Correspondence
For-Profit Health Plans
N Engl J Med 1996; 335:434-438August 8, 1996
- Article
To the Editor:
Dr. Hasan's statements in his Sounding Board article, “Let's End the Nonprofit Charade” (April 18 issue),1 provide a disturbing if eloquent example of the mind-set of corporate leaders in the for-profit sector of the American health care industry. Indeed, he formulates the very philosophy for the hostile takeover of nonprofit medical institutions they apparently envision. In doing so, he reveals a blatant belief in the healing powers of the market that goes beyond anything Adam Smith ever meant to convey to his disciples. But behind Dr. Hasan's self-apologetic portrayal of profit-oriented health care organizations we discern not the invisible hand that — according to the Scottish philosopher — peacefully and indirectly regulates the socioeconomic affairs of humankind, but rather the all too visible hand of corporate industry placing its forceful grip around the largest and most profitable market ever developed: the industry of medicine.
Dr. Hasan and his friends are not out to help others try to save money wasted in inefficient medical projects, as pretended in the pseudophilanthropic sections of the article; they are out to make money with efficient medical enterprises. That is all very well, although Dr. Hasan could have made this point clear in less space than the six columns consumed by his article. The problem with a fully privatized and purely for-profit medical system is, however, that it will ultimately create a pyramid of medical care modeled after the pyramid of income distribution. And although some of the people at the upper levels of the pyramid may find this concept appealing, it offers little promise for those at the bottom. It is for this very reason that no civilized nation has chosen to open medicine to the socially disruptive forces of full-scale capitalist competition. The indisputably imperfect aspects of the socialized and semisocialized sectors of the American health care system do need radical reform, but to abandon the system altogether will prove a mistake no less fatal than to trust the dubious social promises Dr. Hasan makes at the end of his revealing article.
1 ReferencesSebastian R. Fetscher, M.D.
Freiburg University Medical Center, 79106 Freiburg, Germany1
Hasan MM . Let's end the nonprofit charade. N Engl J Med 1996;334:1055-1057
Full Text | Web of Science | Medline
To the Editor:
Dr. Hasan is utopian in his belief about the ability of the market to allocate health care resources well. There are many reasons why the market does not work for health care: consumers are not well-informed choosers of health insurance, nor are they adequately informed choosers of health services when they are sick; insurance creates moral hazard at the time dollars are spent, and sick persons typically want more services than they thought they would when they bought insurance; employers, rather than individual subscribers, act as purchasers, so insurance plans are accountable to them and not to individual subscribers. Also, the market clearly does not provide universal access to health care. Dr. Hasan would leave that job, all research, and the education of future health professionals to the not-for-profit organizations, thus ensuring that trainees' learning would be limited to the indigent and the experimental.
If competition is to ensure the survival of only the best health plans, let individual subscribers (not employers) choose among several alternatives, after receiving information about medical loss ratios, the quality of care provided (according to reliable measures), the plan's record in dealing with complaints and appeals, the involvement of plan members in decision making, the plan's openness about the limits placed on receiving care, the way rationing decisions are made, and the amount of charity care or public health services it provides. . . .
Susan Dorr Goold, M.D.
University of Michigan, Ann Arbor, MI 48109To the Editor:
Dr. Hasan fails to mention that the market is likely to resolve all outstanding health care issues to the satisfaction of Dr. Hasan and his company but hardly to the satisfaction of the overwhelming majority of the American people. Do we want health care from the lowest bidder? We all know that competitive pricing in a free market often leads to cheaper products. Was it not free-market competitive pricing that led the auto industry to produce the Vega and the Chevette — cars for those who could not afford better? Does Dr. Hasan also believe that the problems of crime and arson in this country should be resolved by turning police and fire departments over to the free market? In that way such problems could be effectively dealt with (at competitive prices) in neighborhoods where it would be most profitable. As for the remaining neighborhoods, eventually there is not much left to steal anyway, and fires do ultimately go out of their own accord. . . .
In my opinion the 19th-century approach to the health care crisis that is currently in vogue in America and embodied in Dr. Hasan's beliefs will cause sufficient outrage among patients, whose access to medical care is being stifled; physicians, whose ability to practice medicine is being restricted; and the general public, who will soon learn where all the “savings” have actually gone, to force a responsible government to reconsider instituting a controlled, single-payer system.
David Shander, M.D.
2000 East 12th Ave., No. 36, Denver, CO 80206To the Editor:
In Dr. Hasan's unbridled paean to medical capitalism, his argument is undermined by his failure to appreciate the inherent unfairness of the structure he proposes as regards the health care needs of the poor and the financing of medical education and research. With respect to those issues, he also contradicts the essence of his vision of the structure of our health care system.
Dr. Hasan states, “The tax advantages, financing, and governance structure of nonprofit plans are not well suited to the current environment and should be eliminated.” In addition, he believes a market-based system “represents the only viable alternative to a government-run health care delivery system.” In reality, however, he is not in favor of the total elimination of the nonprofit system or of government involvement. “The appropriate role for nonprofit institutions includes, at a minimum, the provision of care for the indigent, [and] medical education. . . . Academic medical centers are appropriately supported by public funds so that they can carry out their vital missions of educating new physicians. . . . and conducting research.” In other words, allow the for-profit companies to make as much money as is possible from their consumers while not burdening them with the unpleasantness of taking care of people with little or no money, and let public funds and money from the privatization of existing nonprofit plans support the training of physicians who will then deliver the investors' product on completion of their training. Dr. Hasan does not mention any contribution to the care of the poor, education, and research from companies like his own.
Dr. Hasan's self-contradiction is based on the fact that he does not truly believe that “there is no longer a role for nonprofit health plans in the new health care environment.” He still wants them, funded by the public and shunted into a dark corner apparently apart from the new health care environment, to attend to the matters that would be detrimental to the profits of his and other investor-owned companies, such as the care of the poor, education, and research. Nowhere in his essay does Dr. Hasan hint that medicine is something other than a business to be judged by the same standards that dictate the marketing of cars or toothpaste. He does not seem bothered that we alone among all industrialized nations are not willing to demand that a humane, ethical health care system should provide all persons with equal access to safe, effective, and convenient medical care. What is already a two-tiered system will probably become even more inequitable if Dr. Hasan's vision is realized.
Mark Joy, M.D.
St. Vincent's Hospital and Medical Center, New York, NY 10011To the Editor:
All businesses need to have surplus cash in order to function. The issue is not that for-profit institutions generate extra cash at the end of the line but what they do with it. The real difference between for-profit and not-for-profit systems is not in the issue of profit but in the values and attitudes that underlie the systems. What bothers me, and I suspect many others, is that the money generated by the efficiencies derived by competition in the for-profit arena is earmarked for the shareholders' bank accounts, not for the improved access and care of the population served. I do not believe the public good or our patients are served by systems whose driving force is maximization of shareholder profit at the expense of the patients and providers. Market forces have given us not only the benefits of competition and cost-effective production but also, uncontrolled and left on their own, the negatives of defective products, dangerous practices such as child labor, and severe occupational hazards such as black lung. . . .
Leon D. Goldman, M.D.
Beth Israel Hospital, Boston, MA 02215To the Editor:
Purchasers of health care plans are quite candid in admitting that their individual choices are driven by price, with quality a secondary consideration.1 The market rewards plans such as U.S. Healthcare with high stock prices and a profitable merger in exchange for keeping medical loss ratios below 70 percent. Not only are these same plans unlikely to excel by coincidence in demonstrating high levels of attention over time to the chronically ill, for example, but also every financial incentive militates against it.
The debate about for-profit and nonprofit health plans errs in attempting to explain the performance of individual health plans on the basis of their tax status. Although there are important differences, they are becoming almost imperceptible to consumers.2 Far more determinative are the unrestrained market incentives that affect them both. The result for physicians is loss of autonomy, and for consumers loss of quality and access.
We will be able to judge among plans only when all of them are held accountable to national standards of access to necessary care and necessary providers, through impartial grievance procedures when care is denied, full and understandable disclosure of information about the plans, and meaningful quality-improvement programs that involve consumers and providers. Community rating and standardized risk-adjusted premiums would further mitigate differences in price and allow comparisons based on quality.
In the fashion of economists, Dr. Hasan assumes legislation establishing national accountability (and also universal coverage) into being, just as he assumes the arrival of high-quality health care. Meanwhile, his trade association opposes accountability legislation at every turn.
Consumers and providers are leading the effort to enact national legislation to hold health plans accountable. Responsible health plans should join in this effort.
2 ReferencesEllen R. Shaffer, M.P.H.
Coalition for Health Care Choice and Accountability, Silver Spring, MD 20901To the Editor:
It seems to us that for-profit organizations and their subscribers have just as much to gain from medical research (both clinical and basic) and a continuing supply of well-trained physicians as those in the nonprofit sector. Therefore, the for-profit sector has an equal obligation to support medical research and teaching. Manufacturers of pharmaceuticals and medical devices spend enormous amounts on research. If these for-profit organizations support research, why should for-profit providers of medical care not support clinical research? Governmental support of research has not kept pace with the costs of research. If the citizens of this country want to reap the benefits of medical research, they must pay for the costs of the research in one way or another. Likewise, a continuing supply of well-trained physicians benefits all citizens. Therefore, the costs of training physicians should be distributed equitably among all.
If Dr. Hasan's statement that “the appropriate role for nonprofit institutions includes, at a minimum, the provision of care for the indigent, medical education, and the development of certain experimental procedures” means that he believes that for-profit organizations should cede control of these aspects of medical care to the nonprofit sector, that may be a reasonable assumption. Perhaps the solution is to impose a tariff on the for-profit organizations to help support care for the indigent, research, and teaching.
Alfred E. Buxton, M.D.
Temple University School of Medicine, Philadelphia, PA 19140Mark E. Josephson, M.D.
Harvard Medical School, Boston, MA 02115To the Editor:
I was taught never to forget the distinction between a consumer (a statistical construct) and a patient (a human being). Sadly, I must agree with Dr. Hasan's conclusion that “the second half of the 1990s will become known as the era of the consumer in health care.” This change is already reflected in his language: he mentions consumers 18 times but mentions patients only 5 times (I exclude 2 mentions of “patients and employers”).
The health care system evolved to meet the needs of patients. The health care industry strives to meet the needs of consumers. I hope and pray that when Dr. Hasan and the rest of us need health care, we can still find physicians who have the desire and the freedom to treat patients.
Jeffrey Soulen, M.D.
6525 N. Charles St., Baltimore, MD 21204-6829To the Editor:
Dr. Hasan's article is an excellent example of argument by assertion,1 but where is the proof ? No proof is offered that “investor-owned plans have proved their capacity to respond to the demands of patients and employers” or that “the winners in the growth of investor-owned plans have been consumers, employers, and the government. The losers have been providers and nonprofit organizations.” To the contrary, this has not been the experience of an increasing number of people who have become inadvertent participants in managed care by for-profit entities on Long Island during the past year. In my own practice, a sizable proportion of my patients now consider themselves captive participants of health plans negotiated by their employers and large for-profit insurance entities in which their opinions have not been considered. Shrinking freedom of choice in establishing and maintaining patient–doctor relationships and increasing problems necessitating repeated telephone calls to bureaucratic nonmedical intermediates are common complaints. . . .
1 ReferencesRichard Bronson, M.D.
27 Beattie Ct., Lloyd Harbor, NY 11743To the Editor:
Nowhere in his presentation does Dr. Hasan address the ethical and moral dimensions of investor-owned health maintenance organizations or the way in which a health care system driven by profit will achieve universal health coverage. Although the ill-conceived Clinton health care plan was based on similar investor-owned health maintenance organizations, it at least paid lip service to an ultimate goal of universal coverage. The latter objective no longer appears to be even a consideration.
There is ample reason to consider the ethical and moral dimensions of a system left to the not-so-tender mercies of the stock market, particularly in view of the fact that a number of states have legitimized the practice of skimming a profit from the poorest and sickest in our society, those covered by Medicaid.
Why is it that most economically developed countries can provide universal health care coverage while we cannot? Can it be because they consider a competitive, for-profit market system inappropriate for the delivery of such social goods as police and fire protection, education, and health care?
Herman T. Blumenthal, Ph.D., M.D.
St. Louis University Medical Center, St. Louis, MO 63104To the Editor:
As a physician for 42 years with the nation's largest nonprofit health maintenance organization, the Kaiser Permanente Medical Care Program, I was annoyed and amused by Dr. Hasan's premature attempt to write Kaiser's obituary. Many Hasan clones have predicted Kaiser's demise, but in 1996, with a healthy balance sheet and over 6.5 million members, it is hardly moribund.
Although Dr. Hasan makes valid points, he misdiagnosed a minor illness as a fatal one. For more than 50 years, facing a fee-for-service system with no cost controls, Kaiser could be inefficient yet dominate the California market. This situation may have led to complacency; the program may have made management mistakes and may not have paid enough attention to service and accessibility. But it fostered trust and mutual dependence between our health plan administrators and our medical-group physicians, and it developed a large, loyal membership by providing high-quality health care at reasonable cost. Ninety-five percent of dues are returned to subscribers as benefits. As noted by Nudelman and Andrews,1 nonprofit health maintenance organizations have a greater commitment to preventive care, community service, and building partnerships than for-profit organizations do. Dr. Hasan faults the former not for quality of care but for failing to use enough brokers and advertising. . . .
Faced with fierce competition from for-profit organizations, nonprofits are quickly learning to control costs and improve efficiency while keeping their commitments to members and providers. An informed public may ultimately prefer a revitalized Main Street to Dr. Hasan's Wall Street.
1 ReferencesEdgar J. Schoen, M.D.
Kaiser Permanente Medical Care Program, Oakland, CA 94611-56931
Nudelman PM ,Andrews LM . The “value added“ of not-for-profit health plans. N Engl J Med 1996;334:1057-1059
Full Text | Web of Science | Medline
To the Editor:
The reforms to which Dr. Hasan alludes can be as readily funded from the excessive profits of investors and the bloated compensation packages of the for-profit plan administrators, both of which already consume an unfair share of a limited health care budget. Efficiencies in health care delivery were pioneered by nonprofit plans. These groups continue to lead in this aspect of care. The for-profit path could eventually result in the need for another rescue reminiscent of the savings-and-loan bailout.
David Kaufman, M.D.
Northeast Permanente Medical Group, Northampton, MA 01060Author/Editor Response
Dr. Hasan replies:
To the Editor: Some of the disappointing responses to my Sounding Board article reveal the writers' phony idealism, confusion, and sophistry. For example, I am not sure that Dr. Joy fully understands the important distinction between nonprofit health plans and not-for-profit institutions. Nonprofit and for-profit health plans are indistinguishable in their service and delivery operations, except that nonprofit health plans call profits surplus. Not-for-profit institutions, however, usually perform a unique function, fulfilling a social need not being met by the private sector or government. Commercial activity is a small fraction of their overall activity.
I share Dr. Fetscher's concern about the care of those at the bottom of the medical care pyramid. However, is he aware that nonprofit health plans have done nothing to prevent or redress these inadequacies? Solutions to these problems lie in the nation's will and priorities and in legislation.
Do Dr. Kaufman and others realize that in 1995, for-profit plans paid $950 million in income taxes and that most income was reinvested in the plans? The total dividends paid out to shareholders in 1995 were $178 million, a puny amount as compared with the market value of the publicly traded plans of more than $40 billion. Dr. Kaufman also ignores the fact that health plan executives' “bloated compensation packages” are taxed at a rate of 40 to 50 percent.
I disagree with Dr. Schoen's assertion that Kaiser's medical loss ratio of 95 percent reflects better care. My company, Health Systems International, acquired six plans in financial distress because their medical loss ratios exceeded 100 percent. Members and providers in these plans were unhappy because claims could not be paid. Is Dr. Schoen suggesting that these six plans were superior to Kaiser since they paid out more than Kaiser? The satisfaction of enrollees is the crucial element.
Another myth promulgated by advocates of nonprofit health plans is that these plans somehow pay more attention to preventive care than for-profit plans. In fact, preventive care is not an issue related to the type of organization, but rather one concerning well-run as opposed to poorly run plans.
In my article, I suggested a possible solution to the well-warranted concern of Drs. Buxton and Josephson about the survival of academic medical centers. I proposed that education and research be supported by the nonprofit sector. Substantial funds for these functions could be made available through the privatization of existing nonprofit health plans. On the basis of calculations by an investment firm, more than $92 billion could be made available nationally through this process.
Regarding the social mission supposedly performed by nonprofit health plans, I propose the creation of a national fund to cover the indigent and underinsured. Funds given by the for-profit health plans would equal the amount currently spent by nonprofit health plans on indigent care and the for-profit plans' current income taxes. Similarly, nonprofit health plans would contribute what they would pay in taxes.
Finally, it is profoundly false that shareholders' interests diverge from those of patients of for-profit plans. Are the interests of the shareholders of airline and drug companies or car and computer manufacturers at odds with the interests of the companies' consumers? The interests of the shareholders are best served by companies' providing high-quality services and building strong franchises.
Malik M. Hasan, M.D.
Health Systems International, Pueblo, CO 81003
