Dr. JWW *~* backstory of his “plan” ~ the ‘how’ and ‘why’ it was so successful

by faithgibson on April 25, 2016

  • Historical factors that first created the need, and then played into Dr. Williams’ plan by making it extraordinarily successful

  • How his plan, in conjunction with two additional elements, continues to underwrite our modern for-profit hospital system

The synopsis of Dr. Williams’ book and its three-step financial plan often leaves readers with more questions than when they began. This is natural, as the circumstances surrounding Dr. Williams’ as a historical figure, as well as his far-reaching plan, are both multi-layered and complex. They include unfamiliar aspects of history, and the political, economic, scientific, and social issues of the time (1910-1914), and as they these fields of human endeavor changed over the remainder of the 20th century and on into the 21st.

This story is so complex that I have actually written the better part of a book to explain these many elements, how they weave together and why these century-old decisions are still operative and crucially important today.

However, I also think a “primer” of some sort would be useful for readers who don’t have the time or interest in the many twists and turns and fine details. I hope this short document can still provide a useful understanding of how and why America adopted the particular kind of  hospital-based “healthcare” system (actually, a sickness-care system) that we have today.

Compared to other developed countries (who spend far less and get much better results) our disease-oriented, sickness-care system is marred by it high level of unproductive expense, and is economically unsustainable. From the perspective of a patient’s personal experience and social values, our over-priced sickness-care system is dysfunctional in a multitude of big and little ways. Overall, this so-called ‘health care’ system offers neither ‘health’ nor ‘caring’ in far too many instances.

With the facts below, I hope the average reader will also understand why the Affordable Care Act of 2009 (i.e. Obama Care) did not, and cannot change the dysfunctional nature of our profit-centric corporate-based system. As currently enacted, the ACA simply provides an additional and much deeper (federal) pocket to reimburse hospitals. This reimbursement is based on “usual and customary” fees,  irrespective of whether or not the care rendered was actually necessary (or represented the ‘defensive’ practice of medicine), was cost-effective or humanely rendered.

The current business model of American hospitals revolves around corporate interests (i.e. quarterly profits and shareholder-value), rather than the best interest of patients, and long-term financial health of the US in highly-competitive global economy.

How and why Dr. Williams’ historical plan became so influential

In the decades between the publication of Dr. Williams’ book (1914) and the post-war era of the 1950s, the combination of three specific elements that substantially increased the number of general or ‘community’ hospitals and greatly increased the quality of medical and surgical services they provided. However,Dr. Williams plan was first and most crucial of these three, as it set up the circumstances for the other two elements.

By the early 1950s, Dr. J. Whitridge Williams’ goal for the US had been achieved, as most American hospitals were able to provide ‘modern’ or scientific medical care and to make such care available in “every middlesex, village and town”. Knowing that American citizens had dependable access to a fully-functional hospital system that most Europeans already enjoyed would have made him proud.

Three key ingredients in the “magic sauce”

In his 1914 book, Dr. Williams’ solution to his own self-imposed “Mission Impossible” was to invent a brand new business model uniquely tailored to the needs and limitations of the times. His successful plan ultimately produced our unique system of private- and corporately-owned, for-profit hospitals.

The lynch pin of these three historical elements was Dr. J. Whitridge Williams’ invention of  a business model that, for the first time ever in the history of hospitals, was able to provide American hospitals with dependable and profitable revenue stream.

This was made possible by dramatically expanded the market share of hospitals as profit-making businesses. To achieve this ambitious goal required a number of coordinated and interlocking phases.

  • The first part of his plan was that each individual hospital physically add a new or expanded maternity ward and hire the necessary hospital staff.
  • The next phase was to promote the patronage of a sufficient number of healthy women as maternity patients and paying customers.
  • The last phase began when the hospital was able to use the new revenue generated by their new maternity ward to upgrade, expand and equip itself as a general or ‘community’ hospital capable of providing state-of-the-art comprehensive medical services to local citizens.

However, Dr. Williams’ plan for the elective hospitalization of healthy maternity patients was designed to be a permanent feature of the new business model. This dependable form of hospital patronage (and its resulting revenue stream) was correctly identified as necessary to the profitability of hospitals as a stable business model.

At the time Dr. Williams developed and promoted his new business model, (1914) with its interlocking phases, it would have been referred to as a ‘virtuous cycle’

*Wikipedia definition: The terms virtuous circle and vicious circle (also referred to as virtuous cycle and vicious cycle) refer to complex chains of events which reinforce themselves through a feedback loop.[1] A virtuous circle has favorable results, while a vicious circle has detrimental results.

Virtuous vs. vicious cycles in paying for & providing hospital services

The feedback loop created by Dr Williams was intended for a truly noble purpose — financing a nationwide system of fully-functional hospital. As Dr. Williams envisioned, the success of his plan helped many millions of Americans by providing access to effective and critically needed medical services over the next half century.  There is no doubt that our 20th century system of comprehensive community hospitals saved countless lives and dramatically reduced suffering and permanent disability for many others.

The fact that such a system was needed is not in dispute. 

But despite the good doctor’s good intentions, a self-perpetuating chain of events that began as a way to raise money became a vicious cycle that produced many layers of ‘unintended consequences’ over the course of the 20th century. Its historical harm is irrefutable, and many of these ‘unintended consequences’ are still with us today.

The issue that affects literally 100% of the population in the US is who pays (or doesn’t) for healthcare in general, and hospital services in particular. As readers will recall from my earlier “Synopsis” of Dr. Williams’ book, the natural demographic for hospital services has always been, and will remain the sickest-of-the-sick and serious injured. Caring for those with a critical illness or injury has never been a profit-making business model, since this is the worst possible demographic to count on as ‘paying customers‘. 

While Dr. Williams’ expert prodding did produce the same kind of comprehensive hospital system in the US used for centuries in Europe, he and other influential leaders and decision-maker totally rejected the successful financial model used in European countries to pay for such essential services.

In Europe, the cost of hospital services for the sickest-of-the-sick and injured was spread out among all healthy adults citizens as a modest uniform tax. But under the ‘rules’ enforced by organized medicine in the US, all forms of tax-support was permanently and irrevocably off the table.

Instead their plan was to generate a profitable revenue by having families from the middle and upper-classes ‘electively’ hospitalize their healthy childbearing women as maternity patients. They could count on millions of babies to be born each and every year (2 million in 1914, which went up to 4 million by 1950) and count on that money to make hospitals into a profitable business, one that could plow its profits back into the system and expand and monetize it even further to the delight of hospital administrators all across the country. 

How these financial decision affected healthy childbearing families then and now

Less in number but still effecting a staggering 4 million childbearing women a year (as well as their 4 million babies, 4 million significant others, older children and their extended families) are the on-going problems with how maternity care is provided to an essentially healthy population of childbearing women. The central issue is an utter lack of cost-effectiveness and routine use of risky, medically-unnecessary, often harmful interventions and invasive procedures in normal childbirth as the ‘standard of care’ for the US.

Direct examples can be seen in a national Cesarean rate of 33% with no associated improvement in neonatal outcome. This century-long legacy of routinely medicalizing healthy women also give us a 60% rate for inducing or speeding up labor with drugs. There is an increasing number of premature and preterm births, and increasing rate of maternal mortality (from 8 deaths per 100,000 in 1982 to a high of 17 per 100K in 2007).

At the time the public relations aspect of Dr. Williams’ plan was first being implemented, it represented a ‘bait and switch’ scheme that include extreme deception at many levels. Perhaps the first and in many ways the most fundamental was an unspoken assumption by childbearing families on the nature of this ‘elective hospitalization’.

People naively believed the hospital’s lying-in would provide same kind of supportive care during labor that they normally received at home from their midwife or family doctor, but with added advantage that medical treatment would be immediately available should a problem or complication occur. This was a particularly comforting thought to first-time mothers-to-be.

At this time, less than 5% of all women gave birth in hospitals, and that was only because of serious medical complications. For the other 95%, care during labor in their own home typically included the continuous supportive presence of family and close women friends. Whether the birth attendant was a midwife or a doctor, both practitioners were usually present during the bulk of active labor; both normally encouraged women to move about in labor and to make right use of gravity, especially during the pushing phase. “Patience with nature” was the watchword of the day.

The assumption by the general public was that a hospital lying-in service replicated this type of physiologic care, with the afore-mention ‘safety’ of hospitals to intervene in complicated birth. But a great number of important things got “lost in translation”, as support for normal biological processes was replaced by routine use of medical interventions. 

This long and remarkable list stated by totally eliminating the midwife, and/or midwifery care in any form — physiologically-based care was deemed to be old-fashioned and inadequate at best and at worst, downright dangerous. The next thing to go was support during labor by family members or friends. In fact the any presence of anyone who was not on the hospital staff was strictly forbidden, no matter how brief.

With both midwife and family out of the picture only the doctor was left as a caregiver and provider of psychological support. But unlike midwives, MDs only ‘delivered’ the baby, they did not attend to the physical and emotional needs of the mother during the long hours of her labor. The literature of the day describes this period of time as “the waiting period before the doctor is called” (to perform the ‘delivery’).  

Instead of the personal presence of comforting humans, the pain and psychic stress of labor was ‘managed’ by giving every labor woman a series of frequently repeated injections of strong narcotics and Twilight Sleep drug ‘scopolamine”, which produces amnesia and has a hallucinogenic effect.  Since resulted in a state of semi- consciousness in most women while a few became agitated, even combative and had to be put in four-point restraints to keep them from falling out of bed of hurting the nursing staff. This totally eliminate any opportunity (or even ability) for women to move about in labor or make right use of gravity, especially during the pushing phase. “Patience with nature” was NOT the watchword of the day!    

and a great concern over hospital-based contagion and scrupulous avoidance of anything that might in any way carry germs from one patient to the next. 

In the 101 years since “Twilight Sleep: A Simple Discovery in Painless Childbirth” was published, and Dr. Williams’ plan was implemented at a national level, there has been a wholesale indoctrination of society. This PR campaign  specifically targeted at the middle and upper-classes to entice healthy childbearing women electively patronize the lying-in wards of their local hospital.  

Unfortunately, the methods chosen in 1914 to achieve this dubious goal was a full-on propaganda campaign. Dr. Williams claimed that spontaneous childbirth in the economically targeted class of paying customer, no matter how healthy the woman, how normal the pregnancy or normal the labor, was characterized as pathologically painful, so much so that the laboring woman might go mad and have to be committed to an insane asylum if she was not giving Twilight Sleep drugs during labor and general anesthesia during the birth.  and/or unconscionably dangerous failure to medicalized their normal labors and births and to remain in the hospital during a normal postpartum-neonate period, was .   in that depends on the patronage of a healthy population that does not need (or in many cases, want) the medicalization of normal labor and birth and the  and thus does itself receive .    

Today the idea of hospitalizing and medicalizing a healthy segment of society in order to generate a new revenue stream to finance a system of upgraded community hospitals would be seen as a . 


Dr. JWW’s triparte plan

Phase #1: The first coordinated step required that all existing hospitals in the US open new ‘lying-in wards’, hire a nursing staff and arrange for the medical management of normal childbirth by local doctors. After the birth, both mother and new baby would remain hospitalized for the following two-weeks, requiring a postpartum ward for new mothers and a newborn nursery to provide care to babies.

Phase #2 was to identify or create a demographic or ‘target population’ who use of these new services would be profitable to the hospital. Dr. Williams answer was to invent the idea of electively hospitalizing middle and upper-class healthy maternity patients who were financially able to pay for these services came up with was both an obvious and at the same time, a brilliant idea — what he and many others considered to be  w was middle and upper-class women those families who could afford to pay for hospital-based maternity services

Phase #3 closed this innovative financial loop. What started as relatively the small idea (offering maternity services) expressly for the purpose of making a profit, could not be invested in ways that would fundamentally and forever change the nature of the hospital business. The old restraints that keep hospitals unprofitable were being swept way and replaced by a model that ultimately created a modern nationwide system of general hospitals equipped to be the ‘gift that kept on giving’


A closer look at the historical aspects of Dr. Williams’ Plan  

1. Why didn’t the United States already have the same kind of  ‘comprehensive’ and geographically-accessible hospital system like those in Western Europe? Great question with (you guessed it!) a multi-part answer.

The first and most straight-forward answer is that the United States was only a 138 years old in 1914. It is unrealistic to expect such a young nation to match the abilities of European countries that were (in many cases) already a thousand years old. Most of us have seen photos of woodcuts portraying hospitals in the 15th or 16th century.

These are usually a ward scene in which Catholic nuns are providing care in great hall with a dozen or more patient beds lining each side of a central isle. Obviously this must have been a nightmare in regard to contagious diseases! Since the 1881 discovery of the germ theory, the title for these prints should now read “We’ve come a long way baby!”

But given a history of many hundred of years, it’s not surprising that most European countries had long ago developed a nationwide system of public hospitals. These well-equipped and medically-sophisticated hospitals dotted the landscape of Western Europe, providing state-of-the-art medical and surgical services to their local population.

2. How did Dr. Williams know about this ‘better’ system and why did he care?

The absence of a fully-functional hospital system in the US had problems that went beyond a lack of service to its citizens. It also was not able to provide a critical element of medical education knowns as ‘clinical’  or ‘hands-on’ training. As a result, families enjoy some degree of wealthy enrolled their newly graduated sons in clinical programs sponsored by big European hospitals.

After Dr. Williams graduated from medical school in 1886, he traveled to Europe for clinical training in obstetrics and pathology. Over the course of a year, he rotated through a number of hospitals in different countries, including Germany, Austria and France.

Having studied in the best hospital on the European continent, Dr. Williams personally knew that the US had no similar system for providing comprehensive hospital care that was generally accessible to the public.

same type of comprehensive and publicly-accessible hospital system for American citizens that most Europeans already enjoyed.

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Instead of the comprehensive system used in other industrialized countries, our countryside had thousands of  tiny, 2-to-10 bed hospitals. As a rule, these one-room hospitals were owned and run by doctors as a for-profit business which depended solely on the patronage of paying customers.

For financial and practical reasons, these ill-equipped and poorly-staffed facilities were unable to provide any ‘general’ or ‘comprehensive’ care to the public, such as emergency services. They also could not afford to purchase the expensive new equipment required to provide ‘modern’ medical services such as clinical labs, x-ray departments and fully-equipped surgical suits. As a result these tiny hospitals mostly provided a ’boutique’ service, such as minor surgery or convalescent care for patients suffering from a mental breakdown.

The only hospitals in the US that were adequately equipped and staffed to provide comprehensive emergency and in-patient services were a handful of big city hospitals on the Eastern Seaboard, the West Coast, and densely populated urban areas in the interior of the country. These public hospitals were either city-run such as Bellevue in NYC, Charity Hospital in New Orleans, and Cook County in Chicago, or associated with a university’s medical school, such as Columbia, Harvard and Johns Hopkins.

He envisioned a nationwide system hospitals in the US to mirror the European system. This called for general hospitals accessible to the public and to provided comprehensive emergency services, state-of-the-art diagnostic equipment, major surgery and skilled in-patient care of the same high quality already widely available to the average citizen in Europe, and the lucky few Americans who lived in within a few miles of a famous medical school, such as Dr. Williams’ own alma mater and employer, Johns Hopkins University Hospital in Baltimore.

Dr Williams’s goal was to make this same state-of-the-art medical care already available patients of Johns Hopkins to all Americans, no matter where they lived. He believed that farm families and those living in small towns should have the same access to life-saving hospital services as big city dwellers.

 


 

The next topic is

2. Money and the AMA

 

3. Profit and childbirth

 

During this era, hospital maternity services for healthy women as paying customers was inherently profitable, specifically because these so-called ‘patients’ were neither sick nor disabled and mainly cared for themselves and their newborns.  In the early decades of the 20th century, the Cesarean rate was only 1%, which  meant 99% of these women had normal vaginal births. They were able to feed themselves, walk around normally, and didn’t need any expensive drugs, IV fluids or other highly medicalized services.

Hospitalization of newly-delivered mothers and nursery care for their babies rarely required any more than standard ‘hospitality’ services. Like a guest in a good medical hotel, each new mothers was provided with a clean bed, fresh linens, regular meals, while simple caregiver-functions and advise on caring for their newborns was provided by the department’s nursing staff. As a result the modest fee collected from each family was able to provide a dependable profit to the hospital.

Dr Williams based this calculation  on simple arithmetic that used the annual birth rate for an average county in the US as reported by the 1910 census, which was 700. He predicted that if only half (350) of these childbearing women could be enticed to patronize hospital maternity wards (with husbands willing to pay), every hospital’s new lying-in ward would instantly become its new profit center.

Through out the first half of the 20th century, maternity hospitalization was typically included a 14-day stay for each mother and her neonate. This doubled the census for patient-days per admission to 28. Even if a hospital lying-in ward had just one birth a day, this added up to a grand total of 9,800 paying patient-days per year.

In addition to sheer numbers of pregnant and newly delivered patients, lying in services had the added benefit of extraordinary dependability associated with normal childbirth and there was lots of ‘repeat business’, as the average married woman in the early 1900s had 6 live births.

All this was in sharp contrast to the hospital services required by the ill and injured. Unfortunately for hospital staffing purposes, sickness is mostly seasonable and unpredictable, while major diseases (heart attacks, cancer, etc) and serious injuries were erratic in timing and undependable in number.

Childbirth on the other hand was predictable both in number and timing. Based on the overall birth rate for a local population in the previous few years, the number of babies likely to be born that year could confidently be predicate. And come rain or shine, summer sun or winter snow, women had babies every darn day of the year, making normal childbirth a 365-days-a-year business.

In the early 1900s, the dependable income generated by the baby-business meant far more to hospitals that simply keeping the doors open and the lights.

They were suddenly able to replace 19th-century medical practices and out-dated equipment left over from the pre-scientific day of medical practice.

They could also afford to expand, upgrade and modernize their facilities or expand into near-by communities by building new hospitals. They could purchase capital-intensive medical equipment such as x-ray machines and other scientifically-advanced technologies and sophisticated diagnostics equipment that were the hallmark of “modern” medicine. Even the smaller hospitals to could afford to modernize their surgery suites, put in more patient beds and open a clinical laboratory for analyzing blood, other bodily fluid and tissue.

The second financial structure in the 20th century business model was to augment the hospital’s revenue by offering elective out-patient services to patients sent by their doctors for x-rays, laboratory services and minor out-patient surgery and as mentioned earlier, other hospital-related business decisions that generated additional income such as leasing space for medical offices and other independent contractors who provided services that did not directly compete with the hospital’s line of services. 

Third and last critical element in this short list was (and still is) the ‘insured’ patient, whose hospital bills will dependably to paid by a third party. Usually this is employer-sponsored medical insurance, but since 1965, Medicare and Medicaid have become a major player. In the arena of childbirth, 50% of all births are paid by funds from this federal program for the medically indigent.

As described in great detain earlier, it is crucial that hospitals get regularly and reliably reimbursed no matter how big the patient’s hospital bill is. The early privately-own for-profit or non-profit hospital system and more recently, the corporately-own for-profit hospitals could not stay in business without these 3rd party reimbursement systems, which are critical to the for-profit system.

 


Expanded Background information on the events described above:

{NOTE to Self – many redundant paragraphs – maybe better to melded into one stream of synoptic and background information}

Dr. J. W. Williams was a visionary whose ultimate goal was to successfully meet a critical medical need in the US — the United States did not have but desperately needed a nationwide system of well-equipped and publicly-accessible general hospitals in every population center, such as the comprehensive system already used in Europe for centuries.

After Dr. Williams graduated from the University of Maryland’s medical school in 1886, he traveled to Europe to study and take clinical training in obstetrics and pathology. As a result, he was very familiar with the sophisticated system of well-equipped public hospitals that dotted the landscape of Western Europe, providing state-of-the-art medical and surgical services to their local population.

However, there was nothing like this in the US. Instead of the comprehensive system used in other industrialized countries, our countryside had thousands of  tiny, 2-to-10 bed hospitals. As a rule, these one-room hospitals were owned and run by doctors as a for-profit business which depended solely on the patronage of paying customers.

For financial and practical reasons, these ill-equipped and poorly-staffed facilities were unable to provide any ‘general’ or ‘comprehensive’ care to the public, such as emergency services. They also could not afford to purchase the expensive new equipment required to provide ‘modern’ medical services such as clinical labs, x-ray departments and fully-equipped surgical suits. As a result these tiny hospitals mostly provided a ’boutique’ service, such as minor surgery or convalescent care for patients suffering from a mental breakdown.

The only hospitals in the US that were adequately equipped and staffed to provide comprehensive emergency and in-patient services were a handful of big city hospitals on the Eastern Seaboard, the West Coast, and densely populated urban areas in the interior of the country. These public hospitals were either city-run such as Bellevue in NYC, Charity Hospital in New Orleans, and Cook County in Chicago, or associated with a university’s medical school, such as Columbia, Harvard and Johns Hopkins.

He envisioned a nationwide system hospitals in the US to mirror the European system. This called for general hospitals accessible to the public and to provided comprehensive emergency services, state-of-the-art diagnostic equipment, major surgery and skilled in-patient care of the same high quality already widely available to the average citizen in Europe, and the lucky few Americans who lived in within a few miles of a famous medical school, such as Dr. Williams’ own alma mater and employer, Johns Hopkins University Hospital in Baltimore.

Dr Williams’s goal was to make this same state-of-the-art medical care already available patients of Johns Hopkins to all Americans, no matter where they lived. He believed that farm families and those living in small towns should have the same access to life-saving hospital services as big city dwellers.

The Biggest Problem of All ~ Where would the money come from?

The most daunting aspect of Dr. Williams’ dream was financing. To match the highly efficient European system required public access to a fully-functional general hospital in every center of population all across our large country, ‘sea to shinning sea’, and from our northern boarder with Canada to the southern boarder with Mexico.

To upgrade and remodel existing hospitals and build and properly equip the large number of new hospitals that would  be needed, Dr. Williams had to come up with a fool-proof plan to finance this new system that was both dependable and adequate to the task.

Such an ambitious goal would require a steady and profitable revenue stream for unknown decades into the future. Equally (if not more) daunting, this all had to be accomplished without relying on any public source of funding, such as government subsidies or any form of national health ‘insurance’.

The reason tax-based revenue was off the table was quite simple: Organized medicine totally and relentlessly opposed what they pejoratively referred to as “socialized medicine”. Under any and all circumstances, the AMA and similar groups were dead-set against public financing of hospital facilities or medical service provided by doctors. The ownership of hospitals by state and federal government, and hiring MDs as government employees was seen as an egregious violation of the free-enterprise system. They believed this to be un-American and something they simply could not, would not tolerate.

At the end of the 19th century, the most influential medical doctors were from the upper-classes. Post-graduate clinical training was not yet available in the US, but many of the wealthier new doctors could afford to go to Europe to continue their medical studies for months or even years. As a result the very doctors that would become the movers and shakers in the politics of American medicines, also were afforded a very up-close and personal look at the European system.

This not only included its impressive system of general hospitals (which for good reasons they envied), but the behind-the-scenes bureaucracy, which turned out to be extremely burdensome and encrusted in ‘traditions’ that definitely were not ‘state-of-the-art’.

The bureaucratic hospital systems in Europe also suffered from nepotism, as it was not uncommon for the king to appoint his wife’s brother or nephew as administrator of one of these local hospitals. Unfortunately, training, experience and demonstrated abilities relative to the practice of medicine and running a large organization were NOT a prerequisite!

For individual doctors, it often was not what they knew but who they knew that counted most in advancing one career.

In such a bureaucratic system individuals were not rewarded for working hard and/or risk-taking — that is, creating or using new treatments — but instead were expected to know their ‘place’ and stay in it without drawing attention to themselves.

The practice of medicine, if unfettered by ‘government interference’, was seen as one of the greatest entrepreneurial opportunities in America, a system in which self-employed doctors owned and ran private hospitals as

Initially this required that all existing hospitals open new ‘lying-in wards’. The target population was middle and upper-class women those families who could afford to pay for hospital-based childbirth services, which included a two week hospitalization of both mother and new baby. Even if these new maternity departments only had one birth a day, the combined hospitalization of the newly-delivered mother and her newborn for 14 (or more) days increased the hospital’s daily census by 28 patient-days for each and every birth that occurred in their facility. This generated an annual maternity-ward revenue of 9,800 patient-days, which was on top of ordinary revenue from the hospital’s other patients.

Due to the critical role that maternity patient had in generating hospital revenue, combined with the extremely large number of potential maternity hospitalizations (the annual birth rate was over 4,000,000), it was decided that every community of 3,000 or more should have a lying-in hospital, or ward in an existing hospital. Dr Williams believed that lying-in hospitals would soon become: “as ubiquitous, if not quite as abundant, as libraries and school houses”, which would create a reliable and profitable revenue stream.

In the many decades before the malpractice insurance crisis, hospital care for healthy women who had normal vaginal births was neither technically difficult nor expensive for the hospital to provide. This meant the relatively small charge for maternity services still able to provide a healthy profit margin, which was to be plowed back into capital improvements to the facility. This would pay for a new and fully-equipped surgery departments, as well as the purchase of expensive medical equipment such as microscopes, x-ray machines and industrial-sized autoclaves.

Since maternity departments so easily generated the bread-and-butter income for hospitals, these ideas were embraced, quickly implemented and have been used successfully ever since to underwrite the American hospital system.

Return to chapter directory for “Twilight Sleep: Simple Discoveries in Painless Childbirth”

An Aside on the principles of insurance –> hyperlink to this explanation for those would want to ‘drill down’ (or use in another documents)

While the principle behind insurance is called the “law of large numbers“, its critical core actually depends on very small amounts multiplied many times. This describes circumstances in which a large number of people pay small ‘premiums’ that are deposited in the bank; over time, this creates a very large pool of money.

For life insurance (i.e. survivor death benefits), premiums are calculated to exceed the total number of insured individuals who died in the previous year.  This big pool of money allows the insurance company to pay the face-value of each policy to family members, as well as cover the company’s annual costs of doing business.

When the ‘law of large numbers‘ is applied to medical/hospital insurance, the same principles apply. The insuring company calculates its rates to be sure that its annual expenses — the number of claims and the cost of doing business — are significantly less than the aggregate annual revenue from those it insures.

Essentially, these companies are betting that a far smaller number of people will need hospitalization or other covered medical services than the much larger number who regularly pay a relatively substantial premium. In return, the insured person is assured that the hospital will be reimbursed for all in-patient medical services covered by his or her policy.

When an insurance company astutely administers its premium structure (i.e. making sure they are making rather than loosing money), the resulting revenue stream will also produce a substantial profit margin. This allowed these business invest in the stock market or other profitable business ventures.

A perfectly legal, respectable, even ‘normal’ aspect of any business that uses the “Law of large numbers” to generate a revenue stream is that they collectively get to use this banked ‘liquidity’,  — what actually is other people’s money (or OPM) — play the stock market or otherwise invest in profit-generating scheme. In this second ‘bite of the (financial) apple’, the law of large numbers is essentially ‘squared’, which creates something like a perpetual-motion money machine that dependably creates great wealth.

=============== temporary ‘barking’ lot ==============================

phase #3 — hospitals using profits from maternity ward to upgrade and expand their physical buildings, and purchase new medical equipment (mostly very expensive) and technologies that allowed the hospital to extend its services and expand its profitablity.