The dispersed structure of independent fee-for-service private practice was not always the dominant model in the United States. When modern medical care took root in the first half of the 20th century, a variety of structures blossomed. Among these were multispecialty group practices, community health centers, and prepaid group practices. Some of these flourished but then wilted, while others became the seeds from which the future health care system of the 21st century is germinating.
Multispecialty Group Practice
In 1905, Dr. Geraldine Giemsa joined the department of pathology at the Mayo Clinic. The clinic, led by the brothers William and Charles Mayo, was becoming a nationally renowned referral center for surgery and was recruiting pathologists, microbiologists, and other specialized diagnosticians to support the work of the clinic’s group of surgeons. Dr. Giemsa received a salary and became an employee of the group practice. With time, she became a senior partner and part owner of the Mayo Clinic.
Together with their father, the Mayo brothers, who were general practitioners skilled at surgical techniques, formed a group practice in the small town of Rochester, MN, in the 1890s. As the brothers’ reputation for clinical excellence grew, the practice added several surgeons and physicians in laboratory-oriented specialties. By 1929, the Mayo Clinic had more than 375 physicians and 900 support staff and eventually opened its own hospitals (Starr, 1982). Although the clinic paid its physician staff by salary, the clinic itself billed patients, and later insurance plans, on a fee-for-service basis. The Mayo Clinic was the inspiration for other group practices that developed in the United States, such as the Menninger Clinic in Topeka, KS, and the Palo Alto Medical Foundation in California. These clinics were owned and administered by physicians in various specialties—hence the common use of the term multispecialty group practice to describe this organizational model. The multispecialty group practices brought a large number of physicians together under one roof to deliver care.
By formally integrating specialists into a single clinic structure, group practice attempted to promote a collaborative style of care. Enhancement of quality of care was expected from the greater opportunity for formal and informal peer review and continuing education when colleagues worked together and shared responsibility for the care of patients. Critics of group practice warned that large practice structures would jeopardize the intimate patient–physician relationship possible in a solo or small group setting, arguing that large groups would subject patients to an impersonal style of care with no single physician clearly accountable for the patient’s welfare.
In 1932, the blue ribbon Committee on the Costs of Medical Care recommended that the delivery of care be organized around large group practices (Starr, 1982). The eight physicians in private practice who were members of the committee dissented from the recommendations, roundly criticizing the sections on group practice. An editorial in the Journal of the American Medical Association was even more scathing in its attack on the committee’s majority report:
The physicians of this country must not be misled by utopian fantasies of a form of medical practice, which would equalize all physicians by placing them in groups under one administration. The public will find to its cost, as it has elsewhere, that such schemes do not answer that hidden desire in each human breast for human kindliness, human forbearance, and human understanding. It is better for the American people that most of their illnesses be treated by their own physicians rather than by industries, corporations, or clinics. (The Committee on the Costs of Medical Care, 1932)
Several multispecialty group practices flourished during the period between the world wars, and to this day remain among the most highly regarded systems of care in the United States. Yet multispecialty group practice did not become the dominant organizational structure. In part, resistance to this model by professional societies blunted the potential for growth. In addition, as hospitals assumed a central role in medical care, group practice lost some of its unique attractions. Hospitals could provide the ancillary services physicians needed for the increasingly specialized and technology-dependent work of medicine. Hospitals also served as an organizational focus for the informal referral networks that developed among private physicians in independent practice.
One of the most far-reaching alternatives to fee-for-service medical practice is the community health center, emphasizing primary and preventive care and also striving to take responsibility for the health status of the community served by the health center. An early 20th-century example of such an institution was the Greater Community Association at Creston, IA. The association brought together civic, religious, education, and health care groups in a coordinated system centered on the community hospital serving a six-county area with 100,000 residents. The plan placed its greatest emphasis on preventive care and public health measures administered by public health nurses. In describing the association, Kepford (1919) wrote:
The motto of the Greater Community Association is “Service.” Among the principles of the hospital management are the precept that it shall be a long way from the threshold of the hospital to the operating room . . We have a hospital that makes no attempt to pattern after the great city institutions, but is organized to meet the needs of a rural neighborhood. The Greater Community Association has been taught to regard the hospital as a repair shop, necessary only where preventive medicine has failed. (Kepford, 1919)
In 1928, Sherry Kidd joined the Frontier Nursing Service in Appalachia as a nurse midwife. For $5 per year, families could enroll in the service and receive pregnancy-related care. Sherry was responsible for all enrolled families within a 100-mile radius. She referred patients with complications to an obstetrician in Lexington, KY, who was the service’s physician consultant.
Another pioneering model, the Frontier Nursing Service was established by Mary Breckinridge, an English-trained midwife, in 1925 (Dye, 1983). Breckinridge designed the service to meet the needs of a poor rural area in Kentucky that lacked basic medical and obstetric care and suffered from high rates of maternal and infant mortality. The Frontier Nursing Service shared many of the features of the Creston, IA, model: regionalized services planned on a geographic basis to serve rural populations with an emphasis on primary care and health education. Like the Creston system, the service relied on nurses to provide primary care, with physicians reserved for secondary medical services on a referral basis.
These rural programs had their urban counterparts in health centers that focused on maternal and child health services during the early 1900s (Rothman, 1978; Stoeckle & Candib, 1969). The clinics primarily served populations in low-income districts in large cities and were often involved with large immigrant populations. As in the rural systems, public health nurses played a central role in an organizational model geared toward health education, nutrition, and sanitation. Both the urban and rural models of community health centers waned during the middle years of this century. Public health nursing declined in prestige as hospitals became the center of activity for nursing education and practice (Stevens, 1989). A team model of nurses working in collaboration with physicians withered under a system of hierarchical professional roles.
The community health center model was revived in 1965, when the federal Office of Economic Opportunity, the agency created to implement the “War on Poverty,” initiated its program of community health centers. The program’s goals included the combining of comprehensive medical care and public health to improve the health status of defined low-income communities, the building of multidisciplinary teams to provide health services, and participation in the governance of the health centers by community members.
Dr. Franklin Jefferson was professor of hematology at a prestigious medical school. His distinguished career was based on laboratory research, teaching, and subspecialty medical practice, with a focus on sickle cell anemia. Dr. Jefferson felt that his work was serving his community, but that he would like to do more. In 1965, with the advent of the federal neighborhood health center program, he left his laboratory in the hands of a well-trained assistant and began to talk with community leaders in the poor neighborhood that surrounded the medical school. After a year, the trust that developed between Dr. Jefferson and members of the neighborhood bore fruit in a decision to approach the medical school dean about a joint medical school–community application for funds to create a neighborhood health center. Two years later, the center opened its doors, with Dr. Jefferson as its first medical director.
By the early 1980s, 800 federally funded community health centers were in operation in the United States, administered by governing boards that included patients enrolled in the health center. Many of the centers trained community members as outreach workers, who became members of health care teams that included public health nurses, physicians, mental health workers, and health educators. Some of the health centers strived to meld clinical services with public health activities in programs of community-oriented primary care. For example, the rural health center in Mound Bayou, MS, helped organize a cooperative farm to improve nutrition in the county, dig wells to supply safe drinking water, and train community residents to become health care professionals. By improving the ambulatory care of low-income patients, the centers were able to reduce hospitalization and emergency department visits by their patients. Community health centers also had some success in improving community health status, particularly by reducing infant and neonatal mortality rates among African Americans (Geiger, 1984). In the early years of the 21st century, the federal government invested in a new period of expansion of community health centers. In 2014, nearly 1,300 community health centers at 9,000 sites were serving 22 million people, most of them uninsured or covered by Medicaid (Health Services and Resources Administration, 2014).
Prepaid Group Practice and Health Maintenance Organizations
Historically, one alternative to small office-based, fee-for-service practice became the major challenge to that traditional model: prepaid group practice, one of the models upon which the modern HMO is based.
In 1929, the Ross–Loos Clinic began to provide medical services for employees of the Los Angeles Department of Water and Power on a prepaid basis. By 1935, the clinic had enrolled 37,000 employees and their dependents, who each paid $2 per month for a specified list of services. Also in 1929, an idealistic physician, Dr. Michael Shadid, organized a medical cooperative in Elk City, OK, based on four principles: group practice, prepayment, preventive medicine, and control by the patients, who were members of the cooperative. In the late forties, more than a hundred rural health cooperatives were founded, many in Texas, but they faded away, partly from the stiff opposition of organized medicine. In the 1950s, another version of the consumer-managed prepaid group practice sprang up in Appalachia, where the United Mine Workers established union-run group practice clinics, each receiving a budget from the union-controlled, coal industry–financed medical care fund. A few years later in Seattle, Group Health Cooperative of Puget Sound acquired its own hospital, began to grow, and by the mid-1970s had 200,000 subscribers, a fifth of the Seattle-area population. In 1947, the Health Insurance Plan of New York opened its doors, operating 22 group practices; within 10 years, its enrollment approached 500,000 (Starr, 1982).
The most successful of the prepaid group practices that emerged in the 1930s and 1940s was the Kaiser Health Plan. In 1938, a surgeon named Sidney Garfield began providing prepaid medical services for industrialist Henry J. Kaiser’s employees working at the Grand Coulee Dam in Washington State. Rather than receiving a salary from Kaiser, Garfield was prepaid a fixed sum per employee, a precursor to modern capitation payment. Kaiser transported this concept to 200,000 workers in his shipyards and steel mills on the West Coast during World War II (Garfield, 1970; Starr, 1982). In this way, company-sponsored medical care in a remote area gave birth to today’s largest alternative to fee-for-service practice. Kaiser opened its doors to the general public after World War II. In 2015, Kaiser was present in eight states plus Washington, DC, with nearly 9.6 million patients enrolled.
The contemporary systems that grew out of the Kaiser and consumer cooperative models share several important features. Rather than preserving a separation between insurance plans and the providers of care, these models attempt to meld the financing and delivery of care into a single organizational structure. Paying a premium for health insurance coverage in this approach does not just mean that a third-party payer will pay for some or all the costs of care delivered by independent practitioners. Rather, the premium serves to directly purchase, in advance, health services from a particular system of care. This is the notion of “prepaid” care that is one component of the prepaid group practice model. The second component is care delivered by a large group of practitioners working under a common administrative structure—the “group practice” aspect of prepaid group practice.
Systems such as Kaiser and Group Health Cooperative of Puget Sound were commonly referred to as prepaid group practices until the 1970s, when terminology underwent a transformation as part of an effort by the Nixon Administration to sell the public and Congress on this model of care. Paul Ellwood, a Minnesota physician and advisor to President Nixon, suggested that prepaid group practices be referred to as “health maintenance organizations” (Ellwood et al., 1971; Starr, 1982). The change in name was intended in part to break from the political legacy of the prepaid group practice movement, a legacy colored with populist tones from the cooperative plans and tainted by organized medicine’s common criticism of prepaid group practice as a socialist threat. The term health maintenance was also designed to suggest that these systems would place more emphasis on preventive care than had the traditional medical model. Although HMOs were initially synonymous with prepaid group practice, by the 1980s, several varieties of HMO plans emerged that departed from the prepaid group practice organizational form. We describe the Kaiser model to fully illustrate the first-generation HMO model, and then proceed to discuss the second-generation HMOs known as independent practice associations (IPAs) or network HMOs.