Medicine as industry: the health-care sector in the United States

In the past 30 years, few sectors of the U.S. economy have escaped the periodic ravages of recession. The health-care industry is a notable exception. Since 1950 hospitals and other health-related enterprises have experienced uninterrupted, indeed meteoric, expansion. Between 1950 and 1982 national health expenditures increased more than 25-fold, reaching $322 billion per year, and the proportion of the GNP accounted for by the health sector increased from 4.4 to 10.5 percent. During the 1970s health-care employment increased from 4.2 to 7.5 million workers, accounting for one seventh of all new jobs in the United States. Moreover, these trends continued through the recession of the early 1980s, with health expenditures rising 17 percent in 1982, despite a growing clamor for cost control. The fast pace of hospital expansion is indicated by the fact that in 1980 the average age of hospital capital assets stood at an all time low of 7 years, as compared to 15 years for the service sector as a whole and 23 years for capital in manufacturing industries.

Strikingly, the conquest of the main killers of the young (infectious diseases) was largely complete in the United States by the time the health-care sector began its explosive growth, and was clearly due to improvements in the standard of living and public health measures rather than curative medicine. The spectacular expansion of health facilities which occurred after the era of the main advances in life expectancy has been accompanied by massive government spending on curative medical care, a singular neglect of public health and preventive measures (which currently account for less than 3 percent of health expenditures), and very modest improvements in health. Moreover, many Americans lack access to the most basic medical services. The United States shares with South Africa the dubious distinction of being the only developed countries without universal health insurance. Despite the widely heralded Medicaid and Medicare programs, 25 million Americans lack health insurance of any kind, 40 percent of infants and toddlers are not fully vaccinated, and the elderly now spend as large a proportion of their incomes for health care as they did before the passage of Medicare. The paradox of vast increases in health care resources which are funded largely by the government yet fail to provide the services most critical to the improvement of health puzzles bourgeois health-policy analysts. An understanding of the role of health care in the accumulation of capital can help to unravel this mystery, forecast future trends, and focus the work of the left in this field.

Health Care and Capital Accumulation

Health care facilitates capital accumulation in three ways. First, many illnesses which sap the productivity of labor can be cured or ameliorated. To quote a nineteenth-century president of Harvard University: "The objective of research in medicine is to prevent industrial losses due to sickness and untimely death among men and domestic animals." Second, medicine is an important ideological prop for the ruling class in the maintenance of the domestic tranquility and social stability needed for production and profit. Since Bismarck's introduction of health insurance for workers in 1883, health care has been used by the ruling class to cushion some of the most savage aspects of capitalist industrialization and forestall more radical working-class demands. Finally, the medical care industry has itself become an important field for investment and source of profit.

While the first two of these roles for health care have a long history, the last is more recent and has become the driving force in health-care expansion. Within the past few decades medicine has become not only a servant of the rest of capitalist industry but a major capitalist industry in its own right. Health care, previously an adjunct to commodity production in other industries, has itself been brought into the age of capitalist commodity production. Before this commodification, the product of health care (curative and ideological) was the sole concern. The transformation of the past few decades has made profit, rather than health, the main objective of production in this field. Ultimately, in health as in other industries, as Marx wrote, "Capitalist production is essentially indifferent to the particular use value, or the peculiarity, of any commodity produced by it. In every sphere of production it is the sole purpose of production to secure surplus value."

The emergence of health care as a capitalist industry, which we describe in more detail below, was in many ways similar to the development of other industries. Small-scale producers (doctors) were initially brought together in workshops (hospitals). The technical development of the field made access to large concentrations of capital indispensable, and led to increasing control of production by the owners of capital. Along with the increasing accumulation of capital, there was a shift in control of health-care institutions from public to private hands, ironically implemented through massive infusions of government funds under the Medicare and Medicaid programs. Most recently, the conversion of health care from public service to private industry has given rise to contradictions between capitalists who profit from providing health care and the rest of the capitalist class, for whom health care is a cost of production.

The Development of the Health and Hospital Industry

At the turn of the century rapid advances in sanitation and other critical public-health measures were responsible for spectacular increases in life expectancy. By contrast, most curative medical therapies were useless or outright harmful. A doctor or nurse might serve as a friend and comfort in the face of suffering but had little to offer patients besides sympathy and morphine. Medical care was a small cottage industry dominated by individual producers who required few tools to ply their trade. For less than a dollar a day hospitals provided room, board, and quarantine but little specialized equipment or personnel. Some cities had established public hospitals for the poor. Most "private" hospitals were small charitable enterprises aided by state and local governments. The distinction between private and public hospitals was blurred and relatively unimportant since the total amount of money spent on hospitals was small ($29 million in 1903; .08 percent of GNP).

The first half of this century saw a gradual and accelerating growth in medical knowledge and technology, and with it an increase in the capital (buildings and equipment) needed in the practice of medicine. By 1950 the nation's hospital bill (about 40 percent of total health-care spending) had climbed to $3.7 billion (1 percent of GNP), and such items as x-ray departments, chemistry laboratories, and surgical suites were considered a necessity for every hospital. With the accumulation of hospital capital, the former charity and service orientation of hospital managers increasingly gave way to a drive for insitutional expansion, wealth, and power.

The capitalist class as a whole actively supported the expansion of health-care institutions, initially through the provision of health insurance for employees of large firms. During the Second World War government froze wages but not benefits, thereby encouraging unions to put health insurance at the top of their bargaining agenda. Employers welcomed this development for several reasons. Health insurance was popular with workers, improved their productivity, and gave capital additional leverage over labor by tying health care to employment and creating a lower standard of care for the unemployed and creating a lower standard of care for the unemployed and disabled. Whereas the labor movement in the rest of the developed world demanded and won universal health insurance, organized labor in the United States abandoned this demand and accepted health benefits negotiated on a contract by contract basis.

Blue Cross, founded in 1929 by hospitals, was welcomed by employers and became the model for all subsequent employee health plans. Blue Cross paid hospitals for whatever services and equipment they deemed necessary and specifically included payment to cover all capital costs. Thus any hospital which could raise the down payment for new acquisitions was given a blank check to cover the mortgage. The federal government intervened to solve the problem of raising down payments in 1946 with the passage of the Hill-Burton program, which gave billions of dollars in grants to hospitals for capital projects.

In view of these financial encouragements, the postwar expansion of the medical industry is not surprising. The United States went from a shortage to a surplus of hospital beds. Dozens of expensive new machines and medical techniques were invented and widely accepted, often without proof of efficacy. However, the further growth of the industry was limited by the large number of uninsured poor and elderly people who could not afford to purchase the increasingly costly services. Those among this group who received any medical care often relied on public hospitals with less modern buildings and equipment.

The passage of Medicaid and Medicare by Congress in 1965 brought many previously uninsured people into the market for private health care. Medicaid and Medicare were a cornerstone of the expansion of social-welfare programs in response to the growing militancy of the dispossessed, and constituted a real victory for the health of the poor and elderly. However, both programs helped not only the poor and elderly but also the health-care industry itself, by dramatically increasing and radically reorienting state spending on health. Government spending, which had hitherto been concentrated in relatively small direct grants to public-health programs and public hospitals, skyrocketed and was directed tot he purchase of care in the private sector. The programs were administered by and closely modeled after Blue Cross, and included unlimited payments to hospitals for capital expenditures. While noisily proclaiming the benefits of Medicaid and Medicare for the poor and elderly, government quietly added its signature to the blank check for private hospital expansion.

Public Money, Private Control

After the passage of Medicare and Medicaid, private hospitals moved to capture the newly insured patients from public hospitals, while refusing to care for the millions of poor people who were not eligible for Medicaid. Since insurance paid for any service provided, insured patients received an increasing number of tests, operations, and the like, some of which were useless or worse. Public hospitals remained the low-tech institutions of last resort for the uninsured. The nonprofit status of most private hospitals, a legacy of the era when hospitals existed mainly as a service to the rest of the capitalist class, proved small hindrance to profit-making. While nonprofit hospitals could not themselves reap profits, their rapid expansion, and the cost-plus payments provided by government and private insurance programs, made them ideal conduits for the profits of drug companies, equipment manufacturers, construction and real estate firms, and financial institutions. The incentives to raise the cost of hospital care and thereby expand the market for medical products gave rise to the seemingly bizarre result that during the 1970s low-cost hospitals were driven out of the market. The situation was somewhat

analogous to the defense sector, in which suppliers are paid on a cost-plus basis and reap profits, while the military itself is operated as a nonprofit "public service."

Since 1965 the scale of government subsidies to private hospitals has reached enormous proportions, and is the financial backbone of the industry. The largest chunk, about $48 billion in 1982, is provided through the Medicaid and Medicare programs, while tax exemptions for health insurance and nonprofit hospitals contribute about $25 billion more. Finally, most recent hospital construction and renovation has been financed with tax-exempt bonds. In 1981 alone hospitals sold over $5 billion in such bonds, which was 17 percent of all tax-exempt bonds issued, about 7 percent of the total bond market, and represented a loss in taxes to the federal trasury of $1.5 billion. In our studies of hospital financing in Oakland/Berkeley (California) and Boston we have found that each of the major private hospitals in those cities receives more than 60 percent of its revenues from government sources. In Boston the more than $600 million in public funds given to the 10 largest private hospitals in 1982 was more than four times the total budget of the lone public hospital.

By 1980 private health insurance and government support had fostered the emergence of the private provision of health care as the second largest industry in the United States. Seventy-two percent of hospital beds were privately owned (up from 65 percent in 1960, and 80 percent of the $6.5 billion spent on hospital construction went to private hospitals (up from 40 percent in 1950). While private hospitals vied to purchase the latest technology and provide the greatest number of profitable services, public hospitals were left as pitiful remnants of their former selves, housed in aging buildings, equipped with outdated machines, serving largely those uninsured patients who were unprofitable for private hospitals. Since 1965 six of New York City's 19 public hospitals have been closed, as have the only public hospitals serving Detroit, Philadelphia, and 29 of California's 66 counties. The future seems to hold more of the same, with an estimated $162 billion in hospital capital spending planned during the next decade, virtually all for private hospitals.

As profitability rather than the need for services has become the driving force within the health-care industry, entrepreneurs have recognized that hospitals need not be mere nonprofit conduits for the profits of other corporations, but can themselves be operated as profit-making (proprietary) entities. While proprietary hospitals are not eligible for tax exemptions, they have access to capital markets unavailable to nonprofit hospitals. Proprietaries are unencumbered by any vestige of the charity ethic which leads many nonprofit hospitals to care for a few uninsured (hence money-losing) patients. Finally, physicians at nonprofit hospitals often have considerable influence over hospital boards and are in a relatively powerful position vis-a-vis administrators, whose task is often seen as serving the physicians. In contrast, the administrators at proprietary hospitals are integrated into the overall hospital command structure, which is clearly more powerful than the physicians. The greater administrative control at proprietary hospitals allows decisions to be made purely on the basis of corporate interests, even when these conflict with the petty-bourgeois interests of physicians.

Because of their unencumbered management and access to capital, proprietary hospitals are likely to gain dominance in the hospitals market. Since the founding of the first for-profit hospital company in 1960, the number of proprietary hospitals has grown to more than 1,000, and it is predicted that for-profit companies will own 20 percent of all hospitals by 1990. In 1982 Hospital Corporation of America, the largest proprietary hospital chain, owned 351 hospitals with 50,000 beds, producing revenues of $3.5 billion, up 47 percent from the previous year.

The Emerging Contradiction

This century has witnessed the transformation of American medicine from cottage industry to large-scale capitalist enterprise. The health-care industry has received massive government subsidies, and has been largely exempt from the competition characteristic of many other sectors. Until now, any medical product has been guaranteed a virtually unlimited market. However, this expansion is giving rise to a contradiction between the health-care industry and other industries. In the past the capitalist class encouraged the growth of the health sector, but as the health-care industry expands, employee health benefits increase in cost and have by now become a major cost of production. In 1980 U.S. corporations were spending more than $65 billion a year for employee health benefits, and Chrysler executives were complaining that Blue Cross had become that company's largest supplier. Corporate leaders have also begun to express concern about the increasing proportion of state and federal budgets devoted to Medicaid and Medicare.

Soaring health-care costs thus are becoming a major concern for the capitalist class as a whole. It is moving to curtail the special privileges which have allowed the health-care sector to reap greater profits and expand more rapidly than the rest of capitalist industry. In 1981 the Business Roundtable, the organization of the most powerful corporate executives, declared the control of health-care costs a top priority and formed a health task force headed by Citibank president Walter Wriston. Since this tack force was formed, business coalitions devoted to health-care cost control have sprung up in over 150 localities. Member corporations are threatening to restructure their health-insurance benefits to force doctors and hospitals to reduce costs. As a representative of the Washington, D.C. coalition put it, "Business has been asleep too long, and now we're starting to wake up. The hospital industry had better play the game our way or else."

The entry of the Business Roundtable into the health-care scene coincided with the start of government initiatives to end the privileged position enjoyed by the health-care industry. Federal grants for hospital capital projects were phased out starting in 1975, though the hospital industry was easily able to compensate for this loss by increasing its used of tax-exempt bonds. Other early efforts to contain health-care costs under the Nixon and Carter regimes were equally unsuccessful. However, more recent government attempts to rein in the health-care sector have more bite. As a reporter for the Boston Globe remarked, "The Business Roundtable's decision to get serious about hospital cost control marked the turning point in the debate. Until then, the issue had been the province of insiders, the most influential of whom had more of a stake in the status quo [the continuing expansion of the health-care industry] than in cost containment."

Under pressure from the business community, New York, New Jersey, and Massachusetts, among other states, have passed legislation sharply limiting hospital revenues. The Reagan administration has proposed the elimination of tax exemptions for health insurance and hospital bonds. Medicaid payments have been drastically cut, making it difficult for hospitals and doctors to profit from Medicaid patients. Perhaps most important, the basic structures of the payment systems for Medicare and Medicaid are being radically altered. Hospitals will no longer be paid for each individual test, procedure, or day of care. Instead, under Medicare the hospital will receive a fixed lump sum determined by the patient's diagnosis. For instance, Medicare might pay a hospital $2,800 to care for a patient with pneumonia, no matter how long he or she stayed in the hospital or what tests or drugs were used. For the first time hospitals will profit by providing fewer services to each patient.

The incentive to do less is of course not new in health care. It is a central feature of so-called Health Maintenance Organizations (HMOs) which are increasingly popular among large corporate employers. The first, and still largest, HMO was started by Kaiser Industries to lower the costs of health care for its workers in massive New Deal construction projects like the Grand Coulee Dam. HMOs collect a lump sum in advance which covers all services delivered. Physicians are salaried and often share in any profits realized because of savings on patient care. Contrary to much recent propaganda, HMOs usually neglect preventive care, since cost savings due to prevention are most often realized after the patient has retired (either because of age or disability) and hence has lost his/her membership in the HMO. HMOs economize by emphasizing less personal and lower cost "industrial" style care, and erecting barriers to access which discourage members from seeking care.

Thus both government initiatives and corporate policies are forcing changes in the organization of health services. Capitalist rationalization and efficiency is replacing the ideology of "care and cure no matter the cost." And changes on the horizon promise to complete the transformation of medical care into commodity production. Health care will be a product offered for sale on the market. Hospitals and HMOs will compete in offering corporations, the lowest priced health care which will maintain the productivity of their workers, and government the barest essentials of health care which will keep the unemployed, disabled, and retired from revolt. The state seems ready to forsake its role in assuring that health care resources are provided where needed. As a recent study by the Brookings Institution put it, "Congress has abandoned the principle that medical care should be provided whenever it is needed, that cost should not be considered when life or health is at stake."

Medicine will increasingly be asked, "Does your practice improve the productivity and tranquility of the work force?" No more will doctors and hospitals be allowed to collect for every useless operation and superfluous machine. No more will health care for the "non-productive" poor, disabled, and elderly be lavishly financed by the state for the benefit of the private health-care sector. To be sure, the health-care industry will be allowed a handsome profit, but one in line with the rest of capitalists industry.

Already care for patients with a particular diagnosis is referred to as a "product line," and administrators vie to manipulate these "product lines" to maximize profits and assure the survival of their hospital in the increasingly competitive hospital market. The extent to which the ideology of commodity production has come to dominate health-care administration is evident in the titles of some recent articles in the hospital administration trade journal Modern Healthcare: "Surgical Lasers Can Generate Profit If Volume of Use Can Be Guaranteed," "Baxter Shows Hospitals How to Use Cost Data to Prepare for Price Competition," "Managing Along Product Lines Is Key to Hospital Profits Under DRG [Medicare] System," "Fixed Payment Rates Force Hospitals to Reassess ICUs," and "Medical Records' New Financial Role Dramatically Shifts Hospital Priorities." This last article explains that under new insurance regulations, "The medical records department supplies the base information to interpret the medical stay into a financial picture," and anticipates that "helping their hospitals collect billions of dollars in federal reimbursement will become the top priority of medical records departments. In the past, the department concentrated on maintaining accurate record for ongoing patient care."

The commodification of health care will have important repercussion for health-care workers and patients. Competition among health-care institutions will increase and result in the elimination of smaller scale, more personal and human sources of care. Health care will be monopolized by large corporations, employing thousands of workers organized to deliver care in an increasingly mechanized factory-like environment, with little human contact or understanding. Thus the familiar petty-bourgeois local doctor is already being replaced by "MediStop" centers staffed by anonymous employees providing technical interventions which keep working people at work and treat others as cheaply as possible. Care of the "non-productive" poor and elderly, and interventions aimed at improving quality of life or psychological well-being will receive short shrift. Public-health efforts to prevent the main modern-day health problems, such as heart disease and cancer, are likely to be crippled because such chronic diseases primarily affect workers in their non-productive post-retirement years.

Health-care workers will find themselves cogs within huge and growing enterprises. Administrators armed with elaborate computer systems will monitor and control day-to-day medical practice, dictating what tests and treatments are allowed for a given "product line" (disease). Physicians, in the past independent entrepreneurs, will serve as highly paid supervisors. For the first time, in 1982, more doctors in the United States were salaried than self-employed. For non-physician personnel the changes may be more painful if less dramatic. Hospitals will have more incentives to limit labor costs by holding down both wages and the number of workers. The proportion of health spending devoted to labor costs, which fell by more than 10 percent during the 1970s, will fall even more rapidly as machines replace many workers. Unions will increasingly be under attack.

Conclusions

The past 30 years have seen an enormous accumulation of capital in health-care institutions, the emergence of commodity production in medical care, and the creation of a large health-care workforce with many of the characteristics of an industrial proletariat. The explosive growth of the health sector, in the past encouraged by the entire capitalist class and fueled by government funds, now threatens the profits of other capitalist industries, and will be slowed in the next decade. Health care will increasingly consist of large industrial-style profit-making enterprises, selling technical services aimed at keeping working people at work, and providing minimal care for the poor and elderly.

The enormous sums now spent on health care are sufficient to assure health workers a decent standard of living, provide high quality curative medical services to all in the United States, enormously increase efforts in prevention and relevant research, and meet our now neglected international responsibilities in health. The issue is not lack of money but capitalist irrationality and waste: the insurance industry and armies of administrators which together devour 25 percent of all health-care spending, the billions of dollars of profits and advertising by drug and equipment suppliers, the massive duplication and maldistribution of facilities, and the greed and ideological bias of physicians which leads to millions of unneeded operations and tests, the proliferation of capital intensive treatments, and the neglect of non-technical (and hence unprofitable) therapies.

The problem is the private ownership of health-care capital. The solution is the popular ownership of these means of production. The potential power is the nascent health-care proletariat. We have some work to do.

COPYRIGHT 1984 Monthly Review Foundation, Inc.
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