After Medicare was introduced in 1965 as a social safety net for the elderly, doctors' salaries actually increased as more people sought medical care. In 1940, in inflation-adjusted 2010 dollars, the mean income for U.S. physicians was about $50,000. By 1970, it was close to $250,000—nearly six times the median household income.
But as doctors profited, they were increasingly perceived as bilking the system. Year after year, health-care spending grew faster than the U.S. economy as a whole.
Meanwhile, reports of waste and fraud were rampant. A congressional investigation found that in 1974, surgeons performed 2.4 million unnecessary operations, costing nearly $4 billion and resulting in nearly 12,000 deaths. In 1969, the president of the New Haven County Medical Society warned his colleagues "to quit strangling the goose that can lay those golden eggs."
If doctors were mismanaging their patients' care, someone else would have to manage that care for them. Beginning in 1970, health maintenance organizations, or HMOs, were championed to promote a new kind of health-care delivery built around price controls and fixed payments. Unlike with Medicare or private insurance, doctors themselves would be held responsible for excess spending. Other novel mechanisms were introduced to curtail health outlays, including greater cost-sharing by patients and insurer reviews of the necessity of medical services. That ushered in the era of HMOs.