In 1966 The UCLA School of Public Health received a Ford Grant to investigate the "Determinants of Demand Under Two Insured Settings." This was a multi-disciplinary approach. One setting was the Ross Loos Medical Foundation, in Los Angeles and the other was the San Joaquin Medical Group, located in Stockton, California. Ross Loos was the first HMO in the US and the San Joaquin Medical Foundation was an early leader in a "physician choice" group. The commonality of the groups was their zero service fee for provider use. I was chosen as the economist for this project.
It was decided, over my objection, that "price" would not be a factor. While this caused me personal concern, I was able to convince my colleagues to use income as an independent variable. Other independent variables included, race, ethnicity, religion, age, gender, marital status, education, and so forth. This meant that we had a mixture of discrete (1/0) and continuous variables.
The dependent variable used was the California Relative Value Schedule (CRVS). This schedule was used widely to set relative rates for the same procedures between different markets. Theoretically, an initial office visit (90004), with a weight of 1.000 in Beverly Hill, but costing $50.00 was no different to the same visit in Watts, costing $20.00. The weakness of this assumption was well understood. However, at this time, this study was a first to see how valuable medical resources might be rationed under a fully insured model.
Medical records were analyzed to quantify the dependent and independent variables. Multiple regression and canonical correlation techniques, et al were used to establish the value of the regression techniques.
The outcome was a model delineating non-price determinants of demand. While the statistical tests lacked the "acceptance" significance, much early experience was gained in integrating statistical methods, social science techniques, economic analysis, and computer simulations. This was a trail blazing effort.
An advisory board consisting of eminent economists, econometricians, mathematicians, public health professionals, sociologist, system analysts, and others, provided valuable feedback.
As a footnote, it might be mentioned that Ross Loos, was probably the first HMO. Such was the fear of "socialistic medicine" in the 1920s, that it was allowed to operate, only if it imposed self growth limitations. WW2 and the emergence of Kaiser ended this obstacle to HMO growth. Managed health care has now become an adopted child of a conservative, budget-cutting congress. Also, the US medical supply delivery was still adjusting to the implementation of the Flexner Report, that basically institutionalized the current licensing system for the entire industry.
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