the Civil Rights Act and the civil rights movement that shadowed its
implementation, was a gift of that movement.”^25 Within a decade,
“[h]ospitals became the most racially and economically integrated private
institutions in the nation ... all but four or five of the once more than 500
black hospitals had either been closed or converted to other purposes.”^26 ,
(^27) What is more difficult to comprehend: that there were still segregated
hospitals in America in the 1960s (like Eaton Ward at my alma mater), or
that the Medicare Act helped close those hospitals?
It would take a full year for Medicare to “go live,” and in that year, one
would guess that the behemoth US federal bureaucracy, like a titanic ocean
vessel, would have steered and tilted its way toward a new horizon,
exercising control over the thousands of physicians and hospitals that
served the tens of millions of newly insured lives. Shockingly, there was
no dominion, as Wilbur Cohen, one of the chief architects of Medicare,
lamented later: “The sponsors of Medicare, myself included, had to
concede in 1965 that there would be no real control over hospitals and
physicians. I was required to promise ... that the Federal Agency ... would
exercise no control.”^28
When Medicare passed, legislators had codified the then-ruling
payment policies of the Blues, in which the not-for-profit Blue Cross
hospital insurance plans during the 1930s functioned as a “stable conduit
of money to the [hospital industry].”^29 Critically, the state-based Blues
plans typically reimbursed hospitals for costs incurred while treating
patients—no matter the cost—so that there was little incentive to
constrain costs at a time when healthcare was entering into an explosive
growth phase. Uwe Reinhardt of Princeton University has argued that this
orientation around “reimbursement” and not “payment,” where “hospitals
would have to manage their line-item costs against external constraints,”^30
fostered an inherently inflationary system. The state-based Blue Shield
plans (for physician reimbursement) paid physicians at his or her “usual,
customary, and reasonable (dubbed ‘UCR’)” fee, again exhibiting almost
no cost control.
The inflationary arrangement did not stop at hospital and physician
reimbursement; “Medicare was required to reimburse each individual
hospital retrospectively a pro rata share for all the money that the
individual facility reported to have spent on capital investments in