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Politics and Health Care Organization

HMOs as Federal Policy

By Lawrence Brown

Among various health cost containment strategies proposed during the 1970s, none has held more sustained fascination than the health maintenance organization (HMO). For many years, policy analysts in search of market- and incentive-based alternatives to “command and control” regulation have argued that medical groups combining prepayment and group practice, and offering comprehensive medical services within a fixed budget, would hold down costs both by their own efficient operations and by the competitive pressures they would apply to the conventional systems. During the 1970s, three presidents and five Congresses worked to formulate and implement legislation to increase the HMO presence nationwide, with very modest results. Some observers concluded that but for the well-intended but counterproductive efforts of the federal government, HMOs might thrive. Indeed, the Reagan administration has called for an end to direct federal financial involvement in building HMOs—though it has also promised legislation to promote HMOs and a newly competitive health care system based on revamped financial incentives and reinvigorated markets. In this book, Lawrence D. Brown, a senior fellow in the Brookings Governmental Studies program, examines the interplay between politics and policy in the federal HMO development effort between 1970 and 1980. He argues that the basic explanation for the disappointments of the policy analysts and federal supporters of HMOs lies not in a political miscarriage but in the overambitious promises of the policy strategy itself. Tracing the poor fit between policy and politics revealed by federal efforts to translate the attractive HMO idea into a workable strategy, Brown concludes that the episode augurs poorly for the competitive reforms frequently offered as a nonregulatory solution to rising health care costs in the 1980s.

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