Unintended Consequences of 1960s Health Care Reform

Last Updated on April 16, 2022 by Lee Burnett, DO, FAAFP

2 April 1998, Primary Health Care Access Conference

A historic discussion of the unintended consequences of health care reform policies implemented in the 1960s.

From left: Peter V. Lee, Jr, JD; Philip R. Lee, MD; Peter V. Lee, MD; Hewlett Lee, MD.

At the Ninth National Conference on Primary Health Care Access, a panel was created in which three brothers, Doctors Philip R. Lee, Peter V. Lee and Hewlett Lee, all prominent in health care reform or health care education reform, made their first presentation together. They were introduced by Dr Peter Lee’s son, Peter, who later became director of one of California’s health care agencies.

The recording is of Dr. Phil Lee speaking about the unintended consequences of the last great federal health care reform initiatives – the passage of the Medicare and Medicaid laws. Dr. Lee served both President Johnson and President Clinton during the two periods in which health reform was attempted – succeeding in 1965 and failing in 1993.

Dr. Lee’s comments are especially relevant in this period in which dramatic changes in the health care system are expected. The Twenty First National Conference’s theme “Consequences” directly relates to Dr. Lee’s comments.


Peter Lee, JD 0:01

The thing about introducing these folks is of course, they don’t need an introduction. And if I did introduce them at the full depth I take the entire time.

But I’ll still introduce Phil briefly noting that he was the Chancellor UCSF, Director Institute for Health Policy. Studies at UCSF was a Assistant Secretary twice, both under Johnson under clinton and one of Phil’s joking notes on how he should be introduced would be in part to note that Pete was the smart son.

Huey was the handsome one, and Phil is the dumb one. And well, you sort of say, well, Phil’s not that dumb, but the fact that he’d go back to Washington a second time, does give a little credence to the fact that there may be a little dim woodenness somewhere in there.

And so with that, Phil…

Philip R. Lee, MD 0:53

Peter, thanks for that insulting introduction.

Pete has really given us a very good overview of the context within which policies were developed at the time of the Millis Commission when I was in Washington. And we first had the report of the President’s Commission on the health needs of the nation in 1952. That was Truman’s alternative to national health insurance. And our father actually served as a member of that commission. And many of the things we did in the 60s were described in that report.

That was then the Bayne-Jones report, a report to the Secretary on physician and other health manpower issues. And then there was the Bayne report to the Surgeon General in 1959. So that by the early 1960s, there was a significant body of information pulled together around the needs particularly issues around physician supply for shortage. And the common view was not only with respect to specialization but in fact that there was a significant shortage of physicians in the country.

And it was within that sort of mindset that we began the policy activities in the 60s. Also in the 1950s. President Eisenhower introduced or proposed legislation in 1956, which included support not only for research facilities but for the building of medical education facilities. The legislation passed but without the medical education facilities. funding was there for research facilities as the money was flowing into the medical schools for the supportive research and was in effect transforming the medical schools, at least those that garnered the research dollars in the 1950s. So another factor. And Eisenhower did that again in 58. Again, they expanded the research funding research facilities funding, but not funding for medical education facilities. And the other factor in the 50s started in the 40s. That was the impact on residency training particularly was the hill Burton program, which resulted, of course in the modernization and the construction of many hospitals, many of them in the suburbs, but not funding of public hospitals because they receive tax dollars from either local government or state government. So then we began in the early 60s, Kennedy proposed legislation early on in 1963, when the Millis commission was established, Congress passed the first health professions education Assistance Act of the 1960s in 63 in the fall, and over the course of the next two, five years, progress of additions were made to that until 1968. And I’ll say a little bit more about that in a minute. But also, other things that were not intended, at least as they were being considered. Medicare in particular, the debate on Medicare did not focus on either civil rights or on graduate medical education. But in fact, Medicare was to have a profound impact in both of those areas. After Medicare was passed, very early on, we began to focus on the because Medicare policy simply reimburse hospitals on a cost basis. You incurred the cost, you got reimbursed for those costs. And included in those costs were the cost of interns and residents and the cost of supervising physicians.

In addition, of course, the higher costs of patients in a teaching hospital were also part of that reimbursement. And they were to become explicit in 1983, when the drgs were added to the process, and we really changed the way hospitals were paid. But the, in the meetings we had and Bill longmire at UCLA, who was then Chairman of the Council on medical education of the AMA, was one of the really instrumental people in advising us on the development of those policies. And the they were both policies that related that influenced this, the explicit policies on GMA, but the policies that were, it might say unintended but had a major impact. Of course, were the payments for physicians services, part B of Medicare, and there being because of the usual customary and reasonable a payment method. It was whatever you set your fees, and what the fees were in the community were basically what was paid. And as the procedure base specialists were used to charging more and did charge more. And general practitioners in the main, were not high charges, and particularly if they were in rural areas. So you had this very skewed system of payment, that overtime made things progressively worse. And it wasn’t an intended effect of Medicare, but it certainly was an effect of Medicare. And many of the details I mean, the Social Security Administration, which was then administering the program, spelled out the broad policies and left the details of implementation to the various BlueCross plants which were the intermediaries for the hospitals, and mainly Blue Shield, which were the intermediate and the carriers for physician payment. And as a result, you had policies that differed from one part of the country to another in terms of how this was implemented. Medicaid, of course was quite another matter. And it was it just was dramatic in the early days of Medicare and Medicaid, the resources that were put in by the federal government to the implementation of Medicare, in contrast to Medicaid, which was basically a welfare program administered through the welfare administration in the Department of Health, Education and Welfare, not through the Public Health Service, not through social security. Social Security didn’t have anything to do with it, because it was a stigmatized population. And Franklin, who was a family physician, actually general practitioner, I think Frank was from Nebraska was the first administrator of that program, but that was a largely state determined policies and as a result did not have the same impact. Now with Medicare, another unintended consequence occurred in 1966 When it was very clear that the Civil Rights Act had to be applied to Medicare, the courts had decided in 1964 about heal Burton. And any hospital that was to receive heal Burton funds from that point on, had to be desegregated. And the hospitals didn’t believe it. Most of the doctors didn’t believe it. But in fact, the President was absolutely firm on this issue. It was a value driven policy. It wasn’t a focus group, there weren’t polls taken. And as a matter of fact, it was politically very detrimental to the Democratic Party to desegregate the hospitals in every congressional district in the south. But that is, in fact what happened over a very short period of time between February of 1966 and July. And not only did this have a profound effect on those institutions, when we began that process, In some states like Mississippi, only about 13% of the hospitals, admitted black and white patients. In other states, it was a much higher percentage. But that process move very, very quickly. But more significant, even perhaps then, the impact on the southern hospitals was the impact on residency programs in northern hospitals and southern hospitals. There were fewer black residents in northern hospitals, lower percentages than there were in the south. Many Southern hospitals that were desegregated had a larger numbers of black residents, in contrast to hospitals, and well that very quickly disappeared after the Civil Rights Act was passed. And I think Lou Sullivan actually, who later became the secretary that department Health and Human Services, was the first minority physician to intern at New York City. But and the so we saw a profound impact, totally unintended by the Civil Rights Act and Medicare. And then, by the time I reached UCSF in 1969, Clarke had been present president of the university. Until he, as he said when he was removed from his position when reagan was a governor, he said he left the presidency as he came to the University fired with enthusiasm. And, but while he was president, He instituted policies that we would now call affirmative action. And that there was a profound change. First of all, in the admission of minority students, and it’s 69. We were recruiting black students from actually all over the country. We had recruiters going out to recruit. within about three years, it was not only black students, but women. And the whole place was transformed within a decade, as has happened in most medical schools around the country. Again, the Civil Rights Act. People didn’t really think about this impact, but it was to have a profound effect on medical education, and then on a graduate medical education. Well in 68, the process of the health professions educational assistance legislation. That year we had the most comprehensive support for medical education and other health professions, dentistry, pharmacy, veterinary medicine, nursing, and provided not only grants for construction loans for students scholarships for students, but support for medical education. And the goal was to both increase enrollment and to increase the quality of education. And there were grants specifically designed to support innovations in medical education. And my deputy at that time for health manpower, Ed Rosen ski, who was a medical educator, its training was in not in medicine, but in education was the principle person behind that idea that there needs to be from the federal government supports for innovations in medical education. It wasn’t until 1971 that the federal government took a position on family practice actually, in the 60s, we didn’t take a position because there wasn’t a board. And we didn’t want to say that the federal government should dictate to the profession, what it should be doing. Although a number of general practitioners Amos Johnson among them were advocating to us that we do exactly that because they wanted to break down some of the barriers more quickly. But I think that the way it went was really the right way. Well, the family practice resonates with research supported in 71. And as a result of that, the numbers increase in in 69. There were 30 family practice residency. By 1975, there were 219. And by 77, all of the public medical schools had departments or divisions of Family Medicine or family practice. Only 50% of the private schools did that. Now, the federal policies were in a sense permissive. There were grants to be provided if you develop those programs, unlike say the Civil Rights Act, which was a regulatory and radical change. In 79, the federal government expanded the funding beyond family medicine to other primary care. A residency is particularly general internal medicine. pediatrics. Now by the 1980s. We were not talking about a shortage. We were now talking about an oversupply, we had doubled the enrollment in medical schools. We had increased the numbers as pizzette from 85 to 125, but double the output of the medical schools. And we then had a kind of a steady statements been a relatively steady state since then. But with a dramatic reduction in federal direct support for medical education, the research, support for research has continued. And the 800 pound gorilla, of course, has been Medicare in terms of funding graduate medical education. Now, unintended consequences. Also with respect to federal manpower policies from the Justice Department and the Labor Department. Labor Department said in the 60s there’s a health manpower shortage, which then resulted in changes in the immigration laws which resulted in very significant increases in the numbers of foreign medical graduates now called International Medical graduates in the residency programs, also, after Medicare, it’s interesting that the number of residences and affiliated hospitals that were medical school affiliated went up from 48% in 1964 65, to 77% by 19 7071. So in a five year period, a dramatic shift in the affiliation of residency programs with the medical schools also the number of foreign medical graduates, if you can believe in 1951, there are only 1300 and 50 in residency programs in the United States. That was 9% of the total. By 1969. There were 11,000. It was 32% of all the residents in 69. So that shift occurred, and it’s been relatively steady since then, although the numbers go up about 4% a year. It is still a, the percentages haven’t shifted as dramatically as they did in those early Medicare days. So when the hospitals could get the money to pay the residents, they added residency is very, very rapidly. And they continue to do that, until this year. The I’ve mentioned the impact the unintended impact that Medicare had, both on the GMA policies and on the payment policies.

We can have the first slide is there some way to flip that on? Oh, here we go. Here we got it. It’s like a miracle.

ete talked about these figures. And this is just a recapitulation, to see their dramatic effect. And this is I think, principally a Medicare effect. If you look at the growth in clinical faculty, we’ve had almost an eight fold growth in clinical faculty since 1965. The number of medical schools has doubled. Since 85, the number of med students has hardly increased at all. And we see again, this huge increase in the residents and even greater increase in the clinical faculty. If we could have the next slide.

Then you look, Pete mentioned the revenues. And you see the huge impact. Where is the money coming from? It’s like Willie Sutton. You know, he went where he robbed banks because that’s where the money was. Well, the medical schools added clinical faculty to generate the revenues which have now been the major factor in support. For the medical education, we could have the next slide. We notice here that in 6061 36% of the revenues came from research basically from NIH. Now the money’s increased, though, but it’s now only 18%. Whereas clinical service, and that includes faculty practice plans, in hospital and medical school programs of providing medical care, now up to 48%. And if you don’t think that doesn’t influence the policies of these institutions, where you are dependent then on the support of your educational enterprise, from your faculty practice revenues, and of course, in the what some people would consider the good old days when it was fee for service, and everything you did was a revenue generator. Now those become cost centers, from any of these services.

We’ll see what happens.

Now we find that Medicare like NIH has now become the dominant federal policy without being intended. And, of course medical, the Medicare policy for graduate medical education until 1997. There was no federal policy except will support whatever the hospitals do. And those residency training programs have continued to be dominated by service needs, and the interests of either the hospital or a clinical division head. Again, the policies that will fund you for whatever you do, will not only fund you with direct support for the resident and the supervising physicians will pay you a lot more for every patient you take care of, even though it’s been clear for years that the indirect medical education payments were far in excess of what the actual costs were for those patients. You had incentives in states like New York, because it was based on where we were in 1984. They base the these payments. Montefiore gets $200,000 per resident hospitals in Iowa get about 40,000. Now, if that isn’t an incentive, and you wonder, Well, why have that residence increased in New York and Pennsylvania in New Jersey? Well, it’s a very clear, very perverse incentive. Now, with the Balanced Budget Act, for the first time, Congress has said, we’re not going to fund any more residents, we’re going to put a cap on the number of residents. And they also have given some incentives to New York to reduce the numbers and they have now passed that on. They basically hold harmless for a five year period if you reduce the number of residents. And when we look at each of these areas, we see unintended consequences of the problem. He’s on graduate medical education on medical education. And certainly there’s been no incentive in any of the federal policies with respect, except for these small discretionary grants out of the Bureau of Health Professions to support the development of Family Medicine in the medical schools or in residency training programs. And you compare those dollars to the Medicare dollars to GMP, which trained huge numbers of physicians and specialties in excess of what the needs were. There’s been no focus on geriatrics or the needs of the elderly, in funding of the GMA programs in Medicare. And now we have a movement with a balanced budget act to support managed care, I mean to move HCA from being a payer, to being a purchaser.

And I think we can anticipate unintended consequences of these policies as well and nobody is really looking at that. The one thing they During the Balanced Budget Act, they said we’re going to reduce your ima funding over the next five years by about five and a half billion. But we’re going to take the money away from managed care plans, about 4 billion and give it to the teaching hospitals that 20% per year. So they take it away with one hand, give it back with another. There will be a modest reduction also in the payments for direct medical education in an attempt to really slow down this constant growth. And the only reason that happened this year is because the Republicans control Congress and Senator Moynihan from New York isn’t able to prevent that continued flow of funds uninterrupted without any limit into the teaching hospitals in New York and New Jersey and the Pennsylvania So we’ve had over the years over the last now 40 years. And going back to the context of Millis and the problems that they were addressing, as Pete said, we’re still facing many of the same issues. The federal policies, he’ll burden. NIH certainly had no beneficial effects on primary care on the development events, or on the development of Family Medicine, either as an intellectual field or as a practicing specialty. We have Medicare policies, which have now become the dominant policies, again, perverse and unintended effects. The only policies that were really directed towards sort of a rational system were the Health Professions educational assistance funds. We still have, you know, about $200 million maybe in the Bureau of health profession. Maybe 250. And Medicare has about seven and a half billion just supportive graduate medical education. And it is 11 billion. So it gives you some idea of where the incentives have been in the federal government. I think the it’s been a miracle, to my mind that this has family medicine is developed to the extent that it has in the face of these very, very formidable not only obstacles within the institutions within the universities, but because of these financial incentives that have flown from outside into those institutions to accomplish what’s been accomplished to date. Am I any more optimistic about the future? I would say? I don’t think so. I mean, I think we have to look at the unintended consequences of managed care and see if we can anticipate what those will be and try to move to get some more rational options. policies and maybe it was Peters help we can do that. Thank you.

Peter Lee, JD 25:12

I’m astounded Phil, that was ever so brief.

Philip R. Lee, MD 25:20

You intimidated me.

Peter Lee, JD 25:23

Not likely! Last, introducing Dr. Hewlett Lee. Huey the past president of the Palo Alto medical clinic is the Emeritus, Executive Director of the Palo Alto medical clinic, a trustee of the Palo Alto Medical Foundation professor at Stanford University. As my dad noted, he’s a surgeon. At one point he was however doing so many hemorrhoids that he was known as a vascular surgeon they’ll use a general surgeon by practice. Huey will give a perspective on the Millis Commission’s impact on the real world and practice rather than the lofty ivory tower. The world of the Beltway.

Hewlett Lee, MD 26:06

Lawyers are the real ones we want to do hemorrhoidectomies on.

It’s really, it’s really an honor here as a specialist to talk to all of you, primary care people, and, and particularly to follow these distinguished members of my own family as Pete just had a birthday, as he mentioned a couple days ago, and he’s now older than Mickey Mouse that he found on a trip to Italy last year that he was older than most of the monuments. So I’ve I, I’ve had that I had three older brothers that were in med school at the we’re all one year apart. And I learned from all these guys that the easy way to get by everything they would tell me who the professors are graded easily were and who the ones didn’t. require you to work very hard were the ones who didn’t have eight o’clock classes and all those things. So I, I had a much easier time getting through than they did I could just flow along and learn by their mistakes and, and except for the each time I introduced get introduced to a new professor, he’d say, Oh my God, not another Lee. Well, that’s all you can say now Oh my god, not another Lee. I had I had the pleasure of interning in those days when there is still an internship at Western Reserve. And we’re in was the dean and Millis was the president. And these things were beginning to ferment at that time. And then I came back. I had a residency at Stanford in San Francisco. And they in the old days, when surgical residency you know, the final pay of the final year after six years was $150 a month and and went to the enjoying the pelada Clinic in 1956. And the At that time, we were 70 physicians. And, and all but three were specialists. We had three general practitioners at that time and 67 specialists, the and concerned by the ever decreasing impact of the general practitioner, my dad and his grandfather said and he’s quoted in the military report as saying that we should build a monument to the general practitioner, barium and originate the concept of a personal physician. And as you know, the been some discussion this morning already the what to call this new personal physician that that was beginning to evolve as a result of the Millis report. And then the later creation or the very soon later creation of the board of a family practice was generalist primary care physician, family physician, family provider, and so on and so on. Ultimately, out of the distillate came the term family practitioner and with the with meaning had three additional years of training passed an exam. And this was occurring began to occur at the time when there was really severe, increasing fragmentation of the care. And I think this is one of the problems with with healthcare has been its fragmentation. And Peter, I’m sure as Peter Jr, I’m sure is faced with some of these complaints that there’s no continuity of care, the it’s all distributed amongst specialists who don’t really know the other half and when you have a primary care physician controlling this or guiding this or being the the manager of this, there’s going to be I think, a major increase in the general happiness of the of the patient. I had the pleasure of being a delegate to the AMA at the time, the Millis report was commissioned and it was coming As you all know, by the AMA itself, the Council on medical education, which has probably been the most significant committee of the of the AMA over the years, the, with the is the general practitioner status declining. With a specialist getting the cream of hospital appointments, the best and easiest hours, the most pay and the greatest status. It was no wonder really that, that their general practitioner was going into a steady decline on a national basis in the United States.

With with the creation of the board and a family practice, this was an incredible shot in the arm for the evolution and and beginning to pull people back into the field of general practice or now family practice. And the mission as a comprehensive doctor, a true primary physician with equal educational rank and status with a specialist, I think was was really something incredibly important. And a reversal of the specialization trend began cursor other reasons for this, as Phil pointed out, because sometimes that’s where the money money came from. But with the evolution of the board and the and the two subsets of the board, the competence special competence in geriatric medicine, and especially competence in family practice, I mean, in sports medicine, each requiring additional training in those fields, allowed further enhancement of the primary care physician in the US in 1900. There was 76 million people in the entire United States. And we had 119,000 MDS, almost all male, and there are 10,000 specialists at that time, in 1975. There were four 182,000 male and 30 and 86,000 female physicians so it’s a major, major change, you’re going for a total of 568,000 doctors.

And at this time there were 37,000 male family practitioners and 7000 female family practitioners and general practitioners numbered 25,000. So they had the change had begin to occur, the family practitioners beginning to ascend and the general practitioner was beginning to disappear. The by 1996 there were 580,000 male and 157,000 female physicians serving a population of 265 million in the United States. So in less than a century, we’d gone up you know, 100 million people.

We had at this time they were now 47,000 male family practitioners, 15,000 female practitioners for a total of 62,000. Family practitioners are really labeled as such as their family and general practitioners, the ones basically without the board training had dropped to 16,000. It was still it was a major turnaround, but it was still not enough. in Palo Alto. Now, at the palate clinic, we now have hundred and 80 doctors, and we have 33 family practitioners up from three in this in my distant during my tenure there. We have 45 internist, and we have only three general surgeons one vascular and one thoracic surgeon. So you can see the balance is really very, very different from the National balance. The the Millis commission felt that their ideology For a family practitioner was was in a group practice and that he or she could utilize the specialized colleagues for their help in diagnosis and treatment and and special procedures and group practice would give the patient the advantages of continuing contact with the physician who knows him well and knows his medical history combined with access to the wider array of skills and facilities. The with these are also has been an increased status of the family practitioner, he or she now has boards. The pay is become somewhat comparable. They, at least in our institution, and and they pass the exams they have, they need to recertify every seven years and they get two weeks off for education every year and all the time. necessary to study for the for the the new or the review boards that they have to take. They are staffing now family practitioners are now staffing the urgent care facilities. The female physicians are able to job share which is a great plus for them. We have some times to share we have about 10 female doctors job sharing at the present time. And they work in sports medicine and geriatrics. And, and they have an ever increasing load of patients who really love them for the comprehensive care that they’re able to give. And without the fractionated care they’re getting at the hands of the specialists. The the it’s really, I think a major evolution from the lonely, isolated, general practitioner, sleep deprived relatively poorly poorly paid to the To to the new family practitioner who has significant empowerment with management positions and a marked increase in in quality of life and lifestyle and good pay. And, and in the spirit and letter of the recommendations of millison those who followed him, we now make provisions for the for these. For additional time off they have sabbaticals and vacations things almost impossible for a for the individual and solo practicing general practitioner. The course is still a tremendous shortage nationally, and people like Peter have done a great deal to help that. I mean to alleviate that by establishing 17 residency programs in the Southern California area. And that’s pretty significant in its 17 p that you’ve made. No I did. Well, you you evolved Yeah. I’ve watched But there’s been there’s been a real move though though, at Phil Fox would know that Stanford does not have any primary care and any family practitioner program at its own university hospital the and I think this still I don’t know if they ever want to use it or not Phil family probably just moved

Philip R. Lee, MD 37:24

It out and put the in vitro fertilization group you know.

Hewlett Lee, MD 37:30

That’s that’s where the money is.

Well, we, we find we find the the knowledge and and vitality and energy and intelligence of the new family practitioners that we’re able to recruit, just fantastic. And they’ve been a wonderful addition to our institution now and we’re really delighted to see them. And we’d like to see the increasing turnaround. It’s still pretty competitive in our recruiting for family practitioners. The last surgeon we got we had 70 applicants for one job. And as you know, Stanford anesthesia last year, turned out to 13 anesthesia residents and six of them couldn’t get a job. And three of them went to Kaiser as nurse anesthetists even though they were MDs. So, you know, this great glut of specialists that we have, we still keep cranking them out, but we’re, we’re doing better on the others. Now, it’s been a great pleasure addressing you all and thank you for your attention.

people found this article helpful. What about you?