This article argues that Medicare policy toward hospitals has been profoundly influenced by the perspectives and goals its administrators acquired in a social insurance agency. The social insurance perspective meant priority to efficient claims payment over controlling the impact of payment on the costs and quality of medical care. Initially reinforced by concern that exercising control would antagonize the hospitals and threaten Medicare's survival, this perspective became entrenched over time as administrators grew accustomed to established operating procedures and working relationships with the hospitals. Despite internal skepticism about the appropriateness of some established arrangements, SSA sought to avoid the administrative disruption and political conflict associated with change. Even where external pressure arose, SSA's response was cautious and limited. The fact that such pressure has been both intermittent and significantly limited has reinforced SSA's preferred course of action. As a result. Medicare policy has continued to support inadequate and unsafe hospitals and to exacerbate hospital cost inflation.

The tendency for administrators to become committed to established procedures and avoid political conflict is not unique to Medicare. As the article shows. SSA's implementation strategy has much in common with strategies of similar agencies in similar circumstances. The lesson this experience offers is that new directions in policy require changes both in administrators' predispositions—through changes in organization, leadership, etc.—and in the pressures they face in the political environment.

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