A Note on Competition and Profit in Medical Care

To the Editor: The exchange between Stone and Blackwell (1,2) in the September and December 1998 issues is far from trivial and deserves wide-ranging discussion. The establishment of medicine as a profession around the turn of the century had salutary influences on the autonomy, power, prestige, and quality of medical practice. The territorial claims and many defensive battles over the boundaries of the profession protected medical practice from the crass competitive commercialism that was rampant at that time. Monopolistic control, securely maintained until after World War II, contributed to both the quality of medical care and the development of the infrastructure of education and research.

For the first 25 years the hospital insurance industry did not challenge the power and prestige of the medical profession. Nor did it challenge the prerogatives of the doctor to make the decisions about clinical events, and so the impossible-to-define phrase "medical necessity" was invented. But now we can make only empty and impotent claims to those prerogatives and blame managed care because we must compete in a sordid profit-dominated marketplace like any other business or industry. As reprehensible as managed care organizations may be, they did not introduce either competition or the profit motive. Physicians must accept some historical responsibility for our current position.

For example, in 1963 advocacy by the American Psychiatric Association played a major role in the negotiations of the United Auto Workers contract that established the principle that insurance would pay for outpatient psychotherapy. The unintended economic consequence was that such payment presented irresistible financial opportunities for other professions and encouraged the development of new "products." Psychiatrists no longer maintained a monopoly over psychiatric services and were on the unrecognized brink of overexpanding costs of health care to employers. Granted, psychiatry has always been a relatively unimportant but vulnerable player in the health care economy. But managed care didn't even exist.

The profit motive was established in health care by the federal Medicare and Medicaid legislation of 1965. This legislation converted hospitals from charitable institutions into profit-making enterprises. Interestingly enough, organized medicine was not attending to the impact of this legislation on the industrialization and monetization of health care. Instead, organized medicine feared the regulatory influence of government. Compromises were made to accept government-financed health care as long as the medical profession maintained control over clinical decisions, and the doctor-patient relationship was protected. "Medical necessity," meaning "what the doctor said," was promoted to unsustainable importance. Even psychiatrists basked in the glow of expanding funds for health care. Managed care didn't arrive for another 20 years, but the profit motive in the economics of health care had been unleashed. We were there and profited.

To address the issue of the relevance of information in efficient markets, raised by Dr. Stone, we might note that the technology of many products such as computers, automobiles, airline tickets, and financial operations, has surpassed the information available to the ordinary consumer of these products. Health care products are no longer unique.