The Role of Interest Groups in Rulemaking

Implementation of any complex health-related law readily provides examples of what Thompson (1997) calls the "strategic interaction" that occurs during rulemaking between implementing organizations and affected interest groups. For example, among the numerous rules proposed in implementing the 1974 National Health Planning and Resources Development Act (P.L. 93-641) were some that sought to reduce obstetrical capacity in the nation's hospitals. One rule proposed in 1977 called for hospitals to perform at least 500 deliveries annually or close their obstetrical units. Notice of this proposed rule elicited immediate objections, especially from hospitals in rural areas where compliance would be extremely difficult or impossible. The implementing organization (DHEW, now DHHS) received more than 55,000 written reactions to the proposed rule, almost all of them negative (Zwick 1978). As a result, the final rule was far less restrictive and made no reference to a specific number of deliveries necessary to keep rural obstetrics units open.

All policies affect one or more interest groups. Because the individual and organizational members of interest groups are so often the targets of rules established to implement health-related public laws, these groups routinely seek to influence rulemaking. Regulatory policies are implemented to prescribe and control the actions, behaviors, and decisions of certain individuals or organizations. Allocative policies work to provide income, services, or other benefits to certain individuals or organizations at the expense of others. Thus, interest groups that represent the individuals and organizations so directly affected by public policies can be expected to be actively interested in all aspects of policymaking, including rulemaking. As the discussion in Chapter 3 of interest groups in the political marketplace shows, these groups tend not to be passive about what they want to accomplish on behalf of their members. Many are well organized and aggressive in pursuit of their preferences, seeking to influence both the formulation and the implementation of policies that affect them.

Lobbying and other forms ofinfluence become especially intense when some interest groups strongly support, while others oppose, the formulation of a particular law or the manner in which it is to be implemented. The preferences of particular interest groups may well come in conflict with the preferences of other groups. Policymakers almost always face this dilemma when they confront important choices in the formulation and implementation ofpolicies. As noted in Chapter 3, legislators in such situations can be expected to seek to maximize their net political support through their decisions and actions. The same can be said for those responsible for the management of implementing agencies and organizations. This means that rulemaking is often influenced by interest group preferences, with the more politically powerful groups exerting the greatest influence.

The potential of conflicting interests among various groups concerned with health policy can be seen in the general preferences of several categories of individuals and organizations shown in Figure 7.5. Although some similarities exist among the preferences of the various categories, there are also

Federal Government

• Deficit reduction/Increased surpluses

• Control over growth of Medicare and Medicaid expenditures

• Fewer uninsured citizens

• Slower growth in healthcare costs Employers

• Slower growth in healthcare costs

• Simplified benefit administration

• Elimination of cost-shifting


• Administrative simplification

• Elimination of cost-shifting

• Slower growth in healthcare costs

• No mandates Individual Practitioners

• Income maintenance/growth

• Professional autonomy

• Malpractice reform


• Continued demand

• Sustained profitability

• Favorable tax treatment

State Government

• Medicaid funding relief

• More Medicaid flexibility

• Fewer uninsured citizens

• More federal funds and slower growth in healthcare costs


• Insurance availability

• Lower deductibles and copayments

Technology Producers

• Continued demand

• Sustained research funding

• Favorable tax treatment

Provider Organizations

• Improved financial condition

• Administrative simplification

• Less uncompensated care

Professional Schools

• Continued demand

• Student subsidies

Figure 7.5

Typical Policy Preferences of Selected Health-Related Individuals and Organizations some important differences. Policymakers generally can anticipate that these individuals and organizations, working through their interest groups to a great extent, will seek to have their preferences reflected in any policies that are enacted and to have their preferences influence the subsequent implementation of such policies as well.

Health policy is replete with examples of the influence of interest groups on rulemaking. One such example can be seen in the rulemaking that stemmed from enactment of the Medicare program. In part to improve its chances for passage, the Medicare legislation (P.L. 89-97) was written so that the Social Security Administration ( (the original implementing agency, subsequently replaced by the Health Care Financing Administration, which became the Centers for Medicare & Medicaid Services) would reimburse hospitals and physicians in their customary manner. This meant that they would be paid on a fee-for-service basis, with the fees established by the providers. Each time providers gave services to Medicare program beneficiaries, they were paid their "usual and customary" fees for doing so.

However, unlike the physicians and hospitals, some prepaid providers, such as health maintenance organizations (HMOs), had a different method of charging for their services. Their approach was to charge an annual fee per patient no matter how many times the patient might see a physician or use a hospital. In this situation, the hospitals and fee-for-service physicians had an obvious preference for having the Social Security Administration reimburse them according to their customary payment pattern. But they could also see an advantage in not permitting the competing prepaid organizations to be paid in their customary manner—that is, in making them subject to the fee-for-service payment rules. Their preferences, vigorously made known to the Social Security Administration through the powerful American Medical Association and to a somewhat lesser extent through the American Hospital Association, resulted in the prepaid organizations being forced to operate under fee-for-service payment rules until the rules were finally changed in 1985 (Feldstein 2001).

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) was signed into law in December 2003. Title I of MMA established Part D of Medicare to provide an outpatient prescription drug benefit beginning in 2006. On August 3, 2004, CMS published a proposed rule in FR to implement the benefit provided in Title I. Comments about the proposed rule were due by October 4, 2004. More than 7,000 comments were received, including many from health-related interest groups. The comments helped shape the final rule, which was published on January 28, 2005. (See The Real World of Health Policy: Proposed and Final Rules above.)

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