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One evening in the early 1960s, Dr. Paul Ellwood was walking the halls of a Minneapolis hospital when he heard children crying. They were about the age of his young son, who was happy at home.
Were all these kids really better off hospitalized?
"I just thought: 'This is all wrong. The incentives in this business are to fill beds and to see more patients and to spend more money,' " Ellwood said in a 2019 interview with the Star Tribune. "And so that began a career of trying to reshape the incentives of the American health care system."
Ellwood went on to develop a new form of health insurance in the 1960s and 1970s that he called the health maintenance organization, or HMO. It was an idea that rose to national prominence from a Twin Cities think tank he established called InterStudy, ultimately located on Christmas Lake in Excelsior.
The push for HMOs helped make the business of health care today a key pillar of the Twin Cities regional economy. Minnetonka-based UnitedHealth Group -- the state's largest company by revenue -- and other industry players can trace their origins to Ellwood's big idea. He died June 20 at an assisted-living facility in Washington at the age of 95.
"Many of the folks who started and ran some of the first HMOs in Minnesota came out of InterStudy," said Jan Malcolm, the state health commissioner, who worked with Ellwood in the 1970s and 80s.
"Minnesota from early on was sort of a hot bed of innovation in health care delivery and in reform ideas," Malcolm said. "I do think it's fair to attribute a lot of that to Paul and InterStudy."
The idea was to stop paying a fee for every discrete medical service provided by doctors and hospitals. Instead of this "fee-for-service" system, health care providers would receive a per-patient sum paid in advance, an arrangement that...