Regulation Through the Looking Glass: Hospitals, Blue Cross, and Certificate-of-Need

A clear focus on the commitment of the public health and hospital establishments to the large teaching hospital and their belief in rationalizing the health care system through community-based planning allows us to understand the ideas and institutions that have produced our present system of hospital regulation. It can also help us to understand the structure and behavior of the hospital industry and can illuminate current controversies over health care policy.

What follows is a narrative account of the development of regional planning and certificate-of-need legislation. As part of that story, we trace the evolution of the Blue Cross, explain its central role in the voluntary hospital and health insurance industries, and show how the voluntary hospital and public health establishments came to its rescue in the controversy over rising Blue Cross rates in the late 1950s. We offer a brief summary of our findings at the outset to make the Article more accessible to the general reader; at the close of the text we discuss Roemer’s Law, the economic theory used to justify CON legislation, and the system of voluntary sector self regulation that CON complements.