The old system
Doctors and hospitals set their own fees for the services they provided. Health-insurance companies would simply pay these fees, funneling big profits to doctors and hospitals. Academic medical centers like Duke used this money to subsidize advanced research and medical schools and to care for uninsured patients. The problem: with nothing to limit medical fees, costs doubled every five years.
The big squeeze
To stop these spiraling costs, employers joined managed-care organizations (like HMOs) and began to set their own prices for medical services. Doctors and hospitals must accept these fees or risk losing patients. Hospitals have lost...