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Ethical Dilemmas of For-Profit
En~re~p~se in Health Care
Robert M. Veatch
The practice of medicine should not be commercialized nor treated
as a commodity of trade.
AMA Judicial Council Opinions and Reports, 1969
The type of financial arrangement between a physician and a
hospital, corporation or other lay body is important and relevant
in determining whether or not such an arrangement is ethical.
We further believe that the amount of a physician's income or
whether or not an institution is making a profit on his services is
irrelevant in whether an arrangement is ethical.
AMA Board of Trustees, 1957
The rapid evolution of for-profit corporate delivery of health care over
the past few years poses critical questions for those interested in the
ethics of health care delivery. The development of commercial dialysis
centers, corporate for-profit hospital chains, and other health care
delivery systems linking health care to profit-making enterprise raises
critical sociological, legal, economic, administrative, and political is-
sues. In addition to all of these it challenges some of the most fun-
damental ethical presuppositions of both the business and the health
· —
care communities.
The relationship between business and professional health care has
always been an ambivalent one. Organized medicine in the United
States has never condemned outright the practice of medicine within
125
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126
ROBERT M. VEATCH
a profit-making context. Yet over the years, beginning with concern
about restraining unorthodox practitioners and continuing in debates
over physician control of pharmacies, patents, advertising, and finan-
cial arrangements in group practice, organized medicine has con-
stantly been nervous about the pestilential taint of commercialization.
History of the Ethics Controversy
The International Context
If we are to understand the new ethical problems that may emerge
with the evolution of for-profit enterprise in health care, it is worth,
first, examining the history of the ethical controversy over some his-
torical analogues of that relationship and then attempting to syn-
thesize a description of the potential problems to be anticipated. That
history reveals that ambiguity has long troubled those trying to un-
derstand the relation of medicine to for-profit commercial enterprise.
Confucian medicine in ancient China was essentially an art prac-
ticed within a family. Each family had someone skilled in medicine
who could look after his kin, acting out of the traditional virtues of
compassion, applied humaneness, and filial piety. The later profes-
sionalization of medicine, so that financial transactions necessarily
became a part of the practice of the art, was widely viewed as the
beginning of the downfall of the lofty ideals of medicine.)
The medical literature of ancient Greece is filled with examples of
instances in which it is implied that the motivation of the practitioner
might have been something less than applied humaneness. A search
of the Hippocratic corpus to find evidence that a philanthropic attitude
is essential in medicine proves fruitIess.2 Galen bemoans the fact that
philanthropy is the inspiration for only a minority of physicians, be-
cause the majority pursue money, honor, or gIory.3 It was standard
advice for physicians to choose carefully whom they would accept as
patients lest they take on a hopeless case and have their reputations
tarnished and their market potential jeopardized by their failure.
By the time of the beginnings of modern AngIo-American medical
ethics, we still find little attention being paid to the ethics of the
business and commercial dimensions of professional health care. One
searches the long, detailed Code of Thomas Percival of 1797 in vain
for relevant material. This is true even though this code, which was
to become the foundation of both British and American medical ethics,
was originally written in response to an unsavory feud among phy-
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Ethical Dilemmas of For-Profit Enterprise in Health Care 127
sicians, surgeons, and apothecaries at the Manchester Infirmary in
England, a fight having the tone of a cutthroat, corporate boardroom
machination.4 It was not until the twentieth century that the profes-
sional documents of AngIo-American medical ethics began dealing
with the specifics of the ethical conundrum of the possibility that
medical practice might, to the uninitiated, look something like a busi-
ness.
A recent British Medical Association document opens its discussion
of the topic by stating: "A general ethical principle is that a doctor
should not associate himself with commerce in such a way as to let
it influence; or appear to influence, his attitude towards the treatment
of his patients."5 This is followed by specific prohibitions and approv-
als. For example, physicians are to avoid having a financial interest
in the sale of pharmaceuticals or writing testimonials. The concern
not only focuses on the risk that commercial involvement could affect
decisions but also extends to concern about the appearance of being
influenced.
The Australian Medical Association Code of Ethics has the same
principle stated verbatim, with similar examples, followed by an im-
possibly convoluted set of sentences attempting to walk a tightrope
on the subject of ownership of pharmaceutical companies.6
The American Medical Association
The codes of the American Medical Association (AMA) have shown
similar ambivalence through the years. To be sure, the positions adopted
by the AMA do not always reflect the current views of the American
public or even those of American physicians. They surely do not de-
scribe actual behavior in all cases. They are, however, the most im-
portant consensus statements of organized professional medicine in
the United States. As such, they do normally reflect the ideal of what
most physicians, at least those who participate in AMA activities,
consider to be ethical conduct for physicians.
The early codes of the AMA, beginning with the original versions
passed at the convention in Philadelphia in IS47, state flat prohibi-
tions of certain behavior that everyone seemed to think obviously
made the physician too much like a businessman and therefore in
danger of ethical misconduct. These codes concentrated on prohibiting
advertising, holding of patents, and dispensing "secret nostrums." Act-
ing like a businessman was considered unacceptable, but even ap-
pearing like one seemed to be as much a cause of concern. During this
period medical practitioners whom we now would identify as practic-
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ROBERT M. VEATCH
ing orthodox medicine were very concerned about separating them-
seIves from quacks and charlatans, who often engaged in commercial
tactics.
Advertising The AMA in 1847 stated that: "It is derogatory to the
dignity of the profession, to resort to public advertisements or private
cards or handbills, inviting the attention of individuals affected with
particular diseases...."7 The same declaration is repeated verbatim
in the revision of 1903 and in new, even stronger language in the
1912 revision.8 The objection was clearly to the businesslike style of
advertising, regardless of content. Publicizing successes, inviting lay-
men to witness operations, and boasting of cures were deemed "the
ordinary practices of empirics Equacks], and are highly reprehensible
in a regular physician."
By 1957, with a much shortened set of principles, the prohibition
had been reduced to the mandate that the physician "should not solicit
patients."9 The interpretation began to get more subtle. Spurred by
the Federal Trade Commission's (FTC) suit claiming that prohibition
on solicitation was restraining free trade, the AMA began emphasiz-
ing that what it wanted to prohibit was "deceptive practices," "false
or misleading statements," and the "creation of unjustified expecta-
tions." In short, the AMA's position had shifted to one that any good
Madison Avenue advertising executive might endorse. What began
as an effort to distinguish medical professionals from quacks, and
others whom they tried to identify with mere business people, ended
up making them demand to be recognized (by the FTC and others) as
free-market competitors at their best.
Patents A similar progression is seen with the AMA's statements
on physician holding of patents. The original position in iS47 was
blunt: "It is derogatory to professional character . . . for a physician
to hold a patent for any surgical instrument or medicine...."~° By
1971 the practice was acceptable, but nervousness was apparent in
the qualifications and warnings. With the major revision in 1981
all signs of ethical doubt about patents had disappeared. It is now
stated bluntly that: "It is not unethical for a physician to patent a
surgical or diagnostic instrument."
Dispensing Pharmaceuticals and Receiving Rebates The older codes
explicitly condemn not only the holding of patents but also the pre-
scribing of"secret nostrums." Originally the concern was over the
secrecy as such, a point that will be important later when we contrast
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Ethical Dilemmas of For-ProfIt Enterprise in Health Care 129
professional medical ethics with business ethics.~3 It was more im-
portant to distinguish the physician from a charlatan than from a
businessman. That same condemnation appeared in the AMA docu-
ments into the 1970s when it finally disappeared.
Far more important and difficult is the question of whether phy-
sicians could sell more orthodox pharmaceuticals. It has long been
recognized that physicians who sell their own remedies have a poten-
tial conflict of interest. The codes seem to express two concerns: that
financial pressures might influence prescribing and that there should
be a proper division of labor with pharmacists. From the time of the
1957 revision it was accepted that: "Drugs, remedies or appliances
may be dispensed or supplied by the physician provided it is in the
best interests of the patient."~4 Because of the potential appearance
of conflict of interest and also probably to avoid tensions with phar-
macists, the AMA urged physicians "to avoid the regular dispensing
and the retail sale of drugs to patients whenever the drug needs of
patients can be met adequately by local ethical pharmacies."~5 For
similar reasons accepting rebates on prescriptions and appliances has
been consistently condemned as unethical.
In 1947 the ophthalmologists aggravated the AMA Judicial Council
by presenting so many schemes for rebates that the Council was un-
characteristically exasperated in its response.~7 Among the tasks of
the Council was review of ethical queries from members. Ophthal-
mologists were seeking ways in which they could receive some re-
muneration, beyond their usual professional fee, for prescribing eye
glasses. Rebates from opticians were a common practice. The Council's
response was curt: "By far the largest number of requests for infor-
mation on approval were received from ophthalmologists who have
submitted practically every conceivable plan to circumvent the section
of the Principles of Medical Ethics concerning rebates.. .. It is strange
that year after year more communications regarding these practices
come from members of this particular field than from any other....
No matter how prevalent these practices may have become, they are
still unethical."
Fee Splitting Closely related to dispensing of pharmaceuticals and
receiving rebates is the problem of fee splitting. It has been funda-
mental to professional medical ethics since 1912 that fee splitting is
unethical, "detrimental to the public good and degrading to the profes-
sion," according to the 1912 code. Originally the emphasis was on
secrecy in the splitting of fees, but since the 1950s the practice itself,
secret or not, has been condemned. It is viewed as an unacceptable
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ROBERT M. VEATCH
inducement that "violates the patient's trust that the physician will
not exploit his dependence upon him...."
Recently, the economist Mark Pauly has argued forcefully that the
absence of fee splitting might also produce undue inducements in
this case inducements for the generalist to treat patients who ought
to be referred.~9 He concludes that fee splitting ought to be viewed as
ethical. While such a conclusion is debatable, at least it suggests that
the unanimous, vitriolic condemnation of fee splitting may have latent
functions, perhaps, such as maintenance of the idea that the health
care professional is significantly different from a business person, for
whom commissions, royalties, finder's fees, and the like are standard.
Ownership of Health Facilities and Corporate Relations The prob-
lems examined thus far advertising, patents, rebates, and fee split-
ting constitute the classic issues of the ethics of physician finances.
The answers, at least for a time, were simple: Behaving like a rational,
self-interested businessman was unethical. Gradually, as the com-
plexities of the business of practicing medicine became more clear,
qualifications began to cloud the picture. These matters are still rel-
atively simple in comparison with the ethical problems of corporate
for-profit delivery of health care, in which the ambivalence of the
physician/business relation is seen full blown. It is in this context that
the ethical tensions of practicing medicine in a for-profit corporate
context begin to have their closest analogues with more traditional
issues in medical ethics.
The first major set of ethical issues is physician ownership of health
care facilities. It is now clear that the AMA has concluded that it is
acceptable for physicians to own pharmacies20; hospitals2~; nursing
homes22; and, by implication, laboratories.23 It also is clear, however,
that in all these cases the AMA considers it unethical for a physician
to be influenced in his or her medical practice by such ownership.
Until the redrafting of the AMA code of ethics in 1980, there was a
strict prohibition on any arrangement whereby physicians would profit
on investments in proportion to the amount of work they referred to
the laboratory.24 Thus, physicians could in fact profit from the refer-
rals to pharmacies, nursing homes, hospitals, and laboratories that
they owned but were held to a standard in which they acted as if they
would not, and in no case could they receive a fee or return on in-
vestment directly linked to the business they generated. Still it was
considered acceptable for them to share in the profits of the facilities
they owned, including the profits they knew they were generating
from their own medical practices.
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Ethical Dilemmas of For-Profit Enterprise in Health Care 131
The links between the practice of medicine and the corporate com-
mercial interest in health care delivery are not always as simple as
straightforward ownership by a physician. With physician ownership,
professional associations such as the AMA could at least appeal to the
recognition that physicians had control of the corporations with which
they had financial ties. More complex corporate relations with for-
profit enterprise may involve physicians in positions where they ex-
ercise much less direct control.
The versions of the Judicial Council Opinions ant] Reports of the
late 1960s and early 1970s place great emphasis on the ethical prob-
lems of physicians practicing within the context of lay-owned corpo-
rations or where lay groups profited directly from their service.25
The privilege of healing the sick as ~ profession is a right granted only to those
properly qualified and licensed by the state. It is a privilege belonging only to
the medical profession. It is a sacrifice of professional dignity that this exclusive
right of medicine is so often sold for individual gain or its possessor deprived of
it against his will. In increasing numbers, physicians are disposing of their profes-
sional attainments to lay organizations under terms which permit a direct profit
from the fees or salaries paid for their services to accrue to the lay bodies em-
ploying them. Such a procedure is absolutely destructive of that personal re-
sponsibility and relationship which is essential to the best interest of the patient.26
The Judicial Council gives three examples. The first is hardly clear-
cut: salaries or fees paid to the physician by insurance companies in
workman's compensation cases in which the fees allegedly are below
the legal fees on which a premium is based. The other two, however,
are more directly relevant to for-profit health care enterprise: hos-
pitals collecting fees for professional services of staff physicians and
absorbing them as hospital income, and universities employing full-
time hospital staffs and sharing such fees for the professional care of
patients "as to net the university no small profit."
Several things are worth noting. First, the cJudicial Council is con-
cerned that the right and the dignity of the profession is assaulted by
such practices of lay corporations. Second, it believes that such lay
involvement destroys professional responsibility and is contrary to
the best interest of patients. Finally, underlying much of the Council's
concern is a commitment to the maintenance of professional control.
The Council's conclusion, one apparently relevant to for-profit health
care enterprises, is that: "A physician should not dispose of his profes-
sional attainments or services to any hospital, corporation or lay body
by whatever name called or however organized under terms or con-
ditions which permit the sale of the services of that physician by such
an agency for a fee."27
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ROBERT M. VEATCH
The recent evolution of for-profit enterprise in health care has the
potential of engaging the physician in a number of capacities: as an
employee of a for-profit hospital or other corporation, as an indepen-
dent practitioner referring patients to the for-profit corporation for
certain medical services, and as an owner of the for-profit corporation.
The concern about the dignity of the profession might be a particular
problem where physicians are owners. The other forms of participa-
tion, however, seem to present even greater difficulty because phy-
sicians could lose control over medical practices, abandoning respon-
sibility to lay people.
By the late 1970s all of this AMA language pertaining to physician
relations with lay-owned corporations disappeared, and it was entirely
absent from the major revision of the document in 1981. As far as this
author has been able to determine, there was no formal change of
policy or reversal by any official AMA body. Rather, the warnings
against involvement with lay-dominated corporations simply were
omitted, leaving the concerned reader to speculate whether the AMA
had accommodated the relationship or simply thought it not worth
attention any longer.
A Summary of the Professional Physician Stance
This brief history makes it clear that the attitude of American profes-
sional organized medicine toward the commercial aspects of health
care has been a complex and ambivalent one. From this complex and
shifting pattern of professional attitudes it may be possible to glean
a pattern or at least a set of principles that informs the Judicial
Council and other AMA pronouncements.
Basic Principles of the Professional Stance
Service to the Patient Historically, all of medical ethics in the Hip-
pocratic tradition, including that of AngIo-American medical ethics,
affirms as the basic principle the idea that the physician should use
his or her judgment to do what he or she thinks will benefit the patient.
it is not surprising, therefore, that the professional stance on the
finances of medical practice is normally legitimated by appeal to the
welfare of the patient. The condemnation of physicians who allow lay
corporations to profit directly from their services is thus characteristic
when it ends by arguing that prohibiting such an arrangement is
"essential to the best interests of the patient." The AMA's brief in its
defense against the FTC's charge that it unlawfully restrained phy-
sician advertising was argued in similar terms.
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Ethical Dilemmas of For-Profit Enterprise in Health Care 133
Physicians' financial interests are often consistent with many of the
practices labeled by the AMA as ethically required. Control of adver-
tising and prohibition of lay profits from professional services are
obvious examples. This had led some to suggest that self-interested
motives have led organized medicine to label certain business prac-
tices unethical. In fact the author of an anthropological study of Chinese
medical ethics argues that the primary function of medical ethics is
the control of financial and other rewards of professional service.28
Pauly's analysis of fee splitting, in contrast to the professional phy-
sician literature, simply assumes that physicians will primarily pur-
sue self-interest and only at the margin be influenced by patient welfare.
Holders of these contrasting attitudes about the role of commitment
to patient welfare and self-interest fail to grasp what sociologists some-
times refer to as the relationship between the latent and manifest
functions of positions adopted and behavior undertaken. There is good
reason to believe professionals when they say they are committed to
the welfare of their patients. However, this does not necessarily mean
that the positions they take about what serves the welfare of their
patients may not be influenced by other, more hidden, even subcon-
scious agendas and value frameworks unique to their professional
group. It also does not exclude the possibility that what they legiti-
mately believe will serve patient welfare may also serve other inter-
ests as well, including their own.
Recently there has been an increasing recognition that the ethics
of physician practice is more complex than simply serving the interests
of patients. Rights language is increasingly replacing welfare lan-
guage. The ethical responsibilities of physicians are increasingly being
defined in terms of the rights of patients, instead of in terms of the
welfare of patients. The rights language appears formally for the first
time in the AMA principles in the revision of 1980. The rights of
colleagues and other health care professionals are explicitly affirmed
as well as those of patients. It is in the same spirit that the 1981
Opinions of the Judicial Council with regard to patents affirms the
"sound doctrine that one is entitled to protect his discovery." Thus,
perhaps, part of the softening of the professional opposition to the
business imagery is related to the increasing recognition of the legit-
imacy of self-interest of health care professionals.
Physician Control; of Decision Making anti Fees Within the context
of the dominating principle of service to the patient and often legi-
timated by it, a second important theme running through the AMA
literature is the importance of professional control of decision making
and of fees. In no case is the physician's involvement with business
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ROBERT M. VEATCH
condemned when the professional is able to maintain such control.
However, paragraphs dealing with professional involvement repeat-
edly include the warning that professionals must not lose control of
their sphere of responsibility.
To the extent that this is a principle underlying the response of
professional physician organizations to for-profit health care, it seems
clear that physicians will be particularly uncomfortable when the
relation is one of the physician as employee of a lay-owned corporation.
There may well be less concern when physicians themselves are own-
ers of such enterprises.
Acceptance of Profit Motive A third basic theme one can deduce
from the AMA literature is not stated as boldly but represents an
inescapable conclusion. Nowhere in all of the professional literature
of AngIo-American medical ethics is there any condemnation of the
profit motive in the practice of medicine. While ancient Confucian
medicine could look down on those who practiced medicine for finan-
cial reward, American medicine is much more open to profit. In fact,
as was seen in the second epigraph of this paper, the AMA has viewed
the question of whether an institution is making a profit on the phy-
sician's services as irrelevant to whether the arrangement is ethical.
Suspicion of Commercialization Despite this openness to the profit
motive, American professional organized medicine has shown a strong
and stubborn resistance to anything it takes to imply the commer-
cialization of medical practice. As recently as 1981 the AMA Judicial
Council condemned commercialization (while affirming the right to
make a "fair compensation"~.29
An Interpretation of the Professional Stance
The question of immediate importance for this essay is the relevance
of this professional history and the principles derived from it for the
evolution of for-profit enterprise in health care delivery. While some
of the elements have clear connections with the recent development
of commercial hemodialysis and hospital chains owned by large profit-
making corporations, there is a sense of discontinuity that some-
thing of moral significance is at stake beyond the ethical problems
faced by the small-town general practitioner whose income was tied
to his or her medical advice. Two major elements seem to be important
in the recent developments: commercial motivation of for-profit en-
terprise and the subordination of medicine to the objectives of lay
people. As we have seen, neither of these by itself is a new concern
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Ethical Dilemmas of For-Profit Enterprise in Health Care 135
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142 ROBERT M. VEATCH
be found in the technical distinction made by philosophical ethicists
between deontological and consequentiaTist modes of reasoning. It is
now well established that physicians, in their traditional professional
ethics, are uniquely consequentiaTist in their moral reasoning. They
evaluate actions strictly on the basis of the consequences they produce.
Physician ethics is even more unique in that in comparison to, say,
public policy analysts, many of whom also are consequentialist in their
ethics, the relevant consequences for physicians are limited, at least
in the classical expressions of the Hippocratic tradition, to those ac-
cruing to patients (rather than to other individuals, bystanders, or
society at large). Thus, this consequentialist thinking differs from
classical utilitarianism.
To this author's knowledge, no thorough study of the normative
ethical structure of the business community has ever been under-
taken. ~ would predict, however, that although the business ethic is
not immune from consequentialist thinking, especially of the utili-
tarian type, it is much closer to the traditional religious ethics (es-
pecially Jewish and Protestant ethics) and the secular liberal tradition
of our political and cultural heritage (stemming from natural law
theory, Locke, Hobbes, Kant, and the American founding fathers). As
different as these traditions are, they all share a common feature:
They all maintain that there is more to ethics than simply producing
good consequences. hying, breaking promises, violating the liberty of
others, and killing are characteristics of actions that tend to make
them wrong even if in a particular instance bad consequences do not
flow from those actions. This position is what ethicists call deonto-
logical ethics. A brief examination of the codes of the business com-
munity reveals tendencies to display that kind of reasoning in addition
to utilitarian patterns. Business people think it is wrong to lie, cheat,
and steal, and they do not have to determine the consequences before
they reach that conclusion. If so, they are very different from physi-
cians in their traditional consequentialist ethical theory.
Health Care as a Commodity One possibility is that the difference
between business and professional ethics is not in the roles of the
participants but in the nature of the "product." It is currently being
debated heatedly whether health care is unique among the goods and
services in which people potentially have an interest. On the one hand,
some argue that health care is like any other commodity like beer
or panty hose, to use the language of one who takes this position. It
should be sold in the market to those who have the capacity to buy.
After all, it is pointed out, such other basic necessities as food, clothing,
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Ethical Dilemmas of For-Profit Enterprise in Health Care 143
and shelter are sold similarly. This is the position of the libertarians,
under the influence of entitlement theorists,38 and of health care the-
orists under that sphere of influence.39 From such a philosophical
perspective, it is easy to see how health care could become part of for-
profit corporate enterprise without any moral tensions.
On the other hand, some see health care as more fundamental.
While it is recognized that people cannot have an unlimited right to
all the health care they could possibly want, health care is viewed as
different from other goods and services, something to which one has
some kind of moral right. It is viewed that way because it is funda-
mental to survival, because the need for it is distributed so unevenly,
or because it is necessary to enjoy the basic social goods of life.40 It is
a position rooted in more patterned theories of distributive justice.4i
The implications are radical if one views health care as some sort
of right and thus different from mere business commodities. It makes
the delivery of health care in a business setting almost impossible.
The implications extend far beyond corporate for-profit enterprises of
the kind that are beginning to emerge on the American scene. All
distribution of health care on an economic basis is called into question,
even the more traditional professional private-practitioner/fee-for-ser-
vice arrangements. The profit motive itself, which we have seen to be
compatible with traditional professional physician ethics, is jeopar-
dized in the health care sphere if health care is a right.
The Double Agent Problem Another basic theme that makes the
business/health care relationship unique is what has been referred to
by medical ethicists over the past decade as the double agent problem.
As we have seen, many business/professional relationships involve
relatively simple diadic interactions in which the professional is en-
gaged by the corporation to serve the corporation's interest. The law-
yer or engineer performs the services needed by the corporation. In
relatively rare circumstances the professional is hired by the orga-
nization to provide professional services directly for a client who may
have interests quite different from the organization's. The professional
is simultaneously an agent for the organization and an individual
client. The term double agent problem was first used to describe the
position of a psychiatrist employed by a medical school to provide
psychiatric services to medical students but who was also to advise
the school on the suitability of students for continuation or reentry
into its educational program.42
A physician employed by a corporation who would sell his or her
services to customers of the corporation is potentially in the classical
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144 ROBERT M. VEATCH
double agent bind. Loyalty to the corporation may conflict with that
which is traditionally owed to the patient. It is not yet clear what the
proper ethical dynamic should be for a professional in a double agent
situation. Some argue that professionals simply cannot function in
such a situation. That would mean that no physician should be work-
ing for a profit-making corporation if the agenda were potentially in
conflict with that of patients (which it always would be).
Most now consider that answer too simple. In at least some carefully
guarded contexts health care professionals are thought to be acting
ethically while having divided loyalties. Company physicians offering
employment physical exams, for example, are widely accepted. The
strategy that is evolving is one of developing principles for reducing
or eliminating conflict of interest. For example, principles of disclosure
are being formulated. All parties should know in advance exactly what
kinds of information should be disclosed to employers and what to
keep confidential. If physicians in a corporate setting are expected to
make cost containment decisions whereby patients might not receive
all the care that was potentially beneficial to them, at the very least
the physician would be expected to disclose to all parties that such
decisions were part of his or her role. It is unlikely, however, that full
disclosure alone will solve the double agent problem. As the practice
of medicine in a for-profit enterprise evolves, a study of additional
safeguards and guidelines to minimize conflict of interest must be
developed.
Differences Between Business and Physician Ethics
It has been argued that it is too simple to distinguish between the
ethics of the physician and the business person by holding that phy-
sicians, as professionals, are collectively oriented and business people
are self-oriented. Still it was held that there are differences in tra-
ditional ethical expectations in the two roles. In this section several
of the more specific examples ofthese conflicts will be presented, based
on a review of the literature of business and professional ethics and
general knowledge of traditional patterns and beliefs. It is suggested
that these more specific ethical problems will likely constitute the
heart of the ethical tension between business and professional models
if and when the practice of medicine in a for-profit setting becomes
dominant.
Lying and Deception Before turning to several examples of direct
relevance to health care economics, it is interesting to note one ex-
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Ethical Dilemmas of For-Profiit Enterprise in Health Care 145
ample of ethical differences between health care professionals and
business people that supports the claim that the ethical differences
are more complex than the common stereotype would admit. It is fair
to say that there is nothing in business ethics that requires telling
the "whole truth" about one's product. Certain disclosures are surely
required, but the weak points or inadequacies of one's product need
not be emphasized. Still an outright lie misrepresenting one's product,
claiming that it has some property that it does not have, is ethically
unacceptable in the business community. (Again, this is not to say it
does not happen, but when it does no one in the business community
is going to defend the lie as morally acceptable).
By contrast, in professional physician ethics the dominant moral
principle has been the welfare of the patient. Deception, misinfor-
mation, and outright lies have been defended morally when done in
the name of protecting patient welfare to avoid traumatizing a ter-
minal cancer patient or to entice a patient into needed medical treat-
ment. The professional ethical evaluation of this practice has changed
rapidly over the past decade.43 Such deception is now widely rejected
among physicians. The newest version of the Principles of Medical
Ethics of the AMA holds the physician to "deal honestly with pa-
tients." That is a new recognition of the rights of patients. Prior to
these recent developments, however, physicians and business people
had clear differences on the morality of lying differences, oddly enough,
in which the business person held a position closer to traditional West-
ern morality.
Competitor's Use of Outdated Information The remaining di~er-
ences that will be identified between physician morality and business
morality relate directly to tensions one can anticipate in the evolution
of the practice of medicine in for-profit corporate settings. Consider,
as a first example, a situation in which a practitioner discovers that
a competitor is making business decisions based on outdated, erro-
neous, or inadequate information. If that individual is in the business
world, this is likely to be a cause for rejoicing. Nothing in the ethics
of business would call for that business person to point this fact out
to his competitor. In fact, he or she would be expected to take advan-
tage of it to improve the market position of the business.
A physician discovering that a colleague is using outdated, erro-
neous, or inadequate information is morally in a very different posi-
tion. Such a physician bears an obligation to take reasonable steps to
enlighten the colleague, transmit up-to-date information, and if nec-
essary even take action to make sure that the colleague practices
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146 ROBERT M. VEATClI
competently. The difference in the relation is signaled by the shift in
language from competitor to colleague. A physician who works for one
profit-making corporation and who learns that a colleague who works
for a competing hospital is using an outmoded practice that will even-
tually be disadvantageous to his or her employer as well as the pa-
tients would find it difficult at best to fulfill simultaneously the
traditional ethical expectations of both business and professional med-
clne.
Enticement of Customers into Needless Consumption Another area
of potential tension is in practices that entice customers to consume.
It is widely accepted in business through advertising, packaging, and
other promotion techniques that it is not only ethical but also nec-
essary business strategy to create a market for one's product. A good
profit-oriented hospital should be expected to do just that by pro-
moting elective procedures; making efficient use of resources; and
encouraging or giving incentives to physicians to "order" marginal
tests, treatments, and services. Although business people probably
would find unacceptable the intentional inducement of a consumer to
use a product that would actually be harmful, little objection is ever
offered to harmless enticement to consume.
In medicine the traditional pattern is quite different. Although phy-
sicians may engage in practices that serve only to generate extra
business for them, such practices are certainly considered unethical.
In the extreme, such as in Medicaid "mills," universal condemnation
is the response. Once one realizes that many procedures, tests, and
treatments are quite marginal—that a patient will neither be helped
nor hurt greatly by an intervention—the problem becomes more crit-
ical. Physicians can expect to come under great pressure from cor-
porate managers to generate work in these areas.
Exclusion of Inefficient Customers Another common, prudent busi-
ness practice is the exclusion of customers who can only be serviced
inefficiently. If a company services a large market, one portion of
which is sparsely populated and is being serviced at a loss, a corporate
executive would be viewed as foolish perhaps even unethical in
squandering stockholders' resources- were he or she to fad] to close
the territory that placed a drain on the company.
In medicine efforts to exclude service to areas and individuals who
can be served only at relatively great cost are much more suspect.
The closing of a rural clinic or a government decision to transfer public
health service personnel away from sparsely settled areas would cer-
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Ethical Dilemmas of For-Profit Enterprise in Health Care 147
tainly meet with controversy. For-profit health care corporations pro-
viding hospital care are certain to face conflict over these divergent
patterns of expectation. The morally correct solution to this dilemma
probably will depend directly on whether health care is a right or a
mere commodity.
The Duty to the Indigent Another dilemma closely related to the
question of whether health care is a right is what business people and
physicians feel they owe to those who cannot afford to purchase ser-
vices at the prevailing market rate. No business person would think
that he or she has a duty to provide a Mercedes or even a Ford to
those who cannot adore to buy one, but physicians traditionally have
held some sense of responsibility to those too poor to buy medical care.
Physicians have acknowledged both charity work and the principle of
the sliding-scale fee. Although sometimes these are acknowledged
more in theory than in practice (one study in Connecticut revealed
that no analytical psychiatrist treated patients for free, though there
were limited cases of fee reduction),44 some sense of responsibility,
collective or individual, is still acknowledged. Hospitals receiving Hill-
Burton funds are obligated by law to offer services to the indigent. It
is predictable that physicians will fee] tension with their corporate
employers when indigent patients arrive at the hospital door needing
unavoidable medical services.
Supplying Unprofitable Products ancl Services One of the great
problems faced by the business mode', especially if health care is
considered a right of more rigorous claim than mere commodities, is
how goods and services that lack profit potential will ever be produced.
We already face that problem with the production of drugs and bio-
logicals for rare conditions in which commercial production can never
be profitable. Similar problems exist potentially for goods and services
in hospitals and other commercially owned health care facilities. The
development of surgeons trained to perform rarely needed surgical
procedures could probably never take place in a purely market model.
Certain types of medical interventions are more easily provided for a
fee than others. Some concern has already been expressed that drug,
surgical, and other treatment interventions will be overemphasized
at the expense of dietary and lifestyle changes because it is difficult
to collect as lucrative a fee for counseling as for more tangible services.
Any intervention strategy that however elective lacks profit potential
may be jeopardized in the for-profit enterprise system of health care
delivery.
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148 ROBERT M. VEATCH
Of course, these problems have been faced already. Some drug com-
panies conduct important work on pharmaceuticals that they know
lack profit potential. They do so for the public relations value but
probably also out of a limited sense of altruism. Moreover, the gov-
ernment carries a substantial portion of the burden for research and
development in areas for which the profit incentive is inadequate. If
for-profit health care enterprise becomes more widespread, it may
have to be supplemented by a governmental support network for re-
search, development, and delivery of products and services lacking
profit potential.
Differing Concepts of Self-Reguic~tion One of the chief character-
istics of a profession well recognized by the sociology of the professions
is that professionals, as opposed to those merely engaged in business,
have substantial authority for self-regulation. This is expressed in a
professional role in licensure, certification, supervision of curriculum,
disciplinary proceedings, and accreditation. By contrast, the business
world basically has been exempt from efforts of self-regulation. Vol-
untary efforts have been weak, reliant on moral suasion, and widely
regarded as ineffective.
There are both theoretical and practical reasons professional self-
regulation in these areas has come under severe criticism. In theory,
if professional groups have unique ethical and other value commit-
ments, then even perfect self-regulation will sometimes produce re-
sults that are unacceptable to the broader community. On the practical
level it is widely recognized that the pressures of conflict of interest
and comradeship make elective self-regulation extremely difficult.
Thus, there is strong pressure for society to treat the professions more
like businesses, with a combination of internal voluntary efforts, reg-
ulatory restraint, judicial control, and public accountability. Still we
can anticipate potential tension, for example, when physicians in a
commercially owned hospital feel accountable to outsiders within their
profession and the business managers resist professional efforts to
control their business practices.
Conclusion
We can anticipate many points of ethical difficulty as for-profit health
care enterprises evolve and force more direct interactions between the
medical profession and its system of ethics and business with its sys-
tem of ethics. It is not yet clear what the organized professional phy-
sician response will be to these developments. We can anticipate that
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Ethical Dilemmas of For-Profit Enterprise in Health Care 149
physicians will be concerned with any removal of professional control
from medical decision making and will be uncomfortable with the
assault on their dignity that would accompany an increase in the
image of commercialization of the physician's role. Still we have re-
peatedly seen the organized profession accommodate change by mov-
ing in the direction of the business model. Shifts on advertising,
accommodation to ownership of health facilities, repeated endorse-
ments of the legitimacy of the profit motive, and adjustments to tol-
erate the employment of the professional within lay organizations all
point to the flexibility of the profession on such matters and its ability
to accommodate the realities of health care as an industry.
It is not clear what the public ought to say regarding the practice
of medicine in a for-profit commercial setting. An initial intuitive
resistance to it is grounded in the traditional high regard for the
medical professional, an unwillingness to view the physician as part
of a business operation, and a feeling that health care should be sup-
plied (within some reasonable limits) on the basis of need rather than
ability to pay. If the debate over whether all of health care should be
insulated from the market of supply and demand leads to the conclu-
sion that it should be, then public resistance to medicine within a for-
profit enterprise would be expected.
On the other hand, the case can be made for a further opening toward
the practice of medicine in this way. Many of the recent changes in
professional physician ethics the development of the rights perspec-
tive, the movement away from an exclusively consequentialist ethic,
and the acceptance of the legitimacy of a limited self-interest stem
from lay pressures on the professional community to return to the
mainstream of Western ethics. Physicians and lay people alike may
find attractive a liberation from the unreasonable expectation of un-
limited altruism on the part of physicians. Such an adjustment would
make the lay-professional relationship a more realistic one of equal
human beings, each of whom has something to gain from an inter-
action. Moreover, if our society is moving away from professional self-
regulation and toward more public mechanisms of control comparable
to those now in place in the business community, the evolution of a
for-profit commercial medical system might facilitate that shift.
The time has come to explore in much greater depth the ethical
tensions that will arise as for-profit health care systems controlled by
nonprofessional business interests begin to gain a greater position in
our society. Study is needed both of the more theoretical differences
between professional and business ethics and the specific ethical prob-
lems that are likely to arise.
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150
References and Notes
ROBERT M. VEATCH
1. The early seventeenth-century figure, Kunh T'ing-hsein, complained ofthe physicians
who were his contemporaries: "When they visit the rich, they are conscientious; when they
deal with the poor, they act carelessly. This is the eternal peculiarity of those who practice
medicine as a profession, and not as applied humaneness." Cited in Paul U. Unschuld,
Medical Ethics in Imperial China (Berkeley: University of California Press, 1979), p. 74.
2. Darrel W. Amundsen, "The Physician's Obligation to Prolong Life: A Medical Duty
Without Classical Roots," Hastings Center Report 8 (August 1978), pp. 23-30.
3. Galen, De Placitis 9, 5, as cited in Darrel W. Amundsen, op. cit., p. 24.
4. Thomas Percival, Percival's Medical Ethics, edited by Chauncey D. Leake (Baltimore:
Williams & Wilkins, 1927).
5. British Medical Association, Medical Ethics (London: British Medical Association
House, 1974).
6. The Australian Code informed the physician that: "A doctor should not have a fi-
nancial interest in the sale of any pharmaceutical preparation that he may recommend to
a patient...." But at the same time, "this is not held to apply to the acquisition of shares
in a public company marketing pharmaceutical products, subject to the provision that the
acquisition of shares is not conditional on ordering products of the company...." Australian
Medical Association, Code of Ethics (Glebe, Sidney: Australian Medical Association, 1975
edition), p. 24.
7. American Medical Association, Code of Medical Ethics, adopted by the AMA in Phil-
adelphia, May 1847, and by the New York Academy of Medicine in October 1847 (New
York: H. Ludwig & Co., 1848), p. 17.
8. "Principles of Medical Ethics of the American Medical Association," 1903, 1912.
Reprinted in Percival's Medical Ethics, op. cit. pp. 244, 260.
9. American Medical Association, Judicial Council and Reports (Chicago: American
Medical Association, 1971), p. 23.
10. American Medical Association, Code of Medical Ethics, adopted by the AMA at Phil-
adelphia, May 1847, and by the New York Academy of Medicine in October 1847 (New
York: H. Ludwig, & Co., 1848), p. 17.
11. "It is not unethical for-a physician to patent a surgical or diagnostic instrument . . .
but in the interest of the public welfare and the dignity of the profession [medicine] insists
that once a patent is obtained by a physician . . . the physician may not ethically use his
patent right to retard or inhibit research or to restrict the benefit derivable from the patented
article. Any physician who obtains a patent and uses it for his own aggrandizement or
financial interest to the detriment of the profession or the public is acting unethically."
Judicial Council Opinions and Reports (Chicago: American Medical Association, 1971), p.
13.
12. In fact it is gratuitously added that: "The laws governing patents are based on the
sound doctrine that one is entitled to protect his discovery." Current Opinions of the Judicial
Council of the American Medical Association (Chicago: American Medical Association, 1981),
p. 29.
13. "If such nostrum be of real efficacy," says the 184? code, "any concealment regarding
it is inconsistent with beneficence and professional liberality; and, if mystery alone give it
value and importance, such craft implies either disgraceful ignorance, or fraudulent ava-
rice." Code of Medical Ethics, adopted by the American Medical Association at Philadelphia,
May 1847, and by the New York Academy of Medicine in October 1847 (New York: H.
Ludwig & Co., 1848), p. 17.
14. American Medical Association, Judicial Council Opinions and Reports (Chicago:
American Medical Association, 1971), pp. 37, 48.
15. Ibid., p. 48.
16. Ibid., p. 41; Current Opinions of the Judicial Council of the American Medical As-
sociation (Chicago: American Medical Association, 1981), p. 20.
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Ethical Dilemmas of Por-Profit Enterprise in Health Care 151
17. "Report of the Judicial Council of the American Medical Association." Journal of the
American Medical Association 134 (May 10, 1947), p. 178.
18. Judicial Council Opinions and Reports (Chicago: American Medical Association, 1971),
p. 37.
19. Mark V. Pauly, "The Ethics and Economics of Kickbacks and Fee Splitting," Bell
Journal of Economics 10 (September 1979), pp. 334-352.
20. Current Opinions of the Judicial Council of the American Medical Association (Chi-
cago: American Medical Association, 1971), p. 24.
21. Ibid., p. 11.
22. Ibid.
23. Ibid., pp. 25-26.
24. Judicial Council Opinions and Reports (Chicago: American Medical Association, 1977),
p. 39.
25. Jud icial Council Opinion and Reports (Chicago: American Medical Association, 1969),
pp. 32-35; Judicial Council Opinions and Reports (Chicago: American Medical Association,
1971), pp. 31-33.
26. Judicial Council Opinion and Reports (Chicago: American Medical Association, 1969),
p. 32.
27. Ibid., pp. 32-33.
28. Paul U. Unschuld, Medical Ethics in Imperial China (Berkeley: University of Cali-
fornia Press, 1979).
29. Speaking of the physician's relation with laboratories, it said: "As a professional man,
the physician is entitled to fair compensation for his services. He is not engaged in a
commercial enterprise and he should not make a markup, commission, or profit on the
services rendered by others." Current Opinions of the Judicial Council of the American
Medical Association (Chicago: American Medical Association, 1981), p. 26.
30. Robert M. Veatch, Case Studies in Medical Ethics (Cambridge: Harvard University
Press, 1977), pp. 61-64.
31. Jane Clapp, Professional Ethics and Insignia (Metuchen, N.J.: Scarecrow Press, Inc.,
1974), p 9
32. Ibid., pp. 247-248.
33. Clarence Walton, The Ethics of Corporate Conduct (Englewood Cliffs, N.J.: Prentice-
Hall, 1977), pp. 305-338.
34. "The professional services of a lawyer should not be controlled or exploited by any
lay agency, personal or corporate, which intervenes between the client and lawyer." Henry
S. Drinker, Legal Ethics (Westport, Conn.: Greenwood Press, 1980), p. 322.
35. Ibid. Employment in an organization, such as an association, club, or trade organi-
zation, was acceptable provided the lawyer rendered legal services to that organization,
"but this employment should not include the rendering of legal services to the members of
such an organization in respect to their individual affairs."
36. Recent Ethics Opinions: Committee on Ethics and Professional Responsibility (Chi-
cago: American Bar Association, from March 1969 to July 1976).
37. Talcott Parsons, The Social System (New York: The Free Press, 1951), p. 434.
38. Robert Nozick, Anarchy, State and Utopia (New York: Basic Books, 1974).
39. H. Tristram Engelhardt, Jr., "Health Care Allocations: Response to the Unjust, the
Unfortunate, and the Undesirable," In Earl Shelp, ed. Justice and Health Care (Dordrecht,
Holland: D. Reidel Publishing Co., 1981), pp. 121-137.
40. Ronald Green, "Health Care and Justice in Contract Theory Perspective," Robert M.
Veatch and Roy Branson, eds. Ethics and Health Policy (Cambridge: Ballinger, 1976), pp.
111-126.; Gene Outka, "Social Justice and Equal Access to Health Care," Journal of Re-
ligious Ethics 2 (Spring 1974), pp. 11-32; Robert M. Veatch, A Theory of Medical Ethics
(New York: Basic Books, 1981), pp. 250-287.
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152
ROBERT M. VEATCH
41. John Rawls, A Theory of Justice (Cambridge: Harvard University Press, 1971); Chris-
topher Abe, "Justice as Equality," Philosophy and Public Affairs 5 (Fall 1975), pp. 69-89.
42. Willard Gaylin and Daniel Callahan, "The Psychiatrist as Double Agent," Hastings
Center Report 4 (February 1974), pp. 12-14.
43. Robert M. Veatch and Ernest Tai, "Talking About Death: Patterns of Lay and Profes-
sional Change," Annals of the American Academy of Political and Social Science 447 (Jan-
uary 1980), pp. 29-45.
44. August Hollingshead and Fredrick C. Redlich, Social Class and Mental Illness: A
Community Study (New York: John Wiley & Sons, 1966, reprint of 1958 edition), p. 314.
Representative terms from entire chapter:
judicial council
