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The New Health Care for Profit Doctors and Hospitals in a Competitive Environment Edited by Braciford H. Gray Institute of Medicine NATIONAL ACADEMY PRESS Washington, D.C. 1983

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The Institute of Medicine was chartered in 1970 by the National Academy of Sciences to enlist distinguished members of the appropriate professions in the examination of policy matters pertaining to the health of the public. In this, the Institute acts under both the Academy's 1863 congressional charter responsibility to be an adviser to the federal gov- ernment and its own initiative in identifying issues of medical care, research, and education. Publication IOM 83-001 Copyright ~ 1983 by the National Academy of Sciences No part of this book may be reproduced by any mechanical, photographic, or electronic process, or in the form of a phonographic recording, nor may it be stored in a retrieval system, transmitted, or otherwise copied for public or private use, without written permission from the publisher. Library of Congress Cataloging in Publication Data Main entry under title: The new health care for profit. Health facilities, Proprietary United States. 2. Medical corporations United States. I. Gray, Bradford H., 1942- II. Institute of Medicine (U.S.) [DNLM: 1. Delivery of health careTrends United States. 2. Economics, Hospital Trends United States. 3. Economics, Medical Trends United States. 4. Ethics, Medical United States. 5. Financial management- Trends United States. 6. Hospitals Trends United States. WX 157 N532] RA981.A2N48 1983 362.1'1'0973 83-8054 ISBN 0-309-03377-2 First Printing, June 1983 Second Printing, October 1986 Available from NATIONAL ACADEMY PRESS 2101 Constitution Avenue, NW Washington, DC 20418 Printed in the United States of America

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Preface The papers in this volume grew out of a series of informal discussions and activities going back to June 1981, when the Institute of Medicine brought together a diverse group of knowledgeable persons for a one- day workshop titled "Trends in For-Profit Health Care." The workshop was organized by Carleton Evans, M.D., then Director of the Division of Health Care Services at the Institute, and was supported by Na- tional Academy of Sciences' program initiation funds. The workshop and the subsequent discussions resulted in a plan for a two-year study of physician involvement in for-profit enterprise in health care, to be completed at the end of 1984. A preliminary phase of the Institute's study, during which this collection of papers was prepared, was sup- ported by the Hospital Corporation of America and the Commonwealth Fund. We would like to thank the following members of the Institute's Board on Health Care Services and the Institute's Council for review- ing various of the papers published herein: :Linda Aiken, Richard EgdahI, Charles Lewis, Peter Libassi, David Mechanic, Howard New- man, and Sam Shapiro. Karl D. Yordy, Director Division of Health Care Services ~

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Contents An :Introduction to the New Health Care for Profit Bradford H. Gray Legal Differences Between Investor-Owned and Nonprofit Health Care Institutions John F. Horty and Daniel M. Mu~holland Ill Wall Street and the For-Profit Hospital Management Companies Richard B. Siegrist, dr. When Tnvestor-Owned Corporations Buy Hospitals: Some Issues and Concerns Jessica Townsend Physician Involvement in Hospital Decision Making Stephen M. Shortell Economic Incentives and Clinical Decisions Harold S. Luit Ethical Dilemmas of For-Profit Enterprise in Health Care Robert M. Veatch Secondary Income from Recommencled Treatment: Should Fiduciary Principles Constrain Physician Behavior Frances H. Miller Biographical Sketches of Contributors Index v 1 17 35 51 73 103 125 153 171 175

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The New Health Care for Profit Doctors and Hospitals in a Competitive Environment

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