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As originally published in The Atlantic Monthly, March 1992

What Market Values Are Doing to Medicine

The former editor in chief of The New England Journal of Medicine fears that his profession has lost its ethical way. Doctors, he argues, are not, and should not be, businessmen, and yet financial and technological pressures are forcing more and more of them to act like businessmen, with deleterious consequences for patients and for society as a whole

by Arnold S. Relman, M.D.

FROM its earliest origins the profession of medicine has steadfastly held that physicians' responsibility to their patients takes precedence over their own economic interests. Thus the oath of Hippocrates enjoins physicians to serve only "for the benefit of the sick," and the oft-recited prayer attributed to Moses Maimonides, a revered physician of the twelfth century, asks God not to allow "thirst for profit" or "ambition for renown" to interfere with the physician's practice of his profession. In modern times this theme has figured prominently in many medical codes of ethics. The International Code of the World Medical Organization, for example, says that "a doctor must practice his profession uninfluenced by motives of profit." And in 1957, in its newly revised Principles of Medical Ethics, the American Medical Association declared that "the principal objective of the medical profession is to render service to humanity." It went on to say, "In the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients."

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Such lofty pronouncements notwithstanding, the medical profession has never been immune to knavery and profiteering. And, particularly in the days before biomedical science began to establish a rational basis for the practice of medicine, the profession has had its share of charlatans and quacks. Still, the highest aspiration of the medical profession -- sometimes honored in the breach, to be sure -- has always been to serve the needs of the sick. And that has been the basis of a de facto contract between modern society and the profession.

What are the terms of this contract? In this country, state governments grant physicians a licensed monopoly to practice their profession and allow them considerable autonomy in setting their educational and professional standards and their working conditions. The professional education of physicians is heavily subsidized, because tuition, even in the private medical schools, does not nearly cover the costs of educating medical students. Furthermore, the information, tools, and techniques that physicians use to practice their profession are usually developed through publicly supported research. Finally, hospitals provide physicians with the facilities and personnel and often even the specialized equipment they need to treat their hospitalized patients, thus relieving doctors of many of the kinds of overhead costs that businessmen must pay. Physicians have enjoyed a privileged position in our society, virtually assuring them of high social status and a good living. They have been accorded these privileges in the expectation that they will remain competent and trustworthy and will faithfully discharge the fiduciary responsibility to patients proclaimed in their ethical codes.


Now, if this description of a contract between society and the medical profession is even approximately correct, then clearly there are important distinctions to be made between what society has a right to expect of practicing physicians and what it expects of people in business. Both are expected to earn their living from their occupation, but the relation between physicians and patients is supposed to be quite different from that between businessmen and customers. Patients depend on their physicians to be altruistic and committed in advising them on their health-care needs and providing necessary medical services. Most patients do not have the expertise to evaluate their own need for medical care. The quality of life and sometimes life itself are at stake, and price is of relatively little importance, not only because of the unique value of the services rendered but also because patients usually do not pay out of pocket for services at the time they are received. Although most physicians are paid (usually by the government or an insurance company) for each service they provide, the assumption is that they are acting in the best interests of patients rather than of themselves. A fact that underscores the centrality of the patient's interests is that advertising and marketing in medical practice were until very recently considered unethical.

In contrast, in a commercial market multiple providers of goods and services try to induce customers to buy. That's the whole point. Competing with one another, businesses rely heavily on marketing and advertising to generate demand for services or products, regardless of whether they are needed, because each provider's primary concern is to increase his sales and thereby maximize his income. Although commercial vendors have an obligation to produce a good product and advertise it without deception, they have no responsibility to consider the consumer's interests -to advise the consumer which product, if any, is really needed, or to worry about those who cannot afford to buy any of the vendors' products. Markets may be effective mechanisms for distributing goods and services according to consumers' desires and ability to pay, but they have no interest in consumers' needs, or in achieving universal access.

In a commercial market, consumers are expected to fend for themselves in judging what they can afford and want to buy. "Caveat emptor" is the rule. According to classical market theory, when well-informed consumers and competing suppliers are free to seek their own objectives, the best interests of both groups are likely to be served. Thus, in commerce, market competition is relied upon to protect the interests of consumers. This is quite different from the situation in health care, where the provider of services protects the patient's interests by acting as advocate and counselor. Unlike the independent shoppers envisioned by market theory, sick and worried patients cannot adequately look after their own interests, nor do they usually want to. Personal medical service does not come in standardized packages and in different grades for the consumer's comparison and selection. Moreover, a sick patient often does not have the option of deferring his purchase of medical care or shopping around for the best buy. A patient with seizures and severe headache who is told that he has a brain tumor requiring surgery, or a patient with intractable angina and high-grade obstruction of a coronary artery who is advised to have a coronary bypass, does not look for the "best buy" or consider whether he really needs "top-of-the-line" surgical quality. If he does not trust the judgment and competence of the first surgeon he consults, he may seek the opinion of another, but he will very shortly have to trust someone to act as his beneficent counselor, and he will surely want the best care available, regardless of how much or how little his insurance will pay the doctor.

Some skeptics have always looked askance at the physician's double role as purveyor of services and patients' advocate. They have questioned whether doctors paid on a fee-for-service basis can really give advice to patients that is free of economic self-interest. One of the most caustic critiques of private fee-for-service medical practice was written early in this century by George Bernard Shaw, in his preface to The Doctor's Dilemma. It begins,

"It is not the fault of our doctors that the medical service of the community, as at present provided for, is a murderous absurdity. That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity. But that is precisely what we have done. And the more appalling the mutilation, the more the mutilator is paid....

"Scandalized voices murmur that...operations are necessary. They may be. It may also be necessary to hang a man or pull down a house. But we take good care not to make the hangman and the housebreaker the judges of that. If we did, no man's neck would be safe and no man's house stable."

Some contemporary defenders of fee-for-service evidently see no need to answer attacks like Shaw's. They reject the distinctions I have drawn between business and medical practice, claiming that medicine is just another market -- admittedly with more imperfections than most, but a market nevertheless. They profess not to see much difference between medical care and any other important economic commodity, such as food, clothing, or housing. Such critics dismiss the notion of a de facto social contract in medical care. They assert that physicians and private hospitals owe nothing to society and should be free to sell or otherwise dispose of their services in any lawful manner they choose.


Until recently such views had little influence. Most people considered medical care to be a social good, not a commodity, and physicians usually acted as if they agreed. Physicians were not impervious to economic pressures, but the pressures were relatively weak and the tradition of professionalism was relatively strong.

This situation is now rapidly changing. In the past two decades or so health care has become commercialized as never before, and professionalism in medicine seems to be giving way to entrepreneurialism. The health-care system is now widely regarded as an industry, and medical practice as a competitive business. Let me try briefly to explain the origins and describe the scope of this transformation.

First, the past few decades have witnessed a rapid expansion of medical facilities and personnel, leading to an unprecedented degree of competition for paying patients. Our once too few and overcrowded hospitals are now too numerous and on average less than 70 percent occupied. Physicians, formerly in short supply and very busy, now abound everywhere (except in city slums and isolated rural areas), and many are not as busy as they would like to be. Professionalism among self-employed private practitioners thrives when there is more than enough to do. When there isn't, competition for patients and worry about income tend to undermine professional values and influence professional judgment. Many of today's young physicians have to worry not only about getting themselves established in practice but also about paying off the considerable debt they have accumulated in medical school. High tuition levels make new graduates feel that they have paid a lot for an education that must now begin to pay them back -- handsomely. This undoubtedly influences the choice of specialty many graduates make and conditions their attitudes toward the economics of medical practice.

Along with the expansion of health care has come a great increase in specialization and technological sophistication, which has raised the price of services and made the economic rewards of medicine far greater than before. With insurance available to pay the bills, physicians have powerful economic incentives to recruit patients and provide expensive services. In an earlier and less technologically sophisticated era most physicians were generalists rather than specialists. They had mainly their time and counsel to offer, commodities that commanded only modest prices. Now a multitude of tests and procedures provide lucrative opportunities for extra income. This inevitably encourages an entrepreneurial approach to medical practice and an overuse of services.

Another major factor in the transformation of the system has been the appearance of investor-owned health-care businesses. Attracted by opportunities for profit resulting from the expansion of private and public health insurance, these new businesses (which I call the medical-industrial complex) have built and operated chains of hospitals, clinics, nursing homes, diagnostic laboratories, and many other kinds of health facilities. Recent growth has been mainly in ambulatory and home services and in specialized inpatient facilities other than acute-care general hospitals, in part because most government efforts to control health-care costs and the construction of new facilities have been focused on hospitals. Nevertheless, the growth of the medical-industrial complex continues unabated. There are no reliable data, but I would guess that at least a third of all nonpublic health-care facilities are now operated by investor-owned businesses. For example, most nursing homes, private psychiatric hospitals, and free-standing therapeutic or diagnostic facilities are investor-owned. So are nearly two thirds of the so-called health-maintenance organizations, which now provide comprehensive prepaid medical care to nearly 35 million members.


This corporatization of health care, coupled with increasingly hostile and cost-conscious policies by private insurance companies and government, has had a powerful and pervasive effect on the attitudes of health-care providers -- including those in the not-for-profit sector. Not-for-profit, nonpublic hospitals ("voluntary hospitals"), which constitute more than three quarters of the nonpublic acute-care general hospitals in the country, originally were philanthropic social institutions, with the primary mission of serving the health-care needs of their communities. Now, forced to compete with investor-owned hospitals and a rapidly growing number of for-profit ambulatory facilities, and struggling to maintain their economic viability in the face of sharp reductions in third-party payments, they increasingly see themselves as beleaguered businesses, and they act accordingly. Altruistic concerns are being distorted in many voluntary hospitals by a concern for the bottom line. Management decisions are now often based more on considerations of profit than on the health needs of the community. Many voluntary hospitals seek to avoid or to limit services to the poor. They actively promote their profitable services to insured patients, they advertise themselves, they establish health-related businesses, and they make deals with physicians to generate more revenue. Avoiding uninsured patients simply adds to the problems of our underserved indigent population and widens the gap in medical care between rich and poor. Promoting elective care for insured patients leads to overuse of medical services and runs up the national health-care bill.

Physicians are reacting similarly as they struggle to maintain their income in an increasingly competitive economic climate. Like hospitals, practicing physicians have begun to use advertising, marketing, and public-relations techniques to attract more patients. Until recently most medical professional societies considered self-promotion of this kind to be unethical, but attitudes have changed, and now competition among physicians is viewed as a necessary, even beneficial, feature of the new medical marketplace.

Many financially attractive opportunities now exist for physicians to invest in health-care facilities to which they can then refer their patients, and a growing number of doctors have become limited partners in such enterprises -- for example, for-profit diagnostic laboratories and MRI centers, to which they refer their patients but over which they can exercise no professional supervision. Surgeons invest in ambulatory-surgery facilities that are owned and managed by businesses or hospitals, and in which they perform surgery on their patients. Thus they both are paid for their professional services and share in the profits resulting from the referral of their patients to a particular facility. A recent study in Florida revealed that approximately 40 percent of all physicians practicing in that state had financial interests in facilities to which they referred patients. The AMA, however, estimates that nationwide the figure is about 10 percent.

In other kinds of entrepreneurial arrangements, office-based practitioners make deals with wholesalers of prescription drugs and sell those drugs to their patients at a profit, or buy prostheses from manufacturers at reduced rates and sell them at a profit -- in addition to the fees they receive for implanting the prostheses. In entering into these and similar business arrangements, physicians are trading on their patients' trust. This is a clear violation of the traditional ethical rule against earning professional income by referring patients to others or by investing in the goods and services recommended to patients. Such arrangements create conflicts of interest that go far beyond the economic conflict of interest in the fee-for-service system, and they blur the distinction between business and the medical profession.

Not only practitioners but also physicians doing clinical research at teaching hospitals are joining the entrepreneurial trend. Manufacturers of new drugs, devices, and clinical tests are entering into financial arrangements with clinicians engaged in testing their products -- and the results of those studies may have an important effect on the commercial success of the product. Clinical investigators may own equity interest in the company that produces the product or may serve as paid consultants and scientific advisers, thus calling into question their ability to act as rigorously impartial evaluators. Harvard Medical School has wisely taken a stand against such arrangements, but unfortunately this obvious conflict of interest has so far been ignored, or at least tolerated, in many other institutions.
Business arrangements of this kind are also common in postgraduate education. Respected academic clinicians are frequently hired by drug firms to give lectures or write articles about the manufacturers' new products. The assumption, of course, is that these experts are expressing honest and dispassionate opinions about the relative merits of competing products, but such an assumption is strained by the realization that an expert is being handsomely paid by the manufacturer of one particular product in a market that is often highly competitive.

Similarly, drug manufacturers offer inducements to practicing physicians to attend seminars at which their products are touted, and even to institute treatment with a particular drug. In the former case the ostensible justification is furtherance of postgraduate education; in the latter it is the gathering of post-marketing information about a new drug. The embarrassing transparency of these subterfuges has recently caused pharmaceutical manufacturers to agree with the AMA that such practices should be curtailed.

In short, at every turn in the road physicians both in practice and in academic institutions are being attracted by financial arrangements that can compromise their professional independence.


The courts have significantly contributed to the change in atmosphere. For many years the legal and medical professions enjoyed immunity from antitrust law because it was generally believed that they were not engaged in the kind of commercial activity that the Sherman Act and the Federal Trade Commission Act were designed to regulate. In 1975 the Supreme Court ended this immunity (Goldfarb v. Virginia State Bar). It decided that the reach of antitrust law extended to the professions. Since then numerous legal actions have been taken against individual physicians or physicians' organizations to curb what government has perceived to be "anti-competitive" practices. Thus the courts and the Federal Trade Commission have prevented medical societies in recent years from prohibiting commercial advertising or marketing and from taking any action that might influence professional fees or legal business ventures by physicians.

Concerns about possible antitrust liability have caused the AMA to retreat from many of the anti-commercial recommendations in its 1957 code of ethics. The latest revisions of the ethical code say that advertising is permissible so long as it is not deceptive. Investments in health-care facilities are also permissible, provided that they are allowed by law and disclosed to patients, and provided also that they do not interfere with the physician's primary duty to his or her patients. Reflecting the new economic spirit, a statement has been added that competition is "not only ethical but is encouraged." Indeed, the AMA goes even further, declaring that "ethical medical practice thrives best under free market conditions when prospective patients have adequate information and opportunity to choose freely between and among competing physicians and alternate systems of medical care." Thus an earlier forthright stand by organized medicine against the commercialization of medical practice has now been replaced by an uneasy ambivalence.

Very recently, however, the AMA seems to have reconsidered its position, at least with respect to some kinds of entrepreneurial activity. At its last meeting it adopted a resolution advising physicians not to refer patients to an outside facility in which the physician has an ownership interest -- except when the facility was built in response to a demonstrated need and alternative financing for its construction was not available. It remains to be seen whether this advice will be heeded and whether the AMA will take a similar position on other commercial practices. It will also be interesting to see what response this modest stand in defense of professional ethics will elicit from the Federal Trade Commission.


Government policy has also been ambivalent. The Reagan and Bush Administrations have staunchly supported competition and free markets in medicine under the delusion that this is a way to limit expenditures. The White House has therefore supported the Federal Trade Commission's antitrust policies and until recently has resisted all proposals for curbing entrepreneurial initiatives in health care. But expenditures are not likely to be limited in a market lacking the restraints ordinarily imposed by cost-conscious consumers who must pay for what they want and can afford. And if the competing providers in such a market have great power to determine what is to be purchased, then their competition inevitably drives up expenditures and the total size of the market. In business, success is measured in terms of increasing sales volume and revenues -- the last thing we want to see in the health-care system. Despite its preference for market mechanisms, however, the Bush Administration recently abandoned ideology and supported legislation to regulate physicians' fees and to prevent physicians from referring their Medicare patients to diagnostic laboratories in which they have a financial interest. Regulations and new legislation to provide even stricter limits on physicians' investments in health-care facilities are currently under consideration in several states -- not for ethical reasons but simply as measures to limit health-care spending. Clearly, cost control is now the highest priority in public policy.

Despite its recent willingness to intervene in limited ways to control costs generated by some of the entrepreneurial activities of physicians, the government has as yet shown little interest in interfering with the spreading commercialization of our health-care system. That should not be surprising, because private enterprise is now widely heralded as the answer to most economic problems. We hear much these days about the privatization of schools, highways, airports, jails, national parks, the postal service, and many other aspects of our society -- and by this is meant not simply removal from government control but transfer to investor ownership. Business, it is said, can do a much better job of running most of these things than government, so why not turn them over to private enterprise? I do not want to debate this general proposition here, but medical care, I suggest, is in many ways uniquely unsuited to private enterprise. It is an essential social service, requiring the involvement of the community and the commitment of health-care professionals. It flourishes best in the private sector but it needs public support, and it cannot meet its responsibilities to society if it is dominated by business interests.


If government is not concerned about the loss of social and professional values in our health-care system, should the American public care? I think it must. The quality and effectiveness of our medical care depend critically on the values and the behavior of its providers. If health care is not a business, then we should encourage our physicians to stand by their traditional fiduciary obligations, and we should enable, if not require, our voluntary hospitals to honor their commitments to the community.

If most of our physicians become entrepreneurs and most of our hospitals and health-care facilities become businesses, paying patients will get more care than they need and poor patients will get less. In a commercialized system the cost of health care will continue to escalate and yet we will not be assured of getting the kind of care we really need. In such a system we will no longer be able to trust our physicians, because the bond of fiduciary responsibility will have been broken. To control costs, government will be driven to adopt increasingly stringent regulations. Ultimately health care will have to be regulated like a public utility, and much greater constraints will be placed on physicians and hospitals than are now in place or even contemplated.

Our health-care system is inequitable, inefficient, and too expensive. It badly needs reform. The task will be arduous and the solution is far from clear, but I believe that the first step must be to gain a firm consensus on what we value in health care and what kind of a medical profession we want. The medical profession has held a privileged position in American society, based on the expectation that it will serve society's needs first of all. How can it hope to continue in that position if it loses the trust of the public? We cannot expect to solve our health-care problems unless we can count on the basic altruism of the profession and its sense of responsibility to patients and the general public welfare. American society and the medical profession need to reaffirm their de facto contract, because they will have to depend on each other as the United States painfully gropes its way toward a better system of health care.

Physicians have the power to make health-care reform possible. They know the system better than anyone, and if they want to, they can use its resources more prudently than they do now without any loss of medical effectiveness. It is primarily their decisions that determine what medical services will be provided in each case, and therefore what the aggregate expenditure for health care will be. If physicians remain free of conflicting economic ties, and if they act in a truly professional manner, medical facilities will probably be used more appropriately, regardless of their ownership or organization. In any case, no proposed reforms in the health-care system can ultimately be successful without a properly motivated medical profession. But if physicians continue to allow themselves to be drawn along the path of private entrepreneurship, they will increasingly be seen as self-interested businessmen and will lose many of the privileges they now enjoy as fiduciaries and trusted professionals. They will also lose the opportunity to play a constructive role in shaping the major reforms that are surely coming.

The medical profession is not likely to change its direction without help. The incentives that now encourage -- indeed, in many cases require -- physicians to act primarily as businessmen will have to be changed, and probably so will the configurations in which most physicians practice. In my opinion, a greater reliance on group practice and more emphasis on medical insurance that prepays providers at a fixed annual rate offer the best chance of solving the economic problems of health care, because these arrangements put physicians in the most favorable position to act as prudent advocates for their patients, rather than as entrepreneurial vendors of services. However, regardless of what structural changes in the health care system are ultimately adopted, physicians hold the key. The sooner they join with government and the public in reaffirming the medical profession's ethical contract with society, the easier will be the task of reform and the greater the chance of its success.

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    Copyright © 1992 by Arnold S. Relman. All rights reserved.
    The Atlantic Monthly; March 1992; What Market Values Are Doing to Medicine; Volume 269, No. 3; pages 99 - 106.

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