A Healthy Bottom Line:
Profits or People?

By Claire Andre and Manuel Velasquez

In Alameda County, a private hospital turned away a woman in labor because the hospital's computer showed that she didn't have insurance. Hours later, her baby was born dead in a county hospital.

In San Bernardino, a hospital surgeon sent a patient who had been stabbed in the heart to a county medical center after examining him and declaring his condition stable. The patient arrived at the county medical center moribund, suffered a cardiac arrest, and died.

These two hospitals shifted these patients to county facilities not for medical reasons, but for economic ones -- the receiving hospitals feared they wouldn't be paid for treating the patient. These patients simply weren't "good business."

With little public warning, a concern for "good business" has moved to the heart of health care, a sector once relatively insulated from the pursuit of profit that drives the rest of the U.S. economy. Throughout our history, medical institutions have largely been "charitable," nonprofit establishments existing primarily to serve the community. But during the past 20 years, the number of for-profit health care facilities, ranging from national hospital chains affiliated with major academic institutions to local dialysis centers, has grown at a rate exceeding even that of the computer industry.

The ethical implications of the growing commercialization of health care have become a matter of heated controversy. Those favoring the trend toward health care for profit claim that an increased role for entrepreneurs and competition in the delivery of health care will result in a more efficient and effective health care system. For others, the pursuit of profit is antithetical to the values central to medicine.

Opposing the commercialization of health care are those who base their arguments on considerations of justice. They argue that a society as wealthy as ours has a moral obligation to meet the basic needs of all of its members. Every American, rich or poor, should have access to the health care he or she needs. The escalating costs of care and a growing unwillingness of insurance companies to cover these costs, along with government budget cutbacks, have severely restricted access to health care for the poor, the aged, and those with catastrophic health problems. The rise of for-profit health care only exacerbates the growing problem of access to care.

Studies show that the growth of for-profits decreases the availability of health care for "unprofitable" patients. Traditionally, non-profits have financed care for the poor by overcharging paying patients to subsidize services for the poor. For-profits, by refusing to serve nonpaying patients while at the same time taking a great share of paying patients, leave non profits with more of the poor to serve but with fewer paying patients to subsidize their care. Furthermore, by serving only profitable patients and offering only profitable services, for profits are able to generate high revenues, which enables them to charge lower prices for their services and to invest in attractive facilities located in areas convenient to paying patients, both of which create substantial competition for non-profits. As a result, it has become increasingly difficult for non-profits to continue to serve those who can't pay.

Opponents of commercialized health care also argue that for-profit health care institutions do not contribute their "fair share" to society. In view of the benefits health care institutions derive from society, it is unfair for them to refuse to help society serve those who can't afford care or are too costly to treat. All hospitals benefit from government subsidized programs like Medicare and Medicaid. They also profit from medical research and medical education paid for by taxpayers' money. In fairness, hospitals have an obligation to serve society's needy. Investor-owned corporations that turn away patients who can't afford to pay fail to discharge this obligation. Moreover, by not taking their fair share of unprofitable patients, for-profits place an undue burden on nonprofit and public hospitals. It's unjust that the costs of serving these patients should fall more heavily on nonprofit institutions.

Further, critics of health care for profit maintain that all persons have a right to live their lives with dignity. Mixing business with medicine will inevitably lead to abuses that violate patient dignity. A patient is in a vulnerable position, necessarily trusting that the doctor's decisions about his or her medical care will be guided solely by the patient's best interests. But in a system of for-profit health care, doctors will become subject to the control of lay managers accountable to share-holders whose primary aim is making a profit. Such hospitals will encourage doctors to promote profit-producing drugs, surgeries, tests and treatments. And, medical treatments and counseling lacking profit potential, however effective, will be discouraged. Even more worrisome are physicians who themselves own the facilities they operate. Doctors owning dialysis centers, for example, have been accused of putting patients on dialysis sooner than necessary and putting off kidney transplants that would eliminate the need for dialysis altogether.

In a system of for-profit health care, the opportunities for patient manipulation and exploitation are endless. Society must not allow the motive of economic gain to enter so directly into the practice of medicine, placing the well-being of patients in serious jeopardy, and undermining the trust so essential to the physician-patient relationship.

It is also argued that commercialized medicine will harm society, yet produce little in the way of benefits. Nonprofit hospitals undertake costly, but needed, research and maintain services which are not economically viable but which provide doctors with the training experiences necessary to medical education. Where profits rule, however, such necessary, but unprofitable, research and services important to medical education will be neglected. Furthermore, as for-profits come to dominate the health care sector, society will suffer a severe shortage of unprofitable, but critical, services, such as emergency rooms. Meanwhile, scarce resources will be squandered to produce and aggressively market lucrative, but unnecessary, services, such as cosmetic surgery.

While for-profits promise to harm society, critics continue, they fail to deliver any of the promised benefits, such as controlling health care expenditures, reducing the costs of care, and lowering the price of care. How will for-profits help control health care expenditures and the overuse of health services when, by definition, they are in the business of increasing total sales? For-profits are also unlikely to reduce the costs of care. Studies show that the rise of investor-owned hospitals has increased rather than lowered costs. Moreover, studies show that the prices charged by for-profit hospitals to paying patients, as well as the per-day expense of providing care, are higher than those of non-profits. The economic benefits promised by for-profits have not been demonstrated.

Finally, some critics of for-profit health care claim that the commercialization of medicine will lead to the abandonment of certain virtues and ideals that are necessary to a moral community. Most non profits continue to uphold an ideal of service to humankind. The virtues of caring, compassion, and charity, and a sense of community have guided their decisions about the range of services to provide and the kinds of research or education to support. The ideal of altruism has been perpetuated by physicians whose primary concern has been the alleviation of human suffering and the restoration of health. Society must not allow such important and fragile virtues and ideals to be extinguished by the self-interest that drives for-profit enterprise.

Those favoring the growing commercialization of health care argue that society ought always to follow that course of action that will bring about the greatest benefits at the least cost. A health care system run by for profits will provide the greatest benefits at the least cost.

First, for-profit health care will lower the costs of care. The amount we spend on health care every year has grown from $75 billion in 1980 to nearly $500 billion today. If this rate continues, by the year 2020, we will be spending 40 cents of every dollar we make on health care. Commercialized health care is our only hope for controlling the soaring costs and over-utilization of health services. Only the businesslike efficiency and the discipline that accompanies the drive to maximize profits can cure the ills of a system plagued by inefficiency and waste.

Under the present system, administrators and physicians have no incentives to operate in a cost-efficient manner. More concerned with institutional prestige than with the bottom line, administrators of nonprofit organizations acquire sophisticated equipment and highly trained personnel, without regard for their need or likely use. Costly technologies are adopted and services added that are only marginally beneficial. Physician's themselves are offered little incentive to concern themselves with the cost of care, and go about ordering treatments that yield little or no benefit. Moreover, the nonprofit health care system is rife with costly, under-used facilities. Cardiac operations are performed in 100 different hospitals. Millions of dollars could be saved if these 15,000 procedures could be done in 30 centers specifically built for that purpose.

As the number of for-profit health care facilities increase, we can expect to see an end to such gross inefficiency. Aiming to maximize profits, for profits will invest only in the equipment and the personnel necessary to provide services that patients actually need. Decisions about what technologies should be adopted will be based on whether the benefits of these technologies outweigh their costs. The entrepreneurial spirit will give rise to innovation in the delivery and management of services, leading to more efficient methods of production and treatment. Doctors will be forced to come to terms with what will really benefit patients, resulting in fewer unnecessary hospitalizations, shorter hospital stays, and fewer needless tests.

Lower costs also can be expected from the economies of scale achieved by for-profit corporations. Unlike nonprofit health care institutions which often operate independently of each other, for-profits are often linked together as chains, allowing for economies in financing and management, and for centralized services and shared equipment, all resulting in lower costs.

Second, society will benefit from the enhanced access to care promised by for-profits. Currently, 37 million people are without the coverage needed to afford care. For-profits can pass on savings they achieve through more cost-efficient operations by lowering the price of care, so more people are able to afford it.

Third, for-profit health care enterprises produce benefits for society because for-profits have greater and quicker access to capital at lower costs than do non-profits. At a time when massive investments of capital are needed to keep up with the state of the art in medicine, non-profits are experiencing increasing difficulty in attracting funding. For-profits, on the other hand, can lure investors by issuing stocks, securing the money sorely needed to build and renovate facilities and to replace and modernize outdated equipment.

Proponents of for-profit enterprise in health care also support their position by maintaining that all persons have a basic right to freedom and thus a right to use their property in ways they freely choose. They argue that owners of for-profits have no special obligation to provide free services to the poor. While public funds may indeed subsidize research and medical education, it is patients and doctors who benefit from this education and research, not the owners of hospitals. If there is any obligation to serve the community in return for such subsidies, it is with patients and doctors that it lies. Nor does the possibility that hospitals have profited from an expanded market for services generated by government-subsidized programs oblige their owners to provide free care to the poor. Defense contractors profit greatly from the business generated by public funds. Yet, they are under no obligation to provide free public services. Nor can it be said that for profits unfairly impose a burden on non-profits by not assuming a fair share of the costs of caring for the poor. For-profits, unlike non-profits, pay taxes, and in doing so, can be said to pay their share in serving the poor through tax-supported public programs. To impose on owners of for profits a social obligation over and above an obligation to pay taxes is to impose an obligation on them that is not imposed on owners of other businesses.

Finally, it is argued, health care is like food, clothing and shelter. Just as these "basic needs" are sold on the market and distributed according to ability to pay, so too should health care. If some cannot afford to pay for such basic needs, it is up to the government or voluntary agencies to see that they secure it.

What is the moral response to the increasing commercialization of health care? The arguments in favor of for-profits appeal to the values we place on the freedom of free enterprise and the economic benefits that may flow from a more efficient health care system. But are we willing to uphold these values at the cost of other important values, including a concern for justice, the dignity of persons and a community-centered ethics that places the needs of people before profits? What is a "healthy" bottom line?

"I swear by Apollo Physician and Asclepius and Hygieia and Panaceia and all the gods and goddesses, making them my witness, that I will fulfill according to my ability and judgment this oath and this covenant...I will apply...(treatment) for the benefit of the sick according to my ability and judgment; I will keep them from harm and injustice." -Hippocratic oath

For further reading:

Bradford H. Cray, ed., For-Profit Enterprise in Health Care (Washington D.C.: National Academy Press, 1986).

Bradford H. Gray, ed., The New Health Care for Profit: Doctors and Hospitals in a Competitive Environment (Washington, D.C.: National Academy Press, 1986).

Arnold S. Relman, M.D. "The New Medical-Industrial Complex," New England Journal of Medicine, Vol. 303 (October 23, 1980), pp. 963-970.

Mark Schlesinger, "The Rise of Proprietary Health Care," Business and Health, Vol. 2 January/February 1985), pp. 7-12.