THE PROFIT MOTIVE IN MEDICINE*mvopat.people.ysu.edu/courses/business_ethics/business_ethics_readin… · tals has more than doubled in the past1 te Althougn years.h the increase in

DAN W. BROCK AND ALLEN E. BUCHANAN

THE PROFIT MOTIVE IN MEDICINE*

ABSTRACT. The ethical implications of the growth of for-profit health careinstitutions are complex. Two major moral criticisms of for-profit medicine areanalyzed. The first claim is that for-profit health care institutions fail to fulfilltheir obligations to do their fair share in providing health care to the poor andso exacerbate the problem of access to health care. The second claim is thatprofit seeking in medicine will damage the physician-patient relationship,creating conflicts of interest that will diminish the quality of care and erodepatients' trust in their physicians and the public's trust in the medical pro-fession. The authors conclude that while the continued expansion of for-profithealth care may exacerbate in some respects problems of access, trust andconflicts of interest, it is a mistake to consider these problems as unique tofor-profit health care; they are problems for not for-profit health care as well.Though these issues justify continuing moral concern, they do not at this timeprovide decisive grounds for substantially curbing or eliminating for-profitenterprise in health care.

Key Words: for-profit medicine, competetion, access to health care, justice,patient-physician relationship.

The American health care system is undergoing a rapid socio-economic revolution. Within a general environment of heighten-ing competition, the number of investor-owned for-profit hospi-tals has more than doubled in the past ten years.1 Although theincrease in investor-owned hospitals has been most dramatic andpublicized, a rise in investor-owned health care facilities of othertypes, from dialysis clinics to outpatient surgery and "urgent care"centers has also occurred.2

Investor-owned for-profit corporations are controlled ultimately

Dan W. Brock, PhD., Professor, Department of Philosophy, Brown University, Providence, Rhode Island02912, USA.

Allen E. Buchanan, Ph.D., Professor, Department of Philosophy, University of Arizona, Tucson, Arizona85721, USA.

The Journal of Medicine and Philosophy 12 (1987), 1—35.© 1987 by D. Reidel Publishing Company.

at Youngstow

n State U

niversity on July 18, 2011jm

p.oxfordjournals.orgD

ownloaded from

http://jmp.oxfordjournals.org/

2 Dan W. Brock and Allen E. Buchanan

by stockholders who appropriate surplus revenues either in theform of stock dividends or increased stock values. Independentproprietary institutions are for-profit entities owned by an indi-vidual, a partnership, or a corporation, but which are not con-trolled by stockholders. Nonprofit corporations are tax-exemptand are controlled ultimately by boards of trustees who areprohibited by law from appropriating surplus revenues afterexpenses (including salaries) are paid.

The above definitions treat "for-profit" rather narrowly as a legalstatus term referring to investor-owned and independent proprie-tary institutions. However, much of the current concern over ''for-profit health care" has a wider, though much less clear, focus. It isoften said, for instance, that health care in America is beingtransformed from a profession into a business like any otherbecause of the growing dominance of those types of motivation,decisionmaking techniques, and organizational structures that arecharacteristic of large-scale commercial enterprises.

A recent book published by the Institute of Medicine (1983)bears the title The New Health Care For Profit, with the subtitleDoctors and Hospitals in a Competitive Environment. The differencein scope between the title and subtitle is but one example of awidespread tendency of discussions of "for-profit health care" torun together concerns about the effects of increasing competitionin health care, which affects both "for-profit" and "nonprofit"institutions in the legal sense, and special concerns about thegrowth of those health care institutions that have the distinctive"for-profit" legal status.

This essay will focus primarily on the ethical implications of thegrowth of for-profit health care institutions in the legal sense.However, although the ethical problems we shall explore havebeen brought to public attention by the rapid rise of for-profitinstitutions (in the legal sense), it would be a mistake to assumethat they are all peculiar to institutions that have this legal form.They are problems that stem from increasing competition andcost-conscious management throughout the health care sector.

There has been a sharp polarization in the responses ofobservers to this apparent trend toward increased profit-seekingin medicine. Some view profit motives in any form and at anyplace as wholly inappropriate for medicine. This has led in atleast two states to legislation or proposed legislation limitingor banning for-profit health care institutions from operating in

at Youngstow

n State U



ownloaded from


The Profit Motive in Medicine 3

the state.3 Opponents of for-profit medicine are a diverse groupand include representatives of the medical profession seeking topreserve their professional autonomy, advocates concerned toprevent a worsening of access to health care for the poor anduninsured, those concerned about the impact of profit-seeking onquality of care, and many others. Proponents of the growth offor-profits are likewise diverse and include, among others, repre-sentatives of the investor-owned firms concerned to protect theireconomic interests as well as health policy analysts who look tothe for-profits to introduce more competition into health care andto help contain rising health care costs.

The polarization of positions on the influx of profit-seeking inmedicine has often generated more heat than light. Serious moralcriticisms of for-profit health care have been voiced, but often inover-stated, rhetorical terms. Before they can be evaluated, thesecriticisms must be more carefully articulated then has usuallybeen done. In this paper, we seek to clarify and evaluate two ofthe central ethical criticisms of profit-motivations and for-profitinstitutions in medicine: (1) for-profit health care institutions failto fulfill their obligations to do their fair share in providing healthcare to the poor and so exacerbate the problem of access to healthcare; and (2) profit-seeking in medicine will damage the physician-patient relationship, creating conflicts of interest that will diminishthe quality of care and erode patients' trust in their physicians andthe public's trust in the medical profession.

I. FOR-PROFITS EXACERBATE THE PROBLEM OF ACCESSTO HEALTH CARE

Twenty-two to twenty-five million Americans have no health carecoverage, either through private insurance or through governmentprograms including Medicare, Medicaid, and the Veterans Admin-istration. Another twenty million have coverage that is inadequateby any reasonable standards (President's Commission, pp. 92—101). The charge that for-profits are exacerbating this alreadyserious problem takes at least two forms. First, it is said that for-profits contribute directly to the problem by not providing carefor nonpaying patients. The data are not fully consistent onwhether for-profit hospitals provide less or as much uncom-pensated care as do nonprofit hospitals; data from several statesshow that they provide less, but national data show minimal

at Youngstow

n State U



ownloaded from



differences between for-profits and nonprofits, both of which domuch less than publicly-owned hospitals. In any event, ourconcern here is to analyze the arguments that have been advancedregarding the issue of uncompensated care. In particular, we shallexamine the assumption that if for-profit hospitals provide lessindigent care, then they thereby fail to fulfill an important obliga-tion and act unfairly.

Second, it is also alleged that for-profits worsen the problem ofaccess to care in an indirect way because the competition theyprovide makes it more difficult for nonprofits to continue theirlong-standing practices of 'cross-subsidization'. Cross-subsidiza-tion is of two distinct types: nonprofits have traditionally financedsome indigent care by inflating the prices they charge for payingpatients, and they have subsidized more costly types of services byrevenues from those that are less costly relative to the revenuesthey generate.

It is sometimes assumed that in general for-profits are moreefficient in the sense of producing the same services at lowercosts and that these production efficiencies will be reflected inlower prices. At present, however, there is insufficient empiricalevidence to show that for-profits on the whole are providingsignificant price competition by offering the same services atlower prices, though this may change in the future. In fact, whatlittle data there are at present indicate that costs, especially ofancillary services, tend to be higher, not lower, in the for-profits(Brown and Klosterman, 1986; Watt etal, 1986).

However, the argument that for-profits are making it moredifficult for nonprofits to continue the practice of cross-subsidiza-tion does not depend upon the assumption that for-profits aresuccessful price competitors in that sense. Instead, it is arguedthat for-profits 'skim the cream' in two distinct ways. First, theycapture the most attractive segment of the patient population bylocating in more affluent areas, leaving nonprofits with a corre-spondingly smaller proportion of paying patients from which tosubsidize care for nonpaying patients. Second, by concentratingon those services that generate higher revenues relative to thecosts of supplying them, for-profits can achieve greater revenuesurpluses, which provide opportunities either for lower prices orfor investment in higher quality or more attractive facilities, bothof which may worsen the competitive position of nonprofitsmaking it more difficult for them to cross-subsidize.

at Youngstow

n State U



ownloaded from



Critics of for-profits predict that access to care will suffer in twoways: fewer nonpaying patients will be able to get care and somepaying patients, i.e., some who are covered by public or privateinsurance, will be unable to find providers who will treat them forcertain 'unprofitable' conditions. Although these predictions havea certain a priori plausibility, they should be tempered by severalimportant considerations. First, as already indicated, there is atpresent a dearth of supporting data concerning differences in thebehavior of for-profits and nonprofits, and this is hardly surprisingsince the expansion of the for-profit sector has been so recent andrapid. However, preliminary data do support two hypotheses thattend to weaken the force of the criticism that for-profits areexeracerbating the problem of access to care by making it moredifficult for nonprofits to continue cross-subsidization. One is thatat present there seems to be no substantial difference in theproportion of nonpaying care rendered by for-profits and non-profits (Committee Report, Ch. 5). The other is that at presentthe proportion of nonpaying care rendered by nonprofits is onaverage only about 4% of their total patient care expenditures(Committee Report, Ch. 5). Here again, however, it may be im-portant to separate from the overall data for nonprofits the publichospitals in which the proportion of nonpaying care is both higherthan in the for-profits and substantially in excess of 3% of overalltotal patient care expenditures (California Association of PublicHospitals, unpublished). If the public hospitals experience a de-crease in their paying patients, their ability to carry out theirmission of serving the indigent could be seriously jeopardized.

A third reason for viewing predictions about the effects offor-profits on access to care with caution is that there are othervariables at work that may be having a much more seriousimpact. In particular, the advent of a prospective reimbursementsystem for Medicare hospital services (Diagnostic Related Groups[DRGs]) and other efforts for cost-containment of state and federalregulatory bodies and businesses, as well as the general increase incompetition throughout the health care sector, are making it moredifficult for any institution to cross-subsidize.

In addition, as defenders of for-profits have been quick to pointout, in some cases for-profits have actually improved access tocare not only by locating facilities in previously underserved areasthus making it more convenient for patients to use them, but alsoby making certain services more affordable to more people by

at Youngstow

n State U



ownloaded from



removing them from the more expensive hospital setting. Thegrowth of outpatient surgical facilities in suburban areas, forexample, has improved access to care in both respects. Indeed,there is some reason to believe that by making decisions on thebasis of the preferences of their boards of trustees (which may beshaped more by their own particular tastes or considerations ofprestige rather than by demands of sound medical practice orresponse to accurate perceptions of consumer demand), nonprofitshave in some cases duplicated each other's services and passed upopportunities for improving access by failing to expand intounderserved areas.

This latter point drives home the complexity of the access issueand the need for careful distinctions. For-profits may improveaccess to care in the sense of better meeting some previouslyunmet demand for services by paying patients, while at the sametime exacerbating the problem of access to care for nonpayingpatients. However, there is clearly a sense in which the lattereffect on access is of greater moral concern. We assume here thatthe members of a society as affluent as ours have a collectivemoral obligation to ensure that all have access to some 'decentminimum' or 'adequate level' of care, even if they are not able topay for it themselves. Surely, providing basic care for those wholack any coverage whatsoever then should take priority overefforts to make access to care more convenient for those whoalready enjoy coverage and over efforts to reduce further thefinancial burdens of those who already have coverage by providingservices for which they are already insured in less costly non-hospital settings.

So far we have examined the statement that 'cream skimming'by for-profits exacerbates the problem of access to care. Ulti-mately, this is largely an empirical question about which currentdata are inconclusive. There is another way in which the 'creamskimming' charge can be understood. Sometimes it is suggestedthat for-profits are acting irresponsibly or are not fulfilling theirsocial obligations by failing to provide their 'fair share' of indigentcare and unprofitable care, as well as making it more difficult fornonprofits to bear their fair share through cross-subsidization. Tothis allegation of unfairness, defenders of for-profits have a readyreply: "No one is entitled to the cream; so for-profits do no wrongwhen they skim it. Further, for-profits discharge their socialobligations by paying taxes. Finally, since the surplus revenues

at Youngstow

n State U



ownloaded from



that nonprofits use to subsidize nonpaying or unprofitable care arethemselves the result of over-charging — charging higher pricesthen would have existed in a genuinely competitive market —then it is all the more implausible to say that they are entitled tothem."

While this reply is not a debate-stopper, it should give the criticof for-profits pause since it draws attention to the unstated — andcontroversial — premises underlying the contention that cream-skimming by for-profits is unfair because it constitutes a failure tobear a fair share of the costs of nonpaying or unprofitable patients.The most obvious of these is the assumption that in generalnonprofits are (or have been) bearing their fair share.

To determine whether for-profits or nonprofits are dischargingtheir obligations, we must distinguish between two different typesof obligations — general and special. For-profit corporations, likeindividual citizens, can argue that they are discharging theirgeneral obligation to subsidize health care for the poor by payingtaxes. To see this, assume that the fairness of the overall taxsystem is not in question, and in particular its taxation of corpo-rate profits. For-profits can then reasonably claim that they aredoing their fair share to support overall government expendituresby paying taxes. If the government is subsidizing health care forthe poor as part of overall government expenditures, then for-profits would appear to be doing their fair share towards support-ing subsidized health care for the poor. If the government isproviding inadequate subsidization of health care for the poor,then the fair share funded by the for-profits' taxes will in turn beinadequate, but proportionately no more so than every othertaxpayer's share is inadequate, and not unfair relative to thesubsidization by other taxpayers. The responsibility for thisinadequacy, in any case, would be the government's or society's,not the for-profit health care corporation's.

A for-profit hospital chain cannot say that if it is paying, forexample, $30 million in taxes, it is providing $30 million towardsfunding health care for the poor. Its taxes, whether at the federal,state, or local level should be understood as a contribution to theoverall array of tax-supported programs at those levels. But it canclaim to be subsidizing health care for the poor with the portionof its taxes proportionate to the portion of overall governmentexpenditures devoted to subsidizing health care for the poor.

On the other hand, those who raise the issue of fairness have

at Youngstow

n State U



ownloaded from



apparently assumed that health care institutions have specialobligations to help care for indigents. Even if this assumption isaccepted, however, it is not obvious that in general nonprofltshave been discharging the alleged special obligation successfullyfor the reasons already indicated. First, even if cross-subsidizationis widespread among nonproflts, the proportion of nonpaying andunprofitable care that is actually provided by many nonprofltsappears not to be large. Second, some of the revenues from'overcharging' paying patients apparently are not channeled intocare for nonpaying patients or patients with unprofitable con-ditions.

It was noted earlier that while many publicly-owned nonprofithospitals provide a substantial proportion of care for nonpayingpatients, non-publicly owned nonprofits ("voluntaries") as a groupdo not provide significantly more uncompensated care than for-profits. One rationale for granting tax-exempt status is that thisbenefit is bestowed in exchange for the public service of providingcare for the indigent. If it turns out that many nonprofit healthcare institutions are in fact not providing this public service at alevel commensurate with the benefit they receive from being taxexempt, then this justification for granting them tax-exemptstatus is undermined.

It is also crucial to question the assumption that for-profithealth care institutions have special obligations to help subsidizecare for the needy over and above their general obligation astax-payers. As the for-profits are quick to point out, supermarketsare not expected to provide free food to the hungry poor, realestate developers are not expected to let the poor live rent-free intheir housing, and so forth. Yet food and housing, like health care,are basic necessities for even minimal subsistence. If there arebasic human rights or welfare rights to some adequate level ofhealth care, it is reasonable to think there are such rights to foodand shelter as well as health care.

Whose obligation is it, then, to secure some basic health carefor those unable to secure it for themselves?4 Assuming thatprivate markets and charity leave some without access to what-ever amount of health care that justice requires be available to all,there are several reasons to believe that the obligation ultimatelyrests with the federal government. First, the obligation to secure ajust or fair overall distribution of benefits and burdens acrosssociety is usually understood to be a general societal obligation.

at Youngstow

n State U



ownloaded from



Second, the federal government is the institution society com-monly employs to meet society-wide distributive requirements.The federal government has two sorts of powers generally lackingin other institutions, including state and local governments, thatare necessary to meeting this obligation fairly. With its taxingpower, it has the revenue-raising capacities to finance what wouldbe a massively expensive program on any reasonable account foran adequate level of health care to be guaranteed to all. Thistaxing power also allows the burden of financing health care forthe poor to be spread fairly across all members of society and notto depend on the vagaries of how wealthy or poor a state or localarea happens to be. With its nationwide scope, it also has thepower to coordinate programs guaranteeing access to health carefor the poor across local and state boundaries. This is necessaryboth for reducing inefficiencies that allow substantial numbers ofthe poor to fall between the cracks of the patchwork of local andstate programs, and for ensuring that there are not greatdifferences in the minimum of health care guaranteed to all "indifferent locales within our country.

If we are one society, a United States, then the level of healthcare required by justice for all citizens should not vary greatly indifferent locales because of political and economic contingenciesof a particular locale. It is worth noting that food stamp programsand housing subsidies, also aimed at basic necessities, similarly arelargely a federal, not a state or local, responsibility. These arereasons for the federal government having the obligation toguarantee access to health care for those unable to secure it forthemselves. It might do this by directly providing the care itself,or by providing vouchers to be used by the poor in the health caremarketplace. How access should be guaranteed and secured — andin particular, to what extent market mechanisms ought to beutilized — is a separate question.

Granted that the obligation to provide access to health care forthe poor rests ultimately with the federal government, is there anyreason to hold that for-profit health care institutions, such ashospitals, have any special obligations to provide such care? Theusual reason offered is that health care institutions, whethernonprofit or for-profit, are heavily subsidized directly or indirectlyby public expenditures for medical education and research and byMedicare and Medicaid reimbursement, which have created theenormous predictable demand for health care services that has

at Youngstow

n State U



ownloaded from



enabled health care institutions to flourish and expand sodramatically since the advent of these programs in 1965.However, we believe it is less clear than is commonly supposedthat these subsidies redound to the benefit of the for-profitinstitution in such a way as to ground a special institutionalobligation to subsidize health care for the poor.

The legal obligation of nonprofit hospitals to provide free careto the poor is principally derived from their receipt of Hill-Burtonfederal funds for hospital construction. However, the for-profithospital chains secure capital for construction costs in privatecapital markets and do not rely on special federal subsidies. Evenwhen they purchase hospitals that have in the past receivedHill-Burton monies, they presumably now pay full market valuefor the hospitals. If there is a subsidy that has not been worked offin free care, that redounds to the nonprofit seller, not the for-profit purchaser. What of other subsidies?

There is heavy governmental subsidy of medical education; it iswidely agreed that physicians do not pay the full costs of theirmedical education. Perhaps then they have a reciprocal duty laterto pay back that subsidy, though it would need to be shown whythe form that duty should take is to provide free care to the pooras opposed, for example, to reimbursing the government directly.However that may be, it is physicians and not the for-profithospitals who are the beneficiaries of medical education subsidies.Physicians are the owners of these publicly subsidized capitalinvestments in their skills and training, and are able to sell theirsubsidized skills at their full market value. Physicians, and not theowners of for-profit health care institutions in which they practiceor are employed, are the beneficiaries of education subsidies andso are the ones who have any obligation there may be to returnthose subsidies by in turn subsidizing free care for the poor.

Another important area of public subsidy in the health carefield is medical research. Much medical research has many of thefeatures of a public good, providing good reason for it to bepublicly supported and funded. (Where these reasons do notapply, as, for example, in drug research, the research is largelyprivately funded by the drug companies.) Medical research makespossible new forms of medical technology, knowledge, and treat-ment. Because it is publicly funded, and once developed isgenerally freely available for use by the medical profession, for-profit health care institutions are able to make use of the benefits

at Youngstow

n State U



ownloaded from



of that research in their delivery of health care without sharing inits cost. But who ultimately are the principal beneficiaries of thispublic subsidy of research? Not, we believe, the for-profits, butrather the patients who are the consumers of the new orimproved treatments generated by medical research. It may ormay not be true that for-profits will not bear the research costs ofthese treatments as part of their delivery costs. But if, as isincreasingly the case, the for-profits operate in a competitiveenvironment concerning health care costs or charges, they will beforced to pass on these subsidies to consumers or patients. (And ifthey operate in a largely noncompetitive environment, there willbe a strong case for some form of regulation of their rates.) Theprice that patients pay for health care treatments whose researchcosts were subsidized by the government will not include thoseresearch costs and so will not reflect true costs. It is thenconsumers of health care, not the for-profits, who principallybenefit from research subsidies, and any obligation arising fromthis subsidy presumably lies on them.

Finally, consider the large public subsidy represented byMedicare and Medicaid. These programs created a vast expansionin the market for health care that many for-profits serve and fromwhich they benefit. This is new health care business that hereto-fore did not exist and on which they make a profit. Perhaps thisbenefit grounds a special obligation of for-profit institutions toprovide subsidized care for the poor. The most obvious difficultywith such a view is that the subsidized health care consumers, notthe deliverers of the health care, are by far the principalbeneficiaries of Medicare and Medicaid. Any profit that the for-profits receive from serving Medicare and Medicaid patients isonly a small proportion of the overall cost of their care.

It must be granted, nevertheless, that the for-profits do earnprofits from these subsidized patients. But it is difficult to see howthis fact by itself is sufficient to ground a special obligation of thefor-profits to subsidize free care for the poor. In the first place,for-profits can again respond that they pay taxes on these profits,like other profit-making enterprises. Moreover, they can point outthat in no other cases of government-generated business of for-profit enterprises is it held that merely earning a profit from suchbusiness grounds a special obligation similar to that claimed forfor-profit health care enterprises. Virtually no one holds thatdefense contractors, supermarkets who sell to food stamp recipi-

at Youngstow

n State U



ownloaded from



ents, highway builders, and so forth have any analogous specialobligation based on the fact that their business is created bygovernment funds. Nor it is ever made clear why this fact shoulditself ground any special obligation of for-profits in health care toprovide access to health care for the poor. Thus, we conclude thatnone of the current forms of public subsidy of health care willestablish any significant special obligation of for-profits to providefree care, and so the claim cannot be sustained that for-profits donot do their fair share in providing access to health care for thepoor. We emphasize that we believe there is an obligation toguarantee some adequate level of health care for all, but theobligation is society's and ultimately the federal government's andnot a special obligation of for-profit health care institutions.

Even if there are insufficient grounds for the assumption thatfor-profit health care institutions, or health care institutions assuch, have special obligations to provide a "fair share" of uncom-pensated care, it can be argued that a nation or a community,operating through a democratic process, can impose such a specialobligation on the institutions in question as a condition of theirbeing allowed to operate. According to this line of thinking, acommunity may, through its elected representatives, require thatany hospital doing business in that community provide somespecified amount of indigent care, either directly or by contribut-ing to an indigent care fund through a special tax on health careinstitutions (so far as they are not legally exempt from taxes) orthrough a licensing fee.

Whether such an arrangement would be Constitutional orcompatible with statutory law in various jurisdictions is not ourconcern here. One basic ethical issue is whether the imposition ofsuch special obligations would unduly infringe on individuals'occupational and economic freedoms. Although no attempt toexamine this question will be made here, this much can be said:a community's authority to impose a special obligation to con-tribute a portion of revenues (as opposed to an obligation tocontribute services) for indigent care seems no more (or less)ethically problematic than its authority to levy taxes in general.

A second basic ethical issue is then whether such taxes, orrequirements to provide uncompensated care as conditions ofdoing business for health care institutions, fairly distribute thecosts of providing care to the indigent. That will depend on thedetails of the particular tax or requirement to provide uncom-

at Youngstow

n State U



ownloaded from



pensated care, but since any are likely to be ultimately a tax onthe sick, it is doubtful that such provisions will be fairer thanfinancing care for the indigent through general tax revenues.

There is, moreover, an additional difficulty with any claim that,by skimming the cream, for-profits fail to fulfill an existing specialobligation to bear a fair share of the burden of providing at leastsome minimum level of care for all who need it but cannot affordit. This is the assumption that in the current U.S. health caresystem any determinate sense can be given to the notion of a 'fairshare' of the burden of ensuring access to care (in the absence ofspecific legislation such as the Hill-Burton Act). Unless a ratherspecific content can be supplied for the notion of a fair share, thenature and extent of an institution's alleged special obligation willbe correspondingly indeterminate. In particular, it will be difficultif not impossible to determine whether for-profits have met such aspecial obligation. But it will also be problematic to assert whatsome defenders of nonprofits imply, namely that nonprofits havein the past done their fair share through cross-subsidization.

The current U.S. health care system is a patchwork — or,less charitably, a crazy-quilt — of private insurance and publicprogram entitlements. There is no generally accepted standard fora 'decent minimum' or 'adequate level' of care' to be ensured forall, no system-wide plan for coordinating local, state, and federalprograms, charity, and private insurance so as to achieve it, and noover-all plan for distributing the costs of providing care for thosewho are unable to afford it from their own resources. Absent all ofthis, no determinate sense can be given to the notion of aninstitution's special obligation to provide a 'fair share' of theburden of ensuring an 'adequate level' or 'decent minimum' ofcare for everyone.

Furthermore, even if it were possible at present to determine, ifonly in some rough and ready way, what an institution's 'fairshare' is, this would still not be enough. Whether an institutionhas an obligation — a duty whose fulfillment society can require —will depend upon whether it can do so without unreasonable risksto its own financial well-being. But in a competitive environment,whether one institution's contributing its 'fair share' will beunreasonably risky for it will depend upon whether other institu-tions are doing their 'fair share.'

The establishment of a coordinated system-wide scheme inwhich institutions share the costs of providing some minimum

at Youngstow

n State U



ownloaded from



level of care for all is a 'public good' in the economist's sense. Evenif every governing board of every institution agrees that it isdesirable or even imperative to ensure some level of care for all, solong as contribution to this good is strictly voluntary, eachpotential institutional contributor may attempt to take a free rideon the contribution of others with the result that the good willnot be achieved.

It is important to understand that failure to produce the publicgood of a fair system for distributing the costs of care by voluntaryefforts does not depend upon the assumption that potentialcontributors are crass egoists. Even if the potential contributor hasno intention to take a free ride on the contributions of others, hemay nonetheless be unwilling to contribute his fair share unless hehas assurance that others will do their fair share. For unless he hasthis assurance, to expect him to contribute his fair share is toexpect him to bear an unreasonable risk — a cost that might puthim at a serious competitive disadvantage. In the absence of anenforced scheme for fairly distributing the costs of care for theneedy, the current vogue for containing costs by increasingcompetition in health care will only exacerbate this free-rider andassurance problem. And unless an institution can shoulder its fairshare without unreasonable risk to itself, it cannot be said that ithas an obligation that it has failed to fulfill. Granted that this is so,what is needed is an effective mechanism for enforcing a coordi-nated scheme for distributing the costs of providing some minimallevel of care for all without imposing unreasonable competitivedisadvantages on particular institutions.

It is important not to overstate this point. Although the notionof unreasonable risk is not sharply defined, it is almost certainlytrue that many for-profit (and nonprofit) institutions could bespending more than they currently are for nonpaying or unprofit-able patients without compromising their financial viability. So itis incorrect to conclude simply from this that in the current stateof affairs institutions have no special obligations whatsoever. Thepoint, rather, is that debates over which institutions are or arenot fulfilling their obligation are of limited value and that theenergy they consume could be more productively used to developa system in which institutional obligations could be moreconcretely specified and in which society would be morallyjustified in holding those who control the institutions, whethergovernmental or private, accountable for the fulfillment of thoseobligations.

at Youngstow

n State U



ownloaded from



Moreover, there is at least one obligation that now can bejustifiably imputed to for-profit (and nonprofit) health care institu-tions and that is the obligation to cooperate in developing asystem in which determinate obligations (whether general orspecial) can be fairly assigned and enforced. It is much lessplausible to argue that the initial efforts needed to develop acoordinated, enforced system would undermine an institution'scompetitive position, even if it is true that in the absence of sucha system an institution's acting on a strictly voluntary basis to helpfund indigent care would subject it to unreasonable risks.

Assuming that, as members of this society, we all share acollective obligation to ensure an 'adequate level' or 'decentminimum' of health care for the needy, those who control healthcare institutions, as individuals, have the same obligations the restof us do. However, because of their special knowledge of thehealth care system and the disproportionate influence they canwield in health policy debates and decisions, health care profes-sionals may indeed have an additonal special obligation beyondthe general obligations of ordinary citizens to help ensure that ajust system of access to health care is established.

It can still be argued that whether or not they fail to fulfill theirobligations, for-profits have at least contributed to the decline ofcross-subsidization and that the cross-subsidization system hasmade some contribution toward coping with the problem ofaccess to care. Whether this provides a good reason for socialpolicy designed to restrain or modify the behavior of for-profitswill depend upon the answer to two further questions: (1) Arecross-subsidization arrangements the best way of coping with theaccess problem? and, just as importantly, (2) Is it now feasiblein an increasingly competitive environment to preserve cross-subsidization even if we wish to do so?

Objections to cross-subsidization are not hard to find. On theone hand, cross-subsidization can be viewed as an inefficient,uncoordinated welfare system hidden from public view andunaccountable to the public or to its representatives in govern-ment. Further, it can be argued that widespread cross-subsidiza-tion is incompatible with effective efforts to curb costs. Surelyan effective solution to both the access and cost containmentproblems requires a more integrated, comprehensive, and publiclyaccountable approach. Consequently, the demise of cross-subsidi-zation should be welcomed, not lamented.

This last conclusion, however, is simplistic. It assumes that an

at Youngstow

n State U



ownloaded from



explicit public policy designed to improve access for those notcovered by private or public insurance is presently or in theforeseeable future politically feasible. Perhaps the strongest argu-ment for cross-subsidization is the claim that it does — thoughadmittedly in a haphazard and inefficient way — what is not likelyto be done through more explicit social policies.

It might be tempting to protest that even if this is so, cross-subsidization ought to be rejected as an unauthorized welfaresystem since it did not come about through the democraticpolitical process as a conscious social policy. However, if provid-ing some minimum of care for the needy is a matter of right orenforceable societal obligation and not a matter of discretion, thenthe lack of a democratic pedigree may not be fatal, since rightsand obligations place limitations on the scope of the democraticprocess.

Controversy over the ethical status of cross-subsidization maysoon become moot if a point is reached where it is no longerfeasible to shore up or rebuild an environment in which cross-subsidization is economically viable for health care institutions. Soeven if cross-subsidization has been. the best feasible way ofcoping with the problem of access it does not follow that it willcontinue to be a viable option. Perhaps too much energy hasalready been wasted in policy debates defending or attackingcross-subsidization when the real issue is: How can we now bestachieve the purpose that cross-subsidization was supposed toserve?

Our focus thus far has been on the charge that for-proflt healthcare institutions fail to fulfill their obligations to provide care forthe poor. We have seen that a close examination of this criticismof for-proflt institutions raises more general issues about therelationship between self-interested institutional behavior —whether in for-proflt or nonprofit institutions — and the accessproblem. One important conclusion reached was that it isincorrect to understand the access problems as the result of afailure to fulfill institutional obligations because at present there isno social mechanism that specifies, fairly distributes, and enforcessuch institutional obligations.

It seems likely that competition and cost-containment pres-sures will continue to lead to further increases in commercial orprofit-maximizing motivation and behavior in all forms of healthcare institutions, for-profit and nonprofit as well. If this is the case,

at Youngstow

n State U



ownloaded from



then the crucial question is this: How can the pursuit of institu-tional self-interest be made to serve the social goal of improvingaccess?

The preceding discussions of the free-rider and assurance prob-lems suggest, respectively, two distinct approaches. The first,proceeding on the assumption that a sense of collective moralresponsibility will not serve as a significant constraint on thepursuit of profit by institutions, is to change the incentive struc-ture under which institutions operate so that they can best servetheir own interests by serving the poor. This might be achieved byproviding the poor with health-care vouchers at financial levelscomparable to those of current insurance reimbursements orby expanding eligibility for Medicaid and increasing Medicaidreimbursement rates. A second, quite different, approach proceedson the more charitable assumption that a collective sense of moralresponsibility can serve as a significant constraint on an institu-tion's pursuit of profit if the cost of acting morally, though noteliminated, is kept at acceptable levels. One important way oflowering the cost an institution incurs when it aids the poor isto provide it with assurance that competing institutions willreciprocate by bearing their fair share of the burden. To preventthe pursuit of profit by health care institutions from worsening analready shameful access problem, a combination of both types ofapproaches will probably be needed.

II. FOR-PROFITS DAMAGE THE PHYSICIAN-PATIENTRELATIONSHIP, ERODE TRUST, CREATE NEW CONFLICTS

OF INTEREST, AND DIMINISH QUALITY OF CARE

The second broad concern about the growth of profit-seeking inmedicine is that it will damage the physician-patient relationship,erode the trust necessary to that relationship, create new conflictsof interest and ultimately diminish the quality of care. Physicianshave, of course, always sought to earn a living from the practice ofmedicine. The concern about increased profit-oriented behavior iscommonly that new profit-oriented institutions, most commonlylarge for-profit hospital chains, will alter the behavior of physiciansthat work for or in them in ways to produce the bad effects notedabove. We shall continue to use here for-profit hospitals as theparadigm of the rise in profit-seeking at the institutional level inexploring its potential effects on the behavior of individual physi-

at Youngstow

n State U



ownloaded from



cians and on the physician-patient relationship. It is undeniablethat for-profit health care involves potential conflicts between theinterests of providers (physicians, managers, administrators, andstock-holders) and those of patients. In the most general terms,the conflict is simply this: an institution with a strong, if not anoverriding, commitment to maximizing profit may sometimes findthat the best way to do this is not to act in its patients' bestinterests.

This fundamental potential conflict of interest is said to be ofspecial concern in health care, not only because health careinterests are so important, but also because the 'consumer' ofhealth care, unlike the consumer of most other goods and servicesprovided by profit-seeking firms, is in an especially vulnerableposition for two reasons. First, patients will often lack the specialknowledge and expertise needed for judging whether a particularhealth service is necessary or would be beneficial, whether it isbeing rendered in an appropriate way, and even in some caseswhether it has been successful. Second, because illness or injurycan result in anxiety, dependence and loss of self-confidence, thepatient may find it difficult to engage in the sort of self-protectivebargaining behavior expressed in the admonition 'caveat emptor'.

Whether this conflict of interest will damage the physician/patient relationship will depend on the extent to which it alreadyexists outside profit-seeking settings. And it is quite clear that afundamental potential for conflict of interest is not peculiar tofor-profit health care. A health care institution may exhibit astrong commitment to maximizing profit, and this commitmentmay result in practices that are not in patients' best interests, evenif the institution is of nonprofit form. When we ask whether aninstitution's or an individual's pursuit of profits is prejudicial tothe patient's interests, the appropriate sense of the phrase 'pursuitof profits' is quite broad, not the narrower legal sense in whichnonprofit institutions do not by definition pursue profits. After all,the issue is whether the opportunities for attaining benefits forthemselves provide incentives that influence behavior on the partof providers that is not in patients' best interest. Whatever formthese incentives take and whatever kinds of benefits are pursued,they may all run counter to the patient's interests.

In any form of medical practice operating under a fee-for-service system, under any system of prepayment (as in HealthMaintenance Organizations [HMOs]), and under any system of

at Youngstow

n State U



ownloaded from



capitation, where physicians are paid a salary determined by thenumber of patients they treat (as in Independent Practice Associa-tions [IPAs]), a basic conflict of interest will exist, regardlessof whether the organization is for-profit or nonprofit. In a fee-for-service system, the conflict is obvious: physicians have anincentive to overutilize services because their financial return willthereby be increased. The incentive for overutilization of servicescan conflict with the patient's interest in three distinct ways: itcan lead physicians to (1) provide services whose medical costs tothe patient outweight their medical benefits (as in the case ofsurgery or xrays which actually do more medical harm than good),(2) impose financial costs on the patient that exceed the medicalbenefits provided (greater out of pocket expenses for the patient),and (3) contribute to higher health care costs (including higherinsurance premiums) for everyone, including the patient.

In prepayment or capitation systems, providers are subject toconflicts of interest because of incentives to underutilize care. InHMOs, providers have an incentive to limit care because theoverall financial well-being of the organization requires it andbecause salary increases and year-end bonuses as well as newpersonnel, new equipment, and new services are all financed bythese savings. In IPAs and other organizations that operate on acapitation system, conflicts of interest due to the incentive forunderutilization are equally clear: spending less time and usingfewer scarce resources enables physicians to handle a largernumber of patients, and this results in a larger salary. Whether, orto what extent, these incentives actually result in reduced qualityof care is an extremely difficult question. But what is clear is thatthey create conflicts of interest in both for-profit and nonprofitsettings.

The nature of the concern about physicians acting to furthertheir own economic interests will change as the settings in whichthey practice increasingly shift from fee-for-service with its incen-tives for Ofer-utilization to various forms of capitation with theirincentives for tmder-utilization. The most obvious harm topatients from overutilization is the financial waste of resourcesin comparison with other more beneficial uses. However, there areprobably also serious and widespread health harms to patientsfrom overutilization of treatments (for example, unnecessary coro-nary artery by-pass operations that have significant mortalityrates), procedures (for example, overuse of x-rays and mammo-

at Youngstow

n State U



ownloaded from



grams linked to cancer), and hospitalization with its attendantrisks including infection. The harm to patients from under-utiliza-tion, on the other hand, is principally to their health and well-being, or even life, when needed and potentially beneficial butunprofitable health care is withheld. Neither over nor under-utilization will be easily detectable by the patients who sufferthem. Patients' consent is commonly needed for the additionaltreatment of over-utilization and so they will usually be aware ofreceiving the treatment, but they will commonly be in a poorposition to evaluate for themselves their need for the care.Incentives for under-utilization may lead the physician never tomention possibly beneficial but unprofitable treatment, and soleave the patient unaware of it. Thus, shifting incentives fromover- towards under-utilization will alter the likely effects andconcerns about conflicts of interest, though we lack the data tosay whether over-utilization or under-utilization is on balance amore serious problem.

Some analysts have recognized that the preceding sorts ofconflicts of interest are unavoidable because they result from twofeatures that will be found in any form of health care institution ororganization: (1) the patient's special vulnerability and (2) the needto provide some form of incentive for providers that is related insome fashion to the amount and kind of services they provide.They have then gone on to argue that what makes conflicts ofinterest especially serious in for-profits is that for-profits providephysicians with opportunities for secondary income. This secondaryincome may come either from charges for services which theythemselves do not provide but which they recommend or whichare provided by others under their supervision, or from being ashareholder in the for-profit health care corporation.

Secondary income, however, and the conflict of interest itinvolves, is also neither a new phenomenon in health care norpeculiar to for-profits. While "fee-splitting" traditionally has beencondemned by organized medicine, several forms of practice ofphysicians working in nonprofit settings essentially amount to fee-splitting. One of the most common is an arrangement wherebyphysicians receive a percentage of the fee charged for x-rays,laboratory tests, other diagnostic procedures, physical therapy, ordrug or alcohol counseling that they recommend but which areperformed by people they employ or supervise. In some cases,licensing and certification laws and reimbursement eligibility

at Youngstow

n State U



ownloaded from



requirements for Medicare, Medicaid, and private insurancerequire non-physician health care professionals to be supervisedby a physician, thus creating a dependence which makes itpossible for physicians to reap this secondary income. Physiciansmay also charge fees for interpreting diagnostic tests, such aselectrocardiograms, that they recommend and which are per-formed by others even if they do not split the fee for theprocedure itself.

It may still be the case that the opportunities for secondaryincome and other conflicts of interest tend to be greater in mostfor-profit institutions than in most nonprofit institutions. Whilethere is some data suggesting higher usage rates for profitableancillary services in for-profit hospitals, at present neither theextent of these differences, nor, more importantly, the extent towhich they are taken advantage of in ways that reduce quality ofcare, increase costs, or otherwise compromise patients' interests iswell-documented. It may also be the case that even thoughserious conflicts of interest, from secondary income and othersources, already exist in nonprofit health care, the continuedgrowth of for-profits, both in their own activities and the influ-ence they have on the behavior of nonprofits, will result in asignificant worsening of the problem. The current paucity of data,however, makes it premature to predict that this will happen orwhen it will happen.

There is another form of the charge that profit-seeking healthcare institutions create new conflicts of interest or exacerbate oldones. Some fear that even if physicians' behavior toward patientsis not distorted by incentives for secondary income or by equityownership, physicians in profit-making institutions will be subjectto greater control by management and that this control will makeit more difficult for physicians to serve the patient's interestsrather than the corporation's. There can be little doubt thatAmerican physicians are increasingly subject to control by others,especially by managers and administrators, many of whom are notphysicians.

There are two major factors that have led to this loss of'professional dominance' that are quite independent of the growthof profit-seeking institutions in health care (Starr, 1982). Oneis the institutionalization of medicine that itself arose from avariety of factors, including the proliferation of technologies andspecializations that call for large scale social cooperation and

at Youngstow

n State U



ownloaded from


2 2 Dan W. Brock and Allen E. Buchanan

cannot be rendered efficiently, if they can be rendered at all,by independent practitioners. The other is the increased pressurefor cost-containment in a more competitive environment, whichhas led to a greater reliance on professional management tech-niques within health care institutions and more extensive regula-tory controls by government. At most, the growth of profit-seeking institutions may be accelerating this loss of professionaldominance.

It should not simply be assumed, however, that diminishedphysician control will result in an overall lowering of the qualityof care or a worsening of the problem of conflict of interests.Whether it will depends upon the answer to three difficultquestions. To what extent will management or shareholders offor-profits exercise their control over physicians in the pursuit ofprofit and at the expense of patient interests, unrestrained byethical considerations? To what extent will management andstockholders act on the belief that in the long-run profits will bemaximized by serving patients' interests? To what extent havephysicians, in the physician dominated system that has existed upuntil recently, actually acted in the best interests of their patients?The answers to the first two questions await data not yetavailable.

The third question is especially difficult to answer because of anambiguity in the notion of the 'patient's best interests'. In afee-for-service, third party payment system in which physiciansexercise a great deal of control in ordering treatments andprocedures, a physician who makes decisions according to what isin the individual patient's best medical interests will tend to orderany treatment or test whose expected net medical benefit isgreater than zero, no matter how small the net benefit may be.Under such a system, the traditional ethical principles of themedical profession, which require the physician to do what is bestfor the patient (or to minimize harm to him), and the principle ofself-interest speak with one voice, at least so long as the patient'sinterests are restricted to his medical interests. Indeed, even if thephysician considers the patient's overall interests — financial aswell as medical — so long as a third party is picking up the majorportion of the bill, the physician may still conclude that acting inthe patient's best interest requires doing anything that can beexpected to yield a non-zero net medical benefit. Yet, as has oftenbeen noted, the cumulative result of large numbers of such

at Youngstow

n State U



ownloaded from


The Profit Motive in Medicine 2 3

decisions, each of which may be in the best interest of theparticular patient, is that health care is overutilized and a costcrisis results.

'Overutilization' here does not mean the use of medicallyunnecessary care, i.e., care that is of no net medical benefit, or thatis positively harmful; instead what is meant is what one authorhas called 'non-costworthy care' — care that yields less benefitthan some alternative use to which the same resources could beput, either for other health care services or for non-health caregoods (Menzel, 1983 p. 17). Overutilization of health care in thissense, not just overutilization as non-beneficial care, is clearlycontrary to everyone's interest. If continued professional domi-nance means perpetuation of this problem of overutilization, theneven if a further loss of professional dominance will lead tomedical decisions that are not, considered in isolation, in theindividual patient's best interest, it may nevertheless result in theelimination of one important conflict of interest and one source ofcollective irrationality in the current system. This does not ruleout the possibility, of course, that greater control by non-physi-cians will also lead to overutilization. If this occurs, then onesystem that works against everyone's best interest will merelyhave been replaced by another that does the same thing.

We have seen that in the fee-for-service, third-party paymentsystem in nonprofit as well as for-profit settings the cumulativeresult of many physicians acting on the desire to do what is bestfor the individual patient can result in overutilization that iscontrary to all patients' best interests. Some critics of for-profitssuggest that we must either pay the price of this overutilization orcope with it by methods that do not undermine physicians'commitments to doing what is best for their individual patients.They then conclude that even if it could be shown that thegrowth of for-profits would restrain overutilization by introducinggreater price competition into health care, the price would be toohigh to pay because the physician's all-important commitment todo his best for each patient would eventually be eroded by theincreasing 'commercialization' of health care that is being acceler-ated if not caused by the growth of profit-seeking enterprise inmedicine.

The force of this objection to for-profits depends, of course, notonly upon the correctness of the prediction that the growth offor-profits will in fact contribute to a weakening of the physician's

at Youngstow

n State U



ownloaded from



commitment to do the best he can for each patient; it alsodepends upon the assumption that under the current system thatcommitment has been a dominant force in physician behavior.This last point may be cast in a slightly different way. Howconcerned we should be about the tendency for the behavior ofphysicians to become more like that of businessmen dependsupon how great the difference in behavior of the two groups isand has been. If one assumes that as a group physicians have beensignificantly more altruistic than businessmen and if one alsoassumes that altruism is the only effective safeguard againstexploitation of the patient's special vulnerability, then one willoppose any development, including the growth of for-proflt healthcare, which can be expected to make physicians more likebusinessmen.

Many outside the medical profession and some within it greetthe claim that physicians as a class are especially altruistic andcommitted to patient interests at the expense of their own withsome skepticism. This attitude is not groundless. One of thedifficulties of determining the strength of altruistic patient-centered motivation among physicians, as we have already noted,is that until very recently, the fee-for-service, third party paymentsystem has produced a situation in which altruism and self-interest converge: doing what is best of the patient (pursuing alltreatment that promises non-zero benefits) was often doing whatwas financially best for the physician. Nevertheless, critics of thethesis that physicians are especially altruistic can marshall a gooddeal of evidence to support their view, such as the profession'shistorical opposition to HMOs and to Medicare and Medicaid,each of which promised significant extensions of access to healthcare (Starr, 1982), its failure to overcome the chronic geographicalmaldistribution of physicians in this country, and its support ofstrict entry controls to the profession through medical licensuretogether with relatively weak oversight of the continuing com-petence of those already licensed, and the refusal of many physi-cians to treat Medicaid patients because Medicaid reimburse-ments are lower than those of private insurance. We can make noattempt to evaluate such evidence here, but the self-interest of theprofession seems a better prima facie explanation for much of thisbehavior than does an altruistic conern for the ill. It is importantto emphasize that explanations of these phenomena need notassume that self-interest here is exclusively or even primarily

at Youngstow

n State U



ownloaded from



financial self-interest. The profession's resistance to Medicare, forexample, was probably more an attempt to preserve physicianautonomy, as well as to protect the physician-patient relationshipfrom outside intrusion by government.

In assessing these question of conflict of interest and physicianmotivations we think it is helpful to distinguish the behavior ofphysicians acting as an organized profession addressing matters ofhealth policy from the behavior of individual physicians towardindividual patients. As we have noted above, much behavior ofmedicine as an organized profession (as reflected for example inthe political role played by the American Medical Association[AMA]) in seeking to maintain physician dominance in the healthcare profession, to protect and enhance physician incomes, and soforth, has served the self-interest of physicians. Controversial isthe extent to which the self-interested function of the motivationfor supporting such practices as medical licensure is manifest orlatent, explicit or implicit. In considering the conduct of profes-sional trade associations such as the AMA, we believe thatforwarding the economic and other interests of the members ofthe profession is often the explicit, conscious and indeed oftenlegitimate intent of the representatives of the profession. To theextent that the profession has been successful in furthering itsmembers' interest, we would expect to find an institutional,organizational, and legal structure shaping the practice of medi-cine that serves the economic and other interests of members ofthe profession.

It would be hard to look back over the evolution in thiscentury of the position and structure of the medical professionwithout concluding that the profession has in fact had consider-able success in promoting its interests. It would be completelyimplausible to attribute a high level of altruism to the medicalprofession if" that was interpreted to mean a high level ofeconomic self-sacrifice in favor of the public's health needs. Theexceptionally high levels of physician incomes would belie that.Nor is it plausible to claim that the organized profession had ledefforts to address some of the most serious moral deficiencies inour health care system, such as the continued lack of access tohealth care of large numbers of the poor. As we noted above, thehistory of the profession's opposition to national health insuranceand to Medicare and Medicaid belies any such role of altruism ormoral leadership. Nor finally have many members of the profes-

at Youngstow

n State U



ownloaded from



sion acting as individuals been remarkably self-sacrificing or actedas moral leaders in addressing these problems. Occasional physi-cians have, of course, located in undesirable geographical areas tomeet pressing health care needs or provided substantial unpaidcare to the poor, but such behavior has not been sufficientlywidespread to have a major impact on these problems.

Despite the extent that the profession has promoted itsmembers' interests and that individual members have not beenself-sacrificing in addressing the most serious deficiencies in thehealth care system, we believe it would be a serious mistake toconclude that the patient-centered ethic that has defined thetraditional physician-patient relationship is mere sham andrhetoric, a thin guise overlaying the physician's self-interest.

An alternative, and we believe more plausible, interpretation isthat in part just because the medical profession has been excep-tionally successful in promoting and protecting an institutionaland organizational setting that serves well physicians' economicand other interests, individual physicians have thereby been freedto follow the traditional patient-centered ethic in their relationswith their individual patients. Put oversimply, a physician whoseoverall practice structure assures him a high income need not beso concerned to weight economic benefits to himself when con-sidering treatment recommendations for his individual patients.As we have argued above, conflicts of interest between physiciansand patients have long existed and are hardly a heretoforeunknown consequence of for-profit health care institutions. Asone commentator has argued, much of medicine can be viewed asa conflict for the physician between self-interest and altruism,requiring a balancing of these sometimes conflicting motivations(Jonson, 1983).

What we are suggesting is that the self-interested organizedprofessional behavior and institutional structure of medicine mayhave helped protect the possibility of altruistic behavior on thepart of the physician when guiding treatment with his individualpatients. (This hypothesis, of course, requires careful qualification.In some cases the self-interested behavior of organized medicinehas clearly had a negative impact on patient interests. Forexample, licensure and other forms of self-regulation by theprofession have often failed to protect patients from chemicallydependent or otherwise incompetent physicians and have exacer-bated the problem of access by inhibiting the development of less

at Youngstow

n State U



ownloaded from



expensive forms of care utilizing non-physician providers such asmidwives and nurse practitioners.)

One virtue of this more complex perspective is that it allows usto accommodate the elements of truth that exist in each of twootherwise seemingly incompatible perspectives, each of whichtaken only by itself appears extreme and incomplete. Oneperspective views the physician simply as an economically self-interested businessman in his dealings with patients. Those whosupport this perspective can point to the various ways in whichthe actions of the medical profession and the institutional andfinancing structure in which medicine is practiced serve theinterests of physicians, as we have done above, but they often goon to deny any significant reality to physicians' commitment topromoting their patients' best interests. On the other hand, manydefenders of physicians viewed as devoted professionals com-mitted to the well-being of their patients seem also to feel itnecessary to deny the extent to which medical practices andinstitutional structures serve physicians' interests. Either perspec-tive is by itself stubbornly one-sided in its view of physicianssimply as self-interested economic accumulators or as devotedaltruists. We favor a view which recognizes that these twoperspectives are not incompatible and accepts the elements oftruth in each of them.

One advantage of this more balanced perspective is that itpermits the recognition of the reality and great importance of thetraditional patient-centered ethic, without denying the conflicts ofinterest between physician and patient that we have discussedabove or the important historical role played by economicinterests of physicians. A perspective that encompasses a balancebetween self-interested and altruistic motivations on the part ofphysicians can help articulate the concern of many observers thatthe rise of for-profit medicine while not representing an entirelynew phenomenon nevertheless does pose a danger to the tradi-tional physician-patient relationship by shifting the traditionalbalance between self-interested and altruistic motivations and bybringing motivations of economic self-interest more directly andsubstantially into the physician's relations with individualpatients.

What, more specifically, is the worry about the erosion of thephysician-patient relationship by the rise of for-profit health careinstitutions? We think that worry can be most pointedly brought

at Youngstow

n State U



ownloaded from



out by initially overstating the possible effect. The traditionalaccount of the patient-centered ethic makes the physician theagent of the patient, whose "highest commitment is the patient(American College of Physicians, p. 17)." The physician is to seekto determine together with the patient that course of treatmentthat will best promote the patient's well-being, setting asideeffects on others, including effects on the physician, the patient'sfamily, or society. This commitment to the patient's well-beingresponds to the various respects discussed above in whichpatients are in a very poor position to determine for themselveswhat health care, if any, they need. It is not just a function ofmore traditional paternalistic forms of physician-patient relations.Among the many increasingly common accounts of shared deci-sionmarking between physician and patient, the more plausibleversions recognize that many of the inequalities in the physician-patient relation are probably to a significant extent ineliminable.Because many patients are and wish to be significantly dependenton their physicians, it is especially important to the success of thisphysician-patient partnership in the service of the patient's well-being that the patient believe that the physician will be guided inhis recommendation solely by the patient's best interests. Patientshave compelling reasons to want the physician-patient relation-ship to be one in which this trust is both warranted and fostered,quite apart from the putative therapeutic benefits of such trust.

Suppose the rise of for-profit health care so eroded this tradi-tional relationship, and in its place substituted a commercialrelationship, that patients came to view their physicians as theycommonly now view used car salesmen. We emphasize that sucha radical shift in view is not to be expected. We use this "worst-case" example of a caveat emptor commercial relationship onlybecause it focuses most pointedly the worry about the effect onthe physician-patient relationship of the increasing commercializa-tion of health care. Many factors will inhibit such a shift fromactually taking place in patients' views of their physicians,including traditional codes of ethics in medicine, requirements ofinformed consent, fiduciary obligations of physicians, as well aspowerful traditions of professionalism in medicine. Recognizingthat the unsavory stereotype of the used car salesman substan-tially overstates what there is any reason to expect in medicine,nevertheless what would a shift in this direction do to thephysician-patient relationship?

at Youngstow

n State U



ownloaded from



Most obviously and perhaps also most importantly, it wouldundermine the trust that many patients are prepared to placein their physicians' commitment to seek the patient's best inter-ests. In general, there is no such trust of a used car salesman, butrather his claims and advice are commonly greeted with a coolskepticism. He is viewed as pursuing his own economic interests,with no commitment to the customer's welfare. It is the rare (andprobably in the end sorry) consumer who places himself in thehands of the car salesman. Anything like the fiduciary relationshipin which a patient trusts the physician's commitment to put thepatient's interests first is quite absent with the used car salesman.

This is not to say that some additional consumer skepticism ofphysician recommendations and increased attempts by patients tobecome knowledgeable health care consumers would not be agood thing — they would. It is rather to say as already noted, thatmany of the various inequalities in the physician-patient relation-ship are sufficiently deep and difficult to eradicate that somesubstantial trust of the physician's commitment to the patient islikely to remain necessary and valuable. The commercial model ofarms-length, caveat emptor bargaining is not well-suited to thephysician-patient relation.

While historically there has been some deception of patients byphysicians, it seems to have markedly decreased in recent decades,and this deception in medicine was justified as for the patient'sown good (even if in fact if often was not). However, one does notexpect the truth, the whole turth, and nothing but the truth froma used car saleman, nor that shadings of the truth are done for thecustomer's own good. We expect some concealment and distor-tion of information in order to make the sale, although this is notto say that some outright deception in commerce may not befraudulent and immoral.

It is also commonly accepted that businessmen are in businessto sell as much of their product as possible, however much thecustomer may not "need" the expensive car being pushed by thesalesman. Businessmen respond to consumer wants, not needs,and will do their best to manufacture such wants where they donot already exist. Physicians, on the other hand, are expected notto encourage needless consumption. Commercialized medicinemay respond increasingly to consumer wants for health care evenif they are for frivolous amenities such as champagne breakfastsfor obstetric patients and however unrelated they may be to the

at Youngstow

n State U



ownloaded from



patient's true health care needs. Because health care consumersare commonly in a poor position to evaluate for themselves theirown need for health care, their actual health care wants will oftenbe both ill-informed and unusually vulnerable to influence andmanipulation by health care professionals. However, not allincreased responsiveness to consumer wants would constitute ashift from serving patients' true health needs to serving their merewants. To the extent that which treatment, if any, best promotes apatient's well-being depends at least in part on that patient'sparticular aims and values, increased responsiveness to consumerwants can make a genuine contribution to patient well-being.

A shift towards commercialization of health care could also beexpected to result in increasing emphasis on marketing strategiesto secure profitable segments of the market. Moreover, we expectno unprofitable products or service from a car salesman inresponse to consumer need. And most clearly, persons who lackthe ability to pay for commercial goods and services simply do notreceive them. We have argued that the moral obligation to ensureaccess to health care for the poor is ultimately the government's,not an individual physician's or hospital's by way of cross-subsidization. Nevertheless, in the face of unmet need, somephysicians and health care institutions do, and are often expectedto, respond to that need by furnishing the needed care. Increasingcommercialization of health care is likely to weaken this disposi-tion of some physicians to respond to people's health care needswithout regard to their ability to pay.

Other norms important to the practice of medicine also have aweakened or non-existent role in most commercial transactions,such as the requirement of confidentiality concerning informationabout the patient. Like the commitment to put the patient'sinterests first, the norm of confidentiality concerning patientinformation is both fragile and under increasing pressure frommany forces, such as the growing specialization within health care,besides rising commercialism.

One must be careful not to overstate the contrast betweenmedicine and commerce. It is certainly not the case thatcommerce takes place in the absence of any ethical constraints (orlegal constraints, reflecting ethical norms) nor that the medicalprofession is never moved by self-interest. Our society does in factexpect, and in some cases enforces by the power of the law,significant restrictions on the pursuit of profit by 'mere business-

at Youngstow

n State U



ownloaded from



men'. One would not want a physician who was motivatedexclusively by financial reward, but then one would not want anelectrician who was either. In fact, it can be argued that the moralobligations of businessmen to their customers are not significantlyless demanding than those of physicians toward their patientswhen equally important interests are at stake. However, importantinterests may be more frequently potentially at stake in healthcare than in ordinary business transactions. And even if there is atendency to overstate the contrast between ethical and legalconstraints on business transactions and the physician-patientrelationship, we typically do expect a somewhat higher standardof conduct from physicians.

We believe there is, moreover, a genuine and importantdifference in the ethos of the two enterprises that plays out inimportant differences in the physician-patient and businessman-consumer transaction. The ethos of medicine is one of commit-ment and service to others. While medicine has, of course,contained physicians primarily concerned with their own eco-nomic and other interests, they are viewed and condemned asdeviants by that ethos. Not so, however, in commerce. Over-simplifying, it is commonly believed that in business transactions,individuals pursuing their own interests, though admittedlywithin some ethical and legal constraints, will best promote theoverall social good. It is this view of the motivation of self-interestas ethically acceptable that quite reasonably worries many asmedicine becomes increasingly commercialized.

Since physicians are, of course, human like the rest of us andquite naturally concerned with their own interests, it is reasonableto view their primary commitment to the patient's well-being asinevitably fragile and always in danger of being undermined. Inthat light, it is unnecessary to view for-profit institutions asintroducing a qualitatively new dimension of commercializationand new set of conflicts of interest into health care. As we haveargued, such a view is indefensible. Nor need it be expected thatphysicians' concern with their patients' well-being will justdisappear as soon as they go on the payroll of a for-profit hospitalor, more likely, establish other types of contractual relations withit. That view too would be indefensible, indeed downright silly.

The realistic worry, concerning which the data are not yet in, israther that over time the increased importance of investor-ownedfor-profit institutions may permit considerations of economic

at Youngstow

n State U



ownloaded from



self-interest increasingly to invade the heretofore somewhatprotected sphere of the physician-patient relationship, andthereby weaken the patient-centered ethic on which that relation-ship importantly depends. The difference would only be one ofdegree, but no less important for that. As we have noted above,there are other independent factors putting similar pressures onthe relationship such as the expected oversupply of physicians. Itwould be a mistake to think that these possible adverse effects onthe physician-patient relatioship are uniquely due to the rise offor-profits. However, that is no reason to be unconcerned withthese effects of for-profits, but only a reason not to focus solely onfor-profits.

We emphasize that the traditional patient-centered ethic neednot be incompatible with greater attention to costs in health careutilization decisions and practices. Utilization of health careshould reflect the financial costs as well as benefits of care, butthat will not be appropriately achieved by, nor need it inevitablylead to, physicians making utilization decisions solely according totheir own economic self-interest. Whatever the right mix ofincentives for reasonably limiting health care utilization and costs,simply making physicians fully subject to incentives of economicself-interest by breaking down the patient-centered ethic seemsnot the path to that mix. A physician weighing the true financialcosts of care against its medical benefits to the patient is entirelydifferent from one who simply weighs the economic consequencesto himself of the patient utilizing care.

The most obvious worry, then, is that the increasing promi-nence of for-profits may contribute to a shift in physicians'patient-oriented behavior, which may in turn affect the patienttrust important to a well-functioning physician-patient relation-ship. The test of that hypothesis would then be the extent towhich physician behavior is actually different within for-profitsettings. But it is important to realize that patient trust maybe eroded, and so the physician-patient relationship adverselyaffected, even in the absence of any actual shift toward moreself-interested behavior by physicians. Even if outward behaviordoes not change, a change in the motivations of the behavior, andin turn of perceptions by others of those motivations, may beimportant. If physicians are increasingly perceived by patients asmotivated by self-interest rather than by a commitment to servingtheir patient, then even in the absence of a change in physicians'

at Youngstow

n State U



ownloaded from



behavior, it is reasonable to expect an erosion in patient trust thatphysicians will act for their patients' best interests. Part of what isimportant to patients in health care is the reassurance that theprofessional cares about them and their plight. (This is one respectin which other health care professionals, for example nurses, areoften more important than physicians in patient care.) A change inphysicians' motivations, or even simply in patient's perceptions ofthose motivations, may be enough to affect patients' beliefs aboutwhether their physicians "really care" about them. This pointshould give pause to those who propose to test the effects offor-profits on the physician-patient relationship and on patienttrust by looking only at changes in physician behavior.

III. CONCLUDING REMARKS

Any summary conclusion of our examination of two of theprincipal ethical issues in the growth of profit-seeking in healthcare will inevitably oversimplify. A continuing theme runningthrough our analysis is that the moral objections commonlyvoiced against profit motives and for-profit institutions need to beboth framed and evaluated more carefully than they usually are.At many places, these objections also rest on empirical claims forwhich the data are not yet available. We have been generallycritical of the argument that for-profits fail to do their fair share inproviding health care to poor or unprofitable patients. That argu-ment assumes that for-profits have special obligations to care forthese patients, that a determinate content can now be given tothat obligation, and that the obligation can be discharged withoutunreasonable sacrifice on the part of the for- profit. These assump-tions are all problematic. It is a mistake to focus on how for-profits exacerbate or ameliorate access. The debate could moreprofitably concentrate on the need for a coordinated societalresponse to the serious injustices in access to health care that nowexist.

We believe that the potential adverse effects of the growth offor-profits on the physician-patient relationship and on the qualityof care is of serious ethical concern. The potential conflicts ofinterest between patient and provider are not new. Indeed, theyare fundamental to the physician-patient relationship in either for-profit or nonprofit settings. Moreover, the other powerful forcesbesides the growth of for-profits, in particular cost-containment

at Youngstow

n State U



ownloaded from



efforts and increased competition, are impinging on the physician-patient relationship. But the importance of the patient's trust inhis physician, and the fragile balance between the physician'scommitment to serve the patient and his natural concern with hisown interests, give reason for serious continuing attention to thispotential effect of increased profit seeking in health care.

NOTES

This paper is drawn, with revisions, from our longer paper, 'Ethical Issues inFor-Profit Health Care' (Brock and Buchanan, 1986).1 While the number of investor-owned, as opposed to independent, for-profithospitals has risen, hospital ownership, classified by broad categories — federal,state, and local government, non-profit and for-profit — has changed little inthe past decade (Gray, 1984).2 Investor-owned for-profit corporations are controlled ultimately by stock-holders who appropriate surplus revenues either in the form of stock dividendsor increased stock values. Non-profit corporations are tax-exempt and arecontrolled ultimately by boards of trustees who are prohibited by law fromappropriating surplus revenues after expenses (including salaries) are paid.3 At this writing, New York has legislation limiting the operation of for-profitsin the state and the Rhode Island legislature is considering proposed legislationto ban their operation.4 The argument in this and the next paragraph is drawn directly from thePresident's Commission for trie Study of Ethical Problems in Medicine report,Securing Access to Health Care (1983), which both the present authors helped towrite.

REFERENCES

American College of Physicians: 1984, Ethics Manual, Philadelphia,Pennsylvania.

Brock, D.W. and Buchanan, A.E.: 1986, 'Ethical issues in for-profit health care',in B. H. Gray (ed.), For-Profit Enterprise in Health Care, National AcademyPress, Washington, B.C., pp. 224-249.

Brown, K.J. and Klosterman, R.E.: 1986, 'Hosptial acquisitions and their effects:an analysis of Florida data, 1979—1982', in B. Gray (ed.), For-Profit Enterprisein Health Care, iVati'ona/ Acaeferny Press, Washington, D.C., pp. 303—321.

California Association of Public Hospitals: unpublished, 'Health care in the80's — can the saftey net survive?', California Association of PublicHospitals White Paper on the Unique Contributions and Needs ofCalifornia's Public Hospitals, prepared for the Institute of Medicine.

at Youngstow

n State U



ownloaded from



Committee Report on Implications of For-Profit Enterprise in Health Care:1986, in B. H. Gray (ed), For-Profit Enterprise in Health Care, NationalAcademy Press, Washington, D.C.

Gray, B.: 1984, 'Overview: origins and trends', Keynote Address, AnnualHealth Conference, The New Entrepeneurialism in Health Care, held by theCommittee on Medicine in Society of the New York Academy of Medicine(May), Bulletin of the New York Academy of Medicine (2nd series) 61, 7—22.

Institute of Medicine; 1983, The New Health Care For Profit: Doctors andHospitals in a Competetive Enviroment, U.S. Government Printing Office,Washington, D.C.

Jonson, A.: 1983, 'Watching the doctor', New England Journal of Medicine 308,1531-1535.

Menzel, P.: 1983, Medical Costs, Moral Choices, Yale University Press, NewHaven, Connecticut.

President's Commission for the Study of Ethical Problems in Medicine andBiomedical and Behavioral Research: 1983, Securing Access to Health Care,U.S. Government Printing Office. Washington, D.C.

Starr, P.: 1982, The Social Transformation of American Medicine, Basic Books,New York.

Watt, J. M. et al:. 1986, 'The comparative economic performance of investor-owned chain and non-for-profit hospitals', New England Journal of Medicine314,89-92.

at Youngstow

n State U



ownloaded from


Documents

THE PROFIT MOTIVE IN MEDICINE*mvopat.people.ysu.edu/courses/business_ethics/business_ethics_readin… · tals has more than doubled in the past1 te Althougn years.h the increase in