By David U. Himmelstein, M.D., and Steffie Woolhandler, M.D., M.P.H.
Annals of Internal Medicine, Sept. 15, 1988

Corporate providers’ request for increasing revenues has brought them into conflict with corporate purchasers of care, whose employee benefit costs have skyrocketed. This intercorporate conflict powerfully shapes health policy and has caused the rapid proliferation of health maintenance organizations (HMOs) and other forms of prospective payment.

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By Quentin D. Young
Chicago Tribune, May 4, 1985

It would seem a thankless task indeed to convince a group of successful businessmen and women that making a profit in the delivery of medical services may be dangerous to the nation’s health. But consider the central problem addressed by George Bernard Shaw in 1909, in the preface to “The Doctor’s Dilemma”:

“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.”

A little too crisp, perhaps, and even a tad simplistic, yet that master of human motivation and incentive comes very close to identifying the cause of today’s dilemma of soaring health costs.

It is a costly irony of history that it has taken the better part of a century for Shaw’s aphorism to emerge in the United States. An example of this is the fascination with the power of health maintenance organizations to fix up everything. It could be a costly tragedy for the future if the public’s rejection of the physicians’ handling of the health-care system leads to a mindless reliance on market forces organized by corporate medical conglomerates.

Of course, the fee-rewarded health professions and their nonprofit institutions come to the table with anything but clean hands. Under their stewardship, the history of health-care distribution for most of this century has been one of unplanned expansion. The resulting casualties litter the landscape. The locus of service moved from the physician’s office to the hospital and, within the hospital, to high-technology, high-cost activities. Physicians poured into specialties, with but 20 percent remaining in primary care.

These profound shifts generated unanticipated negative effects exemplified by the overall decline in public confidence in the system, poorer patient-physician relationships and rising malpractice insurance costs.

Another belatedly understood cause of disarray was the mode of reimbursement in both the government and private sectors. In a burst of liberal optimism, the government treasury was plugged into fee-for-service and cost-plus payment arrangements, with inevitable results: Medicare and Medicaid expenditures grew out of sight even though the health-care needs of the elderly and the medically indigent continued to be fulfilled inadequately.

The most ill-starred folly of this epoch was the collaboration of business and labor in collective bargaining contracts that kited hospital insurance costs by offering the maximum rewards for expensive hospital-based services of surgeons but virtually excluding payment for cheaper outpatient care.

At this juncture, investor-owned, profit-seeking corporate enterprises are moving into health services. There are nonprofit health corporations, too, and the differences between them and the for-profit companies are diminishing. Nevertheless, a crucial distinguishing factor remains: the distribution of profits to investors.

Unquestionably, the shaky economy of the last five to 10 years made the chaotic health-care industry vulnerable and extremely attractive to the wise investor, comparatively and absolutely. The appreciation in the market price of public holdings in the major health-related enterprises, as well as stock splits and generous dividends, stands out in sharp relief from the performance of the rest of the economy until quite recently.

From all indications, this corporatization process, already encompassing 80 percent of nursing homes, 20 percent of acute-care hospital beds, growing portions of psychiatric hospital beds, home health care and health maintenance organizations, is not nearly completed. Within a decade, the preponderance of health services may well be in the command of corporate managers.

Mobilization of capital from private investors has yielded fresh rewards for investors, but it also has aggravated the historic problems of access to care and of imbalance between overswollen therapeutic activities and undernourished prevention endeavors.

The impact on the public sector has been even more grievous. The public sector is given those health responsibilities that are not lucrative. Care for the poor is shunted to chronically underfunded city and county hospitals. The recent increase in private hospital dumping of unfunded patients has inevitably worsened the plight of public hospitals.

The large hospital corporations have of late offered to local governments Faustian pacts of a one-time bonanza. First a city or county sells its financially strapped hospital to a private corporation. But thereafter the new owners, as prudent managers, raise per diem charges, justified by the very costs of financing the capital investment and renovating the hospital. These corporate-run hospitals quite naturally limit the indigent care they give.

Another aspect that has received little attention is the growth of horizontal and vertical conglomerates. This raises concerns about the hazards inherent in monopoly situations: control of price, product and quality, and exclusivity of distribution or access. In the field of health care, the market idea of prudent consumer choice does not apply; the sick person’s goal is to get physician-recommended care immediately rather than to undertake comparison shopping.

The growth of for-profit shares of medical markets has generated serious problems that, if unbridled, can only worsen. Vital health services will face ever greater jeopardy. Consider the following:

— “Inefficient customers,” that is, those in need with inadequate resources, are excluded.

— Unprofitable services, which may be important to a community, are phased out.

— Profitable services are inappropriately emphasized or overused.

— Teaching hospitals that offer training, research and community service cannot be price-competitive with for-profit hospitals that do not provide these unprofitable entities.

— Voluntary, philanthropic home health agencies, which serve all in need, face unequal competition from for-profits, which rarely seek national accreditation of their standards of practice.

— The capacity of for-profit institutions to shape the behavior of the hitherto nonprofits in their own image further destroys the nonprofit hospitals’ historic humane service mission.

— When economic adversity strikes a for-profit conglomerate in some future recession, corporate imperatives might well require closures and retrenchments that are sound business decisions but catastrophes for the communities abandoned.

The radical restructuring of the health system is being generated by new federal government policies and by corporate business interests necessarily obsessed with an annual health-care expense in excess of $100 billion. Government policies are looking with increasing favor at the for-profit model, ostensibly disciplined by competitive market forces. This is, at best, a tragic miscalculation if traditional goals of equity, quality and humane values are to be retained. The resultant rationing of care in favor of the affluent and the productive has grave social and political consequences. Because the nation is evolving a new health policy, the option of corporate dominance must be examined for the booby traps below the surface of marketing promises.

The new resolve of government, business and consumer constituencies is to receive something better and less expensive in the way of health care. This is the precise circumstance for a popular consensus to be achieved, based upon broad debate. What is needed is a critical review of the strengths and mistakes of the present system. The experiences of other nations must be examined carefully, with a readiness to in
corporate the good things in accord with the realities in the U.S. today. What is happening instead is that the whole operation is being handed over to an army of promoters and speculators, pell-mell and willy-nilly.

Dr. Quentin D. Young is president of the Health and Medicine Policy Research Group in Chicago and a former medical director at Cook County Hospital.