The Advent of Medicaid and Medicare: 1965 –1980

By the 1960s, a larger problem began to afflict medicine in the United States, and it hit public hospitals especially hard. The prosperous country that boomed after World War II revealed an impoverished underbelly that could not be ignored. Health care for the urban and rural poor alike was sorely lacking in a society regarded as the wealthiest on earth. In this context, many of the largest public hospitals became stages of conflict where physicians, nurses, and hospital staff struggled to provide adequate care in deteriorating facilities that were often ill-equipped and poorly provisioned.

Health and hospital insurance was another matter in the post-war public hospital blues. It was largely a feature of business expansion, when employers in all sectors typically covered employees on every rung. However, this system, which eventually eroded for millions of Americans, left the indigent and elderly without resources at a time when medicine had grown capable of treating literally thousands of diseases in new and effective ways. Although President Truman had planned a national health system in 1949, it proved politically impossible to forge into law, especially during the Cold War.

But in 1965, with President Lyndon B. Johnson’s “War on Poverty” and the “Great Society,” Congress enacted Medicaid and Medicare to provide some access to care for the indigent and elderly. These government programs, which largely enabled patients to apply to hospitals of their own choosing, did not resolve what experts had begun to call the “plight of the public hospital.”

Now chronically, and in some cases critically underfunded, public hospitals required administrative and structural changes if they were to survive. A variety of proposals floated in the early 1970s involved severing, partially or wholly, the public hospital from direct control by local governments and municipalities. The New York public hospitals came under control of a public benefit corporation, while in Denver the public hospitals merged with the municipal public health system to create a successful municipal health care system. Full divestiture was another solution chosen by other local governments, which transferred the public hospital to a medical school or other organization. For these hospitals, mission generally outlasted governance; divested hospitals frequently retained the public hospital commitment to serve all in need.

Predictions in the 1960s and even later forecast the demise of the public hospital, in great part due to the projected benefits the poor and elderly could receive from Medicaid and Medicare. Although the number of public beds declined and some hospitals would eventually shut their doors due to lack of funding, nothing like that came about. Medicaid from the start failed to cover at least one-quarter of the poorest patients, while Medicare never paid more than about half the costs of care for seniors; and those costs rapidly mounted in real-dollar terms. While the consumer price index rose 300 percent between 1960 and 1980, the per diem cost of hospital beds rose by 900 percent.

A clear need for “open door” hospitals with a high standard of care continued to exist and, in fact, to expand.  Creation of a Commission on Public-General Hospitals in 1976 brought a report two years later that crystallized the fact that “The future of the urban public-general hospital . . . must be uniquely treated.” The National Association of Public Hospitals (NAPH) was established just to that aim in 1980 as an umbrella advocacy group. It opened for business the day before the inauguration of Ronald Reagan, and one of its early legislative victories was recognition for the Disproportionate Share Hospital (DSH) that serves more than its share of low-income patients. DSH alone over the years has brought public hospitals billions of dollars and represents a critical source of funding.

Another aspect of the “safety net” hospital (as they began to designate themselves) was a redesigned commitment to the communities they served. Today, in addition to inpatient and outpatient services, safety net hospitals typically offer HIV/AIDS care, substance abuse counseling, prenatal care and obstetric services, and Level 1 trauma care. These services enlarge the scope and reach of public hospitals while maintaining their basic mission.