Cite as:
Sade RM. Medicine and Managed Care, Morals and Markets. In Bondeson WB
and Jones JW, ed., The Ethics of Managed Care: Professional Integrity and
Patient Rights. Kluwer Academic Publishers, Boston, 2002, pp 55-74
Medicine and Managed Care, Morals and Markets
Robert M. Sade, M.D.
Professor of Surgery
Director, Institute of Human Values in Health Care
Medical University of South Carolina
Address for correspondence:
Dr. Sade, 96 Jonathan Lucas Street, P.O. Box 250612 Charleston SC 29425; 843-792-5278;
[email protected] ; http://www.values.musc.edu
Key words: managed care, medical ethics, business ethics, health care reform, philosophy of
medicine
1
I. INTRODUCTION
There can be no doubt that the health care system in the United States is in transition. The
cost explosion of the 1970s and 1980s appeared to be contained by managed care as the excesses
of seemingly unrestrained spending was brought to heel by mechanisms designed to manage
excessive spending by controlling the process of health care decision making. Even as political
attempts to standardize health care and control the cost spiral failed in 1993 and 1994, the
efficiencies wrung out of the system by managed care reached their peak. In the last 5 years, it
has become clear that managed care can no longer control health care cost at the same time that it
is under fire politically for its draconian methods. The nation seems to lack both the political
heart for a single payer system and the tolerance for the market solutions we have seen so far.
Although a plethora of views have been expressed concerning the direction health care reform
ought to take, there has lately been a notable paucity of predictions of where it actually will go.
One camp claims market solutions are the surest way to a salutary health care system,
irrespective of ethical claims to the contrary. An opposing camp argues for a standardized,
collective system of some kind in pursuit of both cost control and assurance that everyone will be
cared for. There are as many variations on these themes as there are commentators. It is
uncommon, though, for a commentator to defend simultaneously a professional view of medical
ethics and a free market as both efficient and highly congenial to medical professionalism. I will
present such a position.
My argument is structured in several parts. First, I describe the origins of this country’s
health care financing system, and why it has not achieved the balancing of cost and quality
typical of normal free markets. Then, I argue that the principal end, or goal, of medicine, healing
of the sick, requires that the core moral principle guiding physicians in their professional lives
must be fidelity to the best interest of the patient, requiring effacement of self-interest. I support
the claim that healing is best achieved in a dyadic relationship wherein the physician has
undivided loyalty to the patient’s interests. I use the same analytic method to describe business
ethics, and show that good medical ethics is consistent with good business ethics, properly
understood. I also argue that fidelity to the patient’s interests is best served by a free market.
The moral questions regarding managed care in recent years have been driven in large part
by the massive rise in cost of health care of the 1970’s and 1980’s, and the mechanisms through
which managed care was able to control temporarily the rate of increase in health care costs. I
will therefore begin with a brief review of the setting in which managed care developed.
II. BACKGROUND
The development of health care financing in the United States was driven by policies
responding to transient economic necessities. Those policies became imbedded in the health care
system, and created an atypical market in health care. (Haislmaier, 1989; Goodman and
Musgrave, 1992; Sade, 1994) When the economy was on a war footing in the early 1940’s,
wages and prices were frozen, making it impossible for employers to give employees raises in
salaries. Instead, employers competed in the labor market by providing more benefits, a
substitute for salary. Among these was the benefit of health insurance, made deductible as a
business expense for employers by the Internal Revenue Service. During the labor-management
unrest of the postwar period, the National Labor Relations Board ruled that non-cash benefits,
like health insurance, were legitimate bargaining chips in negotiations between labor and
management. These federal policies set the stage for the employer-based health insurance
system that we have today.
2
In the early 1930’s, Blue Cross was created as a mechanism to insure against the expenses of
hospitalization. Because Blue Cross was exempted from the taxes and reserves required of other
insurance companies, it took the lead in developing the benefit structure of health insurance
policies. Hospitals were reimbursed on a cost plus basis; whatever the hospital spent to care for
patients was reimbursed with a certain percentage added on for profit, capital improvements, and
the like. Blue Shield was founded later to provide insurance against large doctor bills. The
standard that ultimately developed to determine the appropriate level of reimbursement was the
usual, customary, and reasonable charge.
Financial incentives to hospitals and doctors became, perversely, the opposite of incentives
of free markets. Cost plus reimbursement of hospitals assured that the way for hospitals to
increase its income was to increase its costs, not decrease them, as in a normal market. Because
employers have been paying the premiums, employees have pressured them, directly and through
their unions, to increase those benefits by increasing front-end coverage and decreasing
deductibles. That is, the employees who were actually consuming the health care services were,
in large measure, relieved of the responsibility of paying their hospital or doctor bills. Health
insurance became progressively more unlike indemnity insurance; it did not spread risks, but was
used to avoid taxes for minor medical expenses. Health insurance became, in essence,
prepayment for health care. The perverse incentives built into the insurance system had the
effects predicted by economic models: demand increased, encouraging major price inflation.
The economic situation was exacerbated when Medicare and Medicaid, in the mid 1960s,
brought large amounts of new money into a relatively inelastic market (the supply of doctors and
health goods could not respond quickly to changing demand).
The resulting health care price inflation was much greater than general inflation. It generated
legislation and regulations by federal and state governments in attempts to control health care
costs; none changed the disproportionate rate of health care price increases. In the 1980s health
insurance premiums were increasing at what seemed to employers to be an uncontrolled rate.
Managed care was seen as a way to control those escalating costs of health insurance.
The mechanisms used by managed care organizations took many forms, but most successful
was their focus on resource utilization. The National Blue Cross and Blue Shield Association
had added utilization management strategies to its fee for service health plans in the late 1970’s,
but these strategies had limited impact. In the belief that the physicians either consumed or
controlled most expenditures for health care, managed care organizations used financial
incentives to induce physicians to reduce utilization of expensive technologies, hospitalization,
and specialist services. Because of early success in the 1980’s and early 1990’s in controlling
insurance premium costs, employers increasingly chose to purchase for their employees contacts
with managed care organizations. By 1996, 48% of workers reported that their employers
offered only one health insurance plan, often in managed care. When they offered more than one
plan for their employees’ choice, they encouraged enrollment in the managed care option.
(Etheridge et al., 1996)
The current market for financing health care is perverse because the purchasers of health
care, employers, have little incentive to be concerned about quality issues like access to
specialists, access to expensive technologies, choice of physician, and choice of hospital. They
have a great deal of incentive to be concerned about cost. Thus, they tend to choose less
expensive forms of health insurance, even though services that might be important to some
patients are excluded. Their employees, however, are the patients who use health care services,
but as consumers, have few incentives to keep health care costs down. They view health care as
3
a service that has already been prepaid by the employers, to which they are therefore entitled.
This is the central problem in health care financing: when people, acting as consumers of health
care, decide what to buy, they do not have the perception that they are spending their own
money. The incentive, therefore, for most people, is to demand, as if it were an entitlement, a
Rolls-Royce for their health care, and to eschew a Ford or a Camry. This insulation of
employees from payment for health care services when they become patients contributed
substantially to the health care inflation of the last few decades. Unlike most free markets, the
consumers of health care services have had little reason to be prudent buyers. Moreover,
without the constraints imposed by a financially responsible buyer, the physician, acting as the
patient’s agent, was not highly motivated to offer lower cost alternatives to diagnosis and
treatment. Managed care grew from a need to impose just such constraints, but they were
imposed from the outside as an intrusion rather than as a weighing of marginal value to the
patient by the patient, as would occur in a normal market.
Managed care cost control measures that limited access to expensive technologies and to
specialists were initially effective, and the costs of health insurance to employers dropped
dramatically in the early 1990s. Some believed that this drop could not be sustained because
increased efficiencies could squeeze savings out of the system only to a certain point. After that,
pressures to increase costs would reappear as patients demanded, through their employers,
through their legislatures, and through the courts, their previous level of unconstrained access to
the most expensive forms of medical care. This, in fact, happened: after the drop in health
insurance premiums reached its nadir in 1994, it then began to rise, and has continued to rise
since. (Winslow and McGinley, 2001)
The transiently successful attempts by managed care organizations to contain health care
costs have taken a toll on physicians, largely through tensions produced by conflicts of interest.
(Agich and Forster, 2000) A widespread sense of loss of autonomy and authority has resulted
from the controls on resource utilization imposed by managed care. Some of the most effective
controls have been financial incentives to physicians to reduce their recommendations of
expensive care. This has led many to question the viability of professional ethics under managed
care. They believe that the fundamental ethic of physicians, fidelity to the best interests of their
patients, has been undermined, perhaps irretrievably so, by shifting of physician loyalty away
from patients to the third parties who pay the bills or their salaries. A recent survey found that
50% of physicians believe that recent changes in the health care system has reduced patients’
trust in physicians, and 81% believe that those changes have diminished physicians’ commitment
to an ethic of fidelity to the patients’ best interests. (Sulmasy et al., 2000) I will address some of
those concerns in the next section.
III. ETHICS, SOCIETY, AND THE ROLE OF GOVERNMENT
Ethics is a broad discipline that addresses questions of right and wrong and of how human
beings should act. A wide range of ethical theories have been proposed and defended since
ancient times; each tries to establish connections between the way people act and the way they
should act. I will present a particular view of morality and ethics that is not dependent upon
culture, ethnicity, or religion; that is, it is universally appropriate for human beings. This
presentation will be necessarily brief because it is not possible to derive an ethical system from
first principles in the space allotted; detailed defenses have been presented elsewhere. (Kelley,
1998; Rasmussen and Den Uyl, 1991; Sade, 1971) I will show how this view plays out in terms
of medical ethics, business ethics, and the relation between medicine as a profession and
4
managed care. I will show how special features of particular professional groups, physicians and
business executives, impose group-specific hierarchies of ethical principles.
A human being is a living thing, and as such, has certain requirements if life is to be
maintained. He1 must use his intelligence to understand the realities of the world in
which he lives. Whether or not he actually exercises his intelligence, however, is a
matter of choice. That is, we are creatures of ‘volitional consciousness’. Conceptual
awareness in human beings does not come automatically, but requires some necessary
effort to initiate and maintain it. This volitional awareness is the fundamental
distinguishing feature of human beings. Other features are distinguishing as well, such as
tool making, speaking, writing, loving, hating, and the like. But the conceptual capability
makes possible and explains other distinctive features of human beings in a way that no
other feature can. Human beings are, in essence, rational beings. (Rasmussen and Den
Uyl, 1991, pp. 33ff)
Human beings have certain unique potentialities that are capable of being actualized.
Although some potentialities are generic to all human beings, others are unique to the individual.
These potentialities need to be realized in order to sustain the individual’s life. Indeed, the
natural end of a person is to continue to live as a human being. Living rationally is the natural
function or end of human life, and is the standard by which the actions of an individual can be
evaluated.
The goal of living rationally is to achieve happiness, but of a specific sort: “happiness should
not be understood as simply the gratification of desire; rather it is the satisfaction of right desire
– the satisfactions of those desires and wants which will lead to successful human living.”
(Rasmussen and Den Uyl, 1991, p.36) Intelligent living that enables one to select goals, or
values, that will lead to this sort of happiness have been called by some ‘human flourishing’.
This end can be achieved only through the knowledge, action, and choices of individual human
beings. Flourishing is reached through a process of self-actualization, which is possible only
through the choices and actions of the individual, who alone is in a position to weigh the relative
values important for his particular life.
Human beings lack instincts that would lead to automatic action, so guides to action are
needed. These must be based on empirical observations of the needs of human beings and what
actions are required to achieve them. Consciously acting on these principles leads to habits of
mind that makes choosing correctly semiautomatic. We call those habits of mind ‘virtues’; they
include, for example, rationality, honesty, courage, justice, and productiveness. In order to
sustain life, certain goals, or values, must be achieved by each person, including health, wealth,
intellectual pursuits, friendship, and the like. Everyone needs each of these values, but to
different degrees, depending on the circumstances of the individual life. We will shortly turn our
attention to the ways in which generic virtues and values may or may not have special
significance for physicians and for managed care organizations.
Because human beings are also social animals living in communities, flourishing fully
requires friendships and associations of other kinds, as in business or professional life. Still,
each individual must necessarily pursue his own flourishing because he alone can understand his
own values and hierarchically rank them for the purpose of choosing among alternatives that are
right for him.
In a social context, there is a need to protect the moral territory in which personal choices can
be made, in order to protect the possibility of flourishing. (Rasmussen and Den Uyl, 1991, p.
77ff) This need establishes a political and moral requirement for rights. The United States was
5
not founded on custom, language, or tribal practice, but on the principle of individual rights. The
constitutional protection of freedoms of expression, speech, and religion, that is, the freedom to
live one’s life as one sees fit, enabled this country to absorb huge influxes of people of varying
ethnicity, races, religions, and led to history’s most diverse and successful society.
Government is needed to protect its citizens against unjust uses of their persons and property
by others. It is, at the same time, the greatest danger to the freedom of people to act, because of
its monopoly on the legitimate use of force and the potential to abuse that power. The concept of
rights has two functions: first, to provide government with a legitimate basis for establishing law;
second, to limit its power. Laws should protect the sphere of freedom of action; government
should not use its power against innocent persons and their property.
The constitutional protection of rights refers to what have been called negative rights, for
example, rights to be left alone, to make one’s own decisions, to live one’s own life. (Kelley,
1998) Such freedom does not imply that everyone will always be successful or will always make
choices that will bring goals closer. Freedom to make choices implicitly contains the probability
that some choices will be made in error. Later, I will examine the role of error risk in creating
appropriate public policy.
Our constitution did not originally provide for welfare rights, or what might be called
positive rights. Because a right for one person carries with it obligations on the part of others,
positive rights such as the right to a job, to adequate housing, to health care, to a certain standard
of living implicitly place a burden on others to supply those goods and services. If what I have
said so far is true, positive rights illegitimately impose unchosen obligations on others, and
should be rejected. The strongest of the claims to welfare rights have been made for health care
and it is to that claim that I turn my attention now.
IV. MEDICAL ETHICS
I have so far sketched the broad outlines of an ethical system. For purposes of the following
discussion, I will assume that the account I have given is correct: Human beings must pursue
their own flourishing by seeking certain values and developing certain virtues. Government
must protect the right of human beings to act freely, so they can flourish fully in the context of
communities and larger societies. If all men should be honest, rational, faithful in fulfilling their
chosen obligations, respectful of the rights of others, and so forth, how do physicians and
businessmen fit into this model? Are there special considerations that suggest or demand a
certain hierarchy of values and virtues for physicians and businessmen?
Becoming a virtuous person is necessary for anyone who wishes to strive for a good life.
Just as becoming virtuous is intended to reach certain ends and purposes of life, the virtuous
physician needs to attend to the ends of medicine. When an illness strikes, a patient seeks the
help of a physician for the purpose of his healing, to make himself whole. The idea of the goals
of medicine was expressed well by Pellegrino and Thomasma: “The architectonic principle of
medicine is the good of the patient as expressed in a particular right and good healing action.
This is the immediate good end of the clinical encounter. Health, healing, caring, and coping are
all good ends dependent on the more immediate end of a right and good decision.” (1988, p. 117)
Exactly what is the patient’s good? It has many components: biological-medical good; the
patient’s good as he himself understands it; the good of the patient generally, as a human person.
Many physicians pay attention solely or mainly to the first of these, doing what is medically best,
irrespective of the patient’s view of what is best for him. This medical paternalism was
characteristic of traditional medicine until a few decades ago. (Sade, 2001) Virtues specific to
the goal of striving for the patient’s medical good would include, for example, objectivity in
6
developing a scientific base for decision making and conscientiousness in applying technical
skills and scientific knowledge.
But more than science and technique are required of the good physician. Attention must be
paid to the patient’s perception of what is good for himself, as a human being with a life plan,.
including many interests and obligations. The good of the patient, as a human being, requires
that his freedom to make choices regarding his health and his health care be respected, and that
his responsibility for the outcomes be accepted. Pursuing the goal of medicine thus requires, in
addition to science and skill, compassion for the patient’s suffering, benevolence in supporting
the patient’s goals, honesty in informing and disclosing information so the patient can make
informed choices, keeping promises made in trust, and courage to do the right thing for the
patient, even when it is not easy, is uncomfortable, or poses personal risks.
I have spelled out what it means to be a good physician in terms of the ends of medicine but
in what way is medicine different from other professions or callings? Substitute “client” for
patient and I have described what it means to be a good lawyer, or substitute “customer” and I
have described what it means to be a good construction contractor. The critical difference that
sets medicine and physicians apart from other professions and services is the idea of effacement
of self interest in favor of serving primarily the patient interests, or the patients good. As
Pellegrino notes:
[When we become ill,] we are forced to seek help, to invite and authorize a
stranger--the health professional--to probe the secret places of the body, mind,
and soul. Without this scrutiny we cannot be helped. To be sure, lawyers are
permitted access to some intimacy, tax advisors to others, and ministers to still
others. But only the physician may need access to the widest range of secrets
since being ill is not confined to the body. It is a disturbance of the whole lifeworld of the patient. (Pellegrino, 1999)
This special level of intimacy certainly applies to patients’ relations with family physicians
and other generalists, but it also obtains in relations with specialists who spend less time
conversing with patients. For example, the neurosurgeon who knows the patient for only a short
time before removing a brain tumor will have access during the operation to the interior of the
patient’s body at the very time when the patient is completely helpless, under anesthesia. This
vulnerability of the body demands an extraordinarily high level of trust in the physician.
Vulnerability of patients because they lack of knowledge or because of stressful
circumstances of illness has been used frequently as justification for the need of a trust
relationship. Tauber puts the issue in these terms:
Medically unsophisticated, or at least untrained, patients cannot be expected to
fully understand and integrate the vast technical and scientific information
required to make informed clinical decisions. Health care providers attain their
professional standing precisely because they possess this knowledge, on account
of which we authorize them to make decisions for us. This delegation of
authority is the basis of beneficence. (Tauber, 2001)
Authority to make decisions may be delegated to a physician, but does not constitute a
compelling reason for the physician to pursue trust. What is medically best may or may not be
of greatest importance to the patient, though it often is. Many physicians believe that every
patient wants what medical science concludes is best, but that may not be the case. Given an
adequate understanding of the medical facts in conjunction with deeper understanding of the
many other values important to the patient, the patient’s spouse or his minister may be better
7
positioned to make decisions than the physician. What is uniquely required by the good
physician to perform his medical function well is intimate access to the thoughts and body of the
patient. It is this requirement for intimacy that raises fidelity to the patient’s interests to its
premier position in the physician’s hierarchy of virtues.
Healing requires collaboration between patient and physician. If the physician is to be
provided all the critical information needed for care, including intimacies that might not be
revealed to any other human being, and intimate access to the vulnerable body, the patient must
trust that the physician will be acting always in his, the patient’s, best interest. Holding the
patient’s good to be paramount is required to justify the trust that constitutes the heart of the
healing relationship.
Placing patients’ good ahead of self interest does not apply to financial issues only. It also
refers to criticizing others and admitting one’s own errors, even when these may result in
personal as well as financial costs. It may mean placing one’s own health at risk in epidemics. It
could require inconvenience or increasing workload in order to contribute to the care of patients
who cannot pay their bills. It may mean losing valued time with family and friends when
exigencies of patient care demand the physicians’ attendance. (Wynia, 1999)
V. BUSINESS ETHICS
When Pellegrino speaks of medical ethics, he uses the ends of medicine as the standard by
which he establishes a hierarchy of required virtues. (Pellegrino, 1999) When he speaks of
business ethics, however, he uses a description of actual business practices as if they establish an
ethical framework for business. Yet, to be fair, the ethics of business can and should be
examined using the same teleological method as was used to examine the ethics of medicine.
The picture then assumes an entirely different color.
The virtues required of a businessman are the same as for all human beings: honesty, keeping
promises, justice, prudence, wisdom, courage, and so forth. In much of the literature discussing
ethical aspects of managed care, the marketplace is depicted as devoid of ethical behavior, in the
ordinary sense, ruled by the financial bottom line, and governed by the standard of caveat
emptor. This picture is not accurate. An extensive business ethics literature suggests that honesty
and promise-keeping should characterize business interactions, while such behaviors as bluffing
and other forms of deception are considered unacceptable. (Wokutch and Carson, 1994)
It is true that bluffing, other forms of deception, and default on promises are widespread in
business, but this fact does not make them ethical. (Oakley and Lynch, 2000) This might
become clearer with a comparison example from health care; e.g., the widespread violation of
simple rules of confidentiality, such as physicians talking in hallways and elevators within
earshot of uninvolved others about details of a patient’s management. While this practice is
widespread in hospitals, few would argue that it is ethically sound. The same is true of business.
Practice does not determine ethics.
To continue the analysis, I turn my attention to the ends of business: what is the goal of
business, the characteristic that distinguishes it from all other human activities? It is to maximize
owner value over the long term through sales of goods and services. This goal distinguishes
businesses from charities, governments, families, hobbies, and all else. Because it is a human
activity, it is subject to the same principles that guide all of human life. Maximizing long term
value requires confidence in future interactions, and such confidence requires trust. The
nurturing of trust requires several conditions. One condition is what Sternberg has called
‘ordinary decency’, which includes honesty, fairness, and avoidance of violence and coercion.
Another condition is what she calls ‘distributive justice’ (not the same as ideologically driven
8
redistribution of income), which requires that, within an organization, rewards be based on
productivity and job assignments or promotions be based on merit. (Sternberg, 1999) A
businessman can be said to be acting ethically when he maximizes long term owner value under
conditions of ordinary decency and distributive justice.2
Although the principles underlying ethics for businessmen are the same as for others,
business is different from medicine in an important way. Because of the absence of intimacy in
most business transactions, businessmen do not share the distinctive requirement of effacement
of self-interest that characterizes physicians. Serving self-interest by making money is a virtue
for the businessman. His purpose is not to serve the public good directly, though that is a
consequence of his activities. Adam Smith famously made the point in this way:
[An individual in pursuing his own interest] is led by an invisible hand to promote
an end which was no part of his intention. Nor is it always the worse for the
society that it was no part of it. By pursuing his own interest, he frequently
promotes that of the society more effectually than when he really intends to
promote it. I have never known much good done by those who affected to trade
for the public good. (Smith, 1776)
There is an important distinction between a businessman and a business. Businesses are not
persons, though they may be pseudo-persons when they take the form of corporations.
Corporations do not think, have no emotions, and do not choose. People who own, are employed
by, and manage them are moral agents, but the businesses themselves are not. Because
businesses are amoral, they do not bear the rights and responsibilities of individuals. While they
have certain legal responsibilities, as defined by corporate law, they cannot develop virtuous
behavior because they are not living entities. They therefore can morally have no social
responsibilities. In the classic exposition of this notion, Milton Freedman wrote this: “There is
one and only one social responsibility of business--to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of the game, which is to say,
engages in free and open competition, without deception and fraud.” (Friedman, 1962) The
primary responsibility of the corporate executive is to his employers, the owners of the
corporation or stockholders. As a person, the executive has other responsibilities, for example,
to his family, charity, church, county, and so forth. He may make decisions about where to
work, for whom to work, and whether to work, but once he accepts a job, his personal
judgements regarding social responsibilities must take a back seat to serving the interests of his
employers. Their responsibility, in his view, “is to conduct the business in accordance with [his
employers’] desires, which generally will be to be make as much money as possible while
conforming to the basic rules of society, both those embodied in law and those embodied in
ethical custom.” (Friedman, 1970) An exception to this idea is a corporation established for
charitable purposes, which may have goals other than making money.
A number of authors have disputed Freedman’s argument from several different perspectives.
A socially responsible business will, in many cases, have higher profits, according to some.
Others claim that some corporations are so large that the market and laws against fraud and
deception cannot adequately regulate them. And, again, stockholders will fire executives who
consistently pursue altruistic policies, so such policies may actually be driven by the
stockholders themselves. Nunan has argued that case law gives very broad discretion to
corporate executives to decide what is in the best interest of stockholders. (Nunan, 1988) None
of these criticisms hit the mark, however, because they all implicitly accept the idea that business
executives are primarily responsible to make decisions for the benefit of owners.
9
VI. TRUST IN MEDICINE AND BUSINESS
The deceptions, like bluffing, puffing, and spinning, that are widespread in business may be
considered acceptable, on one view, because they are expected and could be considered within
the rules of the game. Even if this were true, however, they would still be unacceptable in the
managed care environment, because of the expectation of honesty in that setting. On this view,
ordinary businesses have not warranted truth-telling, but managed care organizations have, and
are therefore ethically bound to avoid deception and keep their promises. To do otherwise would
result in loss of trust by patients. (Illingworth, 2000)
For reasons discussed earlier, trust is critically important in the healing relationship because
it allows patients to reveal intimate details about their lives, believing that the information will be
used for their benefit. It may reduce the patient’s anxiety at a time of increased vulnerability and
can, in this way, have a therapeutic affect. Because of its potential contributions to both quality
of health care and its expense, trust could well be a feature of managed care organizations that
may be used to competitive advantage in a free market for health care, to attract more
policyholders. Ethically delivered health care is valuable to patients because they want their
personal values to be taken seriously, and, because of deficiencies of medical knowledge, they
need reliable assistance in making decisions. For these reasons, patients will seek a trusting
relationship with care-givers, and will be willing to pay for it. (Engelhardt and Rie, 1992)
Buchanan (2000) makes an important distinction between status trust and merit trust. An
example of status trust is the belief that physicians can be trusted because they belong to a
trustworthy profession. Managed care has been said to have diminished public trust in
physicians because of its use of financial incentives for physicians to deny care to patients. At
issue here is status trust in physicians as members of the medical profession.
Merit trust is established through direct observation or perception of behaviors and
capabilities. Among physicians, technical competence and commitment to the interest of
patients exemplifies the characteristics that can be the basis of merit trust. Primary merit trust in
a physician is based on evidence seen by patients regarding their behavior. Derivative merit trust
comes from a patient’s belief in physicians’ trustworthiness because they belong to or practice
within a certain organization. For example, a physician at XYZ Academic Medical Center may
engender increased trust because of the prestige of the institution they work in. While managed
care may indeed be eroding status trust, it may be making possible a greater role for merit trust:
The institution generating trustworthiness need not be an academic medical center, but could be
a business.
Managed care organizations can facilitate the development of merit trust in physicians within
the organization. It can do so by recognizing the importance of physician advocacy for the
patient and assuming physicians’ non-instrumental commitment to patients’ well being. This
would include eschewing policies that require physicians to engage in bedside rationing.
(Levinsky, 1998) Moreover, organizational policies can reflect an appropriate respect for the
distinctive medical expertise of physicians.
Merit trust in the organization itself can be realized in several ways. First, recognizing that
the care to which policyholders are entitled cannot include every good or service that might be
marginally beneficial, objective procedures for the appropriate use of the organization’s limited
resources would demonstrate serious commitment to fairness. Procedural fairness would also
include clearly delineated policies of non-discrimination on grounds of non-relevant
characteristics, similar treatment of similar medical problems in all policyholders, publicity and
10
easy availability of rules defining rational practices, along with justifications for the rules, and an
accessible and timely procedure for appeals of denial of coverage.
A second method to establish merit trust would be for a managed care organization to
empower all its employees, including physicians, to criticize organizational policies
constructively, and to identify responsible individuals in the organization who must respond to
such criticisms.
When a managed care organization moves toward legitimizing itself as a trustworthy
organization in those ways, a physician then would have a moral obligation to be a critical
cooperator with the organizations policies rather than a saboteur. Sabotage of managed care is
widely practiced now in the form of miscoding or misrepresenting diagnosis and procedures.
(Sade, 2001) These practices are widespread, in part because of physicians’ commitment to the
well being of patients, which has, for many physicians, translated into providing every level of
care that could be even marginally beneficial, disregarding the finitude of resources. (Levinsky,
1998) A managed care organization can legitimize itself in terms of recognizing the special role
of physicians in caring for patients, encouraging them to hold the best interest of their patients as
paramount, providing clear and public procedures for its rationing policies, and empowering all
members of the organizations to voice constructive criticism. In this way, the managed care
organization can earn the trust of its policy holders.
Buchanan suggests that certain public policy initiatives would support a robust competition
for merit trust in managed care organizations. (Buchanan, 2000, p. 206ff) Detailed information
relevant to comparing performance of managed care organizations would be necessary, and such
information is not easily available. Consumers would have to be motivated to seek out such
information, which implies that consumers must have the ability to influence effectively the
decisions of purchasers of health insurance, namely, their employers. I would add that the most
effective way to motivate people to seek information would be to make them prudent buyers of
health services and insurance, through policy reforms mentioned below. Because of the
anomalies of the structure of health care financing in this country, patients have not demanded
detailed information about measures of quality and cost, and their employers, who purchase
insurance, have been far more interested in cost than in quality. Managed care organizations
have been loath to publish information regarding rationing policies, appeals processes and
justifications on the grounds that this information is proprietary, so competitors must not be
allowed access to them. In Buchanan’s view, a public policy requiring all managed care
organizations to publicize their own policies regarding assessment of legitimacy would, at the
least, put all such organizations on the same footing and reduce the need for treating important
information as proprietary.
Under this analysis, merit trust in managed care organizations could comfortably coexist with
primary merit trust in physicians. That is, by competing for business through the pursuit of
legitimacy as an organization, managed care organizations could support, perhaps even enhance,
the ethical obligation of physicians to advise and act primarily in the interest of their patients.
Indeed, organizational and professional trust may reinforce one another in a positive feedback
loop of direct and indirect merit trust, when patients’ trust in the organization increases because
of direct merit trust in their physicians.
VII. WHY A FREE MARKET?
I will briefly discuss how markets work, examine some of the objections to their use in health
care, and explain why they may be strongly supportive of professional ethics. Markets are the
social expression of the central and defining characteristics of human beings: rationality and
11
choice. Human beings have the right and responsibility to identify and pursue the values that are
needed to sustain their lives. In the context of health care, this implies the right to seek health
care, and, in the face of illness, accept or decline medical treatment.3
A market is a place or system for exchange of goods and services; a free market is a system
of voluntary exchange in which people have the right to use resources and to exchange them.
(Epstein, 2000) Trades do not take place in a free market unless the value to the trader of what is
being given is less than the value of what is being received. Thus, in a market transaction, each
party enjoys a net benefit from the exchange.
To operate successfully, a market requires certain rules, publicly enforced, which are
designed to facilitate voluntary trades in order to maximize benefits. In health care, by allowing
individuals to weigh the relative values of the many activities that support health, free markets
facilitate broad access to health care.
In a free market, it is both unnecessary and harmful to attempt to predetermine the value of
things given or received. When an authority mandates the terms of exchange through law or
regulation, it may guess correctly and require goods or services whose value to the individual
exceeds the cost; in that case, it only duplicates what a free market would achieve. When its
guess is wrong, however, which is often if not usually the case, goods or services cost more than
they are worth to the individual and exchange is inhibited, sometimes to the extent that some
participants withdraw from the market. In health care, as noted earlier in this paper, Congress
has mandated certain conditions in order to increase availability and access to health insurance
and health care. As mandated terms within the medical market have increased, the number of
uninsured has also increased. Healthier individuals have left the market, becoming uninsured,
leaving behind the less healthy and thereby increasing insurance rates. The resulting increased
cost and decreased access is exactly the opposite of what Congress intended at the outset.
(Epstein, 2000)
The suitability of a free market for the provision of health care has been attacked on a
number of grounds. Pellegrino has been among the most vocal critics of the market for health
care, so I wwill comment on several of his arguments. He claims that health care, that is, care
provided in "the personal relationship between a health professional and a person seeking help"
cannot be bought and sold because it is not a commodity. (Pellegrino, 1999, p. 247) He
distinguishes health care from all other human activities because the physician has "access to the
widest range of secrets, since being ill is not confined to the body. It is a disturbance to the
whole life-world of the patient . . . [In the healing process,] the assistance of knowledgeable of
health professional is indispensable". (p.248) While admitting that other professional
relationships, such as legal and ministerial services, also involve some degree of intimacy,
medicine is special, in his view, because "the universality, unpredictability, inevitability, and
intimate nature of the assault of illness on our humanity, the impediments it generates to human
flourishing, and the intimate and personal nature of healing give health care a special place even
among the helping professions". (p. 249) If his claim that health care is not a commodity is true,
it is true only for physicians; that is the only case he has made.
The fatal flaw in this position is that it conflates health with health care. They are not the
same thing; indeed, they are only distantly related. Good health can be advanced in many ways:
for example, by proper attention to nutrition and exercise, by driving carefully in safe
automobiles, and by seeking improved living conditions. Moreover, an afternoon spent at a
baseball game or an evening at the opera relieves stress and also may contribute to good health.
(Epstein, 2000, p. 438) Health care may start with the onset of an illness, but supporting or
12
restoring good health does not. When considering economic issues, Pellegrino’s focus is
inappropriately entirely on the illness encounter. The question, however, is not how money
should be spent when sickness strikes, but how should money be spent on all the goods or
services that contribute to good health, including but not limited to health care.
Who should make those microallocation decisions? It should be clear that only the
individual is in a position to make them. The strength of a free market is this: When tradeoffs
between the wide variety of goods needed for a successful life must be made, a free market has a
much more rapid and responsive feedback loop then do centralized or public systems, so is more
likely to produce a better overall outcome. (Epstein, 2000, p. 439) Even if the caring relationship
between physicians and patients is more globally intimate than that of other service professions,
there is no reason to believe that a public system would serve the needs of human beings better
than a free market.
Pellegrino also argues that health care cannot be a commodity because it is not proprietary.
It cannot be propriety because the physician’s knowledge comes from centuries of observations
made by his predecessors, and his knowledge and experience is ethically possible only with
society’s sanction. Students are permitted to do things that are illegal for anyone else (e.g.,
anatomic dissections, invasive procedures), only with the permission of society. (Pellegrino,
1999, p. 249) He makes the case for an implicit covenant between physicians and society that
requires physicians to use their knowledge for the benefit of the sick and not for personal gain.
He does not indicate, however, why such covenants are not implied for lawyers, accountants,
ministers, and other service professionals who are similarly privileged during their training in
their own arenas. His position implies that physician somehow have fewer rights to pursue their
own ends and fewer constitutional protections of their freedom to manage their own lives than do
other service professionals. I argued above that the first professional obligation of physician
must be to serve the interests of their patients while effacing their own self-interest. It is this
virtue of physicians, not a vaporous covenant with society, that makes them "healers first, and
money makers second." (p. 251)
In criticizing business ethics as incompatible with professional ethics, Pellegrino
mischaracterizes commercial relationships. He cites Friedman’s classic argument that the aim of
business is to maximize profits to investors (p. 253) but leaves out the closing modifiers: "[the
purpose of a business generally] is to make as much money as possible while conforming to the
basic rules of the society, both those imbedded in law and those imbedded in ethical custom
[emphasis mine]." (Friedman, 1970, p. 1) It is good business to behave ethically, which, in the
case of a physician, is to place the patients best interest as paramount, and in the case of the
managed care organization, is to merit the trust of policyholders through legitimate business
practices, as noted in the previous section.
Another common criticism of markets is that "there is no room in a free market for the nonplayer, the person who can't ‘buy in’ -- the poor, the uninsured, the uninsurable." (Pellegrino, p.
253) The charge that markets are harsh and unempathic can be true only if markets are defined
in a way that excludes charitable activity. A good deal of charitable care was provided to the
medically indigent before massive social intervention in health care began 35 years ago, and is
still found today among most physicians (75%) (Cunningham et al., 1999) and hospitals.
(Cunningham and Tu, 1997) Can charity satisfy every medical need? Certainly not, but that
question is not relevant to the realities of health care. No system can meet every medical need
because resources are never unlimited. An important difficulty of a non-market or social
approach to health care is that no standard is available to validate its outcomes. It is not enough
13
to point to the errors and omissions of a free market; supporters of socialization of health care
must show that the error and omission rates of public systems are lower, and they have not done
this. When the focus is on illness and repair of disease, as it is for most public commentators on
health care reform, the tendencies are to over-commit resources to crisis medical intervention.
Every system will make errors, but there is nothing to suggest to that collective decision making
will have a lower error rate than decisions made for themselves by individuals. (Epstein, 2000, p.
440)
An important assumption underlying the argument for public provision of health care is that
public institutions will behave beneficently and wisely. The political process is far from wise
and benevolent. Self-interest corrupts politicians even more readily than it does businessmen. (p.
438) Public choice theory has proved a powerful predictor of policy making outcomes. It posits
that everyone in a political system is self-interested and uses whatever power they have in the
system to advanced their own goals or those of persons close to them. It is often the case that
public policy resulting from collective decision making does not serve the interests of the group
as a whole. Adverse outcomes can be limited when strong constitutional guidelines limit the
choices available to decision-makers. The manifold deficiencies of political decision making
have recently been thoroughly documented. (McChesney, 1997)
VIII. CONCLUSION
A free market in health can be expected to do what markets in general are known to do:
satisfy individuals’ needs and preferences imperfectly, but more effectively and efficiently than
any other system can. A market cannot function well when the consumer feels little financial
responsibility for the costs of the choices he makes. Our dysfunctional market has seriously
damaged health care; it developed because long outdated policies have driven health care
financing. Although it would ameliorate many of the persistent problems in health care, a free
market in health care seems unlikely to be achieved easily in our current political climate. Not
only are the issues highly polarized, but the electorate seems not interested in major change:
Only 16% of voters in the 2000 presidential election placed health care among the top two
national problems. (Blendon et al., 2001)
This is not the place for an expansive discussion of health care reform. I will only point out
that modifications of the tax code and of laws and regulations governing health care, health care
financing, and health insurance in incremental steps, are already on the table in Washington. The
most promising of these include tax credits for health insurance (Blevins, 1997), medical savings
accounts for small medical bills, and repealing a variety of insurance mandates. (Goodman and
Musgrave, 1992) Reforms like these will restore financial responsibility to consumers of health
care and encourage people to be prudent buyers in the health care market. They will also remove
barriers to creation of a wide variety of insurance plans of different coverages and premium
prices that could match individual needs and preferences to prices. This in turn would lower
costs and increase access to health care. Many of these reforms have been endorsed by the
American Medical Association. (Dickey and McMenamin, 1999)
The physician-patient trust relationship is central to health care. It requires the physician’s
commitment primarily to the patient’s interests; yet, patients do not comprise the sole obligation
of physicians. They have responsibilities also to family, profession, professional organizations,
community, and so forth. The physician is able to focus most clearly on the patient’s best
interests in a professional setting when there is a dyadic relationship, with external interests
minimized. This relationship is most likely to be successful when a minimum of rules and
regulations govern that relationship, and when the patient can freely choose the physician and to
14
leave the relationship if dissatisfied. These conditions are most likely to be present in a system
in which transactions are voluntary, and there is maximum freedom of movement within it. Free
markets provide such conditions.
A managed care organization functioning in a free market in which the patient, as consumer,
is free to choose among all available plans or options is not incompatible with the view of
professional virtue ethics I have presented. This assumes that the managed care organization
pursues legitimacy through appropriate organizational policies, as described above, because in
such an organization, the dyadic healing relationship between physician and patient will be
respected.
Other systems of health care raise the probability that loyalties to external payers or
policymakers will distract the physician from his primary concern for patients. For example, in
military medicine, physicians have a competing obligation to the military mission. In prison
medicine, the physician has competing obligations to the correctional system. In any centralized
system, such as a national health service, coercive control of decision making by public rules and
regulations will seriously disrupt the patient’s valuation of health care choices in the context of
the many other value choices he must make to maintain his health and a flourishing life. Thus,
while the professional ethics of physicians can survive under a variety of systems of health care
delivery, it is most likely to thrive in a free market system.
15
ACKNOWLEDGEMENTS
I am grateful for much helpful criticism of this manuscript by Michael Gill, PhD, Karine
Morin, LLM, and Ellsworth Oakley, JD
16
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NOTES
1 When the third person singular pronoun is required, I will use the generic ‘he’ for simplicity,
recognizing that gender related ‘he’ and ‘she’ would be equally appropriate.
2 Interestingly, The profitability of virtue ethics, as contrasted with their moral value, was first
clearly and explicitly pointed out by P.T. Barnum. In several works, written after his early
business experiences (based mostly on various business deceptions), he identified cheating,
fraud, and deception not so much as immoral but as stupid, from a business point of view. For
example, he wrote that integrity and honesty make good business sense because “no man can be
dishonest with soon being found out, and when his lack of principle is discovered, nearly every
avenue to success is closed against him forever.” He also said, “Men who drive sharp bargains
with their customers, acting as if they will never expect to see them again, will not be mistaken.”
(Mueller, 2001)
3 It does not imply the right to be provided health care as an entitlement. See Sade, 1971
19