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An Int;roduchon to Me New Health Care for Profit Bradford H. Gray With little initial public notice, a vigorous and varied for-profit sector has developed in the predominantly not-for-profit world of medical care. Health services are now being provided by thousands of for-profit organizations that range from large investor-owned hospital and nurs- ing home chains, whose stock has rapidly appreciated on the New York Stock Exchange, to various types of independent medical facil- itiessuch as ambulatory surgery centers, cardiopulmonary testing centers, etc. owned by local investors who often are also physicians. Sometimes the physician-owners generate revenues for the facilities by referring patients for services. Health care has long included a mixture of for-prof~t and not-for- profit activities. The manufacture and marketing of pharmaceuticals and medical equipment have always been predominantly organized on a for-profit basis. The health insurance industry has included both for-profit and not-for-profit organizations. Not-for-profit forms have been more typical of the organizations that provide medical services to patients. This is because of the origins and evolution of the hospital as a charity institution providing care to the poor and not because of any organized social policy decision regarding appropriateness of dif- ~ would like to acknowledge the contribution of Carl Evans to a preliminary paper from which part of this paper was developed and to thank Helen Darling and Karl Yordy for their comments and suggestions on drafts. 1
2 BRADFORD H. GRAY ferent organizational forms. The availability and predictability of rev- enues that came with the rise of large-scale governmental payment for health services has opened up profit-making opportunities that did not previously exist. The rapid growth of for-profit corporations as direct providers of health services represents an appreciable shift on medicine's business side; the new investor-owned health care companies are to the old "doctor's hospitals" what agribusiness is to the family farm. In an earlier era, many communities were served by doctor-owned hospitals, usually in rural America, and the arrangement was open and accepted by custom. Cities more often were served by larger voluntary or public hospitals, but even there physicians' proprietary hospitals were not unheard of. (An interesting and largely unrecognized aspect of the growth of the large proprietary chains in the past decade is that it has apparently decreased the amount of direct physician ownership and entrepreneurial control of hospitals.) Some physicians also have owned pharmacies, laboratories, and radiology units and have en- gaged in specialty referral networks and self-referral. Although largely accepted by the public, some of these practices have from time to time been scrutinized by the profession because they raise concerns about such matters as conflict of interest in patient care decisions. The exact dimensions of the for-profit sector of providers of health services are not known. Rough estimates have put the gross revenues of investor-owned health care industry as high as $40 billion.) Ob- servers of the industry agree that it continues to expand, encouraged in part by federal reimbursement practices under Medicare and by other features of the American health care system that have created, perhaps inadvertently, a highly favorable environment for growth. In 1982 about 10 percent of U.S. hospitals were owned by the for- profit hospital chains, and another 4 percent were managed by those firms.2 Another 5 percent of U.S. hospitals were independently owned proprietary hospitals. The number of hospitals owned or managed by for-profit hospital chains (i.e., those owning at least 3 hospitals) al- most doubled between 1976 and 1982 (from 533 to 1,040 hospitals), a period in which the total number of hospitals in the United States decreased slightly and the number of independently owned for-profit hospitals declined rapidly (many being purchased by the chains).3 Most of the firms that own chains of hospitals (as well as those that own other kinds of health service facilities) were established only in the last 15 years. They have grown by means of the purchase, con- struction, and contract management of institutions and by buying smaller chains. The growing size of the companies has itself attracted
An Introduction to the New Health Care for Profit 3 attention. As one observer graphically described the largest merger to date: The announcement early in 1981 that Hospital Corporation of America had ac- quired Hospital Affiliates International, formerly a property of the Insurance Company of North America, projected a $2 billion corporate giant in the hospital field and caused a flurry of excitement tinged with anxiety in the medical-hospital establishment.... The new corporation would have five percent of all the beds and two percent of all the money, give or take, and that was enough to make a lot of people look around and say, "What's going on here?"4 For-profit organizations are more numerous among other types of health care facilities than among hospitals. More than three-quarters of nursing homes are proprietary,5 and about 40 percent of hemodi- alysis in this country is provided by profit-~naking units.6 For-profit organizations now provide emergency medical services, home care, mobile CAT scanning, cardiopulmonary testing, industrial health screening, rehabilitation counseling, dental care, weight control clin- ~cs, alcohol and drug abuse prograrnLs, comprehensive prepaid HMO programs, and laboratory and related services. An example of the proliferation of specialized for-prof~t health care organization is the existence of a trade association for "urgent care centers," which are estimated to number 500 to 600.7 Gorse analogous changes are also taking place in the not-for-profit health care sector. Not-for-profit health institutions (the survival of which also requires an excess o' revenues over expenses) have var- iously been forming chains, establishing for-profit subsidiaries, selling services to other hospitals for profit, and talking on other attributes of the for-profit enterprises. There has been at least a short-term boom in the activities of attorneys and accountants who advise on reorga- nizing and incorporating various services to maximize revenues and reduce taxes.8 Even the language used today in hospital journals such as "lines of business," "market shares," and "profit centers" would have seemed foreign in the health policy world of only a few years ago. The Changing Health Care 13n~ronment The recent surge in for-profit activity in health care has occurred during a period of rapid growth in national expenditures for health care. However, this environment is changing. Although such expen- ditures will undoubtedly continue to increase, serious efforts are under way, both in government and in the private sector, to constrain this
4 BRADFORD H. GRAY growth. This intensifying squeeze on money for health care, in com- bination with the growing supply of physicians, is heightening com- petition among hospitals, other health care facilities, and physicians for capital and for patients who are adequately insured. This new competitive environment is developing independently of policies and proposals explicitly intended to make health care more competitive, although the adoption of such proposals reinforces the trend. Since this struggle for resources threatens the survival of some institutions and the incomes of physicians, powerful incentives are created for changing past ways of doing business. There has been, for example, a visible increase in attention to such ideas as strategic planning, more aggressive marketing techniques, vertical and hori- zontal integration, improving efficiency, generating new sources of revenues and protecting old ones, and using various other business practices that evince dedication to the generation of profits or sur- pluses, "the bottom line." Many ofthe consequences ofthis competition seem healthy and beneficiale.g., making more efficient use of re- sources. Other consequences may affect the future well-being of such important activities as graduate medical education, research, and care of indigent patients that have been at least partially subsidized through revenues from paying patients. This changing atmosphere may also have important implications regarding the plausibility of the beliefs and assumptions that have given patients the confidence to entrust their well-being to physicians and that have led society to vest control of a vital component part in a relatively autonomous profession. The public and its policies and the medical professionals and their institutions may be quite unprepared for many of these new devel- opments. All social institutions the family, the church, government, medicine exist within a framework of values, beliefs, and assump- tions about the way things are and the way they should be. In rela- tively stable times, dominant values and beliefs may be so consonant with our social institutions as to be almost imperceptible, let alone questioned. But in times of rapid change and stress we become more aware of the consensual footing on which intricate social arrange- ments and trust relationships rest, and perhaps find that old values, beliefs, and assumptions are outmoded. Future government policies regarding health care will be substan- tially affected by assumptions about such matters as the nature of health care and the responsibilities and behavior of medical profes- sionals and institutions. Much health policy has been predicated on beliefs that the physician follows a different ethic than does the busi- nessman and that hospitals have a mission of service that transcends
An Introduction to the New Health Care for Profit 5 at least short-term considerations of profitability. As recently ex- pressed by Paul Starr, The contradiction between professionalism and the rule of the market is long- standing and unavoidable. Medicine and other professions have historically dis- tinguished themselves from business and trade by claiming to be above the market and pure commercialism. In justifying the public's trust, professionals have set higher standards of conduct for themselves than the minimal rules governing the marketplace and maintained that they can be judged under those standards by "ash nthPr trot he 1nvm~n ^ ~ ~ TV ~~,7 MA [The] shift from clients to colleagues in the ori- entation of work, which professionalism demands, represents a clear departure from the normal rule of the market.9 Thus, the growth of the for-profit sector in health care provides a reason to reconsider the assumptions on which so much of our health policy has rested. Professional Autonomy, Trust, and Health Policy Our entire health care system is organized largely to carry out deci- sions made by highly autonomous and independent physicians. Hos- pitals, for example, are organized to respond to physicians' decisions- even implementing them when the physicians are not physically pres- ent. Many aspects of our health care system rest on an assumption that the physician's primary concern is with the needs and care of the patient. Assumptions about motivations e.g., about whether the phy- sician or hospital primarily seeks to provide needed services or to maximize revenues must affect the degree of trust between doctor and patient and between society and the medical profession (including the organizations within which physicians practice). In part because the science and technology of medicine are complex and often chang- ing, nonphysicians have tended to leave to the medical profession such matters as criteria or standards for licensure, certification, curriculum development, quality assurance, and academic or institutional ac- creditation. All of these arrangements reflect high public trust in the medical profession. The strength of this trust arguably will affect all other matters in health care the behavior of medical institutions; the distribution, utilization, and cost of services; future regulatory strategies in health care; and even patient outcomes. Trust can take different forms or have different origins.~° One form of trust is based on perceptions of technical competence. Our wiTling- ness to take medications, undergo total anesthesia, or submit to sur- gery stems largely from trust in the technical competence of the physician, anesthesiologist, or surgeon. A second kind of trust, which
6 BRADFORD H. GRAY also characterizes the doctor-patient relationship and is perhaps nec- essary to it, involves the expectation of fiduciary obligation or re- sponsibility. Not only do we trust the physician's competence, but we also trust that decisions about our care will be based on our needs not on the physician's desire, for example, for additional income. Although the patient who is in pain and distress has a strong and understand- able need to trust the physician, it is easy to see how perceptions of conflict of interest could diminish trust in a physician as one's fidu- ciary. (However, conflict of interest appears less likely to affect our trust in the technical competence of physicians than it is to influence our trust in their fiduciary role; e.g., some people needing hemodialysis in kidney failure might be most comfortable in a center owned by their physician, on the assumption that there would be better quality control in such a center.) As individual persons and as a society, we behave differently ac- cording to our willingness to trust. Some social arrangements rely heavily on trust. Although this has clear benefits in many instances, a trusting party may be vulnerable to abuse. Certain forms of distrust can serve some of the same functions as trust in facilitating social interaction and exchange. Even when conflicting interests are per- ceived by the parties, transactions can occur readily. Typically, how- ever, they will rest on a greater exchange of information, on contractual assurances, on legally defined obligations, and so forth. Distrust forms one basis for imposing governmental or regulatory controls. Second opinions about surgery are mechanisms for dealing with distrust (in both the fiduciary and/or the technical competence sense) of physi- cians. U.S. Food and Drug Administration regulations requiring proof of the safety and efficacy of drugs are mechanisms for the expression of distrust (or, at least, of limited trust) in the technical competence of medical practitioners to decide what drugs to give to patients under what circumstances. Distrust may also lead patients to seek indepen- dent sources of information or to seek help from outside the health care system. The behavior that results from distrust may be seen as desirable or undesirable. Sociological analyses of professions of which medicine was seen as the prototypelong gave prominence to a "collectivity or service orientation" as a basic defining characteristic of professions. The idea was that physicians, notwithstanding their need to make a living, would put t'neir patients' interests before their own. Indeed, this was the image that the medical profession projected of itself. "A profes- sion," stated the American Medical Association's code of ethics in the first half of the twentieth century, "has for its prime object the service
An Introduction to the New Health Care for Profit 7 it can render to humanity; reward or financial gain should be a sub- ordinate consideration."~3 The service ethic is the object of more skepticism today. It has, for example, been described as a "myth created and perpetuated by profes- sionals to enhance their status and to 'silence the critics of monopoly, privilege, and power to which professionals are attempting to cling."'l4 There are indications that a more profit-oriented or businesslike ori- entation has developed among physicians. This orientation takes many forms creating "professional corporations," under the stimulus of tax law changes, for the practice of medicine; moving toward commercial activities, such as advertising, that once were considered unethical; entering into incentive compensation arrangements with medical in- stitutions, such as renting office space from a hospital at a price de- pendent on the volume of hospital business the physician generates; and establishing or working for profit-making entities for provision of health services. The service ethic is regarded by some critics as an empty ideology from which the medical profession, having persuaded society to accept, gains benefits in prestige and autonomy. Such skep- ticism is influencing health policy in such ways as regulatory efforts to change physicians' patient care decisions by modifying the economic incentives to which they are seen as responding. Our dominant medical institutions hospitals have their origins in charity and local government and have long been seen as existing primarily to serve a public interest.~5 Nonprofit hospitals benefited from tax exemptions and had public funds and charitable donations as the primary sources of money for construction. Hospitals were seen by many as following a distinct ethic: "Some business men will say that any institution that is not self-supporting should go out of busi- ness, but the hospital cannot do this, if it is a good hospital. Its ob- ligation to its community is not measured by its net earnings, but by the service it renders, regardless of whether the community pays for such service or not." Today's authors are more likely to emphasize that the hospital should pay attention to its bottom line than to suggest that hospitals should somehow provide services for which no one will pay. After all, an institution that does not attend to its own financial requirements will cease to exist to serve any larger public interest. Earlier in the twentieth century the hospital became the means of organizing and centralizing the technologies needed for the modern physician co practice medicine. However, the relationship between hospitals and physicians is changing. Today, hospitals are increas- ingly defining their own institutional goals, which may include an emphasis on making a revenue surplus or profit, and physicians are
8 BRADFORD H. GRAY increasingly the objects of systematic and well-planned marketing efforts.~7 A marketing strategy may identify both the physicians (and, therefore, the patients) to whom the hospital wants to appeal and the physicians and patients whom the hospital wants to avoid. The re- lationship between hospitals and physicians in terms of both eco- nomic arrangements and institutional governance are in flux as hospitals are reorganized or get new owners. Furthermore, the current move to reimburse hospitals on the basis of prospectively set, per case rates creates new incentives for hospitals to attempt to influence or control physicians' patient care decisions. Thus, there are many reasons to believe that our health care system is moving into a distinctively new phase. The relationship between hospitals and physicians increasingly is being seen in terms of the exercise of power and competition for scarce resources. The primary source of physicians' power is their control of patients deciding what services they need and who should provide those services. A second source of power stems from the increasing willingness of physicians to enter into direct competition with hospitals for certain types of patients a development seen, for example, in the growth of physi- cian-owned ambulatory surgery centers. However, hospitals, partic- ularly those that are part of a chain, are not without their own sources of power in relation to physicians. One is the growing number of physicians, which increases their competitiveness with each other. Another is that the career advancement and authority of a hospital administrator in a chain are to some extent external to the local community and its physicians, although success at the local level will continue to depend substantially on the administrator's ability to work with local physicians and other interested citizens. Implications of the Current Changes in For-Profit Health Care The implications of the trends in for-prof~t enterprise in health care are not yet clear, although they already are very controversial. Some see the trends in for-prof~t enterprise as bringing a degree of ration- ality and discipline to the management of a health care system that has seldom been under rational control or sound management. The profit motive and the operation of markets are seen by many as the most efficient way to define and meet human needs in an environment of scarce resources. Furthermore, bringing in the investor opens a whole new source of capital to an increasingly capital-intensive and capital-hungry enterprise. Convincing arguments can be made that there is no rational justification for traditional assumptions that the nonprofit form is best for the health care system.~9
An Introduction to the New Health Care for Profit 9 Those who are less certain about the benefits of a growing for-profit sector in health care raise several types of concerns. Perhaps the most fundamental are those that question how the growth of for-profit health care corporations will affect the ethos and social responsibilities of the medical profession itself, as Relman argued in his article in The New England Journal of Medicine on the "medical-industrial complex."20 These issues include public perceptions of the medical profession, the importance and determinants of trust in the doctor-patient relation- ship, what it means to be a physician, and arrangements between physicians and the institutions where medical care is provided. The type of relationship between physicians and medical facilities can cause concern about the possibile contamination of the physician's role as it pertains to the patient. One such situation exists when physicians are employees of an organization and are to some extent subject to organizational control. This is an old concern and has always been somewhat troublesome (as in organized medicine's long-standing opposition to the "corporate practice of medicine"), although there has been little experience to date with physicians as employees of investor- owned medical organizations. Another type of problematic relation- ship is physician ownership of facilities (hospitals, nursing homes, radiology centers, and the like) to which they make referrals. The physician with an economic stake in the full utilization of a facility has an apparent conflict of interest when evaluating patients' needs for the type of service that the facility provides. Finally, there are situations in which physicians enter into incentive arrangements with institutions such that the institution rewards the physician for mak- ing patient care decisions that benefit the institution. One example is the practice of leasing office space to physicians at rates that depend on the number of patients the physician admits to the hospital. Other examples are suggested by one consultant's advice to hospitals: Hospitals should consider making technical and financial resources available on a joint venture basis to selected members of their medical staffs to further their professional practices.... The hospital should not be construed as offering its resources in exchange for physician business through formal contracts. It is far better to offer some types of assistance which, if withdrawn, pose some economic risk to the physician, and to let the performance expected under terms of such an agreement remain implicit, though crystal clear.... Hospitals do not need to own or operate their own feeder systems. Through joint ventures With physicians] they can assure the same result sustained hospital utilization.2i A second set of questions pertains to the effects of the growth of for- profit corporations in health care on other parts of the system, par- ticularly medical research, medical education, and health care for the poor. To an extent that has never been adequately assessed or un-
10 BRADFORD H. GRAY derstood, all of these activities have been subsidized by revenues from the provision of services to paying (or insured) patients who were charged more than the services cost. Types of services or patients that can generate a profit under current reimbursement mechanisms are clearly of interest to the new health care corporations, whose purpose is to return those profits to stockholders or to increase the value of their stock. As such services and patients are taken over by for-profit firms, some observers are concerned about what will happen to re- search, education, care for the poor, and institutions that have met these needs in part through subsidization. Although successful for- profit firms will pay taxes, there is no reason to assume such revenue would be used to support these functions. Questions also have been raised about the social responsibilities of health care providers (and the extent to which both for-profit and the not-for-profit providers are meeting such responsibilities) and about the soundness of health care policies that depend to an important extent on hidden subsidization to produce desired social benefits. A final set of questions concerns whether the for-profit institutions are more efficient and less costly. Although some studies have begun to appear22 and more are under way, comparisons of cost and efficiency in for-profit and not-for-profit health care institutions are difficult to interpret without better information than now exists about costs and productivity in hospitals, the comparability of patient populations served by different institutions, and other ways in which institutions differ. The Institute of Medicine Project To begin to address some of these questions, the Institute of Medicine has undertaken an examination of the implications of new arrange- ments and approaches to earning profits from the provision of health services. This collection of papers is the initial product of that effort. They are being published at the beginning of a two-year study that will describe the ways that physicians are becoming engaged in for- profit health care enterprises; will summarize information about the consequences of physician involvement in different forms of for-profit enterprises; will discuss the functions of "profits" and how these func-' tions are met in not-for-profit organizations; will analyze the public policies and economic forces that are contributing to the growth of for-profit enterprise in health care; and will examine professional and ethical issues in conflict-of-interest, professional autonomy, and public trust.
An Introduction to the New Health Care for Profit 11 These papers, which were commissioned as a preliminary step for this study, provide general background for policy studies on the growth and meaning of the for-profit health care sector. The authors of the papers generally have not reached conclusions but have identified and analyzed questions that merit further consideration and have provided information from which such consideration can begin. Although the papers cover a variety of topics, all are related to an important aspect of the trend toward for-profit enterprise, whether expressed in the behavior of organizations or in the behavior of physicians. Three of the papers in this volume are primarily concerned with medical in- stitutions, three are primarily concerned with physicians, and one is on the relationship between physicians and hospitals. The paper by John F. Horty and Daniel M. MuTholland Ill describes the legal differences between for-profit and not-for-profit hospitals. These differences include tax exemptions, reimbursement policies, and available sources of capital. In a discussion of strategies that not-for- profit hospitals are using to overcome certain disadvantages resulting from their present organizational form, the authors see these strat- egies as gradually blurring the differences between not-for-profit and investor-owned hospitals. Richard B. Siegrist, dr.'s paper treats a distinctive feature of inves- tor-owned hospital management companies the fact that their stock is traded on the stock exchange. Siegrist describes the major hospital management firms from the perspective of the investment analysts who follow them. He notes that Wall Street has looked favorably on the hospital management companies, whose stock prices have rapidly appreciated. The analysts cite several major factors as responsible for the performance of these companies, including their access to and use of capital, the stability of their sources of income, the regulatory en- vironment, economies of scale, and management expertise. Siegrist also examines some of the differences among the major companies. Most hospitals that have been acquired in the past by the investor- owned hospital chains have been locally owned proprietary hospitals, but, because of the dwindling number of independent proprietary hos- pitals, future acquisitions increasingly will be voluntary and govern- ment-owned hospitals. The sale of such a hospital to an investor-owned chain can be a cause of concern within both the community and in- stitution, but little information is now available about the nature of those concerns or how the purchasing company responds to them. In her paper, Jessica Townsend describes the findings from her explor- atory case studies of the sale of four hospitals to investor-owned chains. She describes the reactions of people likely to be affected by the sale
12 BRADFORD H. GRAY
An Introduction to the New Health Care for Profit 13 Veatch sees medical codes as evolving toward greater compatibility with these developments. Veatch also examines more fundamental philosophical principles underlying the ethics of medicine and of com- merce and finds that some significant areas of tension continue to exist. One of the concerns about the involvement of physicians in for- profit enterprises, particularly when they are owners or share in prof- its, is that the physician's interest may conflict with the patient's interest. Frances H. Miller's paper analyzes how the law defines and views conflict of interest. She also examines the legal basis of the frequently expressed assertion that the physician has a fiduciary re- sponsibility for the patient. Her analysis suggests that as physicians become more like businessmen they move further from the fiduciary role and possibly create legal situations that will deserve attention. Much of her analysis concerns the elements of the doctor-patient re- lationship that have led to the emergence of the view of the physician as occupying a position of trust. In general, these are not elements that are readily subject to change. Conclusion Although knowledgeable observers agree that the growth of the for- profit sector is a development of major significance, there is as yet little agreement and few facts about the meaning and implications of that growth. Does the development of for-profit medical care represent a change in the goals pursued by medical professionals and institu- tions, or is it only a change in the methods by which the traditional goals of service are pursued? Does the growth in for-profit health care represent a decline in the ideals that morally anchored a powerful profession and facilitated necessary patient trust, or does it embody a more honest acknowledgment of realities that have always been present? Or is it a neutral development? Understanding the meaning and implications of a rapidly devel- oping social change is never easy, particularly when that change, like the emergence of the for-profit health care sector, is taking place in an environment that is itself rapidly changing. Efforts are under way to change methods of paying for care in hopes of gaining better control over health care costs, which are exceeding general rates of inflation and consuming ever larger portions of the nation's wealth. Debate continues about the proper role of government in the health care system, although all levels of government are seeking to reduce their own expenditures for medical care, attempting both to cut costs and
14 BRADFORD H. GRAY to shift costs elsewhere. Great uncertainty is expressed about how projected future capital requirements in health care will be met. New technologies that provide an opportunity for profit, which in some cases may encourage a more entrepreneurial orientation among phy- sicians, continue to emerge from biomedical science. Coalitions of pur- chasers of care are organizing to exert pressures for controlling costs. Health policy is increasingly influenced by the belief in the benefits of greater competition among insurers and providers of health services and greater price sensitivity on the part of patients. The rapidly grow- ing supply of physicians becomes a spur to more competition in health care. Activities of the organized medical professions are increasingly being challenged as restrictive of competition. One of the most interesting aspects of the emergence of the for- profit sector is that, in this era of heavy government involvement in the financing and regulation of health care, no government program or policy set out to create a for-profit sector. Nevertheless, various governmental decisions have helped create an environment in which for-profit health care organizations have been able to compete very successfully. The public policy questions in the 1980s will revolve around the continuation of that environment. Clearly, how best to provide and finance health services has as- sumed an important place on the public agenda. The future of those services will be shaped not only by impersonal economic and demo- graphic forces but also by government policies. Some policies will be aimed specifically at the health care system for example, on Medi- care reimbursement for services or capital costs or on the process of gaining approval to build new health facilities while others may not be intended primarily as health policy for example, accelerated de- preciation allowances intended to stimulate the U.S. economy and that were very helpful to the hospital companies. Ideally, future gov- ernment actions will be based on an understanding of the meaning of the success of for-profit health care organizations and of the changes that are occurring in the medical profession and in medical institu- tions. It is our hope that these papers, and the subsequent Institute of Medicine study, will contribute to that understanding.
An Introduction to the New Health Care for Profit References anct Notes 15 1. Arnold S. Relman, "The New Medical-Industrial Complex," The New England Jour- nal of Medicine 303 (October 23, 1980), pp. 963-970. 2. Figures based on data from the Federation of American Hospitals in their directories for 1982 and 1983 and from the 1982 edition of Hospital Statistics, published by the American Hospital Association. In 1982 investor-owned hospitals comprised approximately 15 percent of U.S. hospitals. Of the 1,045 hospitals that made up this 15 percent, almost two-thirds (668) were owned by "management companies"corporations that own several (by con- vention, at least three) hospitals. Some of these companies also manage hospitals under contract. The growth in the number of hospitals owned by management companies has been substantial, particularly in light of a slight decline in both the number of hospitals in the United States and in the investor-owned sector, as shown below: Independently Owned Investor-Owned Total U.S. Community Proprietary Chain Hospitals Hospitals Hospitals Hospitals 1977 7,099 5,881 584 420 1981 6,933 5,813 not available 586 1982 not available not available 377 668 Between 1977 and 1981 there was a 2 percent decline in the total number of hospitals, a 1 percent decline in the number of community hospitals, and a 40 percent expansion of management-company ownership, followed by another year of substantial growth (14 per- cent) in 1982. Clearly, management-company ownership of hospitals is growing in impor- tance, accounting for 6 percent of all U.S. hospitals in 1977 and almost 10 percent in 1982. The impact of management-company ownership is not equally distributed among states. In 1982,38 percent of management-company-owned hospitals were in 2 states, California and Texas, while 10 states contained no management-company-owned hospitals. Similarly, ownership is unevenly distributed among the management companies with one corporation, Hospital Corporation of America, owning 30 percent (202) of the nation's stock of hospitals owned by mangement corporations. Sixty-nine percent of management corporations' hospital ownership is concentrated in 17 percent (6) of the management com- panies. 3. 1982 Directory: Investor-Owned Hospitals and Hospital Management Companies (Lit- tle Rock, Ark.: Federation of American Hospitals, 1981), p. 9. 4. Robert M. Cunningham, Jr., The Healing Mission and the Business Ethic (Chicago: Pluribus Press, 1982), p. 1. 5. National Center for Health Statistics, The National Nursing Home Survey: 1977 Summary for the United States (Hyattsville, Md.: Public Health Service, 1979), p. 9. 6. Relman, op. cit. 7. This estimate comes from Gary Stevenson, executive director of the National Asso- ciation of Urgent Care Centers, and is quoted in Emily Friedman, "Slicing the Pie Thinner," Hospitals 56 (October 6, 1982), p. 64. 8. See the paper by Horty and Mulholland in this volume for more discussion about corporate restructuring of hospitals. 9. Paul Starr, The Social Transformation of American Medicine (New York: Basic Books, 1983), p.23. 10. Bernard Barber, The Logic and Limits of Trust (New Brunswick, N.J.: Rutgers Uni- versity Press, in press). The following discussion of trust is based on Barber's analysis. 1 1. Ibid.
16 BRADFORD H. GRAY 12. William J. Goode, "Encroachment, Charlatanism, and the Emerging Profession: Psy- chology, Medicine, and Sociology," American Sociological Review 25:6 (1960), pp. 902-914. 13. Principles of Medical Ethics of the American Medical Association. This language was adopted in 1912 and remained in the "Principles" until the 1957 revision. 14. George Ritzer, Working: Conflict and Change, 2d ed. (Englewood Cliffs, N.J.: Prentice- Hall, 1977), p. 51. In this quotation, Ritzer refers to Eliot Freidson's influential critique of earlier sociological analyses of professionalism in The Profession of Medicine (New York: Dodd, Mead, 1970) and quotes from Paul Halmos, Professionalization and Social Change: The Sociological Review Monograph (Keele: University of Keele, 1973), p. 6. 15. See David Rosner, A Once Charitable Enterprise: Hospitals and Health Care in Brook- lyn and New York, 1885-1915 (Cambridge: Cambridge University Press, 1982); Morris J. Vogel, The Invention of the Modern Hospital: Boston 1870-1930 (Chicago: University of Chicago Press, 1980); Paul Starr, The Social Transformation of American Medicine (New York: Basic Books, 1983); Rosemary Stevens, " 'A Poor Sort of Memory': Voluntary Hospitals and Government Before the Depression," Milbank Memorial Fund Quarterly 60 (Fall 1982), pp.551-584. 16. Sister John Gabriel, "The Hospital and the Changing Social Order," in Arthur C. Bachmeyer and Gerhard Hartman, eds. The Hospital in Modern Society (New York: Com- monwealth Fund, 1943), p. l9. 17. Jeff Goldsmith, Can Hospitals Survive? The New Competitive Health Care Market (Homewood, Ill.: Dow Jones-Irwin, 1982), pp.178-180. 18. Victor R. Fuchs, "The Battle for Control of Health Care," Health Affairs 1 (Summer 1982), pp. 5-13; Friedman, op. cit., p. 62. 19. Robert C. Clark, "Does the Non-Profit Form Fit the Hospital Industry?" Harvard Law Review 93 (May 1980), pp.1416-1489. 20. Relman, op. cit. 21. Goldsmith, op. cit. 22. See, for example, Lewin and Associates, Studies in the Comparative Performance of Investor-Owned and Not-For-Profit Hospitals, four volumes, Washington, D.C., Lewin and Associates, 1981.
