C. Rufus Rorem – Insights into our Health Care

~ By Robin Avery ~

Rufus Rorem was an Iowa farm boy whose revolutionary ideas continue to shake the medical establishment. Born in 1894, he became a Ph.D., associate professor, and assistant to the dean of the School of Commerce and Administration at the University of Chicago. In 1928 Rufus was approached by a stranger, and as often happens when you work hard and thus find yourself in the right place at the right time, it was a meeting that changed his life.

That stranger was Michael M. David, a Ph.D. medical economist at the Julius Rosenwald Fund (Julius being an intriguing subject for another column!). Dr. David was a member of the federal Committee on the Cost of Medical Care (CCMC), established in 1927. He asked Rufus to help the committee understand health care production and its costs. This was 88 years ago, when most of our current elders were just babies.

Rufus was asked to focus on the amount and sources of capital investment in hospitals. No such study had ever been conducted, and Rufus was given free rein to gather the data as he saw fit. His first study, published in 1930, discovered that only about 10% of the existing hospitals were investor owned, with 90% having been built with roughly equal amounts public tax dollars and philanthropic contributions (a statistic still relatively true today). Rufus discovered that most hospitals operated outside the typical capitalistic system, where a return in the form of profit was expected.

At that time the average hospital required an investment of one million dollars (as much as one billion today) yet Rufus found that hospitals had no idea what their capital investment was, or their maintenance costs. None of surveyed hospitals even kept a plant ledger. Rufus advocated for coordinated group medical practice and prepayment of hospital bills by way of a health insurance mechanism. His work led directly to the creation of Blue Cross and Blue Shield. His study took five years and laid a foundation for the understanding of health care that pertains to this day:

  • No individual can tell when they will get sick, or how much it will cost, but the total costs of medical care needed by a group of people during a period of time can be predicted with reasonable accuracy.
  • Most of the best things in life are free – moderation, rest, and exercise. Prevention is cheaper than cure, but less exciting.
  • Medical practitioners have a vested interest in maximizing health services and costs, and they do so by stressing the complexity and mystery of their profession.
  • The public is full of hypochondriacs who would be better served if doctors were paid to refuse drugs and services.

Rufus worked in the public interest even against congress. Then congressman Wright Patman asked Rufus whose side he was on when the two met to discuss the care of veterans. The issue was whether veterans should be treated in regular hospitals or have their own facilities. Rufus concluded that it would be much cheaper to build hospitals especially for veterans, build them in metropolitan areas, and use salaried doctors. But congress wasn’t interested in the public interest and no one at the time read the report.

Dr. Rufus Rorem was data driven, non-political, and dedicated to creating a medical services and payment system that was fair and efficient. He was one of the first medical economists. Towards the end of his life, he was asked about the state of the health care delivery system.

It’s amazing when you consider what society has done to itself. We give physicians the legal authority to keep others from competing with them, legal authority to serve anybody they wish to, legal authority to charge whatever the traffic will bear, and legal authority to refuse to serve any patient they choose to turn away. All these factors tend to make the doctor do what is best economically, rather than what is best for the patient hygienically.

One of the most debated features of the economics is the way doctors are paid. Most of them work on a fee-for-service basis rather than taking a salary. A fee-for-service approach is fine in a delicatessen. However, in the delivery of healthcare, the buyer and seller are not on equal terms. The doctor MAY know what’s wrong with the patient, but the patient doesn’t know what’s wrong.  So, they’re not on equal terms. It’s not a situation with an informed buyer and an informed seller where you safely can let the buyer beware. There isn’t any doubt in my mind that the ridiculous fee-for-service system interferes with the quality of medicine.

Mr. Rorem died in 1988 at the age of 93. He was one of the first people to be inducted into the Health Care Hall of Fame.


Robin Avery is the Founder of Shanagolden Management, LLC, an Assisted Living Consultant, Developer and Operator, with a Master’s Degree in Gerontology and Long Term Care Mgt. He can be reached at ravy2003@msn.com.

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