews, their newsletters, and self-descriptive data. In all
written material the conference is the first identifying (legitimizing)
characteristic mentioned. And five years later, in 1978, in the Grand
Opening Program for Health Central the conference is again referred to
as the first moment of history in the development of Health Central.
But this reference to the early days also reflects the cooptation of
the consumer efforts:
in the summer of 1973, HALE,...a group of consumers in

the Lansing area concerned about the lack of accessibility

to providers, fragmentation of the Health care system, and

the rising cost of health care, held a conference on

alternative health care delivery systems. The conference,

which emphasised health maintenance organizations, attracted

approximately 200 people.
There are a number of minor inaccuracies in the statement but the most
significant revision relates to the goals of the founders. The goals
stated at the time of the development 010 NOT include reducing the cost
of medical care, and direct questions to founders, when asked in the
context of the time the idea emerged confirms that cost was not one of
the concerns. The insertion of cost containment reflects the later
internalization of bureaucratic and professional norms. The same
phenomenon developed in NorthCare; it will be discussed further in the
next section.

The conference and the active summer drew new people to join the

cause. Jim Ward's wife, Sheila, a public health nurse who worked at MSU

143

interviewed Fred Matthies, a pediatrician, for a television program on
health and learned that his wife was interested in health care. Susan
Matthies, an economist from Stanford, had recently come with her family
from Northern California. Fueled with her knowledge of Kaiser HMO
plans, and her talent as an economist, Susan became a central actor in
the early years.7 Others from Michigan State University with talents in
health, nutrition, demography, and industrial and labor relations
became involved.

Having legitimized their definition of the problem and having
gathered enthusiastic and competent participants, the group was ready
to mobilize their efforts to pursue the possibility of developing an

HMO.

Goals

Blumer (l97l) notes that when a group reaches the stage where they
mobilize for action the problem "becomes the object of discussion, of
controversy, of differing depictions... and "outsiders, less involved,
bring their sentiments to bear on the framing of the problem."

Because the founders were about to subject their idea to such
public pressures and "framing" it is important to understand their
purpose and goals at that time. Barbara Green wrote in I977:

(By the end of the conference) it suddenly seemed possible

to create an HMO in our community....We were committed to

improving access to care for all citizens; to addressing the

problem of uaiit of care; to facilitating continuity of

care; and to altering the incentives which were the mainstay

of the)present system. (Health Central Newsletter June
l977:2

 

Jim noted that they wanted "access regardless of age or ability to

pay....“ They DID NOT want "more of the same." They wanted "consumer

144

control." Most interestingly, none of those interviewed when recalling
the early days and the early dreams EVER mentioned the cost of health
care as a point of concern. I asked Nancy Koert if the consumers had
been concerned about cost and she asserted that the consumers were
unlike those who began HMOs in the mid 70's for financial reasons.
Rather they were like those who "in earlier years, in the fifties, with
the Group Health Plan in Minnesota. (It was) developed with the same
kind of community involvement...as the small HMO in Twin Harbors,
Minnesota."

In the next section, I will trace the goals as they were elaborated
and modified as the founders shaped their dreams for presentation in

the public arena.

MOBILIZATION: LOOKING FOR MONEY AND MODELS
With the momentum of the October conference and additional
volunteers, HALE founders began to mobilize in two principle
areas of activity to develop their own HMO and to develop
legislative support for HMOs. These efforts are well documented in
the history of Health Central and the State of Michigan. Barbara Green
writes about that period:
In January of 1974 six months after the first meeting of the
group which was to become HALE, we set ourselves two tasks:
I) to build an effective grass roots organization, and 2) to
gather the information necessary to write a feasibility
study grant application for HEW funding. A third task was
thrust upon us by events--that of participation in
developing Michigan's HMO law which was then in the drafting
stages. (HC Newsletter July 1977)
Through their connections with Group Health Association and with Bob

Carr, U.S. Congressman from their district who had attended early

145

meetings, they found that money was available from the federal
government to study the feasibility of developing an HMO. But as
Barbara Green explained they would have to do a feasibility study to
get money to do a feasibility study. They were introduced early to the
bureaucracy, as they found there were elaborate requirements for
applying for the initial federal HMO grant.

First, Barbara went on, they "complied with the formalities
required by state law for incorporation as a non-profit charitable
scientific or educational organization." They formalized the name
Health Action League of of Greater Lansing, or HALE, and wrote by-laws.
Fifteen people signed the articles of incorporation on the 25th of
February 1974.

A smaller group worked intensely on the feasibility proposal.
Susan Matthies said, "the feds gave us a recipe." She recalls that she
and Barbara, Signe Nelson, and Jim "sat around our dining room table--
maybe ten times. Sometimes we went to the Wards' house, Barbara's was
a very busy household at that time--lots of kids."

Weaving their family responsibilities with the new challenges,
together they worked out the proposal. In March, 1974 they held their
first annual meeting, elected officers (Jim and Barbara were co-
chairpeople the first year), and invited Eleanor Brand, a board member
from Group Health Cooperative of Puget Sound, in Washington state to

speak about start-up requirements.

More Volunteers and Supporters
The annual meeting reflected the dynamics of the group. They were

drawing on the knowledge of those who were successful before them and

146

on the resources about them. The founders had important ties to
representatives of organized labor through their particiption in the
Democratic Party and Jim and Barbara recruited Joe Finkbeiner, active
in the UAW and then president of the Ingham County Democratic Party, to
join HALE. He became an important and committed member. In addition,
Barbara had enlisted the interest and help of her neighbor Dr. Andrew
Hunt, Dean of the College of Human Medicine, at Michigan State
University. He later wrote a letter of support for the feasibility
application saying that "the Professional Services of the College of
Human Medicine would be willing to contract with the community based
health maintenance organization developed and sponsored by the Health
Action League to provide referral and consultative service." In an
interview Barbara laughed and reflected that that hope also, had turned
out to be something of a "rumor." But the dean's good intentions
along with the "consultation and collaboration" of James Lyon,
assistant to the dean in OHSER (Office of Health Service Evaluation and
Research) gave the founders momentum when they needed it. In fact, the
medical school had sponsored the trip of Eleanor Brand to the annual
meeting.

In the Lansing area Brand spoke to both the university and the
State Legislature, and the visit from such a "significant other"
consumer activist intensified the activists' interest in the consumer
sponsored HMO and also connected them more closely to the legislative
process and the bill's sponsor, Republican Senator Bill Ballenger. This
was important for Barbara who would later work for Senator Ballenger.
At the same time, wearing the recognition as "experts" that the

conference bestowed on them, Barbara Green and Susan Matthies, and

147

occasionally other HALE members, began testifying at the legislative
hearings on Senate Bill 1000, the HMO Act in Michigan. It was clear
from Nancy Koert (who was herself involved as discussed elsewhere) that
the consumers had been well prepared and had considerable influence on
the final legislation. When Barbara summarized their participation,
her pride in their competence as well as their growing ability to meet
the bureaucratic demands and standards was evident:
As the only free—standing group with a stated interest

in health care and a strong consumer orientation, our advice

was sought on the various aspects of the proposed

legislation. We formed a coalition with the UAW and AFL-CIO

spoklespeople and with the other developing HMOs in the

state, with strong advocacy for proconsumer measures.

During this same period the consumers were preparing the
feasibility study application.

Writing the feasibility study aplication was an

infinitely more difficult task. (Six of us) met weekly to

report on our individual efforts. Much of the data required

by HEW was very hard to come by, yet somehow we managed to

produce a document which detailed the local demography, the

availability of medical care in the area, and the kind of

HMO we intended to establish. (Barbara Green)

Barbara took the application by train to the Region V office in
Chicago. The federal project officer initially made mistaken demands
which, Barbara now says, should have forewarned her about their
”relationship with the feds."

The application, 82 pages, plus an almost equal number of pages of
supporting letters from conmunity groups and individuals, demonstrates
the broad support the founders were gaining in the community. But it is

also clear that as the founders presented their ideas for public

support they were also subtly changing them.

148

Reshaping Definitions and the Search for Resources

An excellent example of the reshaping of a definition is found in
the application to the federal governement for the funds to support a
feasibility study. As noted above, through the early months of activism
the founders' goals had been improved access and quality of care,
particularly for certain groups with limited care, and with special
attention to consumer participation. And, in fact, pages I and 2 of
the application list the goals of the Health Action League (HALE) as
contained in their by-laws:

Improvement of the availability, accessibility,
continuity and quality of health care in the health service

area of Ingham, Clinton and Eaton Counties by:

1) developing and supporting programs to achieve these
goals

2) educating consumers to better health care practices
3) increasing consumer awareness of problems in the
health care delivery system and encouraging consumer
participation in the solution of these problems.
The document continues with a request for funding "to study the
feasibility of creating a prepaid group practice HMO in the Tri-County
area of Mid-Michigan." Eight objectives of the HMO are then listed and
elaborated: (Portions of the list below are paraphrased.)
1) To involve, insofar as possible, the residents of the
Tri-County area in the planning and development of a non-
profit, prepaid group practice plan.
2) To achieve an enrollment broadly representative of
the population serve including the medically underserved,
Medicaid recipients, and within three years persons with
Medicare coverage.

3) To facilitate access to care through 24-hour service
at central and satellite clinics.

4) To execute provider contracts with full time salaried
primary care providers (NOTE the use of "provider" in place

149

of physicians in response to application directions) with
quality control mechanisms and allied health professionals
encouraged.

5) To offer a comprehensive benefit package that
reflects the total patient perspective with basic health and

psychological, environmental, and sociological health
considered.

6) To contain the rapidly increasing costs of health care
through incentive structures for both provider and
enrollees, health education, allied health professionals,
generic drugs, prevention and early detection.
7) To promote quality care through emphasis on health
outcomes, problem-oriented records, formal peer
review, continuing professional education for providers,
grievance procedures for subscribers.
8) To serve as a health model for health professionals
training in the Tri-county area.
In this their first official document, the social goals reflected in
the interviews predominate and are clearly stated. Not until #6 is
there any mention of cost containment, and even there cost is woven
with other social goals. However, in an early indication of the
shifting definition of this "radical” proposal and, to gain allies,
the same authors of the document assert that their "reasons coincide
fundamentally" with those given in (the following excerpt from) the New
England Journal of Medicine:
Public pressure.to control medical-care costs better, to
allocate resources rationally, to expand benefit coverage
and ambulatory care and to guarantee access to round-the-
clock primary and backup specialty services is conducive to
the development of a PPGP(prepaid group practice) in urban
settings."
It is evident in this journal statement, with which the founders

say they agree, that the emphasis and priorities ARE CLEARLY REVERSED.

 

Nonetheless, the founders do not comment on the differences but rather

go on for a concluding four paragraphs to simply restate their earlier

150

commitment to developing a "comnunity based HMO" with extensive
consumer involvement after the model of Group Health of Puget Sound.
They conclude:

Our commitment to voluntary consumer involvement is
substantiated by the preparation of this proposal, completed
entirely on a voluntary basis by HALE members and by our
willingness to donate a great deal more time to complete the
proposed study.

Accompanying the proposal for a $50,000 grant was a Statement of
Income, and Sources and Uses of Funds as well as a statement of
Financial Position from 3/1/74 through lO/3l/74 audited by the State of
Michigan Department of Management and Budget. Member dues brought in
$142.50; expenses totaled $141.40; net income totaled $1.16; and net
worth totaled $1.16.

Consistent with Blumer's model, this ideologically committed,
still fully volunteer group, operating on liberal goals and a
"shoestring" budget, was already verbally ”buying into" the
restructured language (or jargon) and goals of the federal government
and the Republican administration which was seeking to create a

conservative, competitive, cost containing, private sector, health care

system.

FORMATION OF AN OFFICIAL PLAN OF ACTION: SEEKING SUPPORT

In this stage, Blumer (l97l) asserts, one finds "the decision of a
society as to how it will act with regard to the given problem...
including hammering together an official plan of action, such as takes
place in the legislative committees, legislative chambers, and
executive boards." Indeed, founders were specifically invited to give

their opinions to legislative committees, and they were deeply

151

influenced by the bureaucratic process. In the interaction with the
“diverse views and interests" there were compromises...and judgements
of "what [could] be workable" (Blumer 1971:301).

After the founders had worked through the summer in the office of
PIRGIM, (the Public Interest Research Group in Michigan), other
institutions with interests of their own offered their support. The

Lansing Labor News offered HALE free office space while they awaited

 

news of their grant, and St. Lawrence Hospital promised space for use
during the feasibility and planning phases.

On March 10, 1975, just before HALE'S second annual meeting,
Michigan Congressman Bob Carr announced that HALE had been awarded
$50,000 “to study the feasibility of developing a non-profit, consumer
sponsored Health Maintenance Organization in the Tri-county area...for
a one-year period." After a full and successful year of operation in
which as a consumers group they operated on dreams and the generosity
of the community, they had earned the chance to develop a health
maintenance organization, i.e., to, in Blumer's words, to "implement

the official plan" (Blumer l97l).

IMPLEMENTATION OF THE OFFICIAL PLAN: $50,000
At the beginning of HALE's second year they moved not only from

PIRGIM and The Labor News offices to St. Lawrence Hospital, but also

 

from an organization with $1.16 in assets to an organization with
$50,001.16. With the grant came the requirement to hire an executive
director and implement the feasibility study they had painstakingly
described in the grant application. Also with this new role and

organization would come "unforseen and unintended restructuring of the

152

area of (the) social problem that arises from the implementation of an
official plan of treatment." Heeding Blumer's lament that this is a
process that is often ignored by sociologists, I have observed and
describe here that continuing process, including the unexpected
consequences. As the consumers won the federal grant to support their
social movement they at the same time began to institutionalize the
social movement. As they implemented their own plan they were drawn
into the plan of the federal government.

Nonetheless, the founders at that time, as well as the newly
recruited staff and volunteers felt that they were working for "a
cause" and they did so with the conviction, commitment and comaraderie

still more characteristic of a social movement than of a bureaucracy.

Introducing Salaried Staff and the Search for a Project Director

As the founders waited for news of their grant and worked with the
legislature, they met Joan Hunault, then working for Bill Ballenger,
chair of the senate committee on Debate Bill 1000, the HMO act. An
English teacher interested in Public administration, Joan shared the
interests of the consumer activists and recalls that even before HALE
got the grant or hired a project director, the consumers had asked her
to work for HALE when they were funded. Funding required a project
director in place and an urgent search for that director began. Notices
inviting applications for the position were posted, one of them at the
OHSER office where Karen Weller-Fahy, an anthropology graduate student
worked. She had become interested in the idea of the HMO after hearing
Eleanor Brand from Puget Sound speak at the medical school. A friend

who knew of Karen's interests and abilities talked Karen into applying.

153

The board, a founder remembers, was very methodical in choosing a
director. The committee included board members and Community
representatives including representatives from the Ingham County
Medical Society, the two medical schools, and Labor Relations at
Oldsmobile.

They sought experts to make up for the boards' "naivete". But in
the interviews one experienced administrator punched holes in the
records of all the candidates but Karen, who had no record to punch
holes in. Those involved said she was "very bright," “had a debate
background," and "was very handy." It is important to note that Karen's
"freshness" and lack of credentials was compatible with the sense of
the organization at that time and with its budget and its need for a
director quickly. Karen was offered and accepted the position, and was
satisfied to accept the board members' recommendation of Joan as the
second staff person. The two of them "set up shop" at St. Lawrence
hospital in 2 small un-air—conditioned offices in May. They hired a
1/2 time secretary, Toby Salzman, “a part-time student and full-time
Mom."

They began work without money. Although Karen began officially
May I, and HEW's Region V Project director made her first monthly visit
to Lansing, the Region V office "kept sending the check to Flint!"

The addition of a salaried staff was one of the distinctive
elements that characterized the powerfully dynamic year for this

consumer organization. Others included a notable esprit de corps within

 

the organization, effective networking outside of the organization, and

developing signs of tension.

154

Esprit de Corps

 

Interviews with both Joan Hunault and Karen Weller-Fahy like those
of the "second wave" of founders at NorthCare who became the four
"associate marketing directors," demonstrate the excitement and close
working relationship of that period. Although "the project director"
and her "associate director" both report significant differences in
their own work and life-styles, they emphasize that they shared the
goals of the founders and and both held strong egalitarian and feminist
positions. (A binding, though more superficial comaraderie was based
on their role as staff sometimes "at odds" with that same board of
directors. This is a not unconmon dynamic experienced and reported in
non—profit organizations guided by boards although it was remarkably
absent at NorthCare until the later operational stages.)

Karen and Joan both tell with relish and "insider humor," stories
of trying to furnish their empty offices at St. Lawrence hospital with
office equipment from a government warehouse and of tedious board
meetings in which "the board discussed for one hour and forty-five
minutes which kind of used typewriter to get." But they speak
seriously and respectfully of the work they were all able to do
together and with the 56 volunteers whom they organized into six HMO
development task forces. These task forces included: physicians, other
providers, marketing, finance, legal issues, and problems. They
explain that the task force categories were a direct response to the
federal guide to writing the feasibility grant.

The summer of 1975 was filled with intense work, with the task
forces preparing the feasibility grant. Each of the six task forces met

in both July and August from two to four times. The newsletters

155

demonstrate constant activity: open houses, meetings, speaking
engagements, workshops, and so on. In the office Karen reports that she
felt a very strong bond with the other staff members, which in part she
attributes to a shared feminist perspective. (I often saw the energy
of other contemporary social movements fueling this one.)

Through this period there were other strong ideological themes,
also. Both staff and volunteers told me that it was very important
that they were developing not just a prepaid medical group but one that

was non:profit and consumer controlled. Their commitment caused them

 

 

often to work very long hours, ordering pizza in the middle of the
night, and once, when Karen's 2-year-old son, David, was hospitalized,
they went on meeting in his hOSpital room. Reflecting on that period
Nancy Koert commented: "It was a movement and it was a cause. It was
not merely a new health program." This prominent commitment, or gpppip
de corps, was an important factor in the quality and speed with which

the grant was prepared and other HALE goals accomplished at this stage.

Networking

 

Another factor in the success of HALE at this stage was the
networking they accomplished both in and out of the community. Within
the community they held meetings all over town--at community centers;
hospitals, both osteopathic and allopathic; at the university; the
Ingham county health department; the community college and labor
unions. They widely distributed clear, professional, attractive
literature about the Health Action League and about HMOs in general.
They built bridges to other health interest groups i.e., HALE members

participated in CACHPA's Physical Health Committee and HALE arranged to

156

be represented on the Tri-county regional Planning Commission. HALE,
like NorthCare developed a Speaker's Bureau which responded to
invitations to speak .PA about health care delivery issues and health
maintenance organizations. May 13 board meeting notes announce the
first of many:

...HALE's first speakers' engagement. It will be

on May 23 at 3:30 at Westminster Presbyterian Church...Those

attending will be members of Tri-county family Planning

Commission, Model Cities Health Project, and League of

Women Voters. Susan Matthies and Elliot Wickes (a board

member and economist) will speak.

In addition to the professional networking, members were also visible
in more traditional volunteer events like a Bake Sale at a shopping
center central to Lansing and East Lansing. Finally, within the
community HALE developed a community Advisory Board "composed of
community members representing labor, business, the clergy, and local
governmental units" (Newsletter, July 1975) which met every other month
and became an important source of communication and support. Joan
Hunault called it "premarketing." It was important " because we were
precluded from doing any marketing of HMOs until we had something to
sell. (The power of this premarketing would be evident when they
opened.)

Activities outside of the community during 1975 were equally
energetic and wove them into the network with groups they admired. Not
only were speakers invited from other HMOs--Group Health of Puget
Sound, NorthCare, and Metro Health Plan-- but members and staff
attended Group Health Association Conferences and visited HMOs

throughout Michigan as well as the Harvard Community Health Plan in

Cambridge Massachusetts, and NorthCare.

157

DeveIOping Signs of Tension: Original Values Lose Ground

 

While 1975 had been a very successful year for HALE, particularly
the months in which the staff worked with the volunteers, this
organization was developing problems out of its own success. The
director's column in the November 1975 HALE newsletter suggests some
of the problems brewing. I quote it in its entirety because it has
within it a number of elements: I) the energy and success of the
consumer-activists; 2) the dependency on HEW, 3) concern about the
symbolic separation from and disaffection of the consumers, and 4) the
director's hopes for herself and for the HMO.

The Feasibility Study is approaching completion! The Legal,
Providers, Problems and Physicians Task Forces have all
completed their primary tasks and are compiling the results
into final reports. The Task Forces on Marketing and
Finance are in the midst of their tasks. Every indication
is that a prepaid group practice in this area is indeed
feasible! The next step is to convince the Department of
Health, Education and Welfare, since it is DHEW that
admgnisters the funds legislated in the federal HMO law (93-
222 .

Our feasibility analysis becomes the basis of the
application for Planning funds. We will be applying for
these monies in December. DHEW Region V estimates that 12
to 14 weeks is needed to review and process an HMO grant.
During Planning, all of the estimates and contacts of
Feasibility are concretized.

Also during December, the HMO will become an entity separate
from HALE. HALE is incorporated to educate consumers and
work for the improvement of health care but not to deliver
medical services. Thus an HMO corporation is required, by
DHEW to file the application for Planning. The formation of
the separate corporation does not negate the need for your
participation. A consumer directed, community oriented HMO
requires even more input that a Feasibility Study!

Special problems and rewards result from any cooperative
effort. We have had our share of both and are completing our
study five months early with a good product.

By the way, the funding stage after Planning is termed
Initial Development. During this stage we open our doors!

158

In this period, just as HALE seemed remarkably successful, both
structural and personal tensions began to build. The structural tension
involved a dichotomy between ideology and viability. As with NorthCare,
the practical offspring (the HMO) was explicitly separated from its
nurturant ideological parent (the consumers' group) by the federal
requirements. The separate board became not only a instrumental
structure but also a symbol of the separation of the consumers'
ideology from the task. From this historical point, the task pulled the
ideas rather than, as before, the ideas creating the task.

Karen's words acknowledge the importance of the task as well as
their dependence on HEW; she tries to assure the consumers that their
participation is even more needed as she tries to assure herself that
the ideals of consumer direction and community orientation will be
protected.

Another important tension emerged in all the interviews about that
period. Although it is presented in interviews as a personal issue, in
fact it appears to be another of the consequences of the
bureaucratization and professionalization of that period. Simply, the
project director was not specialized in administration, nor was she a
very formal person, but everyone I interviewed said that she had done
an excellent job of directing the organization through the early and
successful stages. Furthermore, the federal staff she worked with in
the Office of Health Maintenance Organizations assured her that her
work was excellent and that they supported her. Proud of her
accomplishments, and reassured by the apparent support from the federal
HMO staff, Karen wanted to (and perhaps assumed she would be able to)

continue as executive director of the HMO.

159

It is clear from interviews with board members, on the other hand,
that they were very influenced by the federal advisors' increased
insistence on credentials. In spite of all the board members'
admiration for Karen's competence, and the outright advocacy by a
number of board members, as a group the board voted to begin a formal
search for a "professional" director; they would even hire a

professional high-status consulting firm to help them.8

PLANNING

But, before that, as Joan Hunault was fond of putting it, there
were "more hoops to jump through." Having won the planning money,
$lll,OOO, consumers and staff had to meet a new set of requirements.
Karen Weller-Fahy's first words in the January HALE newsletter were
"Health Central Exists. As of December, an organization whose sole
purpose is to plan, establish, and run an HMO in Lansing was formed."
She said that the 259 page Planning application/feasibility report had
been submitted before Christmas and thanked everyone for their help. A
contest was held to name the HMO birthed by HALE, and "Health Central“
was chosen. In the early months of 1976 the task forces continued to
be very active.

On March 9, HALE held its 3rd annual meeting; a new board was
elected and HALE received assurances that they would get the $121,000
applied for in December. While HALE had been primarily occupied with
getting the HMO off the ground (which meant orienting always toward
sources of funds), now at this meeting members discussed the many
health issues they were interested in in addition to the HMO. (Just as

the consumers group did in Evanston.)

160

Health Central had its first board meeting April 20, 1976; board
member Bill Carr was elected president, and the 23 member board
constituted a search committee for a new executive director and heard
Dr. Arnold Widen from NorthCare discuss "NorthCare's Origins and

Function.“

A Founder Leaves and the Feds Give Ill-Founded Advice

In May the $l21,000 arrived and earnest work began on eleven areas
of concern designated by HEW. In their May newsletter HALE and Health
Central bid a regretful farewell to Susan Matthies and her family. (Just
as at NorthCare, a founder who had been central to the initiation of
the HMO, was able to leave with only regret once the movement had
gathered momentum.) In June several members and staff attended a GHAA
conference. There they were cautioned not to overestimate their
membership (Marketing report June 22, 1976).

By the end of the summer, the Health Central (HC) board and staff
were actively planning the initial development. Now, parallel to HALE,
HC had its own board, published fact sheets, and newsletters. Health
Central's publications and board minutes suggest that the second half
of 1986 was dominated by an awkward and ill-fated search for a new
executive director. Health Central"s newsletter, "Vital Signs" in
November offers telling examples of the problems in store: Karen,
still executive director, announced a building had been found but the
location could not be announced until the Federal initial development
funding was received. In addition two articles were published
announcing new directors--one executive director and one medical

director--including detailed biographies and welcoming them. However,

161

neither really became established in the positions. HEW rejected the
board's choice for Executive director and the medical director, beset
with family health problems, decided not to come.

The final Health Central Board Meeting of the year, December
21,1976, demonstrates a number of important dynamic issues for the
fledgling organization at the time:

1) Budget and Finance Committee: While the organization then had
the responsibility for managing one million dollars in grant money, the
federal regulations require that they match 10% and that presents a
challenge. To that date fund raising by HALE had included curry
dinners, bake sales, and a A&P Donation day--all of which had netted
under $100.

2) Grant Committee. It is reported that the budget had to be cut
because "personnel was cut by $93,000 because HEW felt that we had too
many on staff for phase 1 resulting in too heavy overhead." (This is
consistent with HEWs continued rejection of Health Central's enrollment
projections and it is important because Health Central's acceptance of
HEWs opinion (they had no choice) caused them to be unprepared for the
large opening enrollment which precipitated the slide into catastrophic
financial insolvency two years later.)

3) Executive Director Search: After discussing HEWs rejection of
the boards' choice for executive director, (“Board members were told by
HEW that this was not an unusual action.“)

"The Board then met in executive session. Motion was made

to keep the present Executive Director, Karen Weller-Fahy as

Executive Director until such time as another Executive

Director is chosen and approved by HEW. MOTION CARRIED.

UNANIMOUS. Meeting adjourned at 11:05 pm." (Board of
Directors Meeting Minutes Dec. 21, I976.)

162

1977 began for Health Central as 1976 had ended--searching for an
executive director. The search reflected increased tension between
early ideological commitments to consumer control and the external (as
well as internal) pressures to professionalize. Many executive
Committee meetings and two board meetings paid considerable attention
to the problem and after much research and discussion the board decided
to spend thousands of dollars to hire the Arthur Young professional
consulting firm to train and professionalize the board and help with
the search.9 Some board members I interviewed found the training
fascinating; they were shown how to simulate work situations that the
executive director would encounter, including situations with
considerable pressure, and then to evaluate the performance. Other
board members, however, objected to bringing outsiders into the process
saying that the responsibility in a consumer-directed organization
should be handled by the board themselves. Nonetheless, a number of
candidates were interviewed and in March a professional candidate, John
Hennan, was chosen for his excellent credentials. (Mr. Hennan had a BA
from the University of North Dakota, an MA from the University of
Minnesota, an MPH from Harvard and a Ph.D from Brown University. He
had had extensive experience in health care statistics, programming and
management in Providence, Rhode Island and Boston.)

While new staff and members were being added, others were leaving.
Bill Carr, president of the board of Health Central resigned in
February to take a position with HEW in the Region V office in Chicago.
(This pattern of movement from volunteer to professional positions is

discussed in Chapter 7.) Joe Finkbeiner, vice-president of the board,

163

acted as presiding officer and then went on to fill his own term in
March.

And in March Karen Weller-Fahy announced that she would be leaving
for Albequerque with her family in June. She continued to work until

April 29, when she was sincerely and formally thanked by the board.

FACILITY CONSTRUCTION AND STAFFING: EFFICIENT AND PROFESSIONAL

It is worth noting that Health Central's April newsletter began
with the explanation by Hugh Hufnagel, Marketing Director, that the
publication's name had been changed from "Vital Signs" to
"Newsletter" and, he said, "although it is not a hallmark of
creativity...it presents information in an efficient, professional
way."

Health Central was now marketing not only health care but also an
image, and the image would not be folksy, but rather efficient and
professional.

The professional new executive director, John Hennan, was at work
in May and board and executive committee minutes reflect considerable
discussion about the role of the "professionals" and the role of the
board. The board of trustees felt it should have access to the same
information that was available to the executive committee. The dispute
or discussion would continue for the next two years.

In July, a "wall breaking ceremony" symbolizing the preparation of
a building for the new HMO drew considerable media attention to Health
Central but funds were still needed for the necessary capital
improvements. HALE applied for a grant from Kaiser to help the HMO

since the Health Central's tax status did not permit it to receive such

164

a loan. By August, the staff had submitted the hundreds of pages of
State licensure application and they were eager to open. HEW, however,
behind schedule, delayed their site visit but finally provided "full
federal qualification for full operation" on December 19, 1977 and the

doors opened in January of 1978.

THE START-UP PERIOD: THE PROBLEM OF SUCCESS

In this last period of the consumer-sponsored HMO the pace
quickened. In January, the director of Public Health in Michigan
opened the HMO and emphasized traditional consumer concerns of disease
prevention and health maintenance. But as soon as the door opened,
there were other issues. Enrollment was much higher than expected.
Dr. James Hughes, the newly recruited medical director, wrote in his
report that he needed more physicians and other health staff. He also
recommended setting up an urgent care service because already Health
Central was referring too many patients out.

While high enrollment was the goal and the public mark of success,
the HMO, under the insistance of the federal advisors, had not hired a
sufficiently large staff or facility for the population to whom they
had been marketing so vigorously.

By March, Health Central was 1200 members ahead of projections,
and in July they celebrated an early “birthday" because they hit their
year goal of 4000 in 6 months. Health Central was the pride of the
Office of HMOs in Washington and the state, but within the HMO there
was a strong sense of overload. In June, Hufnagel wanted to hold back on
marketing because they already had more enrolled than they could

handle. The Executive committee, however, decided to go ahead. [Two

165

possible explanations are offered--the sense of obligation to offer the
plan when and where they said they would, and the egos of those
invested in its growth.]

While their federal advisors had told them to expect 5% enrollment
from the employer groups they were getting 15-20%, and the success was
forcing speeded up remodeling and increased staff. In August the
medical director reported growing medical staff but concern with the
upcoming visit of OHMO as grievances began to come in. In Fall General
Motors, Fisher Body and Oldsmobile were also offered the Health Central
option and the enrollment exploded to 16,000. There was not enough
parking, phone equipment, or staff. Although staff was being hired at
a dazzling rate they needed time to be trained.10 In October, Dr.
Hughes recommended exploring connections with the MSU medical school to
see if they could help his hard working staff. He wrote, "I hope the
purple hearts don't come posthumously."

In late fall, the State Department of Health worried that such a
jump in enrollment could reduce quality of care. But when the federal

office HMO visited, they discovered “nothing they thought was of

 

interest". By the end of December--one year after opening--Health

 

Central had 21,000 enrollees. Their success was widely publicized and
applauded by state and federal officials.

During this period members of the board, including Barbara Green
who was now on the executive committee, asked to see the budget and to
get more information. However, the executive director did not make it
available. It is clear that the balance of control on the board had
shifted from the founders and consumer representative to the executive

director and staff, which held the information and perpetuated its own

166

bureaucratic control. (Note: it was not that there was not expertise
among the consumers, rather that their role prevented them from using
it.)

At the end of the year, with 21,000 enrollees, and the system
about to come down around them, board minutes show that the board,
isolated from full information, mostly discussed the kind of chairs and

table to get for the board room. 1979 would be different.

FINANCIAL CRISIS: Tension Between Growth and Management

 

January 1979 found continued expansion and growth. An urgent care
service was opened to handle 160-170 calls a day. More staff, both
physicians and nurse practitioners were added. While patient complaints
about long waits and service continued to pour in and worry the board,
John Hennan expanded the program, adding satellite offices and
services.

The board minutes of February 13 show that Barbara Green expressed
concern about unpaid bills, and questioned the service and budget
projections. The minutes note that her questions were referred to the
Health Services Committee. Discussion continued regarding affiliation
with MSU and it was announced repeated that a local practicing
physician would join Health Central and bring his practice with him——
some on a fee-for-service basis.

As the problems became increasingly complex, Dr. Hughes, the
medical director, tendered his resignation in frustration with the
inability to get enough support to provide service; the executive
director recruited Dr. Bonta Hisco, a respected community surgeon to be

the new medical director. Dr. Hisco, a man with a reputation as

167

"something of a maverick" (not unlike Arnie Widen), was interested in
innovative medical services and ideas, and was excited by the
opportunity to direct the medical program which was known to be growing
so quickly. He began March 1, and on March 12 submitted a report
discussing the importance of health maintenance and preventive care
that had been the concerns of the founders. But by the March 13 board
meeting the minutes allude to concerns about telephone, financing,
physician recruitment and possible medicaid contracts, and it would not
be long before he, too, was drawn into the practical problems of
organizational maintenance.

In April, the state placed the HMO under a marketing moratorium
because of the excessive pressures of enrollment, but the staff were
concerned and frustrated because they feared losing marketing
opportunities; on April 12 a special board meeting heard the request of
Hisco and Hufnagel to reopen marketing. (Hisco explained in an
interview that at that point he had no idea that the HMO was in serious
financial trouble.) On April 16, another visit from a regulatory
agency failed to find a problem. The Michigan Department of Public
Health conducted a site visit of the HMO and was "very supportive of
the HMO" mentioning only that it should expand its medical records
personnel. Barbara Green again expressed worry about offering a new
enrollment to state employees, but was not supported.

Two weeks later the OHMO in Washington, after receiving warning
calls from creditors in the Lansing area, sent a letter of noncompliance
to John Hennan and arranged a federal site visit to discuss areas of

concern. At about the same time Bonta Hisco reports that he began to

168

get troubling calls from colleagues in the medical community saying
their bills to Health Central had not been paid.

The warning signs were beginning to overshadow the impression of
dramatic success. On May 11, the executive director, the financial
director, two board members and legal counsel were summoned to
Washington where they were told that the OHMO would help Health Central
out of its deep financial troubles only if the director and treasurer
resigned. John Hennan and Joe Brown resigned May 12, and were out of

their offices Sunday, May 13.

THE COMING OF THE CORPORATION

The press and government officials were "shocked" by the dramatic
financial collapse of the "successful“ organization. But the founding
board members were less surprised. The labor representatives on the
board, for example, said they "saw it coming." One said that John
Hennan was spending a lot of money, and "we were not getting sound
financial reports." Furthermore, he said,

(the administrators) acted as if the Feds came to the

front door every day with a wheelbarrow of money and all we

had to do was spend it....
Others on the board, like Barbara Green, had for months been asking for
an explanation of the finances.

After "the Feds blew the whistle" there remained no full
explanation of why the HMO was in such deep trouble. A state regulator
told me that the government money was not used in the way it was

intended (e.g., Hennan bought land for expansion out of operating

funds) -but no one I interviewed ever said they believed that there

169

was any criminal intent. Neither the state nor the board had demanded
an interim audit and there was no prosecution.

There were many personal speculations about the director's
individual behavior, but none explained the problems of the
organization; they seemed, rather, an effort to :ipg an explanation.
John Hennan had been chosen because his professional credentials seemed
perfect. Since he had been chosen to fit the structural specifications,
his failings, some seemed to think, must be personal ones. Apparently,
as management worsened and the debts mounted, and the problems seemed
insoluble, Health Central had stopped paying its bills. The tales of
where they had been hidden and stored were apochryphal--not only in
desk drawers but in the trunk of his car, and so on. A state
regulator summed it up: "He was very, very bright, but he just couldn't
handle this situation."

It was the state that would handle the situation. At first Bill
Bramen, the chairman of the board, was made acting executive director
and then Robert Rowe, a former chief deputy commisioner from the
Insurance Bureau, was appointed interim executive director under an
order giving the state supervision over the troubled plan. I was told
“he carved away a third of the staff with surgical precision."

Many were involved in trying to raise funds. Arrangements were
tried with labor, and with industry. Governor Milliken (who had
recently been speaking with pride of Health Central in his speeches)
wrote a personal letter to Tom Murphy at General Motors "trying to get
capital to link up with money from the Michigan Hospital Association."

Several insurers "came to take a look“ including Blue Cross Blue

Shield. " Then it got down to just the Blues, and they said they

170

weren't interested. (They had been "burned" earlier when the state
barred their ownership of a prepaid plan in Detroit.) But this time
the state was a party to the negotiations.

"Finally, there was a weekend marathon of telephoning," a labor
leader told me,

We were trying to make things happen. Finally we told

the politicians that they were about to have 18,000 people

shitting on their doorstep...and then things began to fall

together.

It is clear from the descriptions of the participants that because
of the structure of the situation--labor's responsibility to its
members, the promises the consumers had made to the 22,000 enrollees,
and the enormous need for capital-—many of the participants came to
believe (just as many had in Evanston) that selling to the insurance
corporation would be the best alternative. The Lansing State Journal

summarized it:

"Blues Called only Lifeline for HMO".

Finally Blue Cross agreed to meet with the state, federal and HMO
representatives. When the Blue Cross representative arrived, he had a
check for $1,000,000.

The decision to sell Health Central to Blue Cross was put to a
vote of the membership at a general meeting for all members August 16,
1979. One founder said:

The meeting was a very bittersweet experience. We
saw the effects of the grass roots. They called a meeting
and set up folding chairs inside. And people kept coming

and finally there were about 650 people and we met out in
the parking lot.

171

A news columnist attending described the event.

The change was overwhelmingly approved. Many cheered
and clapped when the final action was taken...after three
hours of debate, questions and explanations. Some said they
were "being taken to the cleaners..." but the vote was
4 to 1.

Health Central was saved, but with the coming of the corporation,

consumer control was lost.

172
END NOTES

1. For the purpose of this dissertation and the reading of the
committee I have used the actual names of places and participants. The
social activists considered the development of the HMO and the
activities associated with it to be public; most are eager to see it
described. However, where an informant has asked that something remain
confidential, or if the matter is sensitive and could be thought to be
confidential, I have presented the data in a way that does not identify
it with a specific individual. For example, "a founder told me," or
even--in classic passive voice--"it became clear in interviews that..."

2. It is important to note that for the founders of NorthCare as well
as for Health Central the presence of someone who had had experience
with Kaiser in California was crucial, i.e., someone among them who
knew that health care could be different. "People do not define as
problems those conditions they feel are immutable....Every experience
of displeasure and dissatisfaction has its origins in the availability,
if not promise of remedies, cures, reforms, and solutions for such
troubles" (Spector and Kitsuse, 1977:84).

3. Another example of the way Mary Bruglierra says they were "dogged
with serendipity": Between NCHP's first and second letters of
application General Robert Wood Johnson died making the foundation the
second wealthiest in the nation.

4. Enrollment without restrictions based on age, medical history,
or history of illness, etc.

5. One founder disagreed strongly saying she believed the problem was,
rather, the employees of the city of Evanston (49% of whom enrolled)
and that it was fashionable to blame the open enrollment group. Such
blame was prevalent; the first amendment of the HMO legislation was to
eliminate open enrollment.

6. Koert was not only important to the activists; she was a very
important informant for this study of Health Central. She had had
extensive experience with both health care bureaucracies and with
conmunity organization in Minnesota and had a keen personal and
professional interest in the development of Health Central as well as a
view from within Michigan state government. By 1986 she was chief of
the HMO division with the Michigan Health Department; her views as a
regulator are discussed in Chapter 4.

7. Susan, like Kate Carey, brought knowledge of Kaiser's working
"solution" to the "putative conditions." (Spector and Kitsuse I979)

173

8. It is interesting to note that the changes in the organzation
reflected and were reenforced by the changes in the culture about them.
Early in the 19705, when they gathered as a group of post 605 social
activists, they associated with the informality and antimaterialism
prevalent in the 19605, particularly at universities. While they were
developing the HMO, the culture around was also accepting bureaucracy
and emphasising professionalism. For many around them materialism was
regaining its respectability; students came to the campus looking for
"careers.“

9. Note how this anticipated health care management in the 19805. See
Chapters 6 and 8.

10. Joe Finkbeiner reported that enrollees who worked for with him at
Oldsmobile came by and shouted at him because they could not get
through on the telephone. And Joe said, once the ground froze they
simply couldn't lay in more phone lines. "Now who could have predicted
that!" he wailed.

CHAPTER 6
1986: CASE STUDIES AND THE NATIONAL CONTEXT

INTRODUCTION

The last chapter documented the accomplishments in the 19705 that
made possible the development of NorthCare and Health Central, as well
as the compromises that led to their purchase by two major insurers,
Prudential and Blue Cross. In the 19805, changes which the HMOS
consumer—founders tried to resist have accelerated, and HMOs are one
important part of a significantly changing Americian health care
delivery system. HMOs had a distinct, in fact catalytic, role in the
changing system, but now they are decreasingly distinct within that
system. Shifts in the organizational types within the minimum HMO
definition (a prepaid health plan with comprehensive in and outpatient
care, for a defined population) reflect the direction of change.

In the early 19705, when the consumers began to think about
sponsoring consumer-controlled, community-based HMOs, themselves,
there were only 30 prepaid plans in the United States; almost all were
salaried staff or group models. In 1986, there were 595 HMOs, but Only
40 percent were staff or group models and 60 percent were independent
practice (IPA) models. The modifications are not just within the HMO
definition. Permutations and combinations abound, both as elaborations
of the already existing plans, and in competitive reaction to the
existing plans. As I will describe more fully in the following

chapters, the federal government has purposefully promoted the

174

175

competitive marketing of health care, and health care itself now has
taken on many of the characteristics of other "products" in a
competitive economy.

For example, organized medicine has traditionally considered
advertising to be unethical for physicians (AMA 1981). However,
advertising now accounts for $500 million spent by competitive health
care plans and hospitals. Furthermore, to increase competitive
strength--and sometimes simply to survive--plans are merging and
acquiring each other. They increasingly develop hybrid (or "triple
option") managed care organizations that promise to serve employers'
needs for economical management, and employees' need for good health
services often as part of major insurers.

With the clarity of retrospect, it is evident that the purchases
of NorthCare by Prudential and of Health Central by Blue Cross, which
the consumer-activists felt to be the failed end of their goals, were
in fact early signs of this deve10ping trend. In this chapter I will
describe some details of the trend as it appeared in 1986: first, with
an update of NorthCare/Prucare and Health Central in their communities,
and then with an overview of the national health care delivery
environment.

The reader will note that portions of this chapter will have a
different tone than other parts of this analysis. To provide an
"update" I must present these organizations in the present, that is in
their corporate form; corporations have a language of the "market
place" very different from the language with which the consumer
founders first formed their ideal HMOS. I have noted in Chapter 5 the

way in which the the consumers were coopted by the language of the

176

regulatory and corporate environment; here it will be evident that in
order to discuss health care as it is today, I, too, often use the

language of the market place and the corporation.

NORTHCARE/PRUCARE UPDATE

The Chicago "Market Area"

 

In 1981, when Prudential bought NorthCare, 252,123 Chicagoans were
enrolled in eight HMOS, that is, 3.5% of the Chicago SMSA. In 1986
1,160,000 were enrolled in 22 HMOS, or 15% of the population. This
growth was somewhat faster than the national average and there are
other ways in which the Chicago area is distinctive in its acceptance
of HMOs.

My research with others in the early 19805 (Anderson et al. 1985)
showed that Chicagoans are loyal to local, even neighborhood,
institutions; that characteristic is evident in the HMO distribution in
1986. While Chicagoans' enrollment in HMOs has been growing rapidly--
between 25% to 38% a year -- Chicago HMOs have not consolidated in the
way that is typical nationally. (See next section). Rather, in Chicago
many new HMOs continue to spring up (and some close), bringing the
total number to approximately 22. Ten of the 22 listed in June of 1986
had been operating a year or less. Furthermore, because of strong
localism, Chicago has not been an excellent market for national
companies. Of the five largest HMOs in Chicago all have been in the
community for ten years or more; two are staff models associated with
well-known local hospitals. Although some of the best established HMOs
in Chicago are of the staff/group model favored by consumers and early

HMO advocates, the percentage of enrollment in staff/group models

177

continues to fall, as it does nationally, because the new plans are the
preferred IPAs or networks which permit more autonomy for physicians
and choice for patients. (See implications in concluding section.)
While in 1981, when NorthCare became Prucare, 55% of Chicago's HMO

enrollment was in staff/group models, in 1986 that has fallen to 23%.

NorthCare/Prucare: "One of the Insurance Products"

NorthCare/Prucare has itself contributed to the fall in percentage
of enrollees in staff/group models. In January of 1986, in order to be
more competitive, Prucare added an IPA component to the HMO group model
and became a "network", or “mixed model" by affiliating with 25 other
formerly independent practice groups. This change was implemented
simultaneously with the offering of Prucare Plus, a "triple option,"
combining conventional insurance and prepaid care.

Since 1981, when NorthCare had 30,500 members and was acquired by
Prudential and became one of its Prucare HMOs, its enrollment has
almost tripled. Prucare has a reputation in the city for quality, in
part beacuse of its selective hospital affiliations (which however, are
costly for the plan), and because of the high regard for the medical
director, Arnold Widen, who has remained with the plan since its
founding. However, growth was very slow until the middle of 1985, when
there was considerable growth. At the end of 1986 there were 80,000
enrollees. Nonetheless, in the exploding Chicago area market, which I
described above, Prucare remains sixth (not among the "top five" of the
22 HMOs in the Chicago area). That is not what Prudential, the parent
company, had in mind. Although Prudential officials told me in 1981

that they knew it would be necessary to subsidize the beginning HMOs

178

for some years, and they have subsidized expansion to nine health care
delivery sites, it appears that they are not now satisfied with the
financial results in the Chicago area.

One of the staff people who has been with NorthCare and then
Prucare from its earliest days offered her interpretations. She feels
that the marketing representatives who present Prucare and the
additional plans, like the triple option, do not understand or support
the HMO concept. They present Prucare and its triple option "as if it's
major medical (traditional health insurance) with an HMO pppipp_instead
of the other way around." Therefore, members do not understand the
concept and "go outside the plan at three times the predicted rate,
rather than staying in the network.“ This adds to the costly spiral and
to Prudential's dissatisfaction with the HMO.

As a result Prudential is centralizing its operations, and pulling
resources back to its Minnesota and other Illinois offices. Unlike the
individuality expected by NorthCare when it was purchased by Prucare,
Prucare/NorthCare is now "only an entity on paper." In place of a vice
president of its own to work with in Illinois, Prucare/Northcare now
answers to the Group Department of the Prudential Insurance Regional
Office. Furthermore, the Regional Office has withdrawn the NorthCare
medical group subsidies and many of the medical group have had to be
terminated. The staff member concluded, "It's demoralizing; we are now

one of the ‘insurance products'"1

179

HEALTH CENTRAL AND THE LANSING AREA UPDATE
Lansing Area2
In 1979, when Blue Cross bought Health Central, Health Central was
the only HMO in the Lansing area and its enrollment was 21,900
members. It was one of nine prepaid plans in the state of Michigan
with a state enrollment of 200,792. In 1986 there are two HMOs in
Lansing : Health Central with 55,000 members and Physicians Health Plan
(PHP) with over 70,000 members.3 The growth in HMO membership—-five
fold in seven years-- is even greater than for the same period
nationally. (See national data below). Much of the enrollment is with
PHP, a plan that was not yet an idea in 1979. PHP, which was first
proposed publicly at a physicians' meeting at Sparrow hospital, June 3,

1980 and licensed in 1981, is a classic example of the plans formed by

physicians, sometimes in cooperation with a hospital, in reaction to

 

the “threat" of an early HMO in the community. It is an independent
practice association (IPA) of physicians practicing from their own
offices, partly with HMO patients from PHP and partly their own fee-
for-service patients. PHP is now (also typically) affiliated with (or
part of) a large parent corporation, United HealthCare Corporation,
which has thirty plans nationally with 1,160,000 enrollees, and is
headquartered in Minneapolis. An HMO administrator in the Michigan
Public Health Department told me that "virtually every doc in Lansing
except those on staff at Health Central" has signed up with PHP.

In 1979, IPAs enrolled only 17 percent of the 201,000 HMO members
in Michigan; 83 percent were in group or staff models. In 1986, only
25 percent of Michigan's 1.6 million HMO enrollees are in group or

staff models; 75 percent are in IPAs or in network models which mix

18D

and match some groups with some independent practitioners in prepaid
contracts.

To understand consumers' recent (mid 19805) attitudes about HMOs
in Michigan I interviewed an administrator of the HMO office of the
state Public Health Department, which licenses and receives questions
and complaints about HMOs. In 1986 there is a marked increase in
misunderstanding of the nature of HMOS. "People don't understand HMOs
anymore," she said, and doctors don't understand what is expected of
them when they join an HMO. This seems to be evidence of the new
population who are joining and affiliating with HMOS. They participate
not because they want to change to an alternative form of care or care-
giving, but because they are pressured by their employer or their
competitors to change from their traditional ways. They do not realize
the implications of the different form of health care delivery; they
still have a "fee-for-service mentality."

In addition to the IPAs, which are providing significant
competition in Michigan, an official at the Michigan Department of
Public health reports, there are nine preferred provider organizations
(PPOs) in Michigan. However, less is known about them because they are
not regulated by the state and their enrollment is difficult to count.
In most cases they are marketed as part of a package of health care

insurance options.

Health Central
Since 1979 Health Central has changed its shape but certain
important elements have remained the same. There are 35,000 more

enrollees and several different sites in the Lansing area for

181

treatment. Originally a group model--consistent with the founders'
conviction that physicians should work together as a committed group,
preferably salaried--Health Central, like Prucare, is now a network
model. In order "to remain competitive" it has added seven affiliated
small groups (which account for 10,000 of the enrollees) in communities
not far from Lansing. The medical director who came to Health Central
in 1979 just months before its critical troubles became evident, has
remained, developing and maintaining a largely stable core of
physicians and other health care professionals. He reports that he
struggles with the Blue Cross organization ("the Blues") for more
autonomy and for more information. He and others I interviewed say that
the Blue Cross information system, "Diversitek," although highly
touted, has important inadequacies. (Information systems have become
crucial to the success of managed care systems, as I will discuss in
the conclusion.) To this observer it seems that the medical director
and the Blue Cross management are in a detente—-needing and respecting
each other but each fearful of losing ground to the other.

In the first years after the Blues purchase, Health Central
operated in the black, putting over $2 million/year in surplus in 1982,
1983 and 1984. But by 1985 "competition was heavy and things got
tight;" they had to cut prices and in 1986 they have a significant
deficit of over $1 million which Health Central blames on delayed bill
handling by Blue Cross in Detroit. It is interesting that staff in
Health Central, as in Northcare/Prucare, see their insurance companies
not only as separate, but as a source of difficulty rather than
support. This complaint is particularly notable in certain

professionals who, when I interviewed them four years earlier, had been

182

optimistic. Now, caught in the bureaucratization, they say at Health
Central, as they did at NorthCare, that their parent insurer is
centralizing operations, limiting their autonomy and erasing their
identity.

One of the original founders of Health Central told me that she
has recently been asked to come back on the board which she left in
1978 since,

they need people to help them maintain a certain mind

set that some feel is being lost....someone devoted to

consumers....to help keep the Blues on the straight and

narrow. Apparently they are trying to standardize all the

Blues HMOs in Michigan....that flies in the face of

everything they have done. In the face of success they are

trying to impose a model.

Although Michigan law still requires that every HMO have a board with
one third consumer representatives one state official observed:

But with the big boys from the Blues (also) on the board, if

they want anything to fly, it's going to fly.
NATIONAL ALTERNATIVE HEALTH CARE DELIVERY PATTERNS IN 1986
Types of HMOs and Sponsorship

I have noted that at the end of 1986 both NorthCare and Health
Central have strong competition from the growing IPAs in their
respective areas. To remain competitive, they say, they have modified
their own model type. They reflect the strong national trend away from
the group and staff models which the consumer/founders considered

central to their plan. I quote here InterStudy's description of this

trend from their 1986 June Update of the National HMO Census for both

 

 

the content and the manner in which they choose to present the data:

183

Over the past decade there has been a shift in the
predominant model type of HMOs. In 1976, group models
represented 75% amd IPAs comprised the remaining 25% of all
HMOs By June 1986, 58% of all HMOs wereIPAs and 42% were
group models. The number of group model HMOs increased by
over 100% between June 1976 and June 1986 (from 123 to 250).
The most dramatic increase, however, was seen in the rise in
the number of IPAs. A 741% increase occurred over the
decade, as the number of IPA model HMOs increased from 41 to
345.

The majority of HMO members (64%) are currently enrolled in

group model HMOs as opposed to IPA models (36%). Group

models, however, are no longer the dominant force they were

in June 1973 when 93% of all members participated in group

models... Over the last ten years enrollment in IPA models

grew at the phenomenal rate of 2,070 percent (from 390,000

to 8.5 million members), while enrollment in group models

rose by 172% (from 5.6 to 15.2 million members.)

A number of issues in this quote deserve attention. First, of
course, the significant numbers. In ten years there has been
significant growth in HMO enrollment, and that enrollment trend is
moving from the group practice models to the independent practitioner
models in which physicians treat a mix of HMO and fee—for-service
patients in their own offices.4

Second, the dramatized way in which the "phenomenal rate“ of IPA
growth and HMO growth in general is described draws attention to the
institution responsible for the census. InterStudy is the independent
private "think tank" founded by Paul Ellwood, who as I have noted
earlier, suggested the concept of HMOs to the Nixon administration and
has been the strongest advocate in the Twin Cities and the nation for
HMOs as a competitive free enterprise solution to the rising costs of
health care. Throughout the 1970's, the Office of Health Maintenance
Organizations (OHMO) in the US Department of Health Education and
Welfare gathered HMO data. In the Reagan administration's commitment to

privatizing and decentralizing responsibilities of the federal

184

government (Starr 1983) the OHMO was closed and InterStudy became the
official data gatherer on HMOs.

Third, the "phenomenal“ nature of the 2000% growth rate is not so
much a function of the many IPAs now as of the few IPAs earlier. Unlike
the staff/group models like NorthCare and Health Central and the
consumer cooperatives that were their models, IPAs were not born out of
an ideological commitment to restucturing health care. Rather, IPAs are
a reaction to the perceived competition of the group models, and an
effort to protect the traditional model of medical practice.

Independent practitioners in Chicago and Minnesota explained that
they developed or joined IPAs because they feared losing their patients
to HMOs run by consumers or hospitals. I found that these physicians
are most often those ideologically opposed to salaried physicians or
group practice. It is therefore ironic that their successful reactive
efforts to oppose the original HMO concept are listed as evidence of
the success of HMOs. IPAs have, in fact, coopted the symbols of the
early HMOs for their own competitive individual practices.

Fourth, the large percentage of HMO members who are still found in
group plans is explained not by the number or vitality of group plans
in general, but by the powerful national dominance of Kaiser
Permanente, which accounts for nearly 5 million enrollees in their

massive group practices largely on the west coast.

Census 1986, Growth and Distribution
The InterStudy Census reports that in June 1986, 23,663,626
Americans were enrolled in 595 HMOs. This reflects a steady 24% annual

rate of enrollment growth. (The growth in number of plans is less

185

meaningful because there is remarkable inconsistency in reporting of
plans or the multiple offices of plans (See Table 6.1). In 1986
forty-six states headquartered HMOs. Five states reported enrollments
exceeding a million HMO members, including the three states in this

study and California and New York, as well.

Table 6.1

 

GROWTH OF HMOS SINCE 1970

(InterStudy, National HMO Census through June 1986)

1970 33 plans 3.0 million enrollees
1972 72 “ 4.4 " “
1974 142 " 5.2 " "
1976 175 " 6.0 " “
1978 203 " 7.5 " "
1980 236 " 9.1 " "
1982 (June) 280 " 12.0 " "
I983 " 290 " 13.6 " "
1984 " 306 " 15.1 “ "
I985 " 393 " 18.9 " "
l986 " 595 " 23.7 " "

Changing Plans: Multiple Options

 

PPOS

It is necessary to emphasize that "HMO" is no longer a sufficient
term to describe the contemporary health care delivery alternatives
that began with HMO development. In addition to HMOs, rather, in
response to HMOS, PPOs (preferred provider organizations) are
sprouting. While in the early 19805 there were only 7 PPOs, in 1986
there were 500 distributed throughout the 50 states.

Whereas HMOs have the ideological roots and history noted

throughout this discussion, PPOs are a recent competitive response to

186

HMOs and other cost containment pressures--particularly those pressures
from the federal government to reduce costs of Medicare and Medicaid
patients. PPOs are contractual liaison mechanisms by which the services
of a specific panel of providers--physicians, hospitals, or both—-are
marketed with certain cost or efficiency incentives to enrollees. PPOs
are often sponsored by providers, but they are also sponsored by multi-
hOSpital networks, and entrepreneurs, such as third party
administrators and insurance brokers.

For patients, PPOs are more flexible than HMOS (including IPAs)
because patients are not limited to specific providers as they are with
HMOs; by paying part of the cost, they may choose a provider who is not
"preferred," i.e., the provider panel is preferred but not exclusive.
For physicians, PPOs make it possible to continue to practice in their
own offices, to continue to see non-PPO patients, and to avoid sharing
the risk of prepayment. In PPOs, physicians are paid fee-for-service,
but at an agreed-upon discount. In other words, PPOs are an effort to
duplicate the traditional health care delivery system but claim to
contain costs. While they are being established at a rapid rate, it is
very difficult to measure their growth because there is a marked
difference between the number of potential participants and the actual

enrollees. While patients are encouraged to use physicians, hospitals,

 

specialized clinics, etc. which are “preferred" by the plan, they are
not "locked in" to a fixed group of providers. Therefore data on PPOs
are difficult to interpret because participation in a PPO is not an
exclusive commitment; therefore one physician or provider organization

can appear on many lists of PPOs.

187

Although it is difficult to measure the extent of the PPO
competition in response to the HMO movement, certain PPOs, built on the
experience of HMOS, are drawing very large enrollments. I include here
an example, AWARE GOLD, a PPO in Minnesota, because it demonstrates the
potential for competitive response elicited by the HMOs, and it
demonstrates the capacity and characteristics of a new generation of
sophisticated corporate health care systems. Furthermore, it is an
important force in (as well as a result of) the competitive health
environment in Minnesota which will be described more fully in

Chapter 8.

AWARE GOLD an Exemplary PPO

Aware Gold, the l l/2-year-old PPO of Blue Cross Blue Shield of
Minnesota (BCBSM) illustrates the potential commercial success of PPOs.
Until recently BCBSM was a weak competitor among the managed care
systems in Minnesota, and had suffered a number of years of contract
losses in the Twin Cities. But with their new product, Aware Gold,
they have not only underbid other Twin Cities HMOs in closed bidding
for state employee contracts (causing many state employees to choose to
shift plans), but are also competing aggressively and successfully for
other HMO enrollees. The Public Relations and Marketing office of Aware
Gold reports an enrollment of 200,000 persons in 80,000 contracts
during its first year and a half of operation. In the mature Minnesota
market area, already familiar with both the benefits and limitations of
HMOs, this PPO presents several attractions:

For patients, it covers their care, including preventive

services, with any provider they choose and without the requirement

188

that they go first to a primary care physician/ gatekeeper. (Services
by "preferred providers"--those on the Aware Gold panel, which now
constitute over 75 percent of the physicians and 100 percent of the
hospitals—-are fully covered. But if the patient chooses to seek care
or consultation elsewhere, even out of the state, Aware Gold will cover
all but a copayment.)

While physicians and hospitals must accept a negotiated discounted
rate, the plan reimburses them for each service they provide for
patients, fee-for-service.

For employers, the premium rates are very competitive (some

speculate upprofitably low to gain a place in the market) and

 

furthermore, Aware Gold, because it is a PPO, can "experience rate,"
i.e., the premium rate for the employer group can be based on the
actuarial characteristics of the employee group-- age, sex, and use of
medical and hospital services. (This is in contrast to the less
favorable premium rates under "community rating" which requires HMOs
[by law] to provide the same rate to all persons and groups regardless
of their age, sex or likely use of services.)

Aware Gold is a “product" carefully conceived and marketed by a
company that has networks ready to carry it throughout Minnesota, and
affiliates to imitate it throughout the nation. Already the midwestern
states, as well as Ohio, Pennsylvania, Florida, and Arizona are
“expressing interest in Aware Gold cooperative ventures that would
further enhance [its] acceptance and recognition.“ (Public relations
material from Blue Cross)

To capitalize on and expand their success, BCBSM has recently

introduced HMO Gold, a product which, coupled with Aware Gold, will

189

provide employers with a complete range of prepaid and fee-for—service
alternatives with efficiency and limited paperwork. Health care
management analysts note that this efficiency and effective
competitiveness are directly related to BCBSM's highly sophisticated

computerized management information system developed to review and

 

coordinate the medical, administrative, and financial aspects of the

system.

Managed Care Systems: Hybrids and Triple Options

The plan just described in Minnesota, in which Blue cross provides
Aware Gold and HMO Gold together, is characteristic of the new hybrid
systems in which major corporate insurers offer to an employer a
complete set of “managed health care" options in one package. These
include both health insurance and health care options. These systems
require the most sophisticated (and costly) Management Information
systems which provide the essential foundation for management of care,
cost and utilization in a large system.

Furthermore, the oldest HMOs built on the cooperative and consumer
movement ideology are not immune to this trend. Group Health Plan of
Minnesota (one of the founders' primary models) announced a joint
venture with Prudential Insurance Company to create a “hybrid health
plan, Choice Plus--one company which will be able to meet indemnity
needs, hybrid needs, ahd the HMO needs of every employer." The
arrangement provides the Group Health Plan access to indemnity
insurance, and for GH members, Prudential's nationwide PruCare

coverage.

19D

Insurers Invest

Nationwide coverage is most readily offered by the large
traditional insurance corporation. In the early 1970s these companies
did not make any major commitment. Rather they were hanging back and
observing while the HMOs made their mistakes, and finally became
increasingly accepted. Now that conditions are stabilized, insurers
are taking a major role in the health care market. For example, three
insurers, John Hancock Mutual Life Insurance Co., Hartford Insurance
Group, and Northwestern National Life Insurance Co. have decided to
"joint venture“5 to establish, first, a national network of PPOs, to be
followed by HMOs, in about 50 locations. Each company will contribute
a third to the $100 million deal. And Metropolitan Life Insurance
company has planned $105 million for 1986 HMO startups for a total
investment of $210,000,000 through its triple option Metlife Healthcare
Plans.

In 1986, of the 23 million HMO subscribers in over 595 plans more
than half (53%) are enrolled in the large corporate multistate
companies, and seven companies provide 44% of the care: Kaiser, Cigna,
Maxicare, Health America, US Health Care Systems, Prudential, and
United Health Care Corporation. Not-for-profit companies still account
for 61.5 percent of the HMO enrollment.

HMOs and most health care have traditionally been provided through
not-for-profit corporations; furthermore, not-for—profit health care
was an important principle of the HMO consumer-founders, but that too
is changing. For profit companies are taking an increasingly large role
in financing and organizing health care. In 1986, of the 595 HMOs 308

are incorporated for profit.

191

In sum, the alternative health care delivery market is
increasingly complex, for providers, patients, and investors. It is no
longer clearly possible to designate types, sponsorships, membership,
or profit-making status. The plan types are often mixed, and
sponsorship in 1986 includes significant small and large joint ventures
between competitive doctors, hospitals, insurers, and employers, as
well as groups that have not been in health care before. Membership is
more difficult to designate, particularly as large insurers begin to
offer a choice of HMO, PPO, and indemnity insurance to employees under
one umbrella as one risk group. Finally, in alternative health care,
for—profit and not-for-profit HMOS seem very much alike. For-profits
often have not-for-profit components, and traditional not-for-profits
have for-profit affiliations; e.g. Blue Cross/Blue Shield is also
deve10ping a for-profit IPA in Washington D.C.-~Capitol Care--a wholly
owned subsidiary. The Minnesota Medical Association now has a for-
profit management consulting component, as does the Harvard Community
Health Plan. Symbolically, a significant number of plans are changing
their names, making it even more difficult to designate which are new
plans, and which are components, affiliates, or subsidiaries of old
plans.

The consumer-founders' role in the many changes, as well as the
consequences for the consumers themselves, will be the subjects of the

next chapter.

192

ENDNOTES

1. Note the increasingly frequent use of the word "product" to describe
what have previously been considered professional interactions or
services.

2. Data from this section, unless otherwise noted are from the HMO
Census, OHMO, HEW, and InterStudy.

3. PHP enrolls over 100,000; members but the members are not
only associated with the home office in Lansing but also
in other small cities throughout the state.

4. It is clear from interviews with physicians, that remaining in
their own offices is an important symbol of autonomy. However--

as will become clear in Chapter 8--while there physicians maintain
their internal micro world of assistants and patients,

much of their practice is controlled by external plan managers.

5. Now a verb in the health care "market place," meaning to join
together in a business venture.

PART IV. CONSEQUENCES FOR CONSUMERS, PHYSICIANS, AND THE HEALTH
CARE SYSTEM

CHAPTER 7
CONSUMER-ACTIVISTS: CAREERS AND CONSEQUENCES
“A successful movement is the intersection
between personal and social change."
Jo Freeman 1975
INTRODUCTION

Earlier chapters have documented the importance of the personal
efforts of individual consumers and the nature of the social change they
sought to bring about. In this Chapter I will discuss the consumers
themselves--particularly the founders. I will examine their ideology,
goals, and the groups they sought to model themselves after, as well as
the consequences in their own lives of their participation in the social
movement organizations. In addition, expanding on these specific data,
I consider what impact consumers have had, and can be expected to have
on the changing health care system.

Chapter 4 described consumers as an integral part of the
communities in which they live, and, in this case, in the communities in
which these HMOs emerged and developed. As noted, consumers reflect
the dynamics of their community and affect it in different ways,
depending on the nature of the community and its history and patterns of
decision making. (Anderson et al. 1985)

Our research in Minneapolis-St. Paul demonstrated that consumers as
citizens accepted and supported centralized leadership which, in the
homogeneous Twin Cities, has traditionally come largely from the major
midwestern corporations headquartered there, such as General Mills, 3M,
and Honeywell. In the 19505 Minnesota consumers active in the

cooperative movement (strong because of the grain and dairy cooperatives

193

194

of the midwestern plains states) established Group Health of Minnesota,
a model of radical consumer participation in a medical cooperative.
However, by the 19705 there was little consumer activism; instead
centralized community leadership (e.g., in the Citizen's League and
Metropolitan Council) explored the possibility of health care delivery
based on the addition of prepayment to the prevalent group practice
model.

In neither Chicago, Illinois nor Lansing, Michigan, was there such
a tradition of centralized community leadership. In those communities
in the 19705 it was local consumer activists who initiated the idea of
consumer controlled prepaid health plans and effectively recruited
personnel and clientele to their cause.

In Chicago, we found this consistent with considerable "grass
roots" consumer activism scattered throughout the heterogenous
metropolitan area. In an environment of community activism in
Evanston, on the edge of Chicago within the larger metropolitan area,
local consumer activists sowed the seeds of change in health care.

Lansing is a community dominated by three institutions--Michigan
State government, the United Auto Workers (UAW) (Oldsmobile is
headquartered there) and Michigan State University--but it has little
coordinated civic leadership. In the 19705 consumer activists
initiated the idea of a prepaid consumer sponsored health plan and they
drew on resources from these three major institutions. (In Lansing the
dominant activist leadership has traditionally come from labor, which,

in fact, the consumer-founders quickly recruited to their movement.)

195

CHARACTERISTICS AND EARLIER ACTIVISM OF THE FOUNDERS

The founding members of the two HMOs, like their communities, are
in some ways different. These differences have been detailed in the
case studies of the last chapter. It is the purpose of the analysis of
this chapter to highlight the patterns of similarity.

The founders of the HMOs in both Evanston and lansing were in their
early 305, white, college-educated (all had a BA, some an MA), and
married. Most were women (all in NorthCare), and, in interviews both
the men and women regularly mentioned the supportive attitude of their
spouses, though no spouse became a primary member of the HMO movement.
None among the "first wave" of founders was employed. The women lived
with their professional or academic husbands in (the then normative)
one-career families and had primary responsibility for their usually
three or four children who had been born to them in their early, mid
and late twenties. In Lansing, the man among the founders of Health
Central was a graduate student (in agricultural economics) whose wife
was a professional and academic. He, too, had children for whom he
shared responsibility.

When the founders described themselves, they stressed the
importance of their earlier social activism. For some it was their
earlier activities that brought them to the attention of the HMO group.
To summarize data from the case studies, those in NorthCare had already
developed food and child care coops and, most important to them, had
created an "underground" Catholic church organization of twenty—five
families that confronted the hierarchical tradition of the Catholic
church, and took religion as a personal responsibility, "not something

that should be put off on others." Furthermore, they had been

196

associated with, though less active in, the civil rights and anti-war
activism prevalent on their college campus and among the students they
knew.

In Lansing, the earliest idea leading to Health Central emerged in
a group that, like those in Chicago, already had a "community-action-
peace-activist bond." They also shared an activist history in the
Democratic Party, which, in the Lansing area, is strongly influenced by
labor union activism. Though many of that earliest group were too fully
employed to become primary movers in the HMO movement, they recruited
an activist graduate student who had become visible in his battle
against poor television for children, "the great TV caper," and had
recently returned from the Peace Corps, where he had fought against
hunger in India. They had all more recently been allies in the anti-war
movement that animated the college town as well as the nation. As
Ruzek notes (1978:62) activists are often "trained" in other social
movements, and membership overlaps.

NorthCare founders generally referred to the twenty-five families
in their Catholic activist group as a reliable source of both support
("We had 25 families we could drop our kids off with") and recruitment
of personnel and clientele (their first advisors and board were drawn
largely from that group.) A similar network of personnel, clientele,
and support in the Lansing area came from the Democratic party

1

activists, particularly those associated with labor. (The Lansing

 

Labor News donated early office space and other support.)

 

Having honed their commitments in earlier activism, the founders
had already developed a strong ideology which they brought to their

determination to change health care delivery.

197

Ideology and Goals

 

To understand these founders, I will examine those relevant
perceptions and convictions with which they explain their beliefs and
behavior in my interviews with them. A discussion of their views
should show that while they held the views strongly, there were often
dichotomies or conflicting threads within their convictions.

In the 19605 and early l970s across the country, consumers
concerned with health care reflected the then-prevalent national
consumer ideology. Starr (l982) summarizes this ideology and notes:

"Health care as a matter of right, not privilege: No other

single idea so captures the spirit of the time.

(Starrz389)
He convincingly ties this belief to other movements which I have
already traced in the founders' histories. Starr notes:

The civil rights struggle lost its momentum as a protest

movement in the seventies, but it set the example for dozens

of other movements of similar purpose.

The language of rights in health was notable in Michigan agencies that

were sponsored by HEW. A Consumer Support Group Project funded by HEW

to help "establish a mechanism for partnership between health consumers

and providers," exemplifies this theme. The introduction to their

consumer handbook notes: "Recent years have brought heightened social

awareness of equal rights under the law. Along with this awareness has

come a recognition that health care is a right of all people and not a

privilege of the fortunate.“

But the health rights groups were not developed simply to help the

less fortunate. In fact two distinctive themes developed along with two

corresponding types of groups (although the rhetoric was sometimes

mixed). First there was the right claimed TO medical care; secondly

198

there were rights claimed IN medical care "such as the right to
informed consent, the right to refuse treatment, the right to see ones
own medical records, the right to participate in therapeutic
decisions..." and so on (Starr 1982:389).

Spector and Kitsuse (1977) suggest two other dimensions that
illuminate the tension slightly differently. They describe one category
of "humanitarian reformers...and garden variety ‘do gooders' engaging
in disinterested, principled activity for disadvantaged others," and
another “who claim to be victims of the conditions; (these) we
call...an interest group.“

The convictions may also be described as two different ways to be
concerned about equity: 1) one concern is with an equitable
distribution of good care among the population--the poor and minority
groups as well as the more secure majority groups; and 2) another
concern is with a more equitable distribution of power between the
providers of health care, mostly perceived as doctors, and the
consumers of health care, patients. Outgrowths of these latter sets of
interests are the self-help movement, the home birth movement, the
women's health movement, and so on.

I dwell on the distinctions between these two concerns (and the
groups that voice them) because: first, the possible solutions to the
two perceived problems are often different i.e., they may require
different distribution of resources, and may make different assumptions
about personnel; and second the founders of NorthCare app of Health
Central voiced pppp concerns simultaneously. This tension offers
insight into the consumers themselves, as well as into the

organizational and financial problems they would have.

199

Equity: Equal Access

In the earliest documents (some Quoted in Chapter 5) of the
Evanston Medical Consumers and the Health Action League, concerns about
equal access for all are prominent. Furthermore, as discussed earlier,
the consumers' commitment to “community rating," that is, open access
for all enrollees without a health exam, was a concrete effort to act
on their belief in equal access. And in Michigan, an important
decision, the location of the health center, was based on the wish to
be accessible to more than the privileged university community. It
should be noted that for both HMOS their commitment to open enrollment
led to heavy utilization which was eventually blamed for many of the
financial difficulties that would plague consumer HMOs.

Interviews revealed another important belief of some of the
founders. In the early 19705, they had favored or accepted some form
of the national health insurance which had been expected to become law,
Many in the national HMO movement, and one founder in particular whom I
interviewed, explained that he had not been convinced of the importance
of HMOs until (while attending a meeting at Group Health in Minnesota)
he came to understand that HMOs were a way to demonstrate that costs
could be controlled. He saw this as a crucial step toward National
Health Insurance, which, he anticipated, would provide universal access

to health care in the United States.

Relationship to Physicians: Ambivalence
While guaranteeing access to medical care was one primary goal,
changing the relationship with physicians within medical care was also

central to the founders' plans. For the founders of NorthCare one of

ZOO

their first "Philosophies and Principles" reads: “Medical consumers
are partners with the physician member in their own health care and
maintenance. The partnership is one of equality and cooperation."
And, characteristically, HALE's board minutes of May, 1976 read:

A draft of "Patient Rights" on how the patient should

interface with the physician was handed out to the

board...by the health education committee....there is a book

out now on how to diagnose and treat yourself...

In the same period HALE sponsored a workshop called "From Patient's
Rights to Patient Power."

These are examples of efforts to deprofessionalize physicians,
(Freidson 1985) "proletarianize" medicine (McKinlay 1982), or reduce
"professional sovereignty" (Starr 1983). Indeed, the HMO founders
wanted more power in the doctor-patient relationship; they wanted to be
"partners."

However, consumer-activist attitudes toward physicians were
complex. As noted in Chapter 5, they did not wish to go outside the
mainstream of medicine, and they knew that they needed physicians to
validate their efforts. Furthermore, as Mechanic (1985:11) notes,
"attitudes and behavior are quite different things...Despite growing
consumerism and skepticism about authority in the culture as a whole,
it is remarkable how pliant and deferential most patients continue to
be."

Perhaps because traditionally in America the consumers' connection
to understanding issues of health has been through the physician, the
health consumer/patient is very strongly influenced by the viewpoint of

the health provider/doctor. The doctor-patient relationship seems,

unlike other provider-consumer relationships, to include elements that

201

cannot be completely eXplained by direct logic or reasoning. For
example, survey data show that people believe that there is a health
care crisis in America; however, the same pepple report that they are
satisfied with their own medical care (Andersen et al. 1981). In fact,
high levels of satisfaction with their own providers are reported in
almost all studies (Luft 1981:253). Furthermore, I found when I
interviewed consumers, regulators, hospital administrators, insurers,
employers, and union leaders in Minneapolis-St. Paul and Chicago, it
was consumers' views that most closely paralleled the views of
physicians in the same community.

My interviews, and those of my colleagues, suggest that even the
most skilled and adversarial consumer health advocates avoid conflicts
with physicians. I asked the principal spokesperson for an influential
health consumers' group in Chicago how they had brought their concerns
about cost to the attention of physicians. He responded:

(We) have stayed away from doctors...for political
reasons. They have the most powerful lobby both in

Springfield and in Washington. We've tried to be very

realistic about what we can do. And we have found as long as

we don't antagonize the doctors we can have a field day with

the hospitals and insurance companies--just as long as we

leave the doctors alone.

I asked if there was any change anticipated in that policy, and
the spokesperson responded that it would eventually be necessary, but
then, he said, we "need a complete reorganization of the system...I
don't see it in my lifetime."

One can see that this pervasive reluctance, in the general
population, to confront the power of doctors, coupled with admiration

and close affective ties with one's own doctor has important

implications for the ability of consumers to advocate innovations in

202

health care, HMOs or any other policy that physicians oppose or even do
not actively support. Given this documented attitude, it is
interesting that the consumer founders were so effective in recruiting
personnel and clientele to their movement. Individual conditions in
the communities, as noted in Chapter 4 (as well as the consumers'
marketing to exploit the conditions), offer explanations for this
effectiveness.

In NorthCare, from an early point, the founders associated
themselves with a well-respected hospital and they accepted the advice
and benefited from the reputation of an esteemed--slightly "maverick"--
physician. In Lansing, physicians were not associated early with the
HMO movement in a visible way, and consumers who had good relations
with physicians Eggs reluctant to leave them. However, in Lansing in
general, access to primary care physicians was insufficient for the
p0pulation; therefore an HMO promised a better association with a
regular physician for the many patients who otherwise had inconsistent
care received largely in emergency rooms.

Although the founders and other sophisticated consumers were not
awed by the medical profession, one noted:

There is a mystique that the health field is "highly

technical and too hard to understand" and that the "doctor

is well intentioned and knows best."

Although this person interviewed disagreed with that common
perception, she continued her understanding:

If you go to the doctor not well, you're not going to fight

with your doctor, particularly if you think he is a

wonderful person... patients don't see through to the system
of health care."

203

But the consumer founders DID see through to the system of health
care and they wanted to control it. While usually acknowledging the
important medical role of physicians, they wanted a partnership in
which they would manage the care. Most wanted a staff model in which
the physicians are salaried directly by the health plan. One founder in
Michigan summed up why they "want(ed) to hire the docs:"

Yeah, I know they lose some independence, but frankly that's

what I want to do. But I always voted to pay them well,

just not let them run it."

The effort not to let physicians "run" health care was waged with only
slight success by consumer-founders of HMOs. While consumers dominated
the early boards of trustees, physicians dominated the health care
itself. Both of these two HMOs under study have medical directors who
are unconventional in comparison to the normative physicians in private
practice; however, those physician-directors protect the rights of
physicians to control the clinical environment. Even at a premier model
of consumer-controlled HMOs, Group Health Plan of Minnesota, the
salaried physicians demanded that they be allowed to form a physicians'
group that would be responsible for the review of clinical practice
because they would not accept the evaluation of a board of lay persons
over physicians.

Distaste for Business and Profit

In addition to the central issues of ideology that motivated the
founders, two less important but notable related issues protected
their social movement roots and values but hobbled their ability to
make their way in the increasingly competitive health care market. The
founders unanimously distrusted business and anything in health care

designated "for profit."

204

Although "...non—profit status often reflects legal technicality
rather than actual organizational goals" (NCHSR, 1981), most consumer
activists, even those who have been observing the health care system
for many years, have a strong aversion to "for profit" health care.
The Minnesota legislature, no doubt in some part responding to such
consumer sentiment, passed legislation requiring HMOs to be non-profit.
Illinois and Michigan, however, allow for-profit HMOs but consumers in
Michigan and Illinois continue to express distrust of for-profit
organizations in spite of the evidence that non-profit organizations
behave similarly to those explicitly for profit (Taylor and Kagay
1986). (For example, not-for-profit health care institutions can
funnel off profits to affiliated entities such as holding companies.)
Nonetheless, consumer founders of both NorthCare and Health Central
were adamant about the rightness of non-profit status and in Michigan,
at least, labor saw the HMO in a favorable light because it was non-
profit.

More important to the development of the HMOS than the
philosophical distinction between “for and not-for-profit" was the
consumer-activists' apparent aversion to the business community.
Although in early publications they acknowledged the importance of a
board of trustees fully representative of the community, neither of the
early boards had business community representatives. In one interview
a founder described the development of their early boards:

At first there was friendship; later there was
expertise...lawyers were important"

I asked:

“What about business people?“

She responded immediately:
"We didn't have any business people; zip, zero."

205

It appears that because the founders' personal networks, largely
built on their earlier social activism, did not include business
leaders--who were also employers--in either community, the
organizations developed without those dimensions of expertise and

connection which they would later find they needed.

Models For Action

 

Just as the founders' ideology had an important impact on their
Choice of goals and allies, so it also had an important effect on the
models of health plans they chose to emulate. My interviews with
founders revealed a patterned selectivity in the models they discussed.
I noted earlier that for both NorthCare and Health Central a founder
who had belonged to Kaiser Permanente in California had been the
catalyst to action. That is to say, in each community of activists one
among them had an example of a way in which their perceived problem of
access to care could be solved. ["Only the (knowledge of) the prior
existence of institutional arrangements and putative solutions make
problems possible, perceptible, nameable, and actionable" (Spector and
Kitsuse:85)]. Thus, Kaiser was the first and indispensable model for
their action.

However, the successful model of Kaiser was explicitly avoided

 

when the consumers began to gather information for developing their own
HMO. In Chicago, they said, "we never called Kaiser, we focused on
the consumer model groups"; "we knew we wanted consumer control."

And in Michigan, the founders of Health Central who spoke of a
strong commitment to providing universal access to health care did not

look to the prepaid plan in Michigan which had developed in the late

206

19505 outside of Detroit and, with the support of the UAW, was in the
early 19705 already providing care to medicaid patients. (The founders
later had cooperative discussions with HMO leaders in Detroit, but the
Detroit model was not what the founders planned to create.) Nor did
they look to Kaiser.2 Rather, they and the NorthCare founders used as
their models the consumer cooperatives founded twenty years earlier.
"We called Puget Sound; we thought it was the gospel.“

Group Health Cooperative of Puget Sound and Group Health Plan in
Minnesota were founded in the 19505 by credit union and cooperative
leaders "profoundly influenced by the philosophy of the Cooperative
League of the USA" (Uphoff and Uphoff 1980:31-32). These plans were
extensions of the theme of the consumer and producer cooperatives of
the thirties which had developed in a period of economic recession.
(For example, that Michael Shadid successfully began the Elk City
Oklahoma Medical Cooperative in 1929 with a $50 contribution from
members.)

In interviews the founders often referred to visits back and forth
with members of those consumer cooperatives that had been begun in a
different historical moment. (Eleanor Brand, the "pioneer woman" from
Puget Sound was the first invited speaker to HALE, and Maurice McKay,
the classic representative of Group Health Plan in Minnesota at an
early conference motivated the NorthCare founders.) But the economics
of highly technological medical care, inflated over years by an
unmonitored third-party payment system, were dramatically different
than those in which the consumer coops were founded. A NorthCare
founder wryly recalled that when they first realized the challenge of

financing a health care institution in the 1970's they "even thought of

207

getting money from members, like Puget Sound, but things had gotten too
expensive. It was no longer like the early days of the Puget Sound
Coop."

Thus, the models which the consumer founders found compatible with
their ideology did not, in fact, provide examples for establishing a

viable prepaid plan in the 1970's.

THE CONSUMER/FOUNDERS AND THE HMO MOVEMENT

Overview Of An "Ironic Alliance"

 

I have described the ideology, goals, networks, and models of
these consumer activists in the context of social movements and
literature about social movements. However, the influence of the HMO
founders as social activists and the impact of their actions deviate in
interesting ways from those described for other social movements. These
differences are particularly telling as they highlight the irony and
unintended consequences of the consumer/founders' efforts.

Freeman (1975) and Ruzek (1978) also describe social movements in
the early l9705--movements which, as noted earlier,in some ways

intersected with the HMO efforts. In the Women's Health Movement

 

(Ruzek 1978) describes the important and characteristic role of the
"radical flank“ in paving the way for change; but for the HMOs it was
the conservative flank that smoothed the way for the HMO founders. The
interests of a conservative government administration caused a very
different response to the HMO movement than the one which confronted
the women's health movement. Furthermore, Jo Freeman (1975) notes that
the women's liberation movement was characteristically slow to have an

impact on policy and society. In contrast, the founders of the HMO

208

movement were invited and encouraged to testify at legislative hearings
as states tried to develop policy and regulations. This experience, as
I will show shortly, had a profound effect on those who participated.
(Zald and Ash [1966] note that sometimes a social movement is altered
because the society moves in the direction of the change sought.) In
the HMO movement of the early 19705 the consumers' efforts and the
actions of the federal and state governments were very dense and
synergistic.

While on one hand the consumers' views were incorporated into law
and their developing consumer-sponsored and-controlled health
maintenance organizations were held up as models by both state and
federal agencies, on the other hand, the consumers were being coopted.
As they sought approval and support from government agencies they began
to modify their own language to fit that conservative structure. Other
social movements, such as the women's movement, first confronted
government agencies, and in response, the agencies slowly began to
acknowledge the demands of the movement and 3321 began the process of
cooptation (Freeman 1975). For the HMO movement, this usual
bureaucratization or conservative assimilation of reform was

accelerated by the government's already present interest in the health

 

care delivery reform:

Because the consumers perceived that it was the medical profession
which held the power they were seeking to share, they readily accepted
the government as an ally. For example, they accepted the bureaucratic
reconstruction characterized by the new language regarding "consumers
and providers" in place of "patients and doctors."3 The consumers

welcomed it as the language of partnership and at the same time won

8351

Ma

71

M

209

essential financial support from government agencies. One founder noted
that the federal applications were time-consuming but "not difficult--
they gave us a recipe."

In the two segments that follow, The Consequences for the
Consumer/Founders, and The Impact of the Consumers on the Development
of HMOs, I describe the effects of the HMO movement on the consumers,
as well as on alternative health care delivery system, including
important interactions with government. The final section, Part IV will
consider the nature of their group as a specific cohort and the

potential influence of such groups.

Conseqpences For Consumers

 

“Rarely does a social movement leave unchanged
the structure of the group in which it arises."
Killian (1964:454)

In 1970 in Chicago, the eight women of the first two waves of
NorthCare founders were "housewives" primarily raising children. None
had educational background or family members associated with health
professions. In 1986, all eight are professionals, seven earn a living
in health care administration or consulting, and one is a professional
educator still associated with a neighborhood health clinic.

In Michigan in 1972, the "first wave" of founders were housewives
and graduate students; the second wave added young academics and a
labor leader. In 1986 all but two of these are (or have recently been)
in health care administration, regulation, or consulting.

The dominance and similarity of outcomes demonstrates the power of

the processes of professionalization and bureaucration experienced by

the activists (Weber 1945; Blumer 1971; Hughes 1957; Ruzek 1978;

210

Freeman 1975; etc.) In an analysis of the "reorganization of the
medical profession" Freidson (1985:18) considers the consumer health
movements and asserts:
The consumer movement in any case has no broad grass

roots base in the population. It is less a function of

organized activities on the part of numerous consumers than

it is of organized political actions by "program

professionals."
While in the mid-19805 the numbers of consumer activists i§_limited, it
is a revision of history to assert that the activists involved in the
consumer movements of the l970s-~certainly as exemplified by the
consumer HMO movement--were always professional. Their recent
professional status is a product of their early commitments as naive
but educated social activists intersecting with a complex political and
economic health delivery system. While this study has shown that they
did not begin as professionals, they certainly did become
professionals. The process is described in their interviews and the
evidence is seen in their careers.

One ”second wave" NorthCare founder summarized her experience:

I wasn't working at the time. I was on the City

Council. My kids were growing older and (the job) sounded

interesting--$25 a week to do community assessment....We

grew with it; we proposed the grant; we got the money; we

did the federal feasibility . One thing led to another and

by the time we finished it was four years. By that time I

felt committed to the health care field... an experience

that probably can't be repeated.

As I have already discussed, enthusiastic commitment to creating a
successful organization in conjuction with the need for support and
financial resources drew the consumers toward compromise from the

start. I add here some evidence of that experience from their own

words. A founder told me:

211

Gradual substantive changes were being made by each of us.

A gradual lessening of idealism, a giving up of the

principles that influenced us. For example, we couldn't

serve everybody. That we couldn't get enough money together

to serve the poor...and that medicaid wasn't going to pay

for them...and we weren't allowed to cross-subsidize by the

regulators... That was a really terrible realization,

because it was one of the principles.
The requirements of the regulators and funders structured much of the
consumers' professionalization. As noted earlier, when the HMO was
prepared to provide service federal regulations required that they
develop a board of directors separate from the original (and
ideological) board that founded it. That split required those who went
on the new organizational board to make a symbolic commitment to the
plan and a practical commitment to making the plan viable. A NorthCare
founder who made that shift explains:

Ten people (from the original board) moved over to the plan.

New people were added--powerful employers, VP's, etc. The

character of the board changed but the dominant strain was

still the ideological bent of the original group. But it

had been diluted. Practicality made a certain amount of

compromise necessary.
In Michigan the invitation to the consumers to testify before the
legislature socialized them to different expectations of themselves.
They prepared extensively and felt the importance of the testimony;
they knew it would influence the state's health legislation.
Furthermore, in both communities, preparing the voluminous 500 and 600
page applications for feasibility, planning and start-up funds taught
the consumers about the complexity of their community as well as the
delivery of health care, and the effort committed them to making the
plan work.

At the state capitol the consumer activists were given not only

the experience, but also the contacts and networking that

212

professionalized them and finally led them to professional
opportunities and careers. One Lansing founder pinpointed a specific
time that began her professional career:

We brought Eleanor Brand (from GHPS) in to speak as an

expert (for twenty years!) for the state legislative

hearings. I picked her up at the airport and took her

directly to Bill Ballenger's house. (The senator who

chaired the committee conducting the hearings.) That's

how I ended up working in licensing and regulation.

Years later, after I had been to law school Bill

Ballenger was the director of the Department of

Licensing and Regulation and even though he was an

eminent Republican and I'm a card carrying Democrat...

he remembered me...it was a direct result of my being

a consumer lobbyist for HMOs.
Other founders in both NorthCare and Health Central were recruited
from their board position to a place on the staff; they have continued
careers as professional HMO administrators. Others, three in Lansing
(the state capitol) and one in Chicago, have served in state and
federal health regulatory agencies. (Movement of these professionals
between the public and private sector is discussed in Chapter 8.)
(Freeman [1975] also notes the recruitment of activists in the Women's
Liberation Movement into government positions.)

It should be further noted that while all the principal activists
in these movement organizations did "professionalize," they ended up in
a wide range of professional activity. At one end of the spectrum is
professional activism i.e., roles in which professionals are paid to
administer institutionalized social movement programs, such as hospice,
fair housing, home nursing, or anti—nuclear organizations (all of
these are among the subsequent interests of the HMO founders). At the

other end of the spectrum, some former activists chose business

organizations that are essentially separate from their earlier ideology

213

but incorporate skills learned in the activist process. In such cases
they administer business organizations whose policies explicitly
contrast with those they supported as activists. In fact, one founder,
once committed to equal access for the poor as well as staff model
HMOs, now directs an IPA that refuses contracts with Medicaid because

Medicaid does not pay the IPA's costs.

Influence Of Consumers On the Develppment of HMOS

 

The powerful impact of the HMO movement on the consumers who
founded it is evident in concrete ways. The reciprocal influence of the
consumers' movement on the development of HMOS as a whole is both
concrete and symbolic. While in 1986 less than a fifth of the HMOs in
the United States were sponsored by consumers, the influence of their
ideas, and certainly their rhetoric, is present in all HMOs.
Conceptually, the consumer sponsored HMO is the archetype of HMOs. The
major principles embodied by those "pure" HMOs have become the
rhetorical ideals--that is the issues referred to in marketing
materials- of all HMOs: They say that HMO care provides continuity,
comprehensiveness, accessibility, prevention, and responsiveness to (or
"partnership" with) patients, i.e., enrollees.4

The consumer activists also concretely influenced HMO legislation
and regulations, both willingly, and unwillingly. As noted before,
much of the consumers' testimony before the state legislature was
reflected in the law. Not only their testimony, but also the problems
and failures of consumer groups had an important impact on legislation

and regulation. For example, the troubling statistics from NorthCare's

open enrollment were taken before a Congressional committee to amend

214

the open enrollment requirement. As a result, the elimination of open
enrollment was among the first amendments to the HMO legislation. Other
regulations were built on lessons learned from the financial failures
of other HMOs.

Furthermore, and most telling perhaps, the problems were not
always unanticipated by the federal agencies. The government had a more
complex agenda than to simply begin HMOs. A onetime federal
administrator explained;

Feasibility grants were not necessarily votes of

confidence in a group but rather an effort to get

competition into a community. I think we always knew that

consumers groups were not going to be successful in starting

an HMO. But by supporting (consumer HMOs) we might get

something like the Mayo Clinic to do a feasibility study.

In addition to the lessons learned intentionally or by chance, the
government also gleaned from consumer sponsored HMOs a rich source of
personnel for state and federal health agencies. The government
recruited some of the early founders: for example, one of the early
board members at Health Central was recruited for the federal Region V
office in Chicago. And the first recruits, in turn, scavenged among
their network of colleagues for more regulators and administrators for

government offices. Although their earlier views have been modified,

these professionals continue the influence of the consumer movement.

IMPLICATIONS: POTENTIAL INFLUENCE OF CONSUMERS AS ACTIVISTS

These cases suggest that the potential for consumers to be
influential as activists depend on 1) their own characteristics--
particularly their availability and their interest, and 2) the
structural definition and role available to those defined as

"consumers."

215

In this chapter I have discussed the consumers' social movement
as intersections of personal and social change (Freeman 1975) and of
history and biography (Mills 1954). Tamara Hareven and Alice Rossi also
provide useful perspectives on intersections of biography and history.

Rossi (1982) and Hareven (1978) argue that biography and history
intersect differently for every cohort, and individuals and actions
must be considered in their historical context. Hareven emphasizes the
interactions between life course transitions and historical change.
(Consider, for example, that the Evanston founders moved to a new
activism as their interest in early childhood education in the church
"began to wane because the children were growing up;" this occurred at
the same time the college town echoed with social activism.) Hareven
(1978) says the:

"task is to identify the interaction among demographic,

social, and economic conditions with specific historic

periods as it affects the patterns of timing in the life

course transitions. It is the intersection between the

conditions and the historic period that define a cohort's

particularity."

Chapter 4 has described the effects of the conditions in the different
communities in a specific historical period, and the founders' story is

of a specific cohort of social activists of the early 19705 who have

bridged the historic period of activism to ppofessionalism in their own

 

middle years and thus demonstrate and define a particular intersection

 

of biography and history.

Rossi (1982:32) cautions that we not "burden the future with
research findings and political ideas relevant to one cohort of adults
but irrelevant to an understanding of their successors." This caution

is particularly relevant to this study of social activism in health

216

care. While for the founders, children and their volunteer work were
the center of many of their activities, women of the same social class
and education but ten years younger do ppp, and will not typically in
this generation, follow the same life course. Rather, data suggest
they are likely to bear children later in their lives, continue some
career and possibly have little or no time or energy for volunteer
activities no matter how challenging and important.

Volunteerism is changing markedly; health care organizations will
not have young well-educated "housewives" to initiate them any more.
And there are suggestions that there will not be older housewives for
this task either; my interviews (among other growing data) demonstrate
that now it has become characteristic of the founders' cohort for a
significant number of its members to return to a career or professional
education when in their late 30's and early 40's. The women who eight
or ten years ago would have worked on or been members of a board as
consumers, are likely now to take professional positions in the health
organization itself or, if on the board, then not as “consumers" but
rather as lawyers, real estate agents, or congresswomen. They have
become a different kind of community resource.6

In addition to the implications of different cohorts on potential
volunteers and activists, it is important to consider information about
the roles available to consumers and their potential effectiveness on
boards. While in these case studies we have seen effective social
activists (particularly in the early phases of the consumer groups), as
the organizations became more complex and the boards more
professionalized, the consumer' role became less sure. Both the

literature (Morone 1983) and interviews suggest that when consumers are

217

mixed on boards with professionals and/or others with highly technical
knowledge, their effectiveness is altered. One sophisticated consumer
advocate with more than ten years of experience on health committees
and boards told me that although she was once committed to consumers on
such boards as the Health System Agency, she now thinks it would be
"better if they had their own organization." She says that they "come
in cold" with no experience in bureaucracies and try to work with
providers and bureaucrats who have political agendas and staff to back
them up. "The biggest problem with a voluntary agency is paperwork;
that's how they kill volunteers." The staff, she explained, develops
more paperwork to prove that they are needed (and that their
organization is very important—-organizational maintenance is their
primary goal [Morone 1983]). The volunteers (consumers) have limited
time; so, she says, if the staff wants to run the organization they
"flood the volunteers with paperwork." Most consumers, though hopeful
when they volunteer, begin to feel incompetent and withdraw.

Some volunteers, on the other hand, as in these case studies, are
professionalized by the experience and begin to lose their consumer
viewpoint.7 There is, then, a paradoxical effect: Consumers who
persist in their original, naive, or idealistic perceptions have little
impact, and those who are effective often change their original
consumer perceptions. Thus, consumer representation continues to be a
problem (Luft, 1983).

Health planners whom I interviewed in Chicago and Lansing in the
mid-19805 all remembered their hopes and enthusiasm for consumer

participation in the early 19705. But they feel that consumers were

218

not able to have the influence on health care that was expected or
intended.

While the consumers have not gained the control they hoped for
over the last fifteen years, there has been considerable change in the
medical profession, which the consumers set out to change; and in the
delivery of health care, which the consumers sought to influence.

These will be the subject of of the following chapter, along with final
considerations of the implications now and in the future of the
converging interests and intersecting themes that have affected health

care in the mid 19805.

219
END NOTES
1. The labor movement itself is an institutionalized form of social
activism (Killian 1964).
2. Note again: the successful Kaiser plan WAS the model examined by

Minnesota physicians beginning St. Louis Park MedCenter, in
Minneapolis--NOT Group Health in Minneapolis OR Puget Sound.

 

3. Paul Ellwood is attributed with the recommendation in the early
19705 to replace the words "physician and patient" with "Provider
and Consumer."

4. Note, however, that such rhetoric is not always backed up with
action or resources. Prevention ("health maintenance") the early theme
of these prepaid plans is included in some way in most HMOs but rarely
given substantial resources and the personnel associated with the
program have low status in the organization. (Graduate student study by
Mary Draper, University of Chicago, 1985).

5. See Daniels and Ruzek's (1972) study of volunteerism, in which they
also emphasize the importance of the stage of the life cycle, the
different structural contexts, organizational structures and networks.

6. One notes also that these patterns, as well as the
professionalization and continued career activity of the founders is
consistent with Rossi's observation, and the work of Neugarten and
Guttman, that women's behavior becomes more agentic as they pass
through middle years and they are "more tolerant of their own
aggressive and egocentric impulses (Rossi:20). Also, this datum can be
seen as the outcome of the womens's movement as well as the HMO
movement--again intersecting movements and themes.

7. This is consistent with the findings of Ruzek and Daniels' (1971)
study of volunteers.

CHAPTER 8
THE CHANGING HEALTH CARE ENVIRONMENT:
THE ASCENDANCE OF MANAGERS, THE IMPACT OF PAYERS

It is not possible to write a conclusion about HMOs: one cannot
say where they began, nor where they will end. As there were many
beginnings--in lumber camps, farm towns, ship yards, and urban
neighborhoods- so there will be a variety of endings. The term "HMO" has
accumulated many clinical and political connotations unintended by the
consumer founders.

I have shown in Chapter 7 that in spite of their personal
professionalization and growth, the consumers were not able to form the
"powerful and effective collectivity" (Ruzek 1978) or "partnership" with
physicians that they intended. What, then, have been and will be the
consequences for the physicians whom they hoped to change? And what
have been the consequences for the alternative health care delivery
system as a whole--for its accessibility, its quality, and its cost? To
answer these questions, I will first turn to data I gathered in a case
study of a medical community where HMOs dominate; this study suggests
the potential impact of HMOs on the lives and practice patterns of
physicians. Second, I will summarize my observations, as well as
contemporary reports in the literature, of the impact of HMOs on the
delivery of health care in 1986. Finally, I will ponder the implications
for consumers now and in the future reflecting on interweaving themes

and forces that have brought health care to this point.

220

221

CONSEQUENCES FOR PHYSICIANS

In 1986 the 23 million people enrolled in HMOs are barely 12
percent of the population, but the rate of growth is now very rapid (25
percent a year) and physicians nationwide are, or soon will be,
affected. A national survey of physicians by Louis Harris (Harris et al.
1984) suggests that in 1984, as compared to 1980, physicians were
already practicing in prepaid health plans in increased numbers. While
only 10 percent of U.S. physicians described themselves as prepaid group
or capitation physicians, over 50 percent of U.S. physicians said that
part of their practice was with an HMO or other contractual
reimbursement mechanism. Four out of ten said that more than 10 percent
of their practice was prepaid. Furthermore, of those with HMO
affiliations 86 percent said they plan to continue those affiliations,
and of those NQI_affiliated 46 percent were planning to affiliate (up
from 27 percent in 1981.)

Physicians in the same national survey also reported other
consequences of increased pressures on their practices between 1981 and

1984. Twelve percent reported having reduced their fees (up from 2

 

percent in 1981), 14 percent reported reduced hospital days for their

 

patients, and 18 percent reported reduced income (up from 8 percent in

 

1981). Sixty percent of the physicians believed HMOs would affect their
practices over the next 10 years.

The changes and anticipated changes noted here earlier are
dispersed more or less densely throughout the country. To examine and
possibly anticipate the consequences of HMOs for physicians, I chose to
interview in Minneapolis-St. Paul, where 50 percent of the two million

citizens are now enrolled in HMOs or in preferred provider organizations

222

(PPOs), and where four years earlier I had had the opportunity to
interview these Minnesota physicians gppipg the rapid growth of HMOs in
their community.

Minneapolis-St. Paul is a metrOpolitan area of particular interest
to those who study HMOs, as it was to the consumers who founded HMOs in
the 19705. While the relative homogeneity and prosperity of Minneapolis
St. Paul makes it demographically unlike Chicago and Lansing, those same
characteristics make it a good community to study because it is easier
to see the issues related to HMOs relatively less tangled in the
economics and politics of a complex urban area. St. Paul is the home of
Group Health Plan (GHP), conceived in 1937 and operational in 1957; it
is one of the early staff models for pre-paid health plans which
survived the resistance of mainstream medicine and served as a model for
HMO sponsors in the 19705. Founders and board members of both Health
Central and NorthCare often spoke of the importance to them of visits to
and from colleagues at GHP.

The 1982 interviews were part of a research project1 designed to
explore why HMOs were developing and spreading more rapidly in some
communities than in others (Anderson et al. 1985). At that time 25
percent of the Twin Cities community was already enrolled in HMOs. For
the purposes of that research, we contrasted the heavily enrolled Twin
Cities metropolitan area with the Chicago metropolitan area where only 3
percent of the population was then enrolled in HMOs.

On this return to the Twin Cities, 1 selected six of the original
26 physicians to interview again, as well as six other professionals,
observers, and administrators closely tied to the medical community. By

comparing their interviews in 1986 with those in 1982, I was able to see

223

certain changes in their experience over time as well as to explore
their perspectives on the changes they had observed as HMOs came to
dominate in their community.

All the physicians I interviewed were gracious and cooperative.
Their responses, however, were complex, reflecting a time of

considerable change and controversy.

Medical Community of Minneapolis-St. Paul

 

Physicians in Minneapolis—St. Paul, as everywhere, are a diverse
group. Furthermore, the Twin Cities themselves are not identical twins.
Minneapolis physicians, associated with the Hennepin County Medical
Society, have generally different patterns of practice and often
different attitudes than in St. Paul physicians, who are associated with
the Ramsey County Medical Society.

In contrast to Chicago and Lansing, in Minneapolis, historically,
group practice has predominated and large multi—specialty group
practices have flourished. Even in 1982, one physician explained: "Here
it's hard to find a solo practitioner,... [group practice] has been the
pattern for ever and ever." But in St. Paul, much like in Chicago and
Lansing, most physicians have practiced in solo practices, or in small,
single-specialty group practices. However, as a whole, the Twin Cities
have an exceptional and important history of medical practice for others
to observe and learn from.

In 1982, our research group found physicians in the Twin Cities to
be distinctive in that their attitudes about the medical profession
itself were remarkably similar to those in their profession throughout

the country, i.e., they expressed similar values, commitments, cautions

224

and concerns. However, the delivery of health care and the actions of

physicians in the Twin Cities were dissimilar because the environment-

 

-historically, socially, and economically--was unlike that throughout

the rest of the country (Anderson et al. 1985).

History and Demography

Some brief historic and demographic information is important
background to contemporary changes and attitudes. The physicians in the
Twin Cities, like the community in which they practice, are very
homogeneous. Most have had similar training; 93 percent graduated from
United States medical schools and in fact most Minneapolis-St. Paul
physicians have had some part of their training at one of three nearby
institutions: the Mayo Clinic, the University of Minnesota, or the local
Veterans Administration hospital. Over 90 percent are male and (as in
the community they serve) there is little racial or ethnic diversity
among Twin Cities physicians; there are only 14 foreign medical
graduates (FMG) per lOO/OOO population (in contrast, for example, to 61
FMG/lO0,000 in Chicago.) And Twin Cities physicians are numerous—-
about 250/lO0,000 population in contrast to 185/100,000 average for
other US metropolitan areas (US Bureau of the Census, 1982).

Further, their community has a strong history of consumer
cooperatives and corporate responsibility. These are reflected in both
the early beginnings and the very high incidence of group practice (The
Mayo clinic, the prototype of multispecialty group practice, began 70
milies from the Twin Cities in 1895) and in the active participation of
community leaders from all corporate and professional sectors in

community affairs. Thus there is both a Metropolitan Council and a

225

Citizens League in which community problems and possibilities are
addressed and consensus is sought and usually achieved.

Because of the network of leadership and the well integrated
community decisionmaking, we found that unlike physicians nationally,
Twin Cities physicians were at the forefront of the 1970's surge of
interest in HMOs. Physician leaders were serving together with
Minnesota corporate leaders on the Citizens League when they expressed
an interest in, and plans were deve10ped for, physician-sponsored
prepaid plans.

In addition, the community is a center for several policy research
organizations including Interstudy, the influential think-tank founded
by Dr. Paul Ellwood, which spawned important HMO leaders and became a
leading center for research and advocacy of competitive and prepaid

health care.

In 1982

In 1982, while in many parts of the United States physicians
associated HMOs with mediocrity, bureaucracy, and a loss of autonomy,
that was NOT the interpretation of most Minnesota medical leaders. In
interviews Minnesota physicians expressed unwaivering pride in, and
commitment to, the excellence, as well as the independence, of their
health care; their active participation in civic affairs, including
their public leadership in the development of HMOs, they said, was meant
to preserve those commitments. As a group they strongly opposed
externally imposed regulation and saw their role as innovative national
leaders in health care. A physician in l982 characterized that

understanding:

226

When the government came with their regulation we were

usually way ahead in terms of understanding...1 think that

we feel a sense of responsibility as far as the Feds are

concerned, realizing that they're a bunch of people who are

as human as we are, and looking for leadership in these

areas, so we've always had a sense of providing leadership--

that sounds arrogant, I guess, but that really is the sense

in our private practice community in the Twin Cities...

(and when federal regulation comes)...we've anticipated

it and have our own system in place so it causes little

ripple...the practices of utilization review and

supervision have taken place by our own private efforts,

so government regulations are not so odious when

all things are being done by peers.

In 1982, with 25 percent of the population enrolled in 7 HMOs,
some physicians voiced articulate and persistent objections to HMOS-—
particularly certain solo practitioners in St. Paul and specialists,
e.g. surgeons and dermatologists, who resented the gatekeeping role
given to primary care physicians. But, in general, Minneapolis-St. Paul
physicians at least accepted, often embraced, and over 90 percent
affiliated with, HMOs. Most of the then 7 HMOS of the Twin Cities had
had central physician leadership in their development, and by 1982
Physicians Health Plan (PHP), the IPA sponsored by the Hennepin County

Medical Society, was the fastest growing.2

Indeed, the reluctant
Ramsey County physicians, in the competitive environment, were also
developing affiliations with HMOs.

It is precisely because Twin Cities physicians had been informed‘
and articulate participants in the earlier stages of HMO development
and expressed a sense of accomplishment at having minimized government
regulation, and a sense of leadership in developing competitive

alternatives, that I thought it appropriate to interview them about

this recent stage of dramatic growth.

227

In 1986

In May of 1986, the physicians I interviewed discussed their
perceptions of their professional lives particularly as they had
changed since 1982. In 1982 when physicians had described their
practices, they had especially emphasised the central importance in
their professional lives of both the doctor/patient relationship, and
of their independence and autonomy. (Those physicians in HMOs
emphasized the independence and autonomy of clinical judgments and
interaction with the patient, while those in fee-for—service practices
often felt that that essential clinical autonomy was also linked to the
independent management of their own practices.) Additionally,
relationships with other physicians and with hospitals were discussed
as integral parts of their professional lives.

Here I will summarize their 1986 perceptions of these issues—-the
physician/ patient relationship, relationships with colleagues and with
hospitals, and the form and management of their practices-—as well as
certain new or modified perceptions which they spontaneously raised and

emphasized in the open-ended interviews.

Physicians and Patients: What About Loyalty and Quality?

 

As I re-encountered these physicians after four years, I first
asked what they found had changed the most since 1982. Most
physicians' first response concerned the doctor-patient relationship.
In 1982 physicians in staff and group model HMOs expressed considerable
satisfaction with the doctor/patient relationship they had been able to
establish and the care they were able to give. Some in IPAs who were

capitated (contracted for a set fee per patient per year regardless of

228

the health care needs of the patient) had felt pressured by the new
system and already were reporting the need to accept financial losses
for some patients in order to remain affiliated with the HMO. But, as a
whole, in l982 physicians associated with HMOs reported that their
doctor/patient relationships had been enhanced because: 1) physicians
had less worry about expense to the patients, 2) they could concentrate
more on the patients themselves while the plan took care of the
management, and 3) awareness of cost had brought to their attention
certain unnecessary procedures that both they and their patients were
content to forego. For example, one physician explained:

it was once routine to watch the progress of pneumonia
cases using x-rays. The plan said that was too expensive,
so now the physicians watch the patients clinically (by
physical exam), with an x-ray at diagnosis and one at
follow-up....all those x-rays weren't necessary, and, in
fact, it is better for the patient not to have all that
radiation (Anderson et al. 1985:201).

However, in 1986, this same thoughtful physician—-an HMO advocate,
a founder, and a longtime provider in a prestigious HMO- discussed
changes in the doctor/patient relationship in the first minutes of the
interview:

First, the physician/patient; that's where the primary
interaction is. (But) what is happening now is patients are
aligning with health plans that do not allow free choice of
provider--hospita1 or physician...That is the basic
principle of an HMO--that you limit choice. You give
incentives to reduce resource ...use.... So what has
happened is that the doctor/patient relationship-- that
primary principle of American medicine is...uh...going
away--going by the boards. That is what is necessary to
change the system and it is changing--very dramatically, and
it's affecting all physicians (in the Twin Cities) now. The
doctor-patient relationship is no longer a mystical,
theoretical, philosophical, or human interaction; it is now
a business interaction--and the patients are choosing
health plan above physician.

229

He went on to explain that matching patients with physicians over time
is more complicated than people anticipated. When the employed family
member chooses a physician and enrolls with a plan, it limits other

famil members' choices of primar care h sician and everyone's choice
Y y Y

 

of consultants. He continued:

Doctors have felt that if I am a good doctor, patients will
have loyalty to me--as their good physician; that's gone.
That loyalty is still part of the milieu and the decision
but (a member may choose initially) a physician he knows but
in five years--let's say an individual is moving through
middle age--he might have contact with four or five
different doctors. They used to have one here (at the group
practice) and four somewhere else; now they have five here.
So that's what happened to the physician/patient
relationship. It was a real test and an eye opener for
people who weren't aware of what that financing mechanism
was going to do to their doctor/patient relationship.

On a yet more concrete level, a family practitioner who was already
cautious about HMOs when we spoke to him four years ago explained why
he thinks "patients are no longer your patients, but rather HMO
enrollees:“

Enrollees can be moved around from office to office at the

will of the HMOs. HMO Minnesota (HMOM) dropped us, so our

patients had to follow the plan...also when we (the family

practice group) joined SHARE (another HMO) HMOM was afraid

we would switch the patients--this way they forced us to!

We eventually got most of them back but not all of them.

My relationship is no longer one-to-one with the patient;

I am the agent of the HMO management company and they can

take that patient out of this office at a moment's notice...

In a recent and extremely controversial action, with symbolic
overtones for physicians, Physicians Health Plan (PHP), with 300,000
enrollees the largest in the Twin Cities, in February 1986, offered a
selected group of their enrollee5--those in Medicare Plus--new options.
They could save premium dollars by selecting an option that limited

their choice of h05pitals. That is, Plan 1 includes only 9 hospitals;

230

Plan 2, fifteen hospitals, and Plan 3--the most costly--all 59 PHP
affiliated hospitals. Thus PHP "arbitrarily" excluded many Twin Cities
hospitals from two of their three Medicare Plus options. Not only,
then, were the hospitals excluded from the plan, but physicians
affiliated exclusively with those hospitals were, as a consequence,
excluded from the plan.

Although this alternative hospital plan option was available to
only a small percentage of Twin Cities residents (the 10% of medicare
patients who were also enrolled in PHP), and chosen by only a small
percentage of those, the seemingly "high-handed” action of the plan was
seen as betrayal by Twin Cities physicians who had been the founders
and developers of Physicians Health Plan through the Hennepin County
Medical Society in 1975. In the Twin Cities where consensus has been
characteristic, (Anderson et al 1985) tempers are raw and there has
been fervent talk of impeaching the physicians on the board of PHP as
well as counterthreats to bring suit against physicians making
"unfounded charges".

Dr. Richard Reece, long time editor of Minnesota Medicine (Journal

 

of the Minnesota Medical Association) and health care consultant,
explains in a now regular publication that was precipitated by the
event:

What worries physicians...is that their own managers, or the
managers that they made possible, make decisions that change
physicians' lives and those of their patients without
consulting those affected by the decision. Doctors are
angry because they feel manipulated and deceived by an
organization of their own making. (Reece Report,
"Information for Physicians in Control" Vol. 1, No. 1, March
1986 [9]).

231

It is not only physicians whose practices are affected who observe
this shift. A Minnesota colleague in health care research
noted that:

The health plans do marvelously well because most of the
time they negotiate a percentage of the premium as their
fee—-the manager-—the insurance brokers just don't lose
because as long as they continue to increase the membership,
which they do quite well, their take continues to go up and
what happens is that all the new members need to be taken
care of by the physicians, the clinics; (the physicians) are
the ones who eat the difference; they are the ones who lose.
(The managers) are in an incredibly good position . . .
because the tie with the patient is now with that broker as
against with the physician, and the patient may feel some
loyalty to the physician but only in really dire cases is it
my experience that the financial incentives involved with
going with the broker is going to be overcome by the loyalty
to the physician. So people sadly will leave, but will
leave . . . .

Another health care writer in Minneapolis-St. Paul noted “there's
very little loyalty; loyalty is 'The Myth of Medical Care.'" However,
the increased sensitivity of physicians to the loyalty of their
patients may have certain benefits for the patients. One beleaguered
Group Health physician said that the stresses felt by the staff...

on the one to one have no effect on the patients; in

fact,in a sense I feel that I must sell myself a little

more--put myself out for the patients to keep them in the

plan.

Quality

While a nationwide survey indicates that physicians continue to
believe that "HMOS offer inferior quality care" (Lou Harris 1985), that
is not the view among Minnesota physicians. (See further discussion of
quality in HMOs in next section.) The Minnesota physicians I
interviewed were painstakingly precise on the subject of quality. ALL

of them expressed fear that the developing competitive system based on

prepayment COULD impair quality of health care, and most predicted that

232

if the competition continued to intensify, it WOULD impair the quality
of health care, but none said that he or she had seen an incident of
poor quality care. As noted above they now report inconvenience,
discomfort, frustration, loss of autonomy, and an impaired sense of
control--but still no specific examples of poor medical practice.

The physician from the University of Minnesota with whom I spoke
had just attended the April meeting of the bioethics committee of the
Minnesota Academy of Medicine. Reporting the committee's discussion
among six physicians from the community and four from the university,
he said:

the highest priority, if I might say so, is really the
ability to provide patients the highest quality care in

the light of medicine being part of a corporate activity.

In other words, the priorities of the corporation

which...manages health care,is profit and the priority

of the individual physician dealing with the individual

patient is the individual patient's best interest. How

do you combine those two priorities? That managed to

generate a wonderful discussion for some time.

Others are more heated on the subject. There is an increasingly
vocal contingent of physicians, largely from St. Paul and the Ramsey
County Medical Society, who believe that the rapid growth and
consequent intensive competition among health plans will “depress the
quality of care in the quest for profits.“ Physicians like Dr. Robert
Geist believe that there is a clear "conflict of interest" created by
capitation. He notes that the "HMOs are insurance brokerages taking 15
percent off the top," forcing physicians to become "the local corner
insurance companies" as they contract out the care for their patients
rather than providing it themselves. One family practitioner told me

that such capitation was a very real and difficult problem in his

group.

233

"With our capitation we didn't pay only our doctors but for
the druggist and the surgeon, etc...we came too close. If
we had been 10% off we would have lost money. It felt like
a conflict of interest. (We changed our contract and) now
we're capitated only for our own work. It's much more
comfortable."

However, Dr. Geist's proposed resolution to outlaw payment to
physicians for any care but the care they themselves give was defeated
at the annual meeting of the Minnesota Medical Association (MMA);
the delegates did vote to “study the effects of the competitive health—
care system on physicians, patients, healthcare institutions and
purchasers of care." They further resolved to urge the MMA to "work on

development of ways to measure qualipy of care which could then be used

 

by the public to compare various health plans."(MMA l986; MMA 19868;

Berenson l986.)

Physicians/Physicians: "Competition with Colleagues 15 Culture Shock"

 

Physicians are worried not only about the barriers developing
between them and their patients; most report that their customary
relations with colleagues have also been altered.

We can't go on referring to people we're used to...to who
you think is "the best," or the most convenient, or your
friend, or someone you're confident in. It's more
problematic--we have to learn what plan the patient is in.

A senior specialist at MedCenter noted:

As a consultant I had a lot of referring doctors. Even last
year 2/3 of my business was from outside but that is being
cut off. Other plans grow...gain their own expertise...
restrict their patients. The doctors used to referring to
me just can't do it. Traditional referral relationships are
impacted day to day, every day, several times a day... and
then new patterns are developed, not necessarily by
tradition or quality of service and access, but by the
payment mechanism.

234

Dr. Reece says physicians are experiencing "culture shock":

Doctors care more about what other doctors think of

them than anything else ... and it's an earthquake in

their feelings when they find out they're going to have

to compete with their friend5--(with whom) they've been

through the same educational experiences.
He said there is an expression he hears so often among physicians that
it would make a good title for a paper:

"It isn't any fun any more."

 

"Paul (Ellwood)'s idea of medical plans competing with one another fit
our culture at large,“ Reece observed,"but it did not fit our medical
culture."

Another Minneapolis physician:

Your colleagues you've worked with for decades end up

aligning with other health plans and you lose the

contact with them; patients aren't referred back and

forth, and you lose some of the professional interaction.

The colleagiality between physicians and physicians is not

as it was before.

It is the physicians who have worked "for decades" who some
observers believe are having particular trouble with the "culture
shock.“ A Minnesota professor, Theodore Fredrickson says that younger
physicians ”are a different strain." They "have been watching and
adapting" and believe that without a 70-80 hour work week they can have
a better "quality of life." Nonetheless, the MMA does not recommend
that young physicians will be able to start their own practices in the
Twin Cities any longer and some physicians worry about their younger
colleagues.3 Many I interviewed felt that their own way of practicing

was sufficiently established so that they would be able to complete

their careers in a way that was comfortable for them. But they thought

235

that young peOple coming into the profession would have a difficult

time.

Medical Education

 

Already, they noted, one of the consequences of "cost effective
medicine“ was having a powerful impact on students and residents
training in h05pitals. In Minneapolis-St. Paul hospitalization of HMO
patients has been dramatically reduced--both admissions and length of
stay have dropped the average number of days to a startling 385 days
per thousand HMO patients compared to an average of 1,087/1000 for non-
HMO patients (AHA 1986). This, the physician explained, means that"
patients are not hospitalized AT ALL except for acute needs . . . .
There seems to be a real shift now as the hospital becomes an intensive
institution rather than an institution involved with preparation for
surgery or recovery from childbearing." He further discussed the
serious consequences for the students and residents in training because
the experience has been both educationally narrowed and emotionally
intensified. Some trainees, he said, have thought of leaving medicine,
and certainly applications to medical school are down. Furthermore,
"based on the perception of a surplus of physicians“ since 1982, the
size of the class admitted "has been reduced from about 250 to 205."

This academic physician reported other changes seemed to him more
curious and less troubling, but contain an important acknowledgement
that some changes were worth making:

It's probably only been in the last three years in my

rounding with the residents and medical students I

talk of always questioning "Now is that procedure

necessary?" 00 you really think that we have to get

that chest x-ray? Do we really have to have the vital
signs? Now the residents are thinking about that all

236

the time, but (he adds with satisfaction and righteousness)
it has been rare that I have found that the residents did
uppp have a good reason for the procedure. The change is
that we are asking differently--tons more questions than I
had before; in the best of all worlds I should have had the
same questions before, but I didn't. And most of my
colleagues didn't because the cost didn't come into our
heads.

Physicians and H05pitals

In 1982, one of the notable themes in Minneapolis-St. Paul health
care was the competition between physicians and hospitals. While
physicians acknowledged the competence and quality of the Twin City
hospitals, they were competitive with hospital administrators and
feared losing ground to h05pitals. In fact, the origin of PHP, the
Hennepin County Medical Society's plan, was explained to me, in 1982,
as follows:

The greatest impetus [toward Physicians Health Plan] was

the fact that the hospitals were really looking
seriously at starting their own hospital-based HMOs in
our community. I think that was the most scary thing
to the rank and file physicians who at that time felt
really no threat at all from Group Health or [any other
plan that was just getting started]... But the
physicians do have a great deal of respect for how
hospitals can get things done. [Physicians] also have
a fear that hospital administrators, when they do
something, don't really include physicians in their
thinking process. So...(there was a fear the hospitals
would start something); that was a great big unknown.
We certainly weren't afraid of the other HMOs which
were so young, but today (1982) is certainly different.

In 1986, the "plans" have become undoubtably the principal
competitors and warhorses, and it is the plan managers that ride them.
In most cases physicians and hospital administrators are learning to
cooperate. Dr. Reece, joking ironically, said that perhaps as the HMO
enrollment rises above 50 percent in a community, the hospital census

inevitably dips below 50 percent. It is an uncomfortable teeter-totter

237

for hospitals, and they are seeking joint-ventures with physicians to
gain stability. Reece again explained: "Physicians supply the clinical
skills and visibility; and hospitals supply the capital and marketing."
This takes various forms, e.g., together they exploit "niches in the
market" and create "boutiques"--specialty services like foot clinics or
headache clinics. A larger version is an institute like the Phillips
Eye Institute, a joint-venture between physicians and a hospital. These
have marketing and bargaining power.

A specific form of this cooperation is the MeSH concept: Mgdical
‘Staff and HQSpital. MeSH is a vehicle for joint-ventures "on an equal
footing" between physicians, who themselves form a corporation, and a
hospital. The hospital and the physicians' corporation become partners
with equal governance and together they are able to contract with HMOs.
MeSH characterizes both the competition and the cooperation found
throughout the medical community of the Twin Cities in 1986.

Medical Practice In Minneapolis—St. Paul 1986: Changing
Practice Patterns and Income

 

Although physicians are actively learning new ways to adapt to the
competitive environment, there continues to be an overall and immediate
concern about the future of their practices and, most likely, the
stability of their incomes--although these subjects are not
spontaneously raised in conversation. Aware primarily of their own
experience, physicians do not know if, or how, their practices fit into
a larger pattern. However, the county and state medical societies have
gathered some systematic and much anecdotal data from their
constituents which reflect their experience. The most recent data were

collected in an unpublished November 1983 survey of the MMA. Although

238

no question was asked about income specifically, of those physicians
who responded throughout the state, 1/3 reported that their patient
visits had declined while 1/3 reported visits remaining stable and 1/3
reported increases.

Observers at the county and state societies note that since 1983
they have been receiving increased reports of declines in the number of
patient visits. Furthermore, these patient visits are often reimbursed
at a lower rate because physicians have accepted discounted rates in
order to be included in the growing plans like the Blue Cross preferred
provider organization, Aware Gold (see discussion in Chapter 6). Group
model HMOs have, it is reported, "put downward pressure" on the incomes
of some of their physicians, but Group Health Plan, the one staff model
remaining in the Twin Cities, says it has not lowered salaries because
they can manage to reduce costs by "changing their staffing patterns."

To better manage their practices under the pressures of
competition, fee-for-service practitioners are forming or joining
groups at an accelerated rate, and groups themselves are banding
together. As is true throughout the United States, physicians joining
groups and affiliating with pre-paid or capitated systems are mostly
affiliating with IPA and PPOs--by far the fastest growing segments of
the managed care systems.

Some young physicians out of residency pp choose a salaried staff
model position; however, in Minnesota, again as it is throughout the

nation, a decreasing proportion of HMO physicians are salaried and

 

working in clinic settings. In fact, physicians in the remaining staff

model who are committed ideologically to it now say they may be forced

239

to form a physicians' group so they can be more flexible in the
competitive environment.

As the multispecialty groups join to become larger, they are able,
first, to contract for better consultation rates; and finally, to hire
subspecialists into the group--thus protecting their economic base but
further disrupting the traditional referral patterns discussed above.
This, of course, is not an avenue available to physicians in Chicago
and Lansing where multi-specialty group practices are rare.

Private physicians in specialty practices are also joining
together to protect their interests. For example, in St. Paul about 30
specialty groups have formed "Vista", with a hired manager to
negotiate contracts for them. The group, however, has not included all
specialists, which, members say with regret, has further undermined the
sense of collegiality.

And, consistent with the trend noted in Chapter 6 on a broader
scale, the Minnesota Medical Association (MMA), which has a remarkably
high membership rate of practicing physicians-—9O percent of the
community physicians, compared to the national average of 45 percent--
has also responded to the competitive environment by forming a for-
profit subsidiary consulting group, Medical Management Services, to
help physicians and physician groups with marketing, legal issues, and
practice management.

Throughout the Twin Cities and indeed the state, Minnesota
physicians are changing their patterns of practice and learning new
ways. After the shock, a new culture.

When we finished interviewing in 1982, Twin Cities physicians in

fee-for-service practice, as well as hospitals and insurers, were

24D

worried about the competition of HMOs. But today that is no longer a
worry. Now, physicians tell me, fee-for-service medical practice and
third party health insurance "are virtually dead.“ In their
traditional forms they are no longer competitors.

Although in healthy and homogeneous Minneapolis/St. Paul
physicians still report that they are mostly satisfied with the quality
of their medical practice, they recognize that they are no longer
autonomous or independent. Although they have mostly avoided government
regulation and consumer partnership they are now, instead, "agents of a
plan" or of several plans. It is the plans that compete with each
other, and the competition is fierce and costly (See data in next
segment). Physicians and hospitals are important actors, but they can
do no more than jockey for position and affiliations with the
increasingly complex contractual systems. The term "HMO“, though
ubiquitous in the Twin Cities, is in fact no longer descriptive, but
rather symbolic. It is being abandoned for the more futuristic and
realistic "managed care systems."

Physicians in the Twin Cities seem resigned. Proud of their
medical community and its history, they actively protect the quality of
the care they give, but they have less and less to say about what it
costs or to whom they give it.

This case study exemplifies Starr's understanding of the declining
sovereignty of the medical profession. While in a prosperous community
which prides itself in its rational civic problem solving, most
physicians are adapting to the change, it will be more difficult for
competitive medical communities in more contentious communities like

Chicago to incorporate change without suspicion and hostility. This is

241

intensified since in the Twin Cities physicians themselves have
participated in the development of the managed care system, whereas in
Chicago, physicians feel new systems have been thrust upon them.

And new systems ARE being thrust upon physicians not only in the
management, and not only in the Minnesota area, but also in the
treatment of patients in Michigan. For example in October 1986 all
physicians licensed in Michigan received the following memo from the
Bureau of Health Services, Department of Licensing and Regulation of
the State of Michigan regarding Public Act 195 of 1986:

On November 5, 1986 physicians who are administering

the primary treatment for breast cancer must begin

informing their patients about alternative forms of

treatment.

P.A. 195 of 1986 mandates that a brochure be developed

by the Department of Public Health for distribution by

physicians....Please note that the brochure contains a

form which must be signed by the patient indicating

that the patient has been given a copy of the brochure.

The law requires that this form should be included in

the patient's medical record.

This Michigan regulation steps directly between the physician and
the patient NOT in a matter of organization or finance but in a matter
of treatment. As Starr (1982) observes:

Indeed, few other developments so well illustrate the decline

of professional sovereignty in the 19705 as the increased

tendency (of the law) to view the doctor-patient

relationship as a partnership in decision making rather than

a doctors' monopoly.

These changes are the consequence of the efforts begun by consumer
activists in the early 19705 in their effort to challenge the autonomy
of physicians and participate more actively in decisions about and

treatment of their ppp health care.

242

CONSEQUENCES FOR THE DELIVERY OF HEALTH CARE

In 1986 it was clear that consumers' activism had left its mark on
both the cultural and the economic dimensions of health care. Although
it is not always possible to assign specific consequences to given
actions, the consumer-founders of HMOs were part of an important
transition in both beliefs and behaviors about health care. The results
of their activism is evident, both symbolically and concretely, in the
alternative forms of health care delivery--or managed health care--now
growing so rapidly as an extension of the HMO movement. In this section
I will consider briefly certain salient points about managed health
care in each of the three areas of traditional health care delivery

analysis: access, quality, and cost (Aday and Andersen, 1975).

82635.5.
As I have shown earlier, it was the HMO founders' original
intention to provide equitable care to all who wished to enroll. The
financial losses that NorthCare and Health Central suffered from their
commitment to open enrollment were important steps in their march
toward corporatization. The stability of HMOs depends on the balance
of their group of members--their risk pool. Some attributed the early
success of many HMOs to selective enrollment i.e., enrollment drawn
from young and healthy employed groups (Luft 1981). HMOs do not market
to individuals and only in rare cases permit individual subscribers.
Populations that do not have a normal distribution of health
problems--the elderly and the poor--cannot be managed by an HMO unless
they are subsidized or pay a higher premium than other members. The

federal government has been very interested in HMOs as a way to control

243

costs with prospective payments for those groups. They have established
over 100 Medicare (TEFRA) risk contracts with HMOs. Some plans have
subsequently tried to cancel the contracts because they could not cover
the costs of care with the contracted amount. The rate is based on 95

percent of the adjusted average per capita cost (AAPCC); Group Health

 

.ngp (Feb/Mar 1986) notes that "HCFA refuses to release the 'black box'
or basic formula used to derive numbers that determine the AAPCC." Some
plans are satisfied with the reimbursement and others have taken the
government to court to break the contract or recover losses.

The government also seeks contracts with HMOs for Medicaid
recipients. There is evidence that the poor can get good care in

prepaid plans (Health Care Finance Review 1985). A state survey

 

conducted in Ohio shows that residents from Cuyahoga County AFDC
families who are in an HMO program are considerably more satisfied4
with their health care than those using private physicians. Eighty-five
percent are satisfied with their health care and 75 percent report
excellent or good health in their family (compared to 53 percent using
private physicians.)

However, the results were different in a limited group of
Medicaid enrollees that the Rand Health Insurance Experiment studied at
Group Health Puget Sound (GHPS) (Lancet May 5, 1986). For low income
enrollees in the HMO, health outcomes appeared to be poorer than for
those in fee-for-service. Although certain methods of the study limit
generalizability, officials at GHPS acknowledge that the study alerts
them, as well as researchers and policy makers, to the difficulty of

applying complex bureaucratic systems without modification or

244

supplement for the poor, who often have more health problems and fewer
skills for overcoming obstacles to access.

Health professionals whom I interviewed noted that while the
continuity that HMOs provide could improve the care of the poor, HMOs
are presently managed with services and patterns that have been
developed to attract middle class members. HMOs need additional
services to serve the poor, just as they do for the elderly. It was
interesting to find in my interviews that HMOs, in order to be
competitive, do in fact pay particular attention to appearing middle-
class. They say this is because, in many regions of the country,
especially near University medical centers, there is considerable
suspicion of "clinics.“ My interviews confirm that impression: A UAW
labor leader told me that he had learned a lot about his workers when
.the UAW contracted with Health Central. While the labor leader himself
was interested in the quality of care and keeping the costs down, he
heard grumbling “on the line" because wives would complain “if it
wasn't like the (private) doctors' office."5

In 1986, another needy group troubles policy makers: the
uninsured. It should be noted that in spite of their ideological
beginnings, HMOs are the lgagp suited to provide free care because of
the careful accounting demanded of them by payers-- employers and

government—-who have switched to HMOs to contain costs.

Quality
The 1984 National Harris poll about HMOs (Harris et al. 1985) notes

that patients in HMOs are more satisfied with their care than fee-for-

service patients, and that health care research indicates that fee—for-

245

service and HMOs have similar treatment practices and quality (Manning
et al. 1984; Yelin et al. 1985). Nonetheless, in a nationwide sample
"the feeling that HMOs offer inferior quality care, while not shared by
either HMO members or employers, continues to be the view held by most
physicians" (Harris et al. 1985).

I noted above that the MMA passed a resolution to "work on

development of ways to measure qualityyof care which could then be used

 

by the public to compare various health plans." Now that business and
government pressure health care plans and institutions to be

competitive, many policy makers as well as physicians see as their

 

first priority the assessment and assurance of equitable and excellent
health care.

The National Committee for Quality Assurance (NCQA), formed in
1979 by Group Health Association of America (GHAA) and American Medical
Care Review Association (AMCRA), reports intensified activity which
reflects the increased attention to monitoring quality in the growing
managed care systems throughout the United States. Representatives of
Arizona's Health Care Cost Containment System (AHCCCS) visited provider
settings throughout the state and carried out an "exhaustive
investigation" of 1,836 medical records in HMOs with Medicaid contracts
which has brought "assurance review systems to the brink of measuring
service quality” (GHAA News Feb/Mar l986:7).

Ohio, in response to federal pressure, will also strengthen its
quality assurance program for HMOs. The state admits that while
preoccupied with developing HMOs, it had "been lax in pulling together

a quality assurance program." (GHAA Newss Feb/Mar 1986:16).

246

In Washington state the $78 million ongoing Rand Health Insurance
Experiment continued its comparative study of health care. In 1986 the
research team reported on care for patients who had been studied for
five years in the Seattle area (Lancet 1986). The study concluded that
"Group Health Cooperative (GHC) tended to produce better health habits
than fee-for-service.... (And) for most people, and particularly for
those with higher incomes, GHC care saved money and may have been
better for health."

Interview data relating to quality have an interesting pattern.
Several of those whom I interviewed, like Dr. Geist in St. Paul, are
articulate and well reasoned about the potential for poor quality or
underservice; nonetheless there are few, even anecdotal, reports of
poor medical care. While reports of inconvenience and bureaucratic
irritation abound, members and providers seem satisfied with the
medical care. For example, the administrator at the department of
Public Health in Michigan who is responsible for complaints reports (as
noted above) an increase in calls from both new HMO members and newly
affiliated physicians complaining that they do not understand the
requirements or coverage of the plans that they joined. The
administrator groaned as she said it was a "morass of complications."
However, she added in a somewhat lighter tone, "I guess they could be
calling about the quality of the care." "Don't they?" I asked, "Nope,

not really." she replied.

Cost
While the consumer-founders developed HMOs to improve access and

give consumers a controlling partnership in health care, payers now

247

drive the system, and cost containment, their first concern, is now
the major stimulant to changing forms of health care delivery. And, in
fact, certain aspects of costly health care app reduced by HMOs and
PPOs for those enrolled in the plans--particularly as a result of
decreased hospital days. However, there has continued to be
dissatisfaction among payers, predominantly employers and the federal
government, because they find that in spite of reduced HMO
hospitalization, HMO premiums are not significantly lower than premiums
for traditional health insurance coverage. My interviews with market
representatives suggest that plans intentionally market themselves at
similar premiums to avoid drawing selected or "adverse" selections of
enrollees. Market representatives explain that instead they compete by
"differentiating their product." That is, they may seek a distinctive
identity with certain hospitals or staff, certain products (eyeglasses)
or services (classes, house calls, etc.)

A report in the New England Journal of Medicine (Himmelstein and

 

Woolhandler 1986) offers information that may help to explain the
persistent rise in the cost of health care when, in fact, at the same
time physicians and hospitals generally report level or decreased
revenues. While total costs of health care are composed of many
elements, the NEJM reports that a growing portion of health care
dollars is going to administrative activities. In 1983, 22 percent of
U.S. medical bills or $77.7 billion were spent on administration
including accounting and billing. Thus, while changing patterns of
health care delivery may reduce expenditures for direct care to the
patient, they are accompanied by increasing costs for internal

administration, including accounting, billing, marketing, and external

248

consultants.6

In 1985, hospitals spent $313 million in advertising and
$700 million for marketing consultants,7 (a single health care system
reported an $8 million account for advertising alone) and in 1986,
(while health care costs generally rose 7.7%) advertising and marketing
expenses again rose over 57% to $500 million and $1.1 billion. (SRI
Gallup Marketers Survey 1987).

These dollars provide jobs for a new cadre of business
competitors, and profits for advertising and accounting corporations.

They are also further evidence of the ironic and unintended

consequences of the HMO movement.

249
END NOTES

1. The research staff included the Principal Investigator, Odin
Anderson, a project director and three research project analysts.While
all project staff did some interviewing, I was principally involved in
interviewing and conducted over 100 interviews. The project was
conducted at the Center for Health Administration Studies, University
of Chicago, and funded by the Kaiser Family Foundation and the Chicago
Community Trust.

2. Note that this pattern anticipated the pattern in Lansing--the two
IPAs are now affiliated with the same umbrella organization, United
HealthCare Corporation.

3. Here again is the important theme of cohorts. Cohorts of physicians
and medical students separated by very few years may have very
different practice demands, opportunities and expectations.

4. Correlation of satisfaction with quality has not been systematically
established. It is a current research effort of the Academy of
Internal Medicine. (personal communication, Gerald Levy, M.D.)

5. Visitors from the British Health Service visiting HMOs in l986
remarked and later wrote me that they were surprised (they looked
shocked) at the investment made in comfort and furnishings for the
facilities as well as for the administration offices.

6. These findings are from 1983, when the insurance overhead was
already increasing at a rate of 1 1/2 times the rate of increase for
the health care itself. Certainly the la5t two years have seen even
more dramatic increases in non-care related spending.

7. Many of the marketing consultants are symbols, themselves, of the
privatization of health care. Many professionals, formerly in public
service or non-profit health organizations, have changed to jobs in the
private sector. Examples include Carolyne Davis, the former head of the
federal Health Care Financing Administration (HCFA) who now offers her
publicly gained expertise to corporate clients as a special consultant
for Ernst and Whinney, a private consulting firm. In addition, HMO
authority Paul Ellwood, until recently associated only with his non-
profit think-tank, Interstudy, in 1985 formed his own for-profit
consulting firm. And at least three long-time health policy analysts
for the State of Michigan have joined Price Waterhouse, a private
accounting firm that is developing a strong health consulting section.

CONCLUSION
RECAPITULATION AND REFLECTIONS

To recapitulate and then reflect on the development of this social
movement, now bureaucratized and corporatized, I return to Starr's
statement that early in this work provided an important structure for
the case studies and their analysis.

"in the seventies ...a variety of new social movements

demanding reform...formed an ironic temporary alliance" with

"powerful forces arraying themselves against health care

providers...the insurance industry, the employers, and the

government itself." (Starr 1982:337)

This quote of Starr's provides the generalization for which these
case studies give evidence. It is descriptive and it is visual. There
are three clear groups of actors: I) the activists; 2) their targets--
the physicians; and 3) the "powerful forces" or payers whose interests
allied them with the activists. Against such an alliance the
physicians lose their sovereignty and American medicine is becoming
corporatized, as the activists are coopted by their ironic and powerful
allies.

While this analysis is descriptive, interesting, and even true,
it is insufficiently complex to explain the source or meaning of the
changes. The scenario presents one-dimensional competitors: the
consumer soldiers for HMOs, the physician soldiers against HMOs, and
the mercenaries who come in for the spoils when the battle is all over.
But the changes and interactions in this study are more complex.

Though not as easy to stage dramaturgically, I find it provocative to

consider, in addition to the three actors, three dimensions or themes

of that historical period which recur, interact with, and explain more

250

251

fully all of the actors; these are l) the economy, 2) ideology, and 3)
technology. All, of course, are changing and not necessarily in
parallel movement.

In conclusion, I will recapitulate and reconsider the consumers'
movement to develop HMOs by examining these three elements, their
intersections, and their synergy. Together these illuminate the
emergence and the development of contemporary HMOs and suggest foci and
avenues for continued sociological study of the changing health care

environment.

ECONOMY

It is not new to look to economic conditions and pressures to
understand a social movement. Weber asserted that the course a
movement would take did not depend " on the subjective intentions of
the followers or the leaders (but rather) on the institutional
framework of the movement and especially on the economic order." (Gerth
and Mills 1979, p. 54 underline CK). But it is of particular interest
that in the social movement described here the economic forces were not
only the underlying framework or order, but were explicit, though
unanticipated, actors--the insurance industry, the employers, and the
government itself- which shaped the movement.

In Chapter 1 I noted health economist Victor Fuchs' (1985)
explanation for the increased attention to health care by government
and the corporate sector. He juxtaposed the nation's general
economic trends since World War II and the economic trends in health
care and thus demonstrated that the decline in the GNP just as the

costs of health care were escalating set the economic stage for

252

resistance of employers to the costs of health care benefits in the
early 19705. Furthermore, only a few years earlier in 1965 Congress
passed both the Medicaid and Medicare legislation which made the
federal government a principal purchaser of private health care
benefits. Also noted earlier, the surge of interest in health care
exemplified Mills' (1959:246) observations about the interests of the
“power elite." Health care, which has until now been an interest only
in the middle levels of power now comprises over 11% of the GNP and has
drawn the attention of that power elite.8 Throughout this dissertation
I have offered evidence of the increased interest and involvement of
both corporations and government in health care. Furthermore, the
corporate sector not only seeks to reduce their costs in health care
but also to participate in the (now evidently) profitable market of
health care.

Note that Starr mentions the triumvirate of insurers, employers,
and government. The insurers and employers together reflect the
private sector interests. Most simply the employers are concerned with
reducing the costs of health benefits while the insurers profit from
the management of health costs. But these distinctions also become
clouded when the insurers are pressed by a more competitive market
place and the employers develop "self insurance" plans (insure their
own employees). These are fruitful areas for continued observation and
analysis. Future work would also benefit from O'Connor's (1973)
further division of the private sector into a competitive sector and a
monopoly sector. I anticipate that as the changes in health care
distribution are pushed further, the competitive sector of small

manufacturers and services employing roughly one third of the U.S.

253

labor force (O'Connor 1973:13) will have less choice or control of the
health care benefits affordable and available to them. The monopoly
sector employers will begin, themselves, to market health care, or at
the least manage it for their own work force--again giving less choice

to the worker, but in this sector, more control to the employer.

IDEOLOGY

For this research I have observed health care in a period when it
has been strongly influenced by economic pressures and constraints.
Some, like Fuchs (1985), emphasize, even extol, the economic
explanation of Americans' health care behavior. However, the United
States is the only remaining industrialized nation, except South
Africa, that does not cover as a right of citizenship, the medical
expenses of anyone who becomes seriously ill (Light 1986). This
distinctive national condition is both a consequence of and a problem
for the ideology of U.S. citizens. Anderson (l963:3) notes that
Americans have a dilemma; they do not know to what extent health care
is "part of the free market economy..." and to what extent ""...part of
traditional social relations" (Anderson 1963). Elsewhere he notes
(Anderson 1987) "although there are attempts to mold the health
services delivery system into a technocratic model....health service
systems are essentially social systems."

Issues of "traditional social relations" and "free market economy"
as well as of social responsibility remain in tension, unresolved in
the American health care system. When in the early 19705 the nation
expected, but failed to adopt, some form of national health insurance,

the HMO movement became heir to these unresolved tensions.

254

As I have noted in Chapter 7 the consumer-activists were deeply
committed to ideologies of their historical moment and cohort. These
included ideological issues outside of health care, such as the strong
feminist bond that many of the consumer-founders reported was woven
into the HMO deve10pment, as well as to ideologies directly related to
health care. They believed in equitable distribution of health care to
others, and in altering the power relationship with physicians, that
is creating a partnership in which the patient (consumer) would take a
personal responsibility for her or his own health care. This paralleled
convictions in other self-help movements at the time.

I earlier noted, and am now convinced by, Crawford's (l977)
argument that such an ideology channels demands on the social and
political environment back to demands on the self (Crawford associates
this with a pattern of "blaming the victim "[Ryan 1971]). This
patterns, he asserts, reduces the demands for care on government and
corporate providers by funnelling them back to the partnership of
patient and provider. The ideology focusses on issues of individual
distribution of power in the dyad of doctor and patient--middle class
issues--thus drawing attention away from the larger social
responsibility to pay for health care for those outside of the middle
class (This also coopts the activists to that less costly and
inflamatory interest [Crawford, 1977]).

This deserves attention because it highlights a change in the
ideology and pattern of social activism in the late 19605 and early
19705. I have noted in chapter 6 the important distinction made by
Kitsuse and Spector (1977) between activists whose activities are for

disadvantaged others and activists in interest groups who are active in

255

their pgn_interests. Starr draws a parallel distinction in medical
activism between those who claim rights TO medical care (i.e., access
for all), and those who claim rights IN medical care (i.e., the right
to participate in therapeutic decisions, to see one's own medical
records etc.) I have given examples of both themes in the consumers'
HMO movement and noted the activists' reluctant but complete
relinquishing of the broader themes of access and equity as they
shifted to emphasize rights of consumers within medicine.

This shift exemplifies a larger ideological shift that was taking
place between the 19605 and the 19805. While Starr asserts that the
civil rights struggle "set the example for dozens of other movements of
similar purpose" (p. 389) I highlight the shift in purpose. Most
interestingly, in the HMO movement these activists did not simply shift
from one movement to another, for example from the civil rights
movement to the home birth movement, but rather shifted within the
movement itself. In Chapters 5 and 6 I have documented the activists'
relinquishing of the broader social goals and acceptance of the goals
modified by the structure imposed by their funders. This exemplifies
not only the conservative assimilation of the reform but also the
conservative assimilation or cooptation, of the activism. That is, not

only the goal of the activists was coopted but also their ideology and

 

directed energy.

 

In the 19705, other government programs of a liberal
administration also recruited consumers--for example, the Consumer
Support Group Project funded by HEW--and thereby weakened the costly
power of the professionals. Although it is less evident, it is

important to see that at the same time, these programs coopted and

256

redirected the energies of the activists. IA careful study of the
Health Systems Agencies of that same period, by political scientist
James Morone (1982) documents the same pattern. He shows that the
putative goal of the HSA boards was to reduce costs, which they were
unable to do. Morone (1982:249) concluded that the HSAs of that same
period "are not important for their cost control achievements or
potential, but rather (because they)... delineate the present
imperatives and future directions of the American health care system
and its politics.“ This they did, in large part, by coopting the
consumers to their cause. In place of activism against government
programs, consumers were allied with them. It is worth noting that in
interviews the consumers reported that they had been anti-war and civil
rights activists for a number of years, but did not show any reluctance
to become allied with government to develop consumer controlled HMOs.

Morone (1982:258) concluded that “federal agencies seek to balance
the interests of powerful producer groups by injecting competing
consumer interests into local political frays."

Paul-Shaheen and Perlstadt (1982), in a study of class action
suits, observes similar dynamics--"the Hill-Burton Class action suits
provide both organized structure and process for (re)channeling
discontent...." Furthermore, also similar to consumer programs, the
class action suit program provided "grass roots leadership training for

local activist.“

TECHNOLOGY
While it is clear that economy, ideology and technology are all

closely interrelated, technology might be expected to be the most

257

clearly seen-- to have the clearer boundaries. But, in fact, in this
social movement to change health care, technology is tightly interlaced
with ideology.

Although the issue is large and complexly woven, I will draw out
two simplified threads to tie to the HMO movement. 1) In large part
the challenges mounted against medicine result from its declining
credibility-—not only because of its inflated costs, I argue, but
because of inflated expectations. 2) Without specifically stating it,
or perhaps without yet recognizing the process, decision makers are
shifting their expectations to computerized information technology. The
growth of computer technology is seen in almost every sector of
society-- finance, education, commerce-- but the SHIFT of expectations
from one technology to another is seen within health care.

Throughout their lives, those in the founders' cohort, still
children at the end of World War II, have been awed, healed, and
protected by "wonder drugs": penicillin, polio vacine, widely available
insulin. Hips, kidneys, and even hearts have been replaced. When they
were young, the promise seemed unending. But as they age, the scourges
are still waiting--cancer and heart disease, unyielding and outrageous.
I am suggesting that the steep curve of scientific success after the
Second World War created expectations that even a remarkable medical
science cannot satisfy. (The rising anger recalls that of the
underclass which revolts when conditions improve and they experience
relative deprivation [Merton 1957]). The explosive growth and succcess
were tightly woven to the economy--research largely funded by the
National Institutes of Health, and care "invisibly" paid for by the

third party payment system discussed earlier.

258

Now to control this disappointing and costly institution there is
another technology, younger and on a steeply rising curve of
accomplishments--still creating expectations, not yet disappointing
them. Computerized information system technology is now at the heart
of ALL government programs related to health care delivery research and
reimbursemnt for care. An early stage was the foundation for
diagonosis related groups (DRGs) which now control hospital utilization
across the nation under the euphemism “severity index" (Horn, 1987).

The attempt to measure the quality of care may in the long run be
one of the most far-reaching consequences associated with HMOs and
competition in health care. It is difficult to see whether HMOs
created or responded to the demands of payors (insurers, employers, and
the government as both), but the idea that physicians, as well as
hospitals, should and could break down into items or elements the care
they give and the decisions they make is a significantly different
cultural understanding of medicine. Medical training emphasis the fact
that every patient is unique and that to care and treat each case most
effectively each physician must synthesise his or her facts and

experience in a way that is responsive to the uniqueness of the patient

 

and the experience and judgement of theyphysician (Fox 1979; Bosk I981;

 

Freidson 1981). This process and cultural understanding of medicine
resists the formulations and the imperatives of bureaucracy or
business.

Parallel and interwoven with the ideologically and economically
stimulated demand for medical information (which was seen very early in
the HMO movement and was strongly re-enforced by it) is the

technological development of complex and sophisticated computerized

259

information systems. This synergistic development between demand and
capability is crucial to contemporary changes in health care delivery.

As large employers began to examine their health care costs they
were at first perplexed and then angry to find that the health care
system did not have the same capacity to store and disseminate
information that they were accustomed to in industry. Their demands
for information and their expectations regarding information system
capacity had an important impact (Anderson et a1. 1985). In the mid
19805, the spread of medical information systems in health care has
been dramatic and has become essential for health care plans to remain
competitive. Several examples emerged in my interviews:

1) The conceptualization and the operation of the powerful
regulatory idea of Diagnosis Related Groups (DRGs) and other
prospective payment systems (PPS) now used extensively by the federal
government and seeping into the private sector is a product of such
technology. And the example of HMOs is often cited as justification
for changed expectations.

2) In Minneapolis St. Paul where competition is fierce and the
market was considered already "mature" Blue Cross introduced the new
"product" discussed above, Aware Gold—-a complex, widespread,
competitive, and tightly-managed preferred provider network which in
its first one and one half years of operation has an enrollment of
200,000 persons in 80,000 contracts. In interviews in Minnesota in
April of 1986, health care management analysts insisted that this
efficiency and effective competitiveness is directly related to BCBSM's

highly sophisticated computerized management information system

 

26D

developed to review and coordinate the medical, the administrative, and
the financial aspects of the system (Kohrman, 1986).

3) In 1981 and 1982, corporate employers I interviewed in the Twin
Cities, e.g., at General Mills and Control Data, were accustomed to
their own complex computer systems, and insisted that it was possible
to set up medical information systems so that they could know their own
employees' health experience and costs. They were disquieted and
dissatisfied to find that medical providers, neither hospitals nor
physicians, were prepared to provide those data. These were early signs
of the now frequently heard demand that physicians and hospitals
document their patients' health conditions and account for their
treatment decisions and the costs.)

4) Consistent with the changing expectations, in Lansing, a
professional electronics specialist who was also a labor leader at
General Motors noted that the explosive growth of their computer system
now makes it possible for General Motors to manage all their own
information and self-insure their workers. They merged with a major
information systems company and incorporated their expertise into the
plant operation. The labor representative said, "we went from not a
computer to be seen to having one at every work station." This
informant anticipated that with these capabilities, soon major
companies will be managing their own medical programs.

Furthermore, as I watch the health care literature and health
management mailings, I see dramatically increasing announcements of
conferences on complex information systems. Academic research for over
seven years at John H0pkins University by Susan Horn and others has

developed "severity indices" with thousands of medical condition

261

variable combinations and the private sector is beginning to market
elements of high tech computerized their work under names like
"Medisgroups."

The now prevalent demand that the medical care system be
accountable--even measureable--is a major cultural and economic effect
of the HMO movement.

The sociological analysis of the growth of information technology
in health--its uses, its costs, its power, and its control--is an
important study that would contribute not only to our understanding of
changes in health care but to other altering patterns in the economic

and social fabric of the late twentieth century.

REFLECTIONS

I like to think that I have followed C.W. Mills approach to using
history in sociology. It invites, he said, "grubbing for detail, but
also encourages a widening of one's view to embrace epochal pivotal
events in the development of social structure" (Mills 1959:143).

I have noted the playground swings, the kitchen tables, the
boardroom tables, the midnight pizzas, and the many thousands of pages
of grant applications that served as "props“ for the actors in this
social movement. These details, and the individuals who used them, have
in the course of their activism intersected with significant national--
and sometimes global--events powers and conditions. The intersections
of individuals' lives and the historical moments define their cohort
and the possibilities of what they might do. I have been asked by the
activists, as well as by my colleagues, if, in retrospect, the

activists might have done things differently. I conclude, that acting

262

with the information and resources available to them, confronted by
regulatory power both direct and indirect, and bound by their
historical moment, they did all that was possible. And, as I have
noted elsewhere, they made substantive as well as symbolic
contributions to health care delivery as it is in 1986.

I have described both differences and similarities in the these
case studies of social activism. I will conclude with some incomplete,
but for me provacative thoughts about the strongest and most striking
similarity of the consumers experience--their interaction with the
state and federal government.

My examination of the consumers' local communities showed that the
consumers worked wisely and successfully within their communities,
coopting or coming to terms with all the elements that might have
sabatoged their efforts. For example, while it was problematic that
they did not, at first, include local business, they learned and
compensated.

They knew that their efforts were also inextricably tied to the
legislation, regulation, and funds of the state and federal regulators.
And knowing this, the consumer-activists in both NorthCare and Health
Central lobbied, testified, and nurtured political contacts with
energy, competence, and success. And the individual regulators whom I
interviewed, as well as those who were described to me in interviews,
were (usually) competent, well meaning and invested in the success of
the HMOs in their domain. I conclude that they themselves did not
understand the context in which they and the consumer-activists were

enmeshed. I quote a highly respected and experienced Michigan

263

regulator's conclusion regarding the financial troubles of Health
Central. She said there were several factors:

First, the consumer orientation of the board. They probably

placed too much trust and reliance on the executive director

who did not know what he was doing, and there were probably

people on the board who did not view Health Central as a

business but viewed their participation on the board as just

part of community service.

This study of the activists, their efforts, and the institution
they developed strongly demonstrates that this regulator's perception
is pp; true. The consumer activists did NOT trust the executive
director, but the structure provided him control to which the consumers
did not have access. The "consumers" themselves were labor
negotiators, legislators and other professionals, but the ROLE of
"consumer" hogtied them. Although they began the movement as a
'Rxmnmnity service" they were quick to learn. For example, it was their
effectiveness at marketing that brought the overwhelming enrollment.

Furthermore, the government agencies, once binding the consumers
to government funds, bound them to agency information. And very often
the information was gppng, and the regulators, I have shown, less
competent than the consumers. Thus it seems that the institutionalized
role of "consumer" is a trivializing one. It identifies otherwise
productive individuals by their "consumption" and inherently weakens
their position. The government programs of the early 19705 encouraging
consumer activism to "empower" consumers, actually defined them into a
powerless role. It created a synergy for failure.

However, the consumers' HMO movement did not fail the government.

Rather, it served an important role. In the mid-19705, the HMOs showed

themselves to be crucial sources of information and leverage for the

264

federal government as it tried to crack the armour of the medical
establishment (which held the key to health care costs). Lawrence
Brown (1983) observes, that because of the complexity of medical
questions and the political need for medicine's "expertise and
legitimacy..."the medical profession (had historically) easily
intimidated government generalists." However, "...health maintenance
organizations were a valuable ally of the generalists and a standing
reproach and challenge to the professional mainstream. HMOs gave the
federal "government officials a rationale for federal endorsement of a
revisionist model of medical care that had been gaining adherents among
academicians and other observers in the private sector for some time.
By endorsing and articulating (as well as funding) the new
perspectives, they helped publicize and legitimate them." (Brown,
1983:494)

In 1976, another writer observed (Starr 1976:96) that "the primary
function of HMOs may turn out to be as a yardstick for social policy,
indicating what kinds of advantages are possible from more systematic
organization of medical care." Brown offers a number of examples of
the "yardstick effect"; for instance, Undersecretary of HEW Hale
Champion acknowledged that a hospital cost-containment bill had been
predicated (erroneously, CK) on HMO data. In 1977, a state health
planning official in Rhode Island explained:

We're utilizing HMO experience to a large extent. They

provide us with standards for hospital utilization,

ambulatory visits rates, etc.--guidelines, in short. We face

a paucity of decent empirical and normative standards with

which to measure the system ..... We'd be at a great loss

without these HMO statistics....We gather them up as fast as
they can produce them." (Brown, 1983, footnote p. 494)

265

Thus at both the state and national level, federal regulators were
getting significant returns for their efforts to keep the HMO
experiment alive. The federal interest was not in individual HMOS, but
in the overall cost-saving and system-changing effect. Thus, they
cheered and publicized when individual plans succeeded, and "cut their
losses" when plans failed. .

Finally, I have shown that the consumer-sponsored HMOs in the
early 19705 served as an excellent camouflage for the developing
arsenal of the government and corporate payers intent on controlling
costs of health care. The consumers' movement served as a Trojan horse
left in the medical midst. The consumers looked innocent and the
medical profession "did not take them seriously." But within the
camouflaged exterior of the consumers' HMO movement were the ideas and
challenges that changed, and will continue to change, health care

delivery in the United States.

AAPCC
AMCRA

BCBS

CACHPA

CHP
EMC
GHAA
GHPC
GHP
HALE
HCFA
HMO
IPA
IRMP
MCS
MIS
MSGP
NCHP
NCQA
OHMO
PHP
PPO

PIRGIM

UAW

GLOSSARY

adjusted average per capita cost

American Medical Care Review Organization
Blue Cross Blue Shield

Capital Area Health Planning Agency
Consumers' Health Plan

Evanston Medical Consumers

Group Health Association of America

Group Health Cooperative of Puget Sound
Group Health Plan (Minnesota)

Health Action League

Health Care Finance Agency

Health Maintenance Organization
Independent Practice Association

Illinois Regional Medical Program

Managed Care Systems

Management Information Systems
Multispecialty group practice

North Communities Health Plan

National Committee on Quality Assessment
Office of Health Maintenance Organizations
Physicians Health Plan

Preferred Provider Organizations

Public Interest Research Group in Michigan

United Auto Workers

266

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