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For-Profit Enterprise in Health Care. 1986. National Academy Press, Washington, D.C. Ethical Issues In For Profit Health Care Dan W. Brock and Allen Buchanan The American health care system is under- going a rapid socioeconomic revolution. Within a general environment of heightening com- petition, the number of investor-owned for- profit hospitals has more than doubled in the past 10 years, while the number of indepen- dent proprietary for-profit hospitals has de- clined by half.2 Investor-owned for-profit corporations are controlled ultimately by stocl~olders who appropriate surplus reve- nues either in the form of stock dividends or increased stock values. Independent proprie- tary institutions are for-profit entities owned by an individual, a partnership, or a corpo- ration, but which are not controlled by stock- holders. Nonprofit corporations are tax-exempt and are controlled ultimately by boards of trustees who are prohibited by law from ap- propriating surplus revenues after expenses (including salaries) are paid. Although the in- crease in investor-owned hospitals has been most dramatic and publicized, a rise in inves- tor-owned health care facilities of other types, from dialysis clinics to outpatient surgery and "urgent care" centers has also occurred. The above definitions treat "for-profit" rather narrowly as a legal status term referring to investor-owned and independent proprietary institutions. However, much of the current concern over "for-profit health care" has a wider, though much less clear focus. It is often said, for instance, that health care in America is being transformed from a profession into a business like any other because of the growing Dr. Brock is professor and chairman of the Philos- ophy Department of Brown University. Dr. Buchanan is a professor with the Department of Philosophy at the University of Arizona as well as the Division of Social Perspectives in Medicine in the university's Col- lege of Medicine. 224 dominance of those types of motivation, de- cision-making techniques, and organizational structures that are characteristic of large-scale commercial enterprises. A recent book published by the Institute of Medicine bears the title The New Health Care for Profit, with the subtitle Doctors and Hos- pitals in a Competitive Environment. The dif- ference in scope between the title and subtitle is but one example of a widespread tendency of discussions of "for-profit health care" to run together concerns about the effects of increas- ing competition in health care, which affects both "for-profit" and "nonprofit" institutions in the legal sense, and special concerns about the growth of those health care institutions which have the distinctive "for-profit" legal status. This essay will focus primarily on the ethical implications of the grown of for-profit health care institutions in the legal sense. However, although the ethical problems we shall explore have been brought to public attention by the rapid rise of for-profit institutions (in the legal sense), it would be a mistake to assume that they are all peculiar to institutions that have this legal form. In what follows, "for-profit" will be used only to denote a distinctive legal status and not as a vague reference to "commercial" mo- tivation or decision making and organizational structure, or as a synonym for the equally neb- ulous concept of"competitive health care." We shall explore, however, some moral con- cems about the rise offor-profit institutions in the legal sense that focus on the profit moti- vation, decision-making forms, and organiza- tional structures common to those institutions. Serious moral criticisms of for-profit health care have been voiced, both within and out- side of the medical profession. Before they can be evaluated, these criticisms must be more

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ETHICS OF FOR-PROFIT HEALTH CARE carefully articulated than has usually been done. In each case, after clarifying the nature of the criticism, we shall try to answer two questions: (1) Is the criticism valid as a criticism of for- profit health care? (2) If the criticism is valid, is its validity restricted to for-profit health care? The most serious ethical criticisms of for- prof~t health care can be grouped under six headings. For-profit health care institutions are said to (1) exacerbate the problem of access to health care, (2) constitute unfair competition against nonprofit institutions, (3) treat health care as a commodity rather than a right, (4) include incentives and organizational controls that adversely affect the physician-patient re- lationship, creating conflicts of interest that can diminish the quality of care and erode the patient's trust in his physician and the public's trust in the medical profession, (5) undermine medical education, and (6) constitute a "med- ical-industrial complex" that threatens to use its great economic power to exert undue in- Duence on public policy concerning health care. Each of these criticisms will be examined in turn. FOR-PROFITS EXACERBATE THE PROBLEM OF ACCESS TO HEALTH CARE Twenty-two to twenty-f~ve million Ameri- cans have no health care coverage, either through private insurance or through govern- ment programs including Medicare, Medi- caid, and the Veterans Administration. Another 20 million have coverage that is inadequate by any reasonable standards. 2 The charge that for- profits are exacerbating this already serious problem takes at least two forms. First, it is said that for-profits contribute directly to the problem by not providing care for nonpaying patients. This is an empirical question to which the accompanying Institute of Medicine (IOM) report devotes a chapter. The data are not fully consistent on whether for-profit hospitals pro- vide less or as much uncompensated care as do nonprofit hospitals; data from several states show that they provide less, but national data show minimal differences between for-profits and nonprofits, both of which do much less than publicly owned hospitals. In any event, our concern here is to analyze the arguments 225 that have been advanced regarding the issue of uncompensated care. Second, it is also alleged that for-profits worsen the problem of access to care in an indirect way because the competition they provide makes it more difficult for nonprofits to continue their long-standing practices of "cross-subsidization." Cross-subsidization is of two distinct types: nonprofits have tradition- ally financed some indigent care by inflating the prices they charge for paying patients, and they have subsidized more costly types of ser- vices by revenues from those that are less costly relative to the revenues they generate. It is sometimes assumed that, in general, for-profits are more efficient in the sense of producing the same services at lower costs and that these production efficiencies will be re- flected in lower prices. At present, however, there is insufficient empirical evidence to show that for-profits on the whole are providing sig- nificant price competition by offering the same services at lower pnces, though this may change in the fixture. In fact, what little data there are at present indicate that costs, especially of an- cillary services, tend to be higher, not lower, in the for-profits.3 However, the argument that for-profits are malting it more difficult for nonprofits to con- tinue the practice of cross-subsidization does not depend upon the assumption that for-prof- its are successful price competitors in that sense. Instead it is argued that for-profits "skim the cream" in two distinct ways. First, they cap- ture the most attractive segment of the patient population, as noted earlier, by locating in more affluent areas, leaving nonprofits with a cor- respondingly smaller proportion of paying pa- tients from which to subsidize care for nonpaying patients. Second, by concentrating on those services that generate higher reve- nues relative to the costs of supplying them, for-profits can achieve greater revenue sur- pluses, which provide opportunities either for lower prices or for investment in higher qual- ity or more attractive facilities, both of which may worsen the competitive position of non- profits, making it more difficult for them to cross-subsidize. Critics of for-profits predict that access to care will suffer in two ways: fewer nonpaying patients will be able to get care and some pay

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226 ing patients, i.e., some who are covered by public or private insurance, will be unable to find providers who will treat them for certain "unprofitable" conditions. Although these predictions have a certain a priori plausibility, they should be tempered by several important considerations. First, as already indicated, there is at present a dearth of supporting data concerning differences in the behavior of for-profits and nonprofits, and this is hardly surprising since the expansion of the for-profit sector has been so recent and rapid. However, preliminary data do support two hypotheses which tend to weaken the force of the criticism that for-profits are exeracer- bating the problem of access to care by making it more difficult for nonprofits to continue cross- subsidization. One is that at present there seems to be no significant difference in the propor- tion of nonpaying care rendered by for-profits and nonprofits.4 The other is that at present the proportion of nonpaying care rendered by nonprofits is on average only about 3 percent of their total patient care expenditures.5 Here again, however, it may be important to sep- arate from the overall data for nonprofits, the public hospitals in which the proportion of nonpaying care is both higher than in the for- profits and substantially in excess of 3 percent of overall total patient care expenditures.6 If the public hospitals experience a decrease in their paying patients, their ability to carry out their mission of serving the indigent could be seriously jeopardized. A third reason for viewing predictions about the effects of for-profits on access to care with caution is that there are other variables at work that may be having a much more serious im- pact. In particular, the advent of a prospective reimbursement system for Medicare hospital services and other efforts for cost-containment by state and federal regulatory bodies and businesses, as well as the general increase in competition throughout the health care sector, are making it more difficult for any institution to cross-subsidize. In addition, as defenders of for-profits have been quick to point out, in some cases for- prof~ts have actually improved access to care not only by locating facilities in previously un- derserved areas thus making it more conve- nient for patients to use them, but also by FOR-PROFIT ENTERPRISE IN HEALTH CARE making certain services more affordable to more people by removing them from the more ex- pensive hospital setting. The growth of out- patient surgical facilities in suburban areas, for example, has improved access to care in both respects. Indeed, there is some reason to be- lieve that by making decisions on the basis of the preferences oftheir boards oftrustees (which may be shaped more by their own particular preferences or considerations of prestige than by demands of sound medical practice or re- sponse to accurate perceptions of consumer demand), nonprofits have in some cases du- plicated each other's services and passed up opportunities for improving access by failing to expand into underserved areas. This latter point drives home the complexity of the access issue and the need for careful distinctions. For-profits may improve access to care in the sense of better meeting some previously unmet demand for services by pay- ing patients, while at the same time exacer- bating the problem of access to care for nonpaying patients. However, there is clearly a sense in which the latter effect on access is of greater moral concern. We assumed that the members of a society as affluent as ours have a collective moral obligation to ensure that everyone has access to some "decent min- imum" or "adequate level" of care, even if they are not able to pay for it themselves. Surely providing basic care for those who lack any coverage whatsoever then should take priority over efforts to make access to care more con- venient for those who already enjoy coverage and over efforts to reduce further the financial burdens of those who already have coverage, by providing services for which they are al- ready insured in less costly nonhospital set- tings. So far we have examined the statement that "cream skimming" by for-profits exacerbates the problem of access to care. Ultimately this is largely an empirical question about which current data are inconclusive. There is another way in which the cream skimming charge can be understood. Sometimes it is suggested that for-profits are acting irresponsibly or are not fulfilling their social obligations by failing to provide their "fair share" of indigent care and unprofitable care, as well as making it more difficult for nonprofits to bear their fair share

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E Tall CS OF FOR-PROFI T HEALTH CARE through cross-subsidization. To this allegation of unfairness, defenders of for-profits have a ready reply: "No one is entitled to the cream; so for-profits do no wrong when they skim it. Further, for-profits discharge their social ob- ligations by paying taxes. Finally, since the surplus revenues that nonprofits use to sub- sidize nonpaying or unprofitable care are themselves the result of overcharging charg- ing higher prices- than would have existed in a genuinely competitive market-then it is all the more implausible to say that they are en- titled to them." While this reply is not a debate-stopper, it should give the critic of for-profits pause since it draws attention to the unstated and con- troversial premises underlying the conten- tion that cream-skimming by for-profits is unfair because it constitutes a failure to bear a fair share of the costs of nonpaying or unprofitable patients. The most obvious of these is the as- sumption that, in general, nonprofits are (or have been) bearing their fair share. To determine whether for-profits or non- profits are discharging their obligations we must distinguish between two different types of ob- ligations-general and special. For-profit cor- porations, like individual citizens. can argue that they are discharging their general obli- gation to subsidize health care for the poor by paying taxes. To see this, assume that the fair- ness of the overall tax system is not in ques- tion, and in particular its taxation of corporate profits. For-profits can then reasonably claim that they are doing their fair share to support overall government expenditures by paying taxes. If the government is subsidizing health care for the poor as part of overall government expenditures, then for-profits would appear to be doing their fair share towards supporting subsidized health care for the poor. If the gov- ernment is providing inadequate subsidization of health care for the poor, then the fair share funded by the for-profits' taxes will in turn be inadequate, but proportionately no more so than every other taxpayer's share is inade- quate, and not unfair relative to the subsidi- zation by other taxpayers. The responsibility for this inadequacy, in any case, would be the government's or society's, not the for-profit health care corporation's. A for-profit hospital chain cannot say that if , O 227 it is paying, for example, $30 million in taxes, it is providing $30 million towards funding health care for the poor. Its taxes, whether at the federal, state, or local level, should be understood as a contribution to the overall ar- ray of tax-supported programs at those levels. But it can claim to be subsidizing health care for the poor with the portion of its taxes pro- portionate to the portion of overall govern- ment expenditures devoted to subsidizing health care for the poor. ~.1 . ~ ~ ~ A ^ ~ = An tne otner hand, those who raise the issue of fairness have apparently assumed that health care institutions have special obligations to help care for indigents. Even if this assumption is accepted, however, it is not obvious that in general nonprofits have been discharging the alleged special obligation successfully for the reasons already indicated. First, even if cross- subsidization is widespread among nonprofits, the proportion of nonpaying and nonprofitable care that is actually provided by many non- profits appears not to be large. Second, some of the revenues from "overcharging" paying patients apparently are not channeled into care for nonpaying patients or patients with un- profitable conditions. It was noted earlier that while many publicly owned nonprofit hospitals provide a substan- tial proportion of care for nonpaying patients, nonpublicly owned nonprofits ("voluntaries") as a group do not provide significantly more uncompensated care than for-profits. One rationale for granting tax-exempt status is that this benefit is bestowed in exchange for the public service of providing care for the indi- gent. If it turns out that many nonprofit health care institutions are in fact not providing this public service at a level commensurate with the benefit they receive from being tax- exempt, then this justification for granting them tax-exempt status is undermined. It is also crucial to question the assumption that for-profit health care institutions have special obligations to help subsidize care for the needy over and above their general obli- gation as taxpayers. As the for-profits are quick to point out, supermarkets are not expected to provide free food to the hungry poor, real estate developers are not expected to let the poor live rent-free in their housing, and so forth. Yet food and housing, like health care,

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228 are basic necessities for even a minimal sub- sistence existence. If there are basic human rights or welfare rights to some adequate level of health care, it is reasonable to think there are such rights to food and shelter as well as health care. Whose obligation is it then to secure some basic health care for those unable to secure it for themselves? Assuming that private markets and charity leave some without access to what- ever amount of health care that justice re- quires be available to all, there are several reasons to believe that the obligation ulti- mately rests with the federal government. First, the obligation to secure a just or fair overall distribution of benefits and burdens across so- ciety is usually understood to be a general so- cietal obligation. Second, the federal government is the institution society com- monly employs to meet society-wide distrib- utive requirements. The federal government has two sorts of powers generally lacking in other institutions, including state and local governments, that are necessary to meet this obligation fairly. With its taxing power, it has the revenue-raising capacities to finance what would be a massively expensive program on any reasonable account for an adequate level of health care to be guaranteed to all. This taxing power also allows the burden of financ- ing health care for the poor to be spread fairly across all members of society and not to de- pend on the vagaries of how wealthy or poor a state or local area happens to be. With its nationwide scope, it also has the power to co- ordinate programs guaranteeing access to health care for the poor across local and state bound- aries. This is necessary both for reducing inef- ficiencies that allow substantial numbers of the poor to fall between the cracks of the patch- work of local and state programs, and for en- suring that Mere are not great differences in the minimum of health care guaranteed to all in different locales within our country. If we are one society, a United States, then the level of health care required by justice for all citizens should not vary greatly in different locales because of political and economic con- tingencies of a particular locale. It is worth noting that food stamp programs and housing subsidies, also aimed at basic necessities, sim- ilarly are largely a federal, not state or local, FOR-PROFIT ENTERPRISE IN HEALTH CARE responsibility. These are reasons for the fed- eral government having the obligation to guar- antee access to health care for those unable to secure it for themselves. It might do this by directly providing the care itself, or by pro- viding vouchers to be used by the poor in the health care marketplace. How access should be guaranteed and secured and in particular, to what extent market mechanisms ought to be utilized is a separate question. Granted that the obligation to provide ac- cess to health care for the poor rests ultimately with the federal government, is there any rea- son to hold that for-profit health care institu- tions such as hospitals have any special obligations to provide such care? The usual reason offered is that health care institutions, whether nonprofit or for-profit, are heavily subsidized directly or indirectly by public ex- penditures for medical education and research and by Medicare and Medicaid reimburse- ment which have created the enormous pre- dictable demand for health care services that has enabled health care institutions to flourish and expand so dramatically since the advent of these programs in 1965. However, we be- lieve it is less clear than is commonly supposed that these subsidies redound to the benefit of the for-profit institution in such a way as to ground a special institutional obligation to sub- sidize health care for the poor. The legal obligation of nonprofit hospitals to provide free care to the poor is principally derived from their receipt of Hill-Burton fed- eral funds for hospital construction. However, the for-profit hospital chains secure capital for construction costs in private capital markets and do not rely on special federal subsidies. Even when they purchase hospitals that have in the past received Hill-Burton monies, they presumably now pay full market value for the hospitals. If there is a subsidy that has not been worked oh in free care, that redounds to the nonprofit seller, not the for-profit purchaser. What of other subsidies? There is heavy governmental subsidy of medical education; it is widely agreed that physicians do not pay the hill costs of their medical education. Perhaps then they have a reciprocal duty later to pay back that subsidy, though it would need to be shown why the form that duty should take is to provide free

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ETHICS OF FOR-PROFIT HEALTH CARE care to the poor as opposed, for example, to reimbursing the government directly. lIow- ever that may be it is physicians and not the for-profit hospitals who are the beneficiaries of medical education subsidies. Physicians are the owners of these publicly subsidized capital investments in their skills and training, and are able to sell their subsidized skills at their full market value. Physicians, and not the own- ers of for-profit health care institutions in which they practice or are employed, are the bene- ficiaries of education subsidies and so are the ones who have any obligation there may be to return those subsidies by in turn subsidizing free care for the poor. Another important area of public subsidy in the health care field is medical research. Much medical research has many of the features of a public good, providing good reason for it to be publicly supported and funded. (Where these reasons do not apply, as for example in drug research, the research is largely privately funded by the drug companies.) Medical re- search makes possible new forms of medical technology, knowledge, and treatment. Be- cause it is publicly funded, and once devel- oped is generally freely available for use by the medical profession, for-profit health care institutions are able to make use ofthe benefits of that research in their delivery of health care without sharing in its cost. But who ultimately are the principal ben- eficiaries of this public subsidy of research? Not, we believe, the for-profits, but rather the patients who are the consumers of the new or improved treatments generated by medical re- search. It may or may not be true that for- profits will not bear the research costs of these treatments as part of their delivery costs. But if, as is increasingly the case, the for-profits operate in a competitive environment con- cerning health care costs or charges, they will be forced to pass on these subsidies to con- sumers or patients. (And if they operate in a largely noncompetitive environment, there will be a strong case for some form of regulation of their rates.) The price that patients pay for health care treatments whose research costs were subsidized by the government will not include those research costs and so will not reflect true costs. It is then consumers of health care, not the for-profits, who principally ben 229 efit from research subsidies, and any obliga- tion arising from this subsidy presumably lies on them. Finally, consider the large public subsidy represented by Medicare and Medicaid. These programs created a vast expansion in the mar- ket for health care which many for-profits serve and from which they benefit. This is new heals care business which heretofore did not exist and on which they make a profit. Perhaps this benefit grounds a special obligation of for-profit institutions to provide subsidized care for the poor. The most obvious difficulty with such a view is that the subsidized health care con- sumers, not the deliverers of the health care, are by far the principal beneficiaries of Med- icare and Medicaid. Any profit that the for- profits receive from serving Medicare and Medicaid patients is only a small proportion of the overall cost of their care. It must be granted, nevertheless, that the for-profits do earn profits from these subsi- dized patients. But it is difficult to see how this fact by itself is sufficient to ground a spe- cial obligation of the for-profits to subsidize free care for the poor. In the first place, for- profits can again respond that they pay taxes on these profits, like other profit-making en- terprises. Moreover, they can point out that in no other cases of government-generated business of for-profit enterprises is it held that merely earning a profit from such business grounds a special obligation similar to that claimed for for-profit health care enterprises. Virtually no one holds that defense contrac- tors, supermarkets who sell to food stamp re- cipients, highway builders, and so forth have any analogous special obligation based on the fact that their business is created by govern- ment funds. Nor is it ever made clear why this fact should itself ground any special obligation of for-profits in health care to provide access to health care for the poor. Thus, we conclude that none of the current forms of public sub- sidy of health care will establish any significant special obligation of for-profits to provide free care, and so the claim cannot be sustained that for-profits do not do their fair share in provid- ing access to health care for the poor. We em- phasize that we believe there is an obligation to guarantee some adequate level of health care for all, but the obligation is society's and

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230 ultimately the federal government's and not a special obligation of for-profit health care in- stitutions. Even if there are insufficient grounds for the assumption that for-profit health care institu- tions, or health care institutions as such, have special obligations to provide a "fair share" of uncompensated care, it can be argued that a nation or a community, operating through a democratic process, can impose such a special obligation on the institutions in question as a condition of their being allowed to operate. According to this line ofthinking, a community may, through its elected representatives, re- quire that any hospital doing business in that community provide some specified amount of indigent care, either directly or by contrib- uting to an indigent care fund through a special tax on health care institutions (so far as they are not legally exempt from taxes) or through a licensing fee. Whether or not such an arrangement would be constitutional or compatible with statutory law in various jurisdictions is not our concern here. One basic ethical issue is whether the imposition of such special obligations would unduly infringe on the individual's occupa- tional and economic freedoms. Although no attempt to examine this question will be made here, this much can be said: a community's authority to impose a special obligation to con- tribute a portion of revenues (as opposed to an obligation to contribute services) for indi- gent care seems no more (or less) ethically problematic than its authority to levy taxes in general. A second basic ethical issue is then whether such taxes, or requirements to provide uncom- pensated care as conditions of doing business for health care institutions, fairly distribute the costs of providing care to the indigent. That will depend on the details of the particular tax or requirement to provide uncompensated care, but since any are likely to be ultimately a tax on the sick, it is doubtful that such provisions will be fairer than financing care for the in- digent through general tax revenues. There is, moreover, an additional difficulty with any claim that by skimming the cream for-profits fail to fulfill an existing special ob- ligation to bear a fair share of the burden of providing at least some minimum level of care FOR-PROFIT ENTERPRISE IN HEALTH CARE for all who need it but cannot afford it. This is the assumption that in the current U.S. health care system any determinate sense can be given to the notion of a "fair share" of the burden of ensuring access to care (in the absence of spe- cific legislation such as the Hill-Burton Act). Unless a rather specific content can be sup- plied for the notion of a fair share, the nature and extent of an institution's alleged special obligation will be correspondingly indeter- minate. In particular, it will be difficult if not impossible to determine whether for-profits have met such a special obligation. But it will also be problematic to assert what some de- fenders of nonprofits imply, namely that non- profits have in the past done their fair share through cross-subsidization. The current U.S. health care system is a patchwork or, less charitably, a crazy quilt- of private insurance and public program en- titlements. There is no generally accepted standard for a "decent minimum" or "adequate level" of care to be ensured for all, no system- wide plan for coordinating local, state, and fed- eral programs, charity, and private insurance so as to achieve it, and no overall plan for distributing the costs of providing care for those who are unable to afford it from their own resources. Absent all of this, no determinate sense can be given to the notion of an insti- tution's special obligation to provide a "fair share" of the burden of ensuring an "adequate level" or "clecent minimum" of care for ev- eryone. Furthermore, even if it were possible at present to determine, if only in some rough and ready way, what an institution's "fair share" is, this would still not be enough. Whether an institution has an obligation a duty whose fulfillment society can require-will depend upon whether it can do so without unreason- able risks to its own financial well-being. But in a competitive environment, determining whether one institution is contributing its "fair share" will be unreasonably risky for it will depend upon whether other institutions are doing their "fair share." The establishment of a coordinated system- wide scheme in which institutions share the costs of providing some minimum level of care for all is a "public good" in the economist's sense. Even if every governing board of every

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ETHICS OF FOR-PROFIT HEALTH CARE institution agrees that it is desirable or even imperative to ensure some level of care for all so long as contribution to this good is strictly voluntary, each potential institutional contrib- utor may attempt to take a free ride on the contribution of others with the result that the good will not be achieved. It is important to understand that failure to produce the public good of a fair system for distributing the costs of care by voluntary ef- forts does not depend upon the assumption that potential contributors are crass egoists. Even if the potential contributor has no in- tention of taking a free ride on the contribu- tions of others, he may nonetheless be unwilling to contribute his fair share unless he has as- surance that others will do their fair share. For unless he has this assurance, to expect him to contribute his fair share is to expect him to bear an unreasonable risk a cost which might put him at a serious competitive disadvantage. In the absence of an enforced scheme for fairly distributing the costs of care for the needy, the current vogue for containing costs by in- creasing competition in health care will only exacerbate this free-rider and assurance prob- lem. And unless an institution can shoulder its fair share without unreasonable risk to itself, it cannot be said that it has an obligation that it has failed to fulfill. Granted that this is so, what is needed is an effective mechanism for enforcing a coordinated scheme for distribut- ing the costs of providing some minimal level of care for all without imposing unreasonable competitive disadvantages on particular insti- tutions. It is important not to overstate this point. Although the notion of unreasonable risk is not sharply defined, it is almost certainly true that many for-profit (and nonprofit) institutions could be spending more than they currently are for nonpaying or unprofitable patients without compromising their financial viability. So it is incorrect to conclude simply from this that in the current state of affairs institutions have no special obligations whatsoever. The point, rather, is that debates over which institutions are or are not fulfilling their obligations are of limited value and that the energy they con- sume could be more productively used to de- velop a system in which institutional obligations could be more concretely specified and in which 231 society would be morally justified in holding those who control the institutions, whether government or private, accountable for the ful- fillment of those obligations. Moreover, there is at least one obligation which now can be justifiably imputed to for- profit (and nonprofit) health care institutions and that is the obligation to cooperate in de- veloping a system in which determinate ob- ligations (whether general or special) can be fairly assigned and enforced. It is much less plausible to argue that the initial efforts needed to develop a coordinated, enforced system would undermine an institution's competitive position, even if it is true that in the absence of such a system an institution s acting on a strictly voluntary basis to help fund indigent care would subject it to unreasonable risks. Assuming that as members of this society we all share a collective obligation to ensure an "adequate level" or "decent minimum" of health care for the needy, those who control health care institutions, as individuals, have the same obligations the rest of us have. How- ever, because of their special knowledge ofthe health care system and the disproportionate influence they can wield in health policy de- bates and decisions, health care professionals may indeed have an additional special obli- gation beyond the general obligations of or- dinary citizens to help ensure that a just system of access to health care is established. It can still be argued that whether or not they fail to fulfill their obligations, for-profits have at least contributed to the decline of cross- subsidization and that the cross-subsidization system has made some contribution toward coping with the problem of access to care. Whether this provides a good reason for social policy designed to restrain or modify the be- havior of for-profits will depend upon the an- swer to two further questions: (1) Are cross- subsidization arrangements the best way of coping with the access problem, and, just as important, (2) is it now feasible in an increas- ingly competitive environment to preserve cross-subsidization even if we wish to do so? Objections to cross-subsidization are not hard to find. On the one hand, cross-subsidization can be viewed as an inefficient, uncoordinated welfare system hidden from public view and unaccountable to the public or to its repre

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232 sentatives in government. Further, it can be argued that widespread cross-subsidization is incompatible with effective efforts to curb costs. Surely an effective solution to both the access and cost containment problems requires a more integrated, comprehensive, and publicly ac- countable approach. Consequently, the de- mise of cross-subsidization should be welcomed, not lamented. This last conclusion, however, is simplistic. It assumes that an explicit public policy de- signed to improve access for those not covered by private or public insurance is presently or in the foreseeable future politically feasible. Perhaps the strongest argument for cross-sub- sidization is the claim that it does though admittedly in a haphazard and inefficient way- what is not likely to be done through more explicit social policies. It might be tempting to protest that even if this is so, cross-subsidization ought to be re- jected as an unauthorized welfare system since it did not come about through the democratic political process as a conscious social policy. However, if providing some minimum of care for the needy is a matter of right or enforceable societal obligation and not a matter of discre- tion, then the lack of a democratic pedigree may not be fatal, since rights and obligations place limitations on the scope of the demo- cratic process. Controversy over the ethical status of cross- subsidization may soon become moot if a point is reached where it is no longer feasible to shore up or rebuild an environment in which cross-subsidization is economically viable for health care institutions. So even if cross-sub- sidization has been the best feasible way of coping with the problem of access it does not follow that it will continue to be a viable op- tion. Perhaps too much energy has already been wasted in policy debates defending or attacking cross-subsidization when the real is- sue is: How can we now best achieve the pur- pose that cross-subsidization was supposed to serve? FOR-PROFITS ARE UNFAIR COMPETITION FOR NONPROFITS This criticism of for-profits can be inter- preted in either of two different ways. The first FOR-PROFIT ENTERPRISE IN HEALTH CARE understands it as a charge we have already examined in detail, that for-profits skim the cream and gain a competitive advantage over nonprofits by failing to discharge their insti- tutional obligations to bear their fair share of the costs of providing care for indigents and those with unprofitable diseases. But the met- aphor of cream-skimming suggests another possible aspect of the charge of unfair com- petition that it is worth saying a. little more about. This is that besides not taking a fair share of the "bad" (unprofitable) patients, the for-profits also take more than their share of the "good" (profitable) patients. As we noted above, if no one is entitled to the profitable patients, it is unclear why seek- ing to get as many as possible of them is unfair. Nor is it clear that the nonprofits do not also seek as many as possible of the profitable pa- tients. If the for-profits get a disproportionate share of the profitable patients, which may be true at some places but not others, why would that be? Since paying patients have a choice about where and from whom they receive care, their choice of for-profits must in significant part reflect their view that for-profits offer a more attractive product: for example, more convenient location, more modern and higher quality facilities, additional amenities, cost- saving efficiencies, and so forth. It is difficult to see why getting a disproportionate share of the profitable patients simply because one of- fered a better product is unfair. Of course, when for-profits get more of the profitable pa- tients because of factors such as tie-in arrange- ments with physicians, this may constitute unfair competition, but nonprofits may engage in such anticompetitive practices as well. According to the second interpretation of the unfair competition charge, nonprofit health care institutions make a distinctive and valu- able social contribution one that is so im- portant that they ought to be protected from the threat of extinction through competition with for-profits. Three main arguments can be given in favor of perpetuating the nonprofit legal status for health care institutions and, hence, for social policies that are designed to protect them from destructive competition from for-profits. First, nonprofit health care insti- tutions are properly described as charitable institutions. As such they help nurture and .

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ETHICS OF FOR-PROFIT HEALTH CARE perpetuate the virtue of charity among mem- bers of our otherwise highly self-interested so- ciety, and this virtue is of great value. The nonprofit legal form stimulates charity by ex- empting charitable institutions from taxes. Be- cause it also ensures that those who administer charitable funds do not appropriate revenue surpluses, the nonprofit legal form encourages charity by providing potential donors with the assurance that they will not be taken advantage of and that their donations will be used for the purposes for which they were given. This as- surance is especially vital in the case of do- nations for health care because donors usually lack the knowledge and expertise to determine whether the providers they support are using their resources properly. Second, nonprofit health care institutions both function as and are perceived to be an important community resource, serving the entire community, rather than a commercial enterprise ultimately serving its shareholders and restricted to "paying customers." Like the virtue of charity, the sense of community is an important though fragile value in modern American society, and institutions that con- tribute significantly to it should not be lightly discarded. Third, nonprofit health care institutions nurture a professional ethos that is more likely to keep the patient's interest at center stage than do for-profit institutions, in which the commercial spirit is given freer rein. Hence nonprofits are valuable because they protect quality of care. The quality-of-care argument will be examiner] in detail later. The first argument above assumes that most nonprofit health care institutions are properly described as charitable institutions in the sense that a substantial portion of their financial re- sources comes from donations. At present, however, most nonprofit hospitals are not charitable institutions in this sense; they are "commercial" rather than "donative" institu- tions insofar as the major portion of their re- sources comes from selling services rather than from donations.7 The more closely nonprofit health care institutions approximate the purely "commercial" nondonative type, which is be- coming the dominant form among nonprofit hospitals, the weaker the value of charity ap- pears as a justification for perpetuating the 233 nonprofit legal status. Nevertheless, even if only a small portion of most nonprofits' reve- nues comes from charitable donations and is in turn used for unpaid care, nonprofits may still be properly regarded as "charitable" if money ao In tact serve as the provider of last resort for those who are unable to pay for their care and who are not covered by any insurance or government program to fund their care. Even if such care represents only a small por- tion of a hospital's overall revenues, it may still be perceived as an important charitable activ- ity and thereby reinforce altruistic and chari- table motivations. It should be clear that the charity and com- munity arguments are not unrelated. It is partly because nonpro~ts stand ready to provide un- paid health care to the poor (if they do) that they are seen to be a community resource available to the entire community. They can serve to symbolize a shared community com- mitment that no member of the community should be denied access to an adequate level of health care. This commitment is especially important in the mission of public hospitals. Moreover, control of nonprofits will commonly rest with aboard oftrustees composed of mem- bers of the local community, rather than with a board of directors of a large national or mul- tinational chain. This effect of nonprofits on the sense of community as shared by members of the community is somewhat intangible and difficult to measure. It is also certainly true that nonprofit hospitals are not the only insti- tutions supporting this sense of community, or even the only means of supporting it within health care, and that for-profit hospitals can often contribute to it as well. Nevertheless, we believe the nonprofits are in general more likely than the for-profits to promote this sig- nificant value of community. AL _ 1 ~ ~ . ~ FOR-PROFITS TREAT HEALTH CARE AS A COMMODITY TO BE BOUGHT A^ND SOLD IN THE MARKETPLACE RATHER THAN AS A RIGHT OF EVERY CITIZEN This next collection of ethical concerns about the growth of for-profit health care is steeped in stirring rhetoric. We are told that "health care is not a commodity," that "health care ought not be left to the market," that "access

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234 to health care ought not depend on ability to pay," and that "everyone ought to have access to a single level of health care." And it is often said that the ethical acceptability of for-profit health care delivery systems depends on whether health care is properly viewed as a right or as a commodity.8 In this section we attempt to sort out just what the implications of claims like these are for for-profit health care. The slogan that health care is not a com- modity is best understood as a normative, rather than a purely descriptive claim. As a descrip- tive claim, it is quite false: if a commodity is defined as something which has a market price or relative exchange value, then health care is a commodity since various treatments, tests, and services are assigned a market price in our society. (Until recently, of course, codes of professional ethics for physicians, backed up by the coercive power of legislation, have made it difficult for most consumers to learn the mar- ket price of most forms of health care; but this is a fact about the profession's success in re- stricting consumer information about health care, not a fact about the nature of health care.) As a normative claim, the slogan that health care is not, that is, should not be treated as, a commodity implicitly depends on two sorts of assumptions: (1) empirical assumptions about what health care will be distributed to which persons if production and distribution of health care are carried out by for-profit institutions in a marketplace and (2) moral assumptions about what is a just distribution of health care, and what moral right, if any, there is to health care. With regard to the moral assumptions, we believe it is crucial to distinguish the claim that justice requires some level of access to health care for all from the claim that it re- quires equal access for all persons. We shall argue here that only the view that justice re- quires equality in access to health care, not merely that it implies a right to health care, is incompatible with for-prof~t provision of health care in a free marketplace. If the goal is only to ensure that everyone is guaranteed access to some minimally ade- quate level of health care, why not leave its distribution to the market and so to for-profit institutions? The difficulties with doing so are well known and need not be rehearsed in de FOR-PROFIT ENTERPRISE IN HEALTH CARE tail here. Generally, a market system for the distribution of health care, like a market dis- tribution of all other goods and services, will be influenced by the initial natural endow- ments and wealth that people bring to the mar- ket, rather than simply by their need for health care. The market distribution of health care, as with other goods, will only be just if the distribution of initial assets, including income and wealth, is just. However, there are specific characteristics of health care, and of health care markets, which further ensure that a market distribution of health care will fail to satisfy the demands of any theory of justice requiring that some min- imally adequate level of access to health care be guaranteed to all. Health care needs are highly unpredictable for any particular indi- vidual, vary greatly between different individ- uals (unlike other basic needs for food or shelter), and in the context of modern health care are very expensive relative to most other goods and services. As a result, it is difficult if not impossible for any but the very richest to budget thei} health care expenditures. The market solution to this situation, of course, is the development of a market in in- surance, a device for risk-sharing that enables individuals to protect themselves from sub- stantial unforeseen financial losses and to se- cure very expensive professional help in coping with disease or disability when it occurs. How- ever, competition in the market for health care insurance will lead to differentiation of risk pools. Different insurance packages, with dif- ferent premiums, will be developed for dif- ferent groups of individuals with similar risks of sickness and disability with the result that those individuals who have the greatest risk of ill health-that is, those who need insurance the most will find it prohibitively costly. Regulatory measures requiring community rating of insurance risks and unlimited access to insurance pools can be used to counter risk- pool differentiation, although a market pro- ponent will view these as inefficient interfer- ences in the operation of health care markets. With either different risk pools or commu- nity rating, however, health care insurance will remain extremely expensive, and beyond the financial reach of substantial numbers of the poor in this country. This would be true even

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ETHICS OF FOR-PROFIT HEALTH CARE documented. It may also be the case that even though serious conflicts of interest, from sec- ondary income and other sources, already exist in nonprofit health care, the continued growth of for-profits, both in their own activities and the influence they have on the behavior of nonprofits, will result in a significant wors- ening ofthe problem. Our current lack of data, however, makes it premature to predict that this will happen or when it will happen. There is another form of the charge that for- profit health care creates new conflicts of in- terest or exacerbates old ones. Some fear that even if the physician's behavior toward pa- tients is not distorted by incentives for sec- ondary income or by equity ownership, physicians in for-profits will be subject to greater control by management and that this control will make it more difficult for physicians to serve the patient's interests rather than the corporation's. There can be little doubt that American physicians are increasingly subject to control by others, especially by managers and administrators, many of whom are not ~ . . physicians. There are two major factors that have led to this loss of "professional dominance" which are quite independent of the growth of for- profits.~7 One is the institutionalization of med- icine which itself arose from a variety of fac- tors, including the proliferation of technologies and specializations which call for large-scale social cooperation and cannot be rendered ef- ficiently, if they can be rendered at all, by independent practitioners. The other is the increased pressure for cost containment in a more competitive environment, which has led to a greater reliance on professional manage- ment techniques within health care institu- tions and more extensive regulatory controls by government. At most, the growth of for- profits may be accelerating the loss of profes- sional dominance. It should not simply be assumed, however, that diminished physician control will result in an overall lowering of the quality of care or a worsening of the problem of conflict of in- terests. Whether it will depends upon the an- swer to three difficult questions. To what extent will management or shareholders of for-profits exercise their control over physicians in the pursuit of profit and at the expense of patient 239 interests or will their pursuit of profit be re- strained by ethical considerations? To what ex- tent will management and stockholders act on the belief that, in the long run, profits will be maximized by serving patients' interests? To what extent have physicians, in the physician- dominated system that has existed up until recently, actually acted in the best interests of their patients? The answers to the first two questions await data not yet available. The third question is especially difficult to answer because of an ambiguity in the notion of the "patient's best interests." In a fee-for- service, third-party payment system in which physicians exercise a great deal of control in ordering treatments and procedures, a phy- sician who makes decisions according to what is in the individual patient's best medical in- terests will tend to order any treatment or test whose expected net medical benefit is greater than zero, no matter how small the net benefit may be. Under such a system, the traditional ethical principles of the medical profession, which require the physician to do what is best for the patient (or to minimize harm to him), and the principle of self-interest speak with one voice, at least so long as the patient's in- terests are restricted to his medical interests. Indeed, even if the physician considers the patient's overall interests financial as well as medical so long as a third party is picking up the major portion of the bill, the physician may still conclude that acting in the patient's best interest requires doing anything that can be expected to yield a nonzero net medical ben- efit. Yet, as has often been noted, the cumu- lative result of large numbers of such decisions, each of which may be in the best interest of the particular patient, is that health care is overutilized and a cost crisis results. "Overutilization" here does not mean the use of medically unnecessary care, i. e., care having no net medical benefit or which is pos- itively harmful; instead what is meant is what one author has called "noncostworthy care"- care which yields less benefit than some al- temative use to which the same resources could be put, either for other health care services or for nonhealth care goods. Overutilization of health care in this sense, not just overutili- zation as nonbeneficial care, is clearly contrary to everyone's interest If continued profes

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240 signal dominance means perpetuation of this problem of overutilization, then even if a con- tinued loss of professional dominance will lead to medical decisions that are not, considered in isolation, in the individual patient's best interest, it may result in the elimination of one important conflict of interest and collective ir- rationality in the current system. This does not rule out the possibility, of course, that greater control by nonphysicians will also lead to overutilization. If this occurs, then one system which works against every- one's best interest will merely have been re- placed by another that does the same thing. We have seen that in the fee-for-service, third-party payment system in nonprofit as well as for-profit settings the cumulative result of many physicians acting on the desire to do what is best for the individual patient can re- sult in overutilization that is contrary to all patients' best interest. Some critics of for-prof- its suggest that we must either pay the price of this overutilization or cope with it by meth- ods that do not undermine physicians' com- mitments to doing what is best for their individual patients. They then conclude that even if it could be shown that the growth of for-profits would restrain overutilization by in- troducing greater price competition into health care, the price would be too high to pay be- cause the physician's all-important commit- ment to do his best for each patient would eventually be eroded by the increasing "com- mercialization" of health care that is being ac- celerated if not caused by the grown of for- profits. The force of this objection to for-profits de- pends, of course, not only upon the correct- ness of the prediction that the growth of for- proFts will in fact contribute to a weakening of the physician's commitment to do the best he can for each patient; it also depends upon the assumption that under the current system that commitment has been a dominant force in physician behavior. This last point may be cast in a slightly different way. How concerned we should be about the tendency for the be- havior of physicians to become more like that of businessmen depends upon how great the difference in behavior of the two groups is and has been. If one assumes that as a group phy- sicians have been significantly more altruistic FOR-PROFIT ENTERPRISE IN HEALTH CARE than businessmen and if one also assumes that altruism is the only effective safeguard against exploitation of the patient's special vulnera- bility, then one will oppose any development, including the growth of for-profit health care, which can be expected to make physicians more like businessmen. Those who make the first assumption tend to overlook two points which call it into ques- tion. First, our society does in fact expect, and in some cases enforces by the power of the law, significant restrictions on the pursuit of profit by "mere businessmen." In fact, it can be argued that the moral obligations of busi- nessmen to their customers are not signifi- cantly less demanding than those of physicians toward their patients when equally important interests are at stake. Robert Veatch has ob- served that if a physician becomes aware that another physician is acting on misinformation or performing a procedure incorrectly, then the first physician is under an obligation to bring this to the attention of the second and perhaps to help him remedy the defect.23 Veatch then goes on to say that a business- man who learns that a competitor is acting on misinformation or using sloppy production techniques is under no obligation to point this out to the competitor. Veatch's contrast be- tween the moral obligations of physicians and businessmen, however, is overdrawn if not outright mistaken. It is not clear that a phy- sician has a moral obligation to inform another physician that he is misinformed or even that his technique is deficient unless significant pa- tient interests are at stake. It may be true, however, that important interests are more frequently potentially at stake in health care than in ordinary business transactions. Yet surely a businessman has a moral obli- gation to inform a competitor that he is un- wittingly endangering people's lives even if in giving his competitor this information he pre- vents his competitor from ruining himself and, thereby, foregoes a chance to eliminate the competition. Moreover, if a businessman lies to or defrauds a customer, we conclude not only that he has done something illegal but that he has acted immorally. And even if he breaks no law, we may nonetheless condemn him morally as a cheat and a scoundrel. All of this is simply to emphasize a simple point that

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ETHICS OF FOR-PROFIT HEALTH CARE critics of the "commercialization" of health care sometimes overlook, namely, that we custom- arily do apply not only legal but also moral standards to the behavior of businessmen. One would not want a physician who was motivated exclusively by financial reward, but then one wouldn't want an electrician who was either. Nevertheless, even if there is a tendency to overstate the contrast between ethical and le- gal constraints on business transactions and the physician/patient relationship, we typi- cally do expect a somewhat higher standard of conduct from physicians. Many outside the medical profession and some within it greet the claim that physicians as a class are especially altruistic with some skepticism. This attitude is not groundless. One of the difficulties of determining the strength of altruistic motivation among physicians is that until very recently, the fee-for-service, third- party payment system has produced a situation in which altruism and self-interest converge: doing what is best for the patient (pursuing all treatment that promises nonzero benefits) was often doing what was financially best for the physician. Nevertheless, critics of the thesis that physicians are especially altruistic can marshal! a good deal of evidence to support their view, such as the profession's historical opposition to HMOs and to Medicare and Medicaid, each of which promised significant extensions of access to health care, 24 its failure to overcome the chronic geographical maldis- tribution of physicians in this country, and its support of strict entry controls to the profes- sion through medical licensure together with relatively weak oversight of the continuing competence of those already licensed. We can make Attempt to evaluate such evidence here, but the self-interest of the profession seems a better prima facie explanation of it than does an altruistic concern for the health of the ill. It is important to emphasize that explanations of these phenomena need not as- sume that self-interest here is exclusively or even primarily financial self-interest. The profession's resistance to Medicare, for ex- ample, was probably more an attempt to pre- serve physician autonomy. In assessing these questions of conDict of interest, we think it is helpful to distinguish the behavior of physicians acting as an orga 241 nized profession addressing matters of health policy from the behavior of individual physi- cians toward individual patients. As we have noted above, much behavior of medicine as an organized profession (as reflected for example in the political role the American Medical As- sociation (AMA) has played in seedling to main- tain physician dominance in the health care profession) to protect and enhance physician incomes, and so forth, has served the self-in- terestofphysicians. Controversial is the extent to which the self-interested function of the mo- tivation for supporting such practices as med- ical licensure is manifest or latent, explicit or implicit. In considering the corlduct of profes- signal trade associations such as the AMA, we believe that forwarding the economic and other interests of the members of the profession is often the explicit and conscious intent of the representatives of the profession. To the ex- tent that the profession has been successful in forwarding its members' interests, we would expect to find an institutional, organizational, and legal structure shaping the practice of medicine that serves the economic and other interests of members of the profession. More- over, it would be hard to look back over the evolution in this century of the position and structure of the medical profession without concluding that the profession has had consid- erable success in promoting its interests. It would be completely implausible to att- ribute a high level of altruism to the medical profession if that was interpreted to mean a high level of economic self-sacrifice in favor of the public's health needs. The exceptionally high levels of physician incomes would belie that. Nor is it plausible to claim that the or- ganized profession has led efforts to address some of the most serious moral deficiencies in our health care system, such as the continued lack of access to health care of large numbers of the poor. As we noted above, the history of the profes- sion's opposition to national health insurance and to Medicare and Medicaid belies any such role of altruism or moral leadership. Nor fi- nally have many members of He profession acting as individuals been remarkably self-sac- ri~cing or acted as moral leaders in addressing these problems. Occasionally physicians have, of course, located in undesirable geographical

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242 areas to meet pressing health care needs or have provided substantial unpaid care to the poor, but such behavior has not been suffi- ciently widespread to have a major impact on these problems. Despite the extent that the profession has forwarded its members' interests and that in- dividual members have not been self-sacrific- ing in addressing the most serious deficiencies in the health care system, we believe it would be a serious mistake to conclude that the pa- tient-centered ethic that has defined the tra- ditional physician/patient relationship is mere sham and rhetoric, a thin guise overlaying the physician's self-interest. An alternative, and we believe more plau- sible, perspective is that in part just because the medical profession has been exceptionally successful in promoting and protecting an in- stitutional and organizational setting that well serves physicians' economic and other inter- ests, individual physicians have thereby been freed to follow the traditional patient-centered ethic in their relations with their individual patients. Put oversimply, a physician whose overall practice structure assures him a high income need not weigh economic benefits to himself when considering treatment recom- mendations for his individual patients. As we have argued above, conflicts of interest be- tween physicians and patients have long ex- isted and are hardly a heretofore unknown consequence of for-profit health care institu- tions. As one commentator has argued, much of medicine can be viewed as a conflict for the physician between self-interest and altruism, requiring a balancing of these sometimes con- flicting motivations.~5 What we are suggesting is that the self-in- terested organized professional behavior and institutional structure of medicine may have helped protect the possibility of altruistic be- havior on the part of the physician when guid- ing treatment with his individual patients. (This hypothesis, of course, requires careful quali- fication. In some cases the self-interested be- havior of organized medicine has clearly had a negative impact on patient interests. For ex- ample, licensure and other forms of self-reg- ulation by the profession have often failed to protect patients from chemically dependent or otherwise incompetent physicians and have FOR-PROFIT ENTE~SE IN HEALTH CAM exacerbated the problem of access by inhib- iting the development of less expensive forms of care utilizing nonphysician providers such as midwives and nurse practitioners.) One virtue ofthis more complex perspective is that it allows us to accommodate the ele- ments of truth that exist in each of two oth- erwise seemingly incompatible perspectives, each of which taken only by itself appears ex- treme and incomplete. One perspective views the physician simply as an economically self- interested businessman in his dealings with patients. Those who support this perspective can point to the various ways in which the actions of the medical profession and the in- stitutional and financing structure in which medicine is practiced serve the interests of physicians, as we have done above, but they often end up denying any significant reality to the physician's commitment to promoting his patients' best interests. On the other hand, many defenders of physicians viewed as de- voted professionals committed to the well-being of their patients seem also to feel it necessary to deny the extent to which medical practices and institutional structures serve physicians' interests. Either perspective is by itself stubbornly one-sided in its view of physicians simply as self-interested economic accumulators or as devoted altruists. We favor a view which rec- ognizes that these two perspectives are not incompatible and accepts the elements of truth in each of them. One advantage of this more balanced per- spective is that it permits the recognition of the reality and importance of the traditional patient-centered ethic, without denying the conflicts of interest between physician and pa- tient that we have discussed above or the im- portant historical role played by economic interests of physicians. A perspective that en- compasses a balance between self-interested and altruistic motivations on the part of phy- sicians can help articulate the concern of many observers that the rise of for-profit medicine while not representing an entirely new phe- nomenon nevertheless does pose a danger to the traditional physician/patient relationship by shifting the traditional balance between self- interested and altruistic motivations because it tends to bring motivations of economic self

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ETHICS OF FOR-PROFIT HEALTH CARE b interest more directly and substantially into the physician's relations with individual pa- tients. What, more specifically, is the worry about the erosion of the physician/patient relation- ship by the rise of for-profit health care insti- tutions? We think that worry can be most pointedly brought out by initially overstating the possible effect. The traditional account of the patient-centered ethic makes the physician the agent of the patient, whose "highest com- mitment is the patient."26 The physician is to seek to determine together with the patient that course of treatment which will best pro- mote the patient's well-being, setting aside ef- fects on others, including effects on the physician, the patient's family, or society. This commitment to the patient's well-being responds to the various respects discussed above in which patients are in a very poor position to determine for themselves what health care if any, they need. Because the patient is un- usually dependent on the physician, it is es- pecially important to the success of their partnership in the service of the patient's well- being that the patient believe that the physi- cian will be guided in his recommendations solely by the patient's best interests. Patients have compelling reasons to want the physician/ patient relationship to be one in which this trust is warranted, quite apart from the pu- tative therapeutic benefits of such trust. Suppose the rise of for-profit health care so eroded this traditional relationship, and in its place substituted a commercial relationship, that patients came to view their physicians as they commonly now view used car salesmen. We emphasize that such a radical shift in view is not to be expected. We use this "worst-case" example of a caveat emptor commercial rela- tionship only because it focuses most pointedly the worry about the effect on the physician/ patient relationship of the commercialization of health care. Many factors will inhibit such a shift from actually taking place in patients' views of their physicians, including traditional codes of ethics in medicine, requirements of informed consent, fiduciary obligations of phy- sicians, as well as powerful traditions of profes- sionalism in medicine. Recognizing that the stereotype of the used car salesman substan- tially overstates what there is any reason to 243 expect in medicine, nevertheless what would a shift in this direction do to the physician! patient relationship? Most obviously and perhaps also most im- portantly, it would undermine the trust that many patients are prepared to place in their physicians' commitment to seek their (the pa- tients') best interests. In general, there is no such trust of a used car salesman, but rather his claims and advice are commonly greeted with a cool skepticism. He is viewed as pur- suing his own economic interests, with no commitment to the customer's welfare. It is the rare (and probably in the end sorry) con- sumer who places himself in the hands of the car salesman. Anything like the fiduciary re- lationship in which a patient trusts the phy- sician's commitment first to the patient's interest is quite absent with the used car salesman. This is not to say that some additional con- sumer skepticism of physician recommenda- tions and increased attempts by patients to become knowledgeable health care consumers would not be a good thing- they would. It is rather to say that many of the various inequal- ities in the physician/patient relationship are sufficiently deep and difficult to eradicate that some substantial trust of the physician's com- mitment to the patient is likely to remain nec- essary and valuable. The commercial model of arms-length, caveat emptor bargaining is not promising for the physician/patient relation. While there has been deception of patients by physicians, it seems to have markedly de- creased in recent decades, and in the past this deception in medicine was justified as for the patient's own good (even if in fact it often was not). However, one does not expect the truth, the whole truth, and nothing but the truth from a used car salesman, nor that shadings of the truth are done for the customer's own good. We expect some concealment and distortion of information in order to make the sale, al- though this is not to say that some outright deception in commerce may not be fraudulent and immoral. It is also commonly believed that businessmen are in business to sell as much of their product as possible, however much the consumer may not "need" the expensive car being pushed by the salesman, whereas physicians are expected not to encourage needless consumption. Businessmen respond

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244 to consumer wants, not needs, and will do their best to manufacture such wants where they do not already exist. A shift towards commercialization of health care could be expected to result in increasing emphasis on marketing strategies to secure an increasing segment of the market. Moreover, we expect no unprofitable products or service from a car salesman in response to consumer need. We have argued that the moral obli- gation to ensure access to health care for the poor is ultimately the government's, not an individual physician's or hospital's by way of cross-subsidization. Nevertheless, in the face of unmet need, physicians and health care in- stitutions often do, and are often expected to, respond to that need by furnishing the needed care. Other norms important to the practice of medicine have a weakened or nonexistent place in most commercial transactions, such as the requirement of confidentiality concern- ing information about the patient. One must be careful not to overstate the contrast between medicine and commerce- we have already seen it is certainly not the case that commerce takes place in the absence of any ethical constraints (or legal constraints, reflecting ethical norms) or that the medical profession is never moved by self-interest. However, we believe there is a genuine and important difference in the ethos of the two enterprises that plays out in important differ- ences in the physician/patient and business- man/consumer transaction. Oversimplifying, it is commonly believed that in business trans- actions individuals pursuing their own inter- ests, though admittedly within some ethical and legal constraints, will best promote the overall social good. It is this view of the mo- tivation of self-interest as ethically acceptable that quite reasonably worries many as medi- cine becomes increasingly commercialized. Since physicians are, of course, human like the rest of us and naturally concerned with their own interests, it is reasonable to view their primary commitment to the patient's well-being as inevitably fragile and always in danger of being undermined. In that light, it is unnec- essary to view for-profit institutions as ~ntro- ducing a qualitatively new dimension of commercialization and new set of conflicts of interest into health care. As we have argued, FOR-PROFIT ENTERPRISE lN HEaLTH CARE such a view is indefensible. Nor need it be expected that physicians' concern with their patient's well-being will just disappear as soon as they go on the payroll of a for-profit hospital or, more likely, establish other types of con- tractual relations with it. That view too would be indefensible, indeed downright silly. The realistic worry, concerning which the data are not yet in, is rather that over time the increased importance of investor-owned for-profit institutions may permit considera- tions of economic self-interest increasingly to invade the heretofore somewhat protected sphere of the physician/patient relationship, and thereby weaken the patient-centered ethic on which that relationship has traditionally de- pended. The difference would only be one of degree, but no less important for that. As we have noted above, there are other indepen- dent factors putting similar pressures on that relationship such as the expected oversupply of physicians. It would be a mistake to think that these possible adverse effects on the phy- sician/patient relationship are uniquely due to the rise of for-profits. However, that is not a reason to be unconcerned with these elects of for-profits, but only a reason not to focus one's concerns solely on for-profits. We emphasize that the traditional patient- centered ethic need not be incompatible with greater attention to costs in health care utili- zation decisions and practices. Utilization of health care should reflect the financial costs as well as benefits of care, but that will not be appropriately achieved by, nor need it inev- itably lead to, physicians making utilization decisions solely according to their own eco- nomic self-interest. Whatever the right mix of incentives for reasonably limiting health care utilization and costs, simply making physicians fillly subject to incentives of economic self- interest by breaking down the patient-cen- tered ethic seems not the path to that mix. A physician weighing the true financial costs of care against its medical benefits to the patient is entirely different from one who simply weighs the economic consequences to himself of the patient utilizing care. The most obvious worry, then, is that the increasing prominence of for-profits may con- tribute to a shift in physicians' patient-oriented behavior, which may in turn affect the patient

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ETHICS OF FOR-PROFIT HEALTH CARE trust important to a well-functioning physi- cian/patient relationship. The test of that hy- pothesis would then be the extent to which physician behavior is actually different within for-profit settings. But it is important to realize that patient trust may be eroded, and so the physician/patient relationship adversely af- fected, even in the absence of any actual shift toward more self-interested behavior by phy- sicians. Even if outward behavior does not change, a change in the motivations of the behavior, and in turn of perceptions by others of those motivations, may be important. If physicians are increasingly perceived by pa- tients as motivated by self-interest rather than by a commitment to serving their patient, then even in the absence of a change in physicians' behavior, it is reasonable to expect an erosion in patient trust that physicians will act for their patients' best interests. Part of what is impor- tant to patients in health care is the reassur- ance that the professional cares about them and their plight. (This is one respect in which other health care professionals, for example nurses, are often more important than physi- cians in patient care. ~ A change in a physician's motivations, or even in the patient's percep- tions of those motivations, may be enough to affect the patient's belief about whether the physician "really cares" about him. This point should give pause to those who propose to test the effects of for-profits on the physician/pa- tient relationship and on patient trust by look- ing only at changes in physician behavior. FOR-PROFITS UNDERMINE MEDICAL EDUCATION The charge that for-profits undermine med- ical education parallels the claim examined previously that for-profits exacerbate the prob- lem of access to care. Medical education, like care for indigents, is in part funded through cross-subsidization, and for-profits are be- lieved to be contributing to the demise of cross- subsidization. It is thought that not only will for-profits themselves refrain from providing medical education because to do so would not be profitable for them, but also that they will make it increasingly difficult for nonprofit in- stitutions such as university hospitals to carry 245 on medical education and still remain com- petitive. Much of what was said regarding cross-sub- sidization of indigent care applies here as well. Even if the growth offor-profits is contributing to the crisis in funding for medical education it is difficult to estimate the magnitude of its contribution, and it is clear that other factors are at work as well. Faced with growing pres- sures for cost containment, nonprofit institu- tions would presumably have strong incentives to reduce all "unprofitable" activities, includ- ing medical education, even in the absence of competition from for-profits. And here, as in the case of cross-subsidi7~tion for indigent care, whether one laments these developments or welcomes them will depend upon one's views on the efficiency and ethical acceptability of a system which in effect disguised the true costs of medical education and upon whether one thinks that the political process is likely to pro- duce a workable alternative system for funding medical education through explicit public pol- icy choices. Furthermore, before a convincing answer can be given to the question of what obliga- tions institutions or individuals have to help support medical education, several basic eth- ical issues must be resolved which the cross- subsidization system has effectively kept out of the public view. Perhaps most importantly, to what extent should medical education be subsidized by public resources? To the extent that physicians benefit from the skills which they sell at their filll market value there is a presumptive case for making them bear the costs of their own training. However, there are several countervailing considerations which may overcome this pre- sumption. First, it can be argued that if med- ical education is publicly subsidized we will all benefit from a higher level of slcills than would be possible under a system in which individuals had to bear the full costs of their training. Second, public subsidization makes it possible for persons from lower socioeco- nomic groups to become physicians and this is desirable, not only because it promotes equality of opportunity, but also because there is some reason to believe that physicians from the same socioeconomic background as their patients may be better able to communicate

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246 with those patients and to serve them effec- tively. Third, it may also be that a strong system of medical education, like medical research, has some ofthe features of a public good. Med- ical education does not simply build economic assets for physicians. At both the graduate and post-graduate levels it also sets, transmits, and improves standards and methods of sound medical practice. Because the average patient is in a poor position to evaluate for him- or herself the quality of care provided by a par- ticular physician, all patients benefit from a high-quality system of medical education that provides some assurance of the high quality of training and skills of the physicians produced by that system. If public subsidization of med- ic41 education facilitates training geared more toward the quality of patient care and less to- ward the economic value to physicians of the skills produced, that may be of benefit to pa- tients, that is, the public. While it would be unjustified to maintain that the growth of for-profits is a major source of the reported crisis in funding for medical education, it can perhaps be said that for-prof- its are one element in a complex array of changes which will test the strength of the public com- mitment to medical education and challenge the moral assumptions on which that commit- ment is based. FOR-PROFITS AND THE POLITICAL POWER OF THE MEDICAL-INDUSTRIAL COMPLEX The widespread view that the medical profession's dominance in the U.S. health care system is waning has already been noted. One important aspect of the weakening of profes- sional dominance is said to be the decreasing effectiveness of organized medicine's lobbying efforts in recent years. Whether or not one greets this development with enthusiasm or regret will depend, of course, upon the extent to which one believes that these efforts to in- fluence public policy have promoted or impeded the public interest. However, both the sup- porters and the critics of professional domi- nance have voiced a concern that it may be replaced by the dominance of a few extremely wealthy end politically powerful giant hearth FOR-PROFIT ENTERPRISE IN HEALTH CARE care corporations forming a medical-industrial complex. The fear is that a handful of the largest corporations might "capture" the reg- ulators, molding public policy to their own needs through lobbying, campaign contribu- tions, and use of the media to sway the elec- torate. The real concern here should be the political effects of highly concentrated corporate power in health care not simply the power offor- profit health care corporations. While it is true that the hospital "industry" is becoming in- creasingly concentrated, it is important to point out that some of the largest hospital chains are owned or operated by large nonprofit corpo- rations. Further, there is nothing to prevent large nonprofit corporations from using their wealth and power to influence public policy and little reason to believe that they will in general be less willing to do so than large for- profit corporations. At present, however, it is difficult to predict how concentrated the health care sector will become or to what extent the disparate interest groups within and across health care institutions can be welded together under corporate leadership to function as a unified influence on public policy. The issue, then, is whether it may become necessary in the future to utilize regulation or some other form of societal control to neu- tralize or minimize the political ejects of the economic power wielded by large health care corporations, whether nonprofit or for-profit. Some possible, even if not politically likely, controls include limitations on campaign con- tributions and on political advertisements in the media, special laws designed to disqualify legislators or regulators with conflicts of in- terest, or limitations on the maximum size of corporations. It has often been remarked that it is a hall- mark of a profession to be self-regulating. In the case of the medical profession, the idea that the physician/patient relationship is fi- duciary along with the belief that medicine is a service for healing and comfort rather than simply one commercial enterprise among oth- ers have buttressed the profession's claim that it can be trusted to regulate itself. Until recently it was widely assumed not only that the medical profession should reg- ulate itself, but that it should also be chiefly

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ETHICS OF FOR-PROFIT HEALTH CARE responsible for regulating health care in gen- eral. This position rested on three main prem- ises: (1) physicians and only physicians have the technical training and knowledge needed for informed control of their own professional activities, (2) physicians' professional activities are largely autonomous from other activities in health care, (3) the activities of other health care professionals are almost exclusively de- pendent upon physicians' decision making. The recognition that some of the most perplexing decisions concerning the use of medical treat- ments require complex moral, social, and legal judgments has undermined the first premise. (Decisions to forgo life-sustaining treatments for terminally ill or comatose patients are only the most obvious cases where medical judg- ment is not sufficient for guiding the physi- cians' own professional activities. These decisions require moral judgments because they rest on assumptions about the nature of indi- viduals' rights and the quality and value of life. ) The second and third premises also become dubious once it is seen that physicians' profes- sional activities are increasingly dependent, not only upon decisions of other types of health care professionals (such as biomedical engi- neers and laboratory and radiology techni- cians) who sometimes possess specialized knowledge which physicians lack, but also upon a complex web of institutional functions, in- cluding planning, investment, and allocation of resources. Some of the same reasons that make it im- plausible to leave regulation of health care to physicians make it equally implausible to en- trust it to corporations or groups of corpora- tions. In particular, the vast commitment of public resources to health care grounds a le- gitimate public concern that the resources be used efficiently and fairly, and the growing list of ethical dilemmas concerning the uses of medical technology is no more amenable to the administrative expertise of the corporate manager than to the professional judgment of the physician. There is, however, one reason why the public is perhaps even less lilcely to tolerate self-regulation by health care corpo- rations third by the medical profession. If health care is perceived to be controlled by corpo- rations whether for-profit or nonprofit that are in many respects indistinguishable from 247 other commercial enterprises, then the pre- sumption in favor of self-regulation, which flourished under professional dominance, will erode. For if the key decision makers in health care are perceived to be businessmen rather than fiduciaries committed to healing and comfort, an important barrier to societal reg- ulation of all forms of health care will have fallen. Whether new forms of regulation will be needed to constrain the political influence of large health care corporations can only be determined after careful study not only of the impact that these organizations have on public policy, but also of the expected effectiveness of proposed regulations. CONCLUSION Any summary conclusion of our examination of the ethical issues in for-profit health care will inevitably oversimplify. The one contin- uing theme running through our analysis of the moral objections commonly voiced against for-profits is that those objections need to be both framed and evaluated more carefully than they usually are. In many instances these ob- jections also rest on empirical claims for which the data are not yet available. We have been generally critical of the ar- gument that for-profits fail to do their fair share in providing health care to poor or unprofitable patients. That argument assumes that for-prof- its have special obligations to care for these patients, that a determinate content can now be given to that obligation, and that the ob- ligation can be discharged without unreason- able sacrifice on We part of the for-profit. These assumptions are problematic. It is a mistake to focus on how for-profits exacerbate or a~ne- liorate access. The debate could more profit- ably concentrate on the need for a coordinated societal response to the serious injustices in access to health care that now exist. We have also been skeptical of the claim that for-profits represent unfair competition for nonprofits, though for-profits may have possible adverse effects on charitable moti- vations and a sense of community. We have again been critical of a common objection to for-profits, that they wrongly treat health care as a commodity rather than a right. It is only the view that all persons should have one sin

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248 ale level of health care, not the recognition of a right to an adequate level of health care, that is incompatible with market provision of health care by for-profit institutions. The arguments in each of the first three sec- tions of the paper ultimately raise deeper is- sues of great importance about the just distribution of health care that go beyond Me for-profitlnonprofit debate. We have argued that potential adverse effects on medico ed- ucation, like those on access, may indeed be worrisome, but the data on them are at this point very limited and they probably arise more from other forces such as cost containment ef- forts than from for-profits. Similarly, although the possibility that a small number of large health care corporations may come to wield disproportionate influence on public policy is a serious matter for concern and vigilance, it would be a mistake to assume that the poten- tial for political abuse of economic power exists only with for-profit corporations, rather than with large institutions generally. We believe that perhaps the most serious ethical concern with the growth of for-profits is their potential adverse effects on the phy- sician/patient relationship and on the quality of care. Here too, potential conflicts of interest between patient and provider are not new. Indeed, they are fundamental to the physician/ patient relationship in either for-profit or non- profit settings. Moreover, other powerful forces besides the growth of for-profits, in particular cost containment efforts and increased com- petition, are impinging on the physician/pa- tient relationship. But the importance of the patient's trust in his physician, and the fragile balance between the physician's commitment to serve the patient and his natural concern win his own interests, give reason for serious continuing attention to this potential effect of for-profits. FOR-PROFIT ENTERPRISE IN HEALTH CARE NOTES IWhile the number of investor-owned, as opposed to independent for-profit hospitals has risen, hospital ownership, classified by broad categories- federal, state, and local government, nonprofit and for-profit-has changed little in the past decade. Gray, B. H. (1984) Overview: origins and trends. Keynote address, An- nual Health Conference, The New Entrepeneurialism in Health Care, held by the Committee on Medicine in Society of the New York Academy of Medicine, Bul- letin of The New York Academy of Medicine, second senes, Vol. 61, No. 1, pp. 7-22. 2Securing Access to Health Care (1983) Report of the President's Commission for the Study of Ethical Prob- lems in Medicine and Biomedical and Behavioral Re- search (Washington, D.C.: U. S. Government Printing Office) Vol. 1, pp. 92-101. 3This statement is based on a preliminary draft of the report of the Institute of Medicine Committee on For-Profit Health Care. Additional data may be in- cluded in the final report. 4Ibid. 5Ibid. Brown, Kad~ryn J., and Richard E. Klosterman. Hospital acquisitions and their effects: Florida, 1979- 1982. This volume. 7Hansmann, Henry D. (1980) The role of nonprofit enterprise. Yale Law Journal 89~5~:835-901. Robert M. Veatch seems to take this position in Ethical dilemmas of for-profit enterprise in health care, The New Health Care For Profit, B. H. Gray, ed. (Washington, D.C.: National Academy Press, 1983), p. 143. Cf. also Outka, Gene, Social justice and equal access to health care in Ethics and Health Policy, R. Veatch and R. Branson, eds. Cambridge: Ballinger Publishing Co. 9See, for example, Guttman, Amy (1983) For and against equal access to health care, and Brock, Dan W. Distnbution of health care and individual liberty, both in Securing Access to Health Care, Volume Two: Ap- pendices. Sociocultural and Philosophical Studies, Re- port of the President's Commission for He Study of Ethical Problems in Medicine and Biomedical and Be- ha~rioral Research (Washington, D.C.: U.S. Govern- ment Printing Office). 2Daniels, Norman (1985) Just Health Care (New York: Cambridge University Press). 22Starr, P. (1982) The Social Transformation of American Medicine (New York: Basic Books). :2Menzel, P. (1983) Medical Costs, Moral Choices (New Haven: Yale University Press) p. 17. 23Veatch, R. (1983) Ethical dilemmas of for-profit enterprise in health care, B. H. Gray, ea., The New Health Care for Profit (Washington, D.C.: National Academy Press) pp. 145-146.

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ETHICS OF FOR-PROFIT HEALTH CARE 14Starr, P. (1982) The Social Transfo~nation of American Medicine (New York: Basic Books). ~SJonson, A. (1983) Watching the doctor, Sounding Board, New England Journal of Medicine, 308~259: 1~31-1535. 16Amencan College of Physicians Ethics Manual (1984) p. 7. 17The term "medical-industrial complex" is bor 249 rowed from an article by Relman, A. (1980) The new medical-industrial complex, The New England Journal of Medicine, 303~171:963-970. Relman expresses a num- ber of the concerns about for-profits analyzed in the present essay, including the fear that large for-profit corporations may exert undue influence on public pol ~cy.