Health Care Enters the Real World

More and more, the health care field is characterized by entrepreneurialism, a concept that is at odds with the traditional tenets of the medical profession.

The U.S. health care system is undergoing restructuring as a result of a complex interplay of social, political and economic forces. Where once the medical profession had a monopoly position in the health care system, its position has been challenged by the Federal Trade Commission under the Sherman Antitrust Act. More and more, the health care field is characterized by entrepreneurialism, a concept that is at odds with the traditional tenets of the medical profession. The restructuring of health care in the U.S. has the potential to allow the entrepreneur to function to the benefit of patients, despite the fact that this is a change resisted by those providing health care services.

Health care costs have risen tremendously over the past three decades. In 1950, health care expenditures amounted to $13 billion, or 5.3 percent of the U.S. GNP. This figure soared to $95 billion, or 7.6 percent, by 1970. In 1985, the figure was estimated to be $400 billion, or about 11 percent of the GNP.1 The federal response to the health care cost crisis has been a sequence of legislation, beginning with the PSRO law in 1970 and the planning act in 1974. In the meantime, HMOs have been encouraged, and now prospective pricing is the law for Medicare. This is a dramatic departure from the previous program of reimbursing hospitals for all costs resulting from hospital care of Medicare patients.

A central tenet of this system is the encouragement of economic efficiency. It seeks to accomplish this by allowing hospitals to keep the differences between their costs and the amount reimbursed by Medicare. If the difference is positive, the hospital has a profit. If the difference is negative, the hospital absorbs the loss. While this may seem like an elementary concept, it took 18 years to develop.

Industry Acts Too

Corporations have for many years provided health care benefits for their employees. When first developed, these programs represented a relatively small amount of corporate expense, but now the health care costs for one leading automaker amount to $700 for each auto. This cost serves to weaken the competitive position of U.S. corporations against foreign competitors in the developing global economy. To counter the rise in costs, corporations have sought to interpose themselves between providers and insurers by becoming "prudent buyers."

The reasons for the rise in health care costs are many and varied and include expansion of insurance coverage, which insulates patients from costs; increased consumer demand for services; an aging population; increased technology; a rising supply of physicians; and increased malpractice cases. It is very difficult to pinpoint one factor responsible for the problem. Because of this, the response to control them is likewise varied.

Physicians play a central role in the cost crisis because it is estimated that their decisions influence 70 to 80 percent of all health care costs.1 Starr describes medicine as a "sovereign profession," as a world of power that "grew from a relatively weak, traditional profession of minor economic significance to a sprawling system ... employing a vast labor force."2 This power has allowed the profession to "exercise dominant control over the markets and organizations in medicine that affect its interests. And over the politics, policies and programs that govern the system, the profession's interest have also sought to prevail."

The long training periods and limits on entry into medical schools and residency programs as well as stringent licensing requirements represent examples of a means that physicians have used to develop an authority status as well as control the economic market. But it can be argued that these were means necessary to ensure quality of care as well as standardization of the product.

Aversion to Corporations

One of the dominant institutions of the late 19th and 20th centuries has been the corporation. The medical profession has long resisted the corporate form of practice, especially the concept of "for profit" in delivery of health care. It has been quite successful in this regard until only recently.

Starr relates that doctors were successful in avoiding corporate medical practice, with its attendant controls, because of the cultural authority given to physicians and because of their strategic power base. He argues, " ... the profession's success in establishing its sovereignty in medical care depended on the banishment of profit-making businesses ... from medical practice. ... "2 To summarize how the medical profession established a monopoly position, Starr relates five major structural changes: Licensing laws that restricted the supply of doctors, organization of the profession itself, escape from capitalist enterprise, elimination of countervailing power and the establishment of specific spheres of professional authority.

What has been the result of this monopoly position? Certainly, from a scientific standpoint, American health care is to be envied. Organ transplantation, modern antibiotics, immunizations against infectious diseases and conquering of heart disease are all examples of superior technico-scientific innovation in the financing and delivery of health care.

The economic costs to the individual of health care are uncertain at best under a fee-for-service medical system. If the person remains healthy, the costs are minimal. If illness occurs, however, the costs may be considerable. Under present indemnity health insurance plans, these costs are borne by insurers who charge premiums that reflect the usage of the services. In prepayment systems, the consumer pays the provider a set fee for the provision of any necessary medical care. For providers, the fee-for-service system might seem likewise uncertain with respect to payments. However, if the demand for services is high and the number of sellers is restricted, a shortage is created and economic success is ensured. In contrast, the HMO mechanism places the provider under greater outside control with respect to payment then would be present under a fee-for-service system. As might be expected, the medical profession reacted strongly against providing medical services under a prepayment mechanism.

Long Resistance

The resistance of organized medicine and physicians to prepaid medicine has a long history. Kaiser Health Plan in San Francisco and Group Health Cooperative (GHC) of Puget Sound in Seattle, HMOs developed in the 1940s, faced local opposition. Group Health Association (GHA), a prepayment plan for federal workers in Washington, D.C., met a great deal of opposition from non-HMO physicians against physicians who joined the plan as providers. The opposition culminated in an antitrust suit against the AMA, which had previously called on legal authorities to oppose corporate contract practice of medicine.

The U.S. Supreme Court ruled against the AMA in 1943 and stated that antitrust provisions did apply. However, despite these rulings, organized medicine was able to block other prepaid practices because of the fear of reprisals against physicians who joined them.

A second tack taken to control health care costs was promoting competition. In AMA v. FTC 1975, the Federal Trade Commission successfully challenged a number of anti-competitive ethical restrictions, including restrictions on corporate or "contract" practice of medicine and on truthful advertising.3

In analysis of this antitrust action 10 years later, Costillo argues that the importance of the case was not so much its legal impact, but the focusing of public attention on the role that economic competition can and does have in health care delivery.4 Costillo views the FTC's actions as fostering competitive opportunities and consumer choice in the medical market place.

Where has the consumer (patient) been in this whole discussion? In competitive markets, the seller's existence depends on satisfied buyers. Goldsmith calls the consumer of health care a "breathing brick" — one who lies there and lets things be done to him — but then he challenges the accuracy of that analogy.5 The 1980s mark the movement of consumerism into health care. A Supreme Court ruling in 1982, allowing advertising by medical professionals, encouraged this movement to surface. The ruling allowed consumers to receive the information necessary to make informed choices regarding medical care.

The end of ethical restrictions on corporate medicine by antitrust, advertising and a rising supply of physicians have set into motion entrepreneurial forces. The restructuring of the U.S. health care system in terms of financing and delivery can certainly be seen as a major change.

Drucker believes that this is fertile ground for the entrepreneur.6 "Public service institutions ... need to be entrepreneurial and innovative fully as much as any business does. Indeed, they may need it more. The rapid changes in today's society, technology and economy are simultaneously an even greater threat to them and an even greater opportunity."

Drucker argues that to be successful in achieving its goals, a service institution — and this could include medicine — needs to be innovative and entrepreneurial. Drucker argues that if medicine looks upon rapid change in social, economic, technological and demographic shifts as obstacles, it "will increasingly become unable to discharge (its) mission as (it) adheres to programs and projects that cannot work in a changed environment. "6

Although the entrepreneur is difficult to define, one definition might be one who seeks opportunities to satisfy needs, takes risks, makes decisions, allocates resources and expects to make a profit so that further opportunities to satisfy needs can be identified. Is this a concept that can be applied to medicine given the current restructuring process? If so, what are the profession's attitudes and responses to this concept?

Reiman argues strongly against the concept of entrepreneurialism in medicine. "The medical profession in this country has always had its entrepreneurs and hustling businessmen, but until recently they were on the fringe. ... Lately, however, a new entrepreneurial fever has begun to affect the profession, and what was formerly on the fringe seems to be moving into the mainstream."7

Reiman believes that medicine is a profession and not a business; the role of the physician is to be an agent and trustee for the patient, bound ethically to be divorced from any economic self-interest on the part of the physician. "We cannot expect to take any practical steps in defense of our professionalism until we publicly agree that physicians serve their patients' interests best when they divorce themselves from financial interest in the medical market place."

The rapid rise of health care costs and limitation of consumer choices may have arisen because of practitioners' unwillingness to become entrepreneurs for their patients. Reiman is guilty of viewing the patient as a "breathing brick" instead of as an informed consumer. "The patient's interest is best served by unbiased professional medical advice that can help guide him through the complex medical 'markets', but physicians who have strong economic ties to particular medical facilities, services and products are not in the best position to give such advice."8

Even though the concept that antitrust has its proper application in medicine has been reaffirmed repeatedly by the courts over the past 40 years, Reiman tries to resurrect the issue. "Do we want our physicians to become even more entrepreneurial than they already are? If we do not, we shall have to seek appropriate means, judicial or legislative, to help the medical profession collectively avoid financial dealings with health care business and thus strengthen its traditional commitment to the ethics of service."8

More Realistic View

An opposing and, I think, more realistic view of the entrepreneur in medicine is argued by Kiser. He believes it is shortsighted and unrealistic to insist that physicians be totally divorced from investment in their own profession. In fact, he believes that physicians must be involved financially if they are to shape the future course of the profession. "The driving principles of empathetic provision of care and the inquiring mind mustn't be compromised by the rigors of public process or by the bottom-line orientation of investordriven medicine. However, physicians must become entrepreneurs to maintain significant control of the allocations of the health care dollar in an increasingly business like culture. They must assume financial risk as investors in their own practice. "9

Kiser believes that physicians functioning as entrepreneurs will be innovative and have a market- and product-oriented mentality in deciding what services should be offered to patients. While Kiser does view the entrepreneur as a proper role for the physician, he also warns physicians to guard against sole emphasis on medicine as a business. He feels that patients' interests still supersede physicians' interests both ethically and morally.

Business in medicine is a foreign concept because of the relative absence until recently of a truly competitive market. The naivete of the health profession regarding what constitutes a business may explain its hostility to it. A recent quotation from a hospital administrator illustrates this attitude. "Will services be sold to patients whether they need them or not? How much will public credibility suffer in an era of advertising hype, image-making and the blurring of traditional scientific standards? Will sales and promotional people on a hospitals' management team have less concern with the actual quality of care than with the appearance of quality?"10

This represents a misunderstanding of the characteristics of successful business organizations. Reputable businesses are concerned about the long term, about concepts such as integrity, quality and values that the organization stands for as defined in its mission statement. The public expects and the profession must maintain its genuine commitment to quality in health care. "It is important for hospitals to emulate the characteristics of the business world that foster organizational perpetuation, the definition of organization purposes and character, and clear identification of strengths, together with practices that tap the interest, ingenuity and conscience. ... Preoccupation with the bottom line, productivity and efficient use of resources at the expense of human care and high professional standards will put the institution at a competitive disadvantage."11 This statement reflects an attitude that acknowledges the patient as an educated discriminating consumer and not a "breathing brick."

Not every entrepreneur will be successful. The concept of risk must be understood thoroughly. Most entrepreneurs fail because they don't know what they're doing. Drucker relates this concretely. Entrepreneurs fail because "they lack the methodology. They violate elementary and well-known rules. ... (Entrepreneurship does not) need to be ‘high risk.’ ... It does need, however, to be systematic. It needs to be managed. Above all, it needs to be based on purposeful innovations."6 If one wishes to become a successful entrepreneur in health care, he is well advised to carefully learn the rules and methodology and apply them in an ethical manner.

Health care is moving from "professional sovereignty" to "consumer sovereignty." This transformation has resulted from a combination of societal concern about affordability, rise of consumerism, antitrust application, increased numbers of providers and other factors. The result has been the allowance of "for profit" and corporate medicine to coexist with traditional forms of delivery. These forces have released the entrepreneur to function in medicine as in other markets. The real winner in all this will be society and patients. Convenience, quality, affordability, innovation, more careful analysis of needs and wants may be made available to the discriminating consumer if the changes are allowed to occur. This will be threatening to some, but others will view it as an opportunity to serve in new ways.

As Peters so aptly states, "Excellence happens when high purpose and intense pragmatism meet." He relates that organizations will thrive when they give superior service to customers, constantly innovate and are committed to people, quality and leadership.''12

As health care moves from a provider-dominated to a consumer-dominated market, the physician must play an important role in guiding this transition. To do less invites chaos. "Values may change. Systems may change. But the corporate cartels planning the next health system takeover realize, just as we do, that the future of medicine rests largely with the physician. It is the physician, in the final analysis, who draws the bottom line.

"Medicine is practiced by physicians, not by the entrepreneur with one eye on the corporate ledger sheet. It is the physician who serves as the patient's advocate. It is the physician to whom the patient turns for protection. So while physicians must acknowledge and coexist with corporatization, by the same token, corporatization must acknowledge and coexist with the human dimension of medicine."13

Norman J. Schroeder II, MD, is an emergency physician with Holy Family Medical Center in Manitowoc, Wisconsin.

REFERENCES

1. Ginzberg, E. "The Restructuring of U.S. Health Care." Inquiry 22(3):272-281, Fall 1985.

2. Starr, P. The Transformation of American Medicine. New York: Basic Books, Inc., 1982, p. X.

3. Shore, M. "On Business and Medicine." New England Journal of Medicine 313(5):319-321, Aug. 1, 1985.

4. Peters, T. A Passion for Excellence. New York: Random House, 1985.

5. Editorial. American Family Physician. 32(3):87-88, Sept. 1985.

6. AMA 94 F.T.C. 701, 1979. aff'd as Modified, 638 F. 2d 443 (2d Cir, 1980), aff'd by an equally divided court, 455 U.S. 676 (1982) (“AMA”)

7. Costillo, B. "Antitrust Enforcement in Health Care." New England Journal of Medicine 313(14):901-4, Oct. 3, 1985.

8. Goldsmith, J. "Death of a Paradigm: The Challenge of Competition." Health Affairs 3(3):5-19, Fall 1984.

9. Drucker, P. Innovation and Entrepreneurship. New York: Harper and Row, 1985, p. 28.

10. Relman, A. "Dealing with Conflicts of lnterest." New England Journal of Medicine 313(12):749, Sept. 19, 1985.

11. Relman, A. "Antitrust Law and the Physician Entrepreneur." New England Journal of Medicine 313(14):884-885, Oct. 3, 1985.

12. Kiser, W. "Physician as Manager: New Role, New Challenges." Physicians' Management 25(special):124-8, Oct. 15, 1985.

13. Alper, P. "The New Language of Hospital Management." New England Journal of Medicine 311(19):1249-1251, Aug. 1, 1985.