X?Z *~* Dr. JWW ~ Synopsis of his book, his plan, and his enduring impact on our private/corporate for-profit hospital system

by faithgibson on November 22, 2015

This synopsis expands on the information in the previous “Intro” and provides useful historical background.

Overivew & Synopsis

Twilight Sleep: Simple Discoveries in Painless Childbirth, 1914
by Dr. J. Whitridge Williams, MD, as told to Science Writer, Dr. H. Smith Williams, MD,

Early in the 20th century, Dr. J. W. Williams invented the economic engine that first created and now maintains America’s private and corporately-owned hospital system.

While this is an odd heritage for a professor of obstetrics and Dean of Johns Hopkins’ prestigious School of Medicine, the circumstances for him were compelling: Dr. Williams’ was a visionary whose private dream and goal as a patriotic American was a nation-wide system of modern, full-equipped general hospitals in every population center.

These new and upgraded hospitals had to be able to provide comprehensive medical care to the public at large, as well as round-the-clock emergency services. This had long been the standard of care in European countries, but the United States was still 200 years behind this curve. The problem in the US was money — how to finance such an enormous undertaking?

The historical origin of hospitals in Western Europe

Since 640 CE, when the first hospital in Western Europe was founded by the Catholic Bishop of Paris (Hotel Deu), hospitals have functioned as the “provider of last resort” for the sickest of the sick and wounded. Historically hospitals have always been a disease and dysfunction-oriented “sickness-care” system. Unfortunately, sickness has never been profitable.

This is why hospitals as public institutions have historically been large charity institutions supported by Church or State and providing free care to the poorest of the poor, or tax-supported institutions administered by the state, local or federal governments and providing care to all its citizens under a national health insurance plan.

The kind of financial mismatch between an individual’s critical needs and their net worth also occurs in other familiar situations. For example, school children don’t personally pay their teachers’ salaries, orphans don’t financially support the orphanage, and prisoners don’t reimburse their jailers. Likewise, people who are very sick or injured, or sick for a very long time, are generally not able to write out a big check to pay their hospital bills.

Dr. Williams spent a great deal of his personal time and energy searching for an answer to this thorny dilemma. In a stroke of genius, he began questioning the historic role of hospitals, wondering why they should be restricted to caring only for the sickest of the sick?

What if these historical ‘blinders’ were removed? What kind of genie might rise out of that bottle? What untapped opportunities for profit would be revealed if one were willing to think outside of the historical ‘box’ of economic restraints, and the asymmetrical burdens this inevitably imposes?

By thinking outside of this box, Dr. Williams’ come up with an extraordinary and very innovative business model for America’s system of private hospitals, one that would be immediately profitable and reliably so in perpetuity. After refining his ideas, Dr. Williams published a book in 1914 that outlined his carefully thought-out ‘plan‘ to finance the same type of comprehensive and publicly-accessible hospital system for American citizens that most Europeans already enjoyed.

His radical new business model introduced a new novel category of ‘hospital patient, in combination with a new hospital service. These electively hospitalized healthy patients would (of course) be paying customers; the hospital’s new services would include oversight of normal biology and physiological processes, as well as medical treatments for the rare problem that might occasionally occur. In contemporary parlance, Dr. Williams’ plan would be described as ‘diversification’.

Obviously, the ideal choice for these new market of ‘paying customers’ were childbearing women from the middle- and upper-classes. Thus was created a new area of hospital service — the medical management of normal childbirth.  This would include a 14-day hospitalization for the new mother in the hospital’s new maternity ward and a similar length stay or her baby in the hospital’s new nursery.

With an annual rate of 2 million births in the US, Dr. Williams believed that all American hospitals should immediately add what were at that time called ‘lying-in’ wards (i.e. maternity wards) by re-purposing unused or under-used parts of the hospital or adding a new wing to the building. Dr. Williams envisioned a time in the near future when hospital maternity wards would be: “as ubiquitous, if not quite as abundant, as libraries and school houses“.

The success of Dr. Williams plan first called for all hospitals to incorporate new or expanded maternity wards, and after their little ‘start-up’ business were up and operating to plow the profits generated by these services back into the system by upgrading and expanding their facility, or building bigger and better new hospitals in nearby communities.

Dr. Williams’ achieved his goals way beyond his wildest dreams, as hundreds of thousands of electively hospitalized maternity patients as paying customers (an annual rate that rose to 4 million by 1950) dependably provided a new and substantial source of revenue and becoming as critical to the economy and common-place as libraries and school houses.

With its central role as the financial lynch-pin, hospital-based care for healthy maternity patients became the foundation for Dr. Williams great plan to modernize the American hospital system and make it dependably profitable. He succeeded beyond his wildest dreams throughout the remainder of the 20th century and well into the 21st.

Stepping up the pace — the addition of out-patient services

While not part of Dr. Williams’ original plan, his rejection of the historic restraints on hospitals also freed up hospital administrators to think outside the box by introducing other profitable innovation.

This expansion of hospital services into the demographics of healthy patients (or at least people not acutely ill) now include out-patient diagnostics services (x-ray and labs) and minor surgery. These additional revenue streams made hospitals even more profitable, and able to purchase the latest and most popular (and usually expensive) new equipment and special medical technologies.

As time passed, other revenue streams were developed as patients and visitors were offered the opportunity to spend money in hospital gift shops, vending machines, hospital cafeterias, paid parking lots and even valet parking. This further expanded the ‘market share’ of GDP received by hospitals as profitable businesses.

Private hospital insurance plans — the final piece the American business model of for-profit hospitals

Employe salaries were federally capped during WWII, so private employers competed with other companies to attract desirable employees by offering a hospitalization plan. These programs automatically reimbursed hospitals for the costs of in-patient services. The advantages of this bill-paying ‘assurance‘ system were obvious to hospital administrators, and so the idea of hospitalization insurance plans was enthusiastically embraced by hospital associations.

At the end WWII, many private insurance companies expanded their own business model by offering hospital reimbursement plans based on the principles of insurance. Now referred to as medical or hospitalization ‘insurance‘, premiums would be collected from employers or insured individuals, and the insurance companies would provide the same type of financial reimbursement for inpatient hospital services.

Due to historical factors, these plans were mainly employer-sponsored (which provided a large pool of healthy individuals that generally did not need a lot of expensive medical care), and so it was mainly economically-privileged American who enjoyed the benefits of hospital insurance.

Hospital insurance as a vital “assurance” program for hospitals

To further increase the share of GDP enjoyed by hospitals, the role of dependable reimbursement for private- or corporate-owned hospitals, cannot be over-emphasized. The reason is simple, but has never been publicly acknowledged by the hospital industry and remains either unknown to, or unappreciated by the American public.

As a result, the national discourse about who and how we finance our healthcare system has never included this crucial topic.

The plain fact is that people who are seriously ill or injured enough to require the services of an acute-care hospital are, generally speaking, the very worst possible demographic to rely on as paying customers.

Often these hospitalized patients have already become too sick or disabled to work, and thus are unable to pay their medical bills. Worse yet, they may require many weeks (even months) of expensive and labor-intensive hospital services, only to ultimately die of their disease or injury, leaving no economic resource to reimburse the hospital for its many services.

Never having acknowledging these obvious facts, the way the US finances our system of private- and corporate-owned hospitals, distributes the services they provide and the profits they generated remains problematic and inefficient on many levels.

Nothing about this was changed by the Affordable Care Act of 2019. All that is different is the pocket that the funds are withdrawn from. Apart from that, our current system still depends on the plan developed by Dr. Williams, and the two additional elements added over the subsequent decades.

Recap of the Three Critical Financial Elements of American Hospitals:

America’s modern for-profit, hospital system depends on three circumstances for its ability to stay profitable and thus remain in business in our free-enterprise system.

These are:

(1) a dramatic expansion in hospital services specially targeted to an economically-enabled demographic who could pay for such care (i.e., elective hospitalization of healthy patients for childbirth and other adults seeking in-patient diagnostic procedures and/or elective surgery);

(2) hospitals further expanding their market share by offering out-patient services and  contracting to rent space within their hospital facility to doctors for medical offices and to other related businesses

(3) the employer-based health insurance system in the US that guarantees reimbursement for services provided and since 1965, the federal Medicare-Medicaid program that pays for hospital services provided to the elderly and medical indigent

Non-profit Hospitals — Still need a positive cash flow

It should be noted that the same three financial situations apply to non-profit hospitals. While not being responsible for “shareholder value” and quarterly profits, non-profit hospitals still have to take in enough revenue to pay employee salaries, building overhead and maintenance, and all the other costs of running a hospital. In the modern world, this includes a hefty liability insurance premium and very ‘generous’ salaries for the hospital’s top executives.

For synoptic information on the specific elements, you can also read
“The backstory of Dr. Williams “plan” ~ the ‘how’ and ‘why’ it was so successful.”