The origins, development, and passage of Medicare's revolutionary prospective payment system.

This article explains the origins, development, and passage of the single most influential postwar innovation in medical financing: Medicare's prospective payment system (PPS). Inexorably rising medical inflation and deep economic deterioration forced policymakers in the late 1970s to pursue radical reform of Medicare to keep the program from insolvency. Congress and the Reagan administration eventually turned to the one alternative reimbursement system that analysts and academics had studied more than any other and had even tested with apparent success in New Jersey: prospective payment with diagnosis-related groups (DRGs). Rather than simply reimbursing hospitals whatever costs they charged to treat Medicare patients, the new model paid hospitals a predetermined, set rate based on the patient's diagnosis. The most significant change in health policy since Medicare and Medicaid's passage in 1965 went virtually unnoticed by the general public. Nevertheless, the change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry. Medicare's new prospective payment system with DRGs triggered a shift in the balance of political and economic power between the providers of medical care (hospitals and physicians) and those who paid for it--power that providers had successfully accumulated for more than half a century.

New England's Blue Cross Blue Shield shake-out: a case study in consumer activism.

For two generations, Blue Cross Blue Shield (BCBS) insurance plans could be counted on to play a key role in the financing of every community's health care system. "The Blues" dominated the health insurance market, yet they were also a reliable "insurer of last resort." In recent years, BCBS plans have begun to re-structure to stay competitive. Four of New England's BCBS plans have proposed or completed mergers with Anthem Insurance, a mutual insurance company based in Indiana. This issue of States of Health looks at how advocates in New England are working together to protect health care consumers amid this transformation.

Capture and culture: organizational identity in New York Blue Cross.

This article explores the changing corporate culture of New York's Blue Cross and Blue Shield plan in its first fifty years. As the plan grew, corporate culture evolved over four sequential phases: the plan first had the character of an experiment, then that of a movement, a business, and, most recently, a corporate agglomerate. Accompanying this evolution has been an identity crisis, as the need to adapt to a turbulent environment has challenged the plan's settled understanding of its core values, namely, voluntarism, community, and cooperation.

The public presentation of Blue Cross, 1935-1965.

I explore the public presentation of Blue Cross, examining in detail the political, cultural, and institutional messages that shaped its advertising. Blue Cross advertisements had the twin purpose of attempting to increase the number of its own subscribers while criticizing the idea of a national health insurance policy. These twin aims did structure the Blue Cross campaigns but may well have worked at cross-purposes.

Seeking common ground: a history of labor and Blue Cross.

In recent years, voluntary health insurance costs have become a major source of friction in labor-management negotiations. What was once a "fringe" has led to job actions, strikes, and intensive bargaining. We examine the history of labor's participation in New York Blue Cross from the 1930s to the recent past and show that labor's participation in the plan was crucial to Blue Cross's success in the plan's early decades. By the late 1950s, serious tensions developed over rate increases and the participation of labor in Blue Cross governance. Ultimately, the issue was one of the control over what was provided by the plans and who would pay for the costs of care. We posit that labor was never able to achieve an important role in the control of the third-party payer, and in the antilabor environment of the 1980s this proved detrimental to labor's interests.

Sharing governmental authority: Blue Cross and hospital planning in New York City.

Hospital planning in New York has been since the 1930s an intensely political process with high stakes. The leaders of Blue Cross and their allies used the hospital planning process in the city and the state as a means to extend and protect corporate authority in what they took to be the public interest. When Blue Cross was established in the 1930s, its leaders used the mechanisms of formal planning as part of their solution to pressing problems in the organization and distribution of hospital services. In the decade after World War II, Blue Cross had an immense impact on hospital planning in New York as a result of its growth and its underwriting policies. Conflicts between Blue Cross and state regulators beginning in the 1950s led to a new formulation of the politics of planning. Blue Cross became a partner with the state in regulating hospitals. The state and Blue Cross behaved as co-regulators until the 1980s. The interpretation in this paper revises the earlier accounts of health politics in New York by Law (1976) and Alford (1975).

Empire and the business of health insurance.

I examine the development of privately provided insurance since World War II, giving special attention to Empire Blue Cross, and argue that the competition between employers and unions for the loyalty of workers after the passage of the Taft-Hartley Act helped diffuse private health insurance benefits already favored by federal policies. For-profit insurers did not challenge the privileged status of Blue Cross plans because they recognized the political benefits that the plans offered and because they did not wish to offend the plans' sponsors. A relatively easy and profitable business, health insurance has been greatly disturbed by the system inflation accompanying the introduction of Medicare and Medicaid programs. Now self-insurance and various managed-care schemes are major threats. The future may bring consolidation and the strengthening of pools, just the opposite of today's system fragmentation.

New York's Blue Cross and Blue Shield, 1934-1990: the complicated politics of nonprofit regulation.

The story of New York Blue Cross is one of complex interaction with state and federal regulators and also with hospitals, the medical profession, commercial insurers, and the public, who make up the regulatory environment. Negotiation, cooperation, and adaptation among parties whose goals and assumptions were partly parallel characterize the relationships. As we can see from New York Blue Cross's origins and its role in the development and administration of certificate-of-need legislation, Medicare, insurance practice and regulation, and hospital rate setting, this story does not represent the capture of government by a special interest, nor the gradual souring of a public interest organization, nor disinterested and distant government regulation.