“I have strongly advocated passage of legislation to assist the development of health maintenance organizations as a viable and competitive alternative to fee-for-service practice. . . . This bill represents the first initiative by the Federal Government which attempts to come to grips directly with the problems of fragmentation and disorganization in the health care industry. . . . I believe that the HMO is the best idea put forth so far for containing costs and improving the organization and the delivery of health-care services.”

The HMO Act of 1973 was signed into law on December 29, 1973. The Author of the HMO Act was Senator Ted Kennedy. To help the HMO’s gain market share from private insurers Congress provided a total of 375 million dollars in subsidies (remember these are 1973 dollars), and forced employers of 25 or more employees to offer HMO’s. The HMO Act also trumped state laws that prohibited physicians from receiving payments for not providing care. In the Supreme Court Case of Pegram vs. Herdrich Justice Souter wrote for the court:

“no HMO organization could survive without some incentive connecting physician reward with treatment rationing.”