Medical-Industrial Complex

As editor-in-chief of the New England Journal of Medicine, Arnold S. Relman first defined the new medical-industrial complex of the late 20th century as the rise of the for-profit sector in health care, a dramatic market change that challenges physicians' abilities to best represent their patients' interests. Throughout most of the past century, analysts viewed medical care primarily as a social service, where nonprofit public or private hospitals and private solo medical practitioners provided care. During this time, pharmaceutical and medical equipment manufacturers in the private sector comprised the “old” medical-industrial complex.

However, a specific chain of events unfolded, leading to the creation of a multibillion-dollar industry, including managed care insurance plans and pharmaceutical and biotechnology companies whose profits challenge our notion of an efficient nonprofit health care system. Experts suggest that only through the continued development of a new type of physician executive with the necessary skills to manage the future complexities of the health care system will the medical-industrial complex be able to prioritize its focus on patient care.

Corporate entities first became a presence in the health care system in the late 1960s, as the reimbursement of medical care by Medicare encouraged their entry. Proprietary hospitals, nursing homes, and a variety of outpatient care facilities first comprised these entities. Continuous inflation in the cost of care throughout the late 1970s and early 1980s, though, eventually created concern among public and private third-party payers, leading to varied cost-controlling interventions. The federal government's measures involved diagnosis-related group (DRG) Medicare payments to hospitals and fee schedules for physician reimbursements. Large employers negotiated prepaid contracts with managed care plans that took the risk of controlling costs through health maintenance organizations (HMOs), independent practice associations (IPAs), and preferred provider organizations (PPOs), and the large majority of these were privately owned for-profit corporations. The boldest move yet consisted of the Clinton administration's proposal to completely overhaul the health care system by controlling costs through government-regulated competition among managed care plans. However, the defeat of this plan in 1994 attracted even more private for-profit managed care plans.

Consequently, the fundamental role of physicians in the delivery of health care changed. In this environment of private managed care insurers run by persons responsible to investors, companies essentially “hire physicians” to take care of a certain number of patients on a capitated or negotiated fee-for-service basis. In addition, these contracts typically include financial incentives for physicians to decrease their use of diagnostic tests and to minimize patient hospitalization. This ultimately enables managed care insurers not only to offer competitively low premium prices to employers but also to retain a large portion of the premium to maximize the financial benefit to the investor-owners.

The relationship between payers and providers imposes potential limits on physicians' autonomy to make decisions in the best interest of their patients with respect to their quality of care. Not surprisingly, some physicians formed groups to negotiate collectively [Page 567]with managed care insurers. Recognizing this trend as another profitable entrepreneurial endeavor, many physician practice management (PPM) companies formed for the sole purpose of contracting with physicians to negotiate favorable contracts between the physicians and managed care insurers. Even though the industry of PPMs no longer exists, the nature of the relationship between payers and providers in today's managed care marketplace illustrates how, as opposed to independent professionals, physicians in this corporate type of environment are essentially employees of companies that are in effect practicing medicine.

...