In part one of this three part series, John Dalton, Advisor Emeritus at BESLER Consulting, provides a look at the state of healthcare in America from the 1930s through the 1960s.
Michael Passanante: Welcome back to the Hospital Finance Podcast. This is Mike Passanante. I’m glad you could be with us today.
Today, I’m joined by John Dalton, who’s an advisor emeritus here at BESLER Consulting and a long-time board member of St. Joseph’s Healthcare System in Patterson, New Jersey. John has quite a storied career in healthcare finance and he’s taken on a project to illuminate the history of healthcare reform in the United States.
And over a three-part series here, John is going to share with us that information and some of the revelations and some of the surprising things that have come out of healthcare reform throughout the United States in our long history. So John, welcome.
John Dalton: It’s nice to be here, Mike.
Michael: So John, tell us a little bit about what prompted you to take on this project.
John: In January, 2015, the CEO and board chair of St. Joseph’s asked me to chair a newly formed strategic planning committee and as part of that process, we wanted to be open and inclusive, so we set up a rather large committee with workgroups including a lot of our chiefs and chairs and community physicians and the like. And as part of that process to introduce them to strategic planning, we decided it might be a good idea to give them some background.
So since I’ve been around a long time and involved in a lot of the reform initiatives, I put together a presentation for the committee and the workgroups to really walk them through how we got to where we are today in terms of financing healthcare delivery system. What’s surprising was for many of the docs, this was a revelation because while they’re great on the clinical side, they really had no idea of how the whole financing mechanism had developed over the last 80 or 90 years.
Michael: So let’s start at the beginning then. We’ll call this part one. All Americans were uninsured. So there was a time in the country where there really wasn’t formal health insurance. And so I think your presentation starts out in the 1930s. So why don’t you take us to that time and tell us a little bit about how Americans lived then and how health insurance operated then?
John: At the time I was born in 1938, there were only some formative health insurance initiatives beginning. But if we go back to the Great Depression and immediately following the Great Depression, the injured in United States relied either on a municipal hospital or one of the religious hospitals and they took whatever he had the ability to pay.
In my instance, we are fortunate to have been born in Jersey City where the Margaret Hague Maternity Hospital was New Jersey’s biggest baby factory. Mom delivered in November, 1938. She got to have a full week of postpartum stay. My late twin brother and I were six week premature, so we ended up staying for about six weeks. And basically we were covered by the city. There was no charge for the services.
The ’30s were tough. Unemployment in the US peaked at 20% to 25%. The people didn’t have jobs, resources. We were fortunate being in a place like Jersey City. The Margaret Hague, just to put it in perspective, opened in 1931. Gorgeous art deco building part of the Jersey City Medical Center.
From the time it opened in 1931 until the close in 1979, 350,000 babies were born there. So most anybody that comes from Jersey City was born at the Hague. To put that in perspective, that’s an average of 9200 babies a year on a daily basis. Every day that that hospital was open, 25 babies got delivered.
In 1932, Franklin Delano Roosevelt was elected President and undertook the whole New Deal initiative, part of which is construction of that old Jersey City Medical Center Complex. He followed his cousin, Teddy’s lead and he proposed to include publicly funded healthcare programs as part of the Social Security legislation. Unfortunately, he had to remove those provisions from the bill because there was very strong opposition to compulsory health insurance from the American Medical Association and all state and local affiliates. So under Roosevelt, we got Social Security, but did not get healthcare reform, healthcare insurance.
However, in the late ’30s, groups of hospitals, again because of their financial concerns, began to form their own not-for-profit health insurance plans. That was the evolution and the beginning of the Blue Cross plans.
Michael: So we get to the beginning of World War II and our entry into the war really changed the dynamic maybe in advertently, but eventually it changed the dynamic of healthcare. Can you talk to us about that?
John: Yeah. It was an example of the law of unintended consequences. In building up to support the war effort, Kaiser Steel built the first steel plant west of the Rockies in the middle of a desert in Fontana, California I guess about 90 miles east of Los Angeles.
Then they were faced with the problem of “How do we hire staff?” Being in World War II, there were already wage and price controls in place, so they couldn’t pay a higher wage rate than folks in LA were getting and here they are sitting in the middle of the desert, trying to staff a steel plant. So what they came up with was to provide healthcare onsite for their employees who moved to Fontana to stay off to the steel plant. Kaiser Steel is long gone, but Kaiser Permanente remains today. That was beginning of employer-sponsored healthcare coverage.
Michael: And so we roll on to the 1950s and there’s an evolution there as well and maybe some looks at what universal coverage could be from the likes of President Truman to start. But can you talk to us about some of the initiatives that were happening in that timeframe.
John: Sure. Kaiser continually gets credit for the birth of employer-sponsored healthcare. But when Harry Truman became president following Franklin Delano Roosevelt’s death, when he was re-elected in 1948 against all odds, in 1949, he again proposed universal healthcare as part of his Fair Deal Program. So we had Franklin with the New Deal, Harry Truman with the Fair Deal. But again in the face of unanimous and strong opposition in the AMA, he had to drop that proposal.
In 1952, Dwight D. Eisenhower, America’s first five-star general, was elected President. And the Eisenhower years were best remembered as a time of relative peace and prosperity. He ended the Korean War or there was a police action as the Congress never formally declared war. But during Eisenhower’s years, we saw enormous growth in employer-sponsored healthcare insurance.
Just one quick example, I came home from school, seventh grade, spring of 1951 and not feeling well. Dad got home from work and called our family doctor who happened to be a surgeon. He made a house call. He came to the house, did some tests. “You need your appendix taken out.” He picks up the phone, calls over to St. Francis Hospital about four blocks away. He said, “Set up the OR. I’m bringing somebody in.”
So my dad walks me over to the hospital. The next thing I know I woke up the next morning in the 12 bed children’s ward, missing an appendix. But it was a different era then. I ended up with a full seven-day stay after an appendectomy and was sent home with instructions to remain on bed rest for five weeks before I could go back to school, which was great.
Throughout the ’50s, Eisenhower’s major contribution was the development of the National Highway System. But throughout that period, we saw employer-sponsored healthcare insurance grow and since my dad was a member of the Newspaper Guild, my appendectomy was covered by his employer.
Michael: So throughout the ’40s and well into the ’50s, you see this trend of employed people picking up healthcare insurance. But then you’ve got this whole segment of the population, the retired population. And now we got to the 1960s, now there’s an impetus to try to deal with that issue and get more people on health insurance. We might know the outcome of that, but talk to us about how that evolved and some of the dynamics.
John: Well, the ’60s were turbulent times on more than just the healthcare front as you well know. But after receiving my engineering degree in 1960, I went to work for a Fortune 500 company and early in 1962, they sent me out to Los Angeles to start up and run a small chemical plant.
Those were interesting times to be in California, Southern California in particular. The state had just implemented the nation’s first Fair Employment Practices Commission and I’m old enough to remember want ads that said, “Irish and Italians need not apply.” But more importantly, LA County had just implemented the Air Pollution Control District to try and fight smog. So here I am, a rookie 23 year old engineer having to deal with all kinds of regulations with emissions and whatnot that my senior folks back then had no clue about.
But in October, 1962, our first child was born at St. Joseph’s Hospital of Orange, California. And to my wife’s dismay, her friends back here in Jersey were enjoying five-day postpartum stay. She was sent home in two days. That was “Welcome to California.”
In ’65, my second son was born at Presbyterian Intercommunity Hospital in Whittier. We had bought a house and moved to Whittier. And again, Anne was sent home in two days. But what I remember most from that stay, I still have the bill, the total charges for mother and baby for two-day stay was $167. Now to put it in perspective, at that time, I was making 200 bucks a week, but $167 of charges for a normal delivery is hard to believe these days.
Michael: Yeah, it’s hard to argue with.
John: But I still have the bill. And of course, my employer paid 80% and I paid 20%. So that was California.
Third child was born in Christ Community Hospital in Oak Lawn in Illinois, which is now part of Advocate Health System, the bigger players in the Chicago area. After I finished my MBA in Finance, my company moved me back to headquarters and I decided to put down roots and change jobs. I went to work for what’s now Deloitte at the time in New York as a senior consultant. And that’s when I first got involved in directly assisting healthcare providers.
But back in the ’60s, after Kennedy’s assassination in 1963, Lyndon Baines Johnson became President. And while Kennedy was somewhat of a visionary, Johnson was a mechanic. He knew how to work the Congress, he knew how to work the cloakrooms and he got an enormous amount of the New Frontier Legislation passed including the Voting Rights Bill, the Civil Rights Bill of importance to us, the Title 18 Medicare, which was named after Canada’s pre-existing Healthcare for All Program and Title 19 Medicaid, which now provided coverage for medically needy individuals throughout the country. Medicare was a federal program. It covered seniors and also it was cost-based reimbursements and seniors had coverage. And the Medicaid was a federal and state program. In most cases, the feds pay 50%, state picked up the other 50% of the cost.
So with that expansion, now all of a sudden, a much larger segment of our population didn’t have to worry about care, especially seniors who tend to be the higher users at the end of life of healthcare systems.
Of interest to our folks in New Jersey, a little piece of healthcare trivia that you could dazzle your friends with, the first Medicare inpatient claim was paid here in New Jersey. It was processed by what’s now Horizon Blue Cross and they got the check and drove it up the road to Jack Farmer who was CFO at East Orange General Hospital. It actually made the 5:00 news. Welcome to Medicare.
Michael: Wow, there’s nothing like some Jersey pride in this story. So we appreciate that and coming out here in Princeton, New Jersey. John, that was a great retrospect on a 30-year period there as we’re in the 20th century and the healthcare is changing. I know you will be coming back for part two and we will be talking about a very changing environment where costs begin to skyrocket, rate-setting emerges and really a lot of different changes impact healthcare finance. So we are looking forward to that.
John: Thanks, Mike.