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Why Most Private Hospitals Are Nonprofit

Author(s): Carson W. Bays

Source: Journal of Policy Analysis and Management , Spring, 1983, Vol. 2, No. 3 (Spring, 1983), pp. 366-385

Published by: Wiley on behalf of Association for Public Policy Analysis and Management

Stable URL: https://www.jstor.org/stable/3324447

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Why Most Private Hospitals Are Carson W. Bays Nonprofit

In recent decades, restrictions that have been imposed on hospitals organized for profit have served to restructure the industry, generating a constant trend toward nonprofit organizations. Small proprietary hospitals in particular have disappeared while corporate chains have come to dominate what is left of the for-profit hospital sector. The trend toward nonprofit hospitals is

not explained by the failure of the health service markets and is not Abstract the result of a desire to serve the public interest more effectively.

Although a number of arguments have been advanced to explain the shift, the hypothesis that seems most consistent with the existing evidence is that the nonprofit form of organization serves most effectively to strengthen the restrictive character of the market for physicians' services and thereby to serve the individual economic interests of the physicians.

Of over 7000 hospitals registered with the American Hospital Association in 1977, only about one in ten was organized on a for-profit basis. For-profit hospitals once dominated the private sector of the hospital industry, but their absolute and relative numbers have fallen since the early 1900s. As Table 1 shows, for-profit hospitals accounted for approximately 56% of all regis- tered hospitals in the United States in 1910' but now they consti- tute about 11% of all hospitals and only 5% of all hospital beds. Within the shrinking for-profit sector, another major shift has been taking place, especially notable within the past few decades. The number of traditional "proprietary" hospitals-small organiza- tions owned by one or a handful of doctors-has been reduced drastically while corporate chain profit hospitals, which are typi- cally larger more diversified institutions, have increased substan- tially both in number and in total beds.

I wish to thank, but not implicate, William A. Glaser and three anonymous referees for comments on earlier versions of this article.

Journal of Policy Analysis and Management, Vol. 2, No. 3, 366-385 (1983) ? 1983 by the Association for Public Policy Analysis and Management Published by John Wiley & Sons, Inc. CCC0276-8739/83/020366-20$03.00

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Why Most Private Hospitals Are Nonprofit

Table 1. Trends in hospital ownership.

Nongovernment Total for-profit Corporate chain Total nonprofit hospitals hospitals for-profit hospitals

number of

hospitals of Beds Beds Beds Year all types Number (thousands) Number (thousands) Number (thousands)

1910 4359 2441 1928 6852 2435 1946 6125 2584 301 1076 39 1955 6956 3097 389 1020 37 1966 7160 3440 533 852 48 1967 7203 3461 550 821 47 1968 7137 3430 566 769 48 1969 7215 3263 571 748 50 567 40 1970 7123 3386 592 769 53 1971 7165 3207 596 733 55 602 46 1972 7061 3326 617 738 57 1973 7123 3320 629 757 63 1974 7250 3241 641 763 71 666 63 1975 7156 3364 659 775 73 1976 7082 3368 671 752 76 1977 7176 3230 669 737 81 661 72

Sources: (1) Steinwald, Bruce, and Neuhauser, Duncan, "The Role of the Proprietary Hospital," Law and Contemporary Problems, 35(2) (Autumn 1970): 819; (2) American Hospital Association, Hospital Statistics (Chicago: AHA, 1978), pp. 3-4; (3) 1969, 1971, 1974, and 1977 national survey tapes of the American Hospital Association.

Several factors have had direct negative impacts on for-profit hospitals over the period of their decline: Total capital costs have been higher because the for-profit hospitals have not benefited from the private philanthropy and government subsidies that have been provided to the nonprofits; labor costs have been higher because of the preferential treatment of the nonprofits in the labor laws; the for-profits have paid taxes to which nonprofits have not been subject; they have not enjoyed the preferential legal status which until recently made nonprofits immune to most lawsuits; and they have been burdened more heavily by the direct govern- ment regulation of hospital growth.2 All of these factors suggest a distinct preference for the nonprofit form of hospital organization. But what are the sources of this preference? Do they arise from some innate characteristics of hospital services or from other factors?

THE SPECIAL

CHARACTERISTICS OF HOSPITAL SERVICES

It is widely recognized that hospitals have special attributes which distinguish them from other economic organizations. These dif- ferences can be summarized into three broad categories: exter- nalities, conditions of information and uncertainty, and issues of distributional equity.

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Why Most Private Hospitals Are Nonprofit

Externalities As economists have long recognized, there are certain situations in which the market fails to generate the appropriate level of services because it does not measure properly the benefits or costs of those services to society. Such externalities may be important for health care in general and hospitals in particular. Most public health measures, for example, involve services which either would not be supplied at all by the private market or would be grossly un- dersupplied by profit sellers. Some consumers would be willing to pay the full cost of innoculating themselves against a contagious disease but the total value to society of an innoculation program exceeds the sum of these private demands because persons not buying immunity receive indirect benefits from those who do. Accordingly, most mass innoculation programs provide immuni- zation at either no direct charge to consumers or at a price much below cost.

An externality which may have some implications for the structure of hospitals is that which has been described as the economics of sharing.3 For altruistic reasons, some persons may be willing to contribute to providing health services for others so that the distribution of such services will not be determined solely by their income. If society were to rely entirely upon voluntary contributions to change the shares of medical consumption, how- ever, a "free rider" problem would arise. A problem of this sort occurs in its pure form if society tries to provide for its military defense solely through private citizens buying their protection from private firms. Those who refused to buy the service, the free riders, would still share some of its benefits. In a similar manner, the total amount of giving occurring under a health system supported by purely voluntary donations will be less than the socially optimal amount.

The traditional policy for dealing with this type of externality has been to compel redistribution through taxation and subsidies; that is why military defense is normally provided by governments. With respect to hospitals, there are alternative ways in which the redistribution could be achieved. Hospital care could be produced solely in government hospitals financed by general tax revenues; the redistribution rationale, for instance, has been used in justify- ing the British National Health Service. Or hospital care could be produced in private institutions-either nonprofit or for-profit- which could be subsidized through government grants and helped by tax provisions and other legal advantages.

Information and In addition to the problem of externalities, markets can prove Uncertainty inefficient because of the cost and availability of information to

consumers. The technical complexity of modern medical science raises the possibility that consumers may be unable to make rational choices regarding health problems because they are in- competent to evaluate the costs and benefits of various treatment alternatives. But it is not the technical complexity per se that differentiates medical care from other markets. Many consumer markets involve products of extraordinary technical complexity

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Why Most Private Hospitals Are Nonprofit 369

about which consumers may be ignorant. In such cases, as many economists would insist, independent sellers-who presumably are competent to judge the relative merits of different brands of a complex good-will have an economic interest in providing con- sumers with accurate information regarding such products.

However, acquiring information for medical care differs in various important respects from acquiring information in typical consumer markets. To begin with, to some extent the product being sought is information itself, such as diagnosis of symptoms and a prescription of treatment; in such cases, the information can only be evaluated after it has been purchased. In addition, because one individual, the physician, supplies both the medical informa- tion and the medical services, a conflict of interest may arise; the physician could lean in the direction of providing diagnoses that generated expensive treatment. To be sure, the conflict would conceivably be limited in a number of ways. Patients after all can seek second opinions. Moreover, most physicians would presuma- bly be sufficiently influenced by the spirit of the Hippocratic oath so that the issue of conflict of interest would not arise. Finally, one might hope that placing hospitals on a nonprofit basis would reduce the risk of such potential conflicts.

Unfortunately, however, there is little evidence to support the view that the nonprofit form reduces the conflict problem. To be sure, it is frequently suggested that for-profit hospitals owned by their admitting physicians have an incentive to overtreat patients as compared with nonprofit hospitals with independent physi- cians4; but this proposition has not been tested adequately.5 Moreover, the contention that for-profit hospitals are more lucra- tive for physicians who practice in them than nonprofits is demon- strably false on a theoretical level.6 Furthermore, as was noted earlier, most for-profit hospitals today are not of the historical "proprietary" form which are run by physician-owners but are parts of corporate chains in which the participating physicians may have little or no ownership interest. The special conditions relating to information in the medical market therefore appear to provide a weak basis with which to explain the prevalence of the nonprofit form among private hospitals.

Apart from information, there is also the problem of uncertainty as it relates to medical care. Uncertainty is present in medical care both in choosing the treatment and in the patient's response. Sociologists and economists have suggested that the nonprofit status of hospitals may be a way of providing protection to patients against this uncertainty by insuring that the special trust relation that inures to the physician-patient relationship is not contaminated by profit-making.7

This rationale for the nonprofit status of hospital industry, however, does not explain the several historical changes in the relative sizes of the nonprofit and for-profit hospital sectors. For centuries, hospitals in Europe were almost the exclusive domain of churches and religious organizations. "Voluntary" nonprofit hos- pitals arose in the Protestant countries, and in Catholic countries

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Why Most Private Hospitals Are Nonprofit

that had secularized the religious hospitals.8 Early hospitals in the United States were nonprofit as illustrated by the Pennsylvania Hospital established in Philadelphia in 1751, and the Presbyterian Hospital in New York in 1868. Local government also provided hospitals for the poor, exemplified by the Boston City Hospital established in 1858.9

For-profit hospitals did not rise to significance until the latter part of the 19th century. And as noted earlier, they lost their relative position to nonprofits in the succeeding century. The chain corporate hospitals that have appeared in the for-profit sector since the 1960s roughly correspond in timing to the introduction of widespread government health insurance. With insurance, the physician was in a position to prescribe care without concern for the patient's ability to pay. That development, it could be argued, gave the for-profit sector a new impulse for growth because the presence of more complete insurance coverage reduced the need for nonprofit status to protect the trust relation between doctor and patient.

This hypothesis, however, fails to explain other periods of change in relative sizes of the nonprofit and for-profit sectors. For example, hospital insurance offered by commercial and Blue Cross insurance plans has been expanding since approximately the end of World War II. Yet the slight resurgence in the for-profit sector has not been apparent until the 1960s. Moreover, it is not clear why the resurgence has occurred only among chain corporate hospitals: For-profit hospitals organized as proprietorships and partnerships have continued their historical decline. Therefore, we must look further for explanations of the factors that have been shifting the structure of the hospital service industry.

Distributional Equity Perhaps no other aspect of medical care draws more attention than the issue of equity. Few other goods have characteristics that make their denial life-threatening. Food and shelter are certainly "neces- sities" in this sense, but only limited amounts of each are truly necessary for survival. A catastrophic disease or accident, how- ever, may require resources that could easily exhaust the resources of even the well-to-do. Yet our social norms demand that critical medical treatment should not be denied to those who cannot pay the cost.

The question to be asked in this context is whether equity considerations such as these have been responsible for the domi- nance of nonprofit organizations among private hospitals. The answer is unequivocally no.

The fact is that nonprofit private hospitals provide relatively little "free" care. For the period 1962-1966, the most recent years for which national data are publicly available, free care provided by nonprofit hospitals was equal to about 3% of their total patient revenue. This was actually proportionately less than the amount of charity provided by for-profit hospitals. The latter provided char- ity equal to slightly over 4% of their total revenue.10

A more complicated issue is whether nonprofit hospitals dis-

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Why Most Private Hospitals Are Nonprofit 371

criminate in the prices that they charge for different services, by profiting from some and losing from others-and whether that discrimination has implications for the support of the poor. The practice of cross subsidization among services within hospitals is widespreadl and has been the subject of several previous pa- pers.12 The most sophisticated of these-that by M.I.T. economist Jeffrey Harris-is one of the few to conclude that cross subsidiza- tion does yield an improvement in social welfare. Harris argues that substantial welfare gains are possible through a hospital's internal price discrimination and concludes that "... this form of discriminatory pricing can be completely consistent with non- profit objectives."13

Harris' analysis, however, does not explore the question of whether cross subsidization by nonprofit hospitals is equitable in another sense. Where public hospitals are used to deliver health services, voters in effect are taxing themselves to provide charity. When a private hospital provides for the poor through price discrimination, however, the individuals being "taxed" have no opportunity to vote on the direction or degree of redistribution. Not only is the outcome inequitable, it also has been demonstrated in theory to be a less than optimal solution for the free-rider problem.14

Harris' analysis also ignores the economic consequences of the role of admitting physicians. These are doctors who admit their private patients to the hospital and then control the allocation of the hospital's resources on behalf of their patients. Health care costs depend not only upon the pricing of hospital services but upon the pricing of physician services as well. Because Harris deals only with the hospital component of cost, his conclusions regarding possible welfare gains from discriminatory pricing are unpersuasive. Moreover, his conclusion that the cross subsidiza- tion is the result of conscious attempts by hospital administrators to redistribute income and spread risks among patients has neither theoretical nor empirical support. Without an explicit model of nonprofit hospital behavior, it is unclear why the administrator would behave in this manner.15 Furthermore, given the influence which admitting physicians have in hospital operations, it is unlikely that the administrator could behave in such a manner if it were inconsistent with the private interests of the admitting physicians. It is critical, therefore, to determine where the inter- ests of the admitting physician lie.

To an important extent, hospital inputs are complementary to those of admitting physicians in the production of hospital care. Physicians make the decisions regarding admission and treatment but are not employed by the hospital nor charged rental for the use of its facilities and personnel. Instead, the patient, or his insuror, is billed separately by the hospital for the use of its inputs and by the physician for services rendered. This arrangement has frequently been rationalized as a consequence of the agency relation between doctor and patient16: To insure that treatment is motivated by medical need rather than by profitability, the physician is insu-

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Why Most Private Hospitals Are Nonprofit

lated from the question of hospital costs, which are billed sepa- rately.

Data collected by Harris for a sample group of hospitals reflect the strong tendency of hospitals to engage in cross subsidization of different services. Table 2 compares the hospitals' prices for selected services with their long-run marginal costs in providing each of the services. Harris explains the cross subsidization as an attempt in part to hold down costs for those who would have difficulty in paying. The hypothesis, however, is unsupported by the data. There is no reason to assume, for instance, that the most heavily subsidized service-surgery-is more commonly provided for the poor than the more profitable services listed on the table.

The obvious alternative explanation is that administrators are aware that the price which the physician can charge in any given case is dependent in part upon the size of the hospital's charges. That alternative explanation is suggested with particular force by the fact that surgery is the activity that is subsidized most heavily. If hospitals charge less than cost for such products as surgery and anesthesia, surgeons are in a position to charge more for their services. This loss can be subsidized by charging more than cost on services that do not have such a direct link to the physician's services, such as rooms and therapy.

An additional factor that complicates the distributional issue is the incentive structure that is created for hospitals because of the way they are reimbursed for their services. When Medicare, Medicaid, and Blue Cross refuse to compensate hospitals for bills that the patients themselves are unable to pay, these charges are loaded onto the bills of other patients; cross subsidization occurs therefore through these channels. Moreover, the higher mark-ups of price over cost typically are encountered in those hospital departments with the greater proportions of Medicare patients.17 Patients in those departments therefore subsidize patients in other departments such as the delivery room. The distributional impact of these subsidies is ambiguous and may even be perverse.

In summary, cross subsidization in hospital pricing is wide-

Table 2. Prices and price-cost margins for selected hospital services.

Markup (or markdown) of Type of service Average price price over cost (percent)

(1) Surgery $193.00 - 44 (2) Intensive care unit 211.00 - 38 (3) Special diagnostic 233.00 - 16 (4) Rooms 63.00 + 49 (5) Diagnostic x-ray 29.00 + 62 (6) Routine therapy 11.00 + 69 (7) Routine diagnostic 2.98 +158 (8) Chest x-ray 12.00 +175

Source: Harris, "Pricing Rules for Hospitals," p. 233.

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Why Most Private Hospitals Are Nonprofit

spread and has distributional consequences. The conclusion that it reflects attempts by nonprofit hospitals to achieve socially desira- ble income transfers is not supported by available data. The alternative hypothesis-that cross subsidization by hospitals sup- ports the private economic interests of their admitting physicians-seems more plausible and is supported by the avail- able evidence.

NONPROFIT HOSPITALS

AND PRIVATE INTERESTS

The Historical Pattern

None of these considerations explains very well why the nonprofit form of organization has come to predominate among hospitals. But some indication of why that development has occurred can be gleaned from history and from interest group theory.

The hospitals of the 19th century in the United States were largely charity agencies in which private physicians donated their time. Private physicians valued appointments at larger hospitals be- cause a research or teaching arrangement with such a hospital enhanced the doctors' reputation among the private patients who paid for the physicians' services. Individuals who could afford to pay for medical care went to doctors for treatment in their personal offices because hospitals could offer little in the way of additional diagnosis and treatment.18 The hospital's role during this early period, therefore, was basically as a repository for the indigent sick. Physicians were trained, as were other professionals, within the context of the guild system which had been a widely accepted institutional arrangement for maintaining quality and protecting the consumer against the incompetence of the supplier of services.19 It also, of course, had the effect of sharply limiting entry into the profession. In order to become a physician, young men had to indenture themselves to a master doctor for several

years, paying a fee for the opportunity.20 Entry was restricted further by occupational licensing. Between 1799 and 1826 all but three states adopted some type of licensing arrangement for doctors which restricted medical practice to those with training deemed appropriate by the state or county medical boards.2

The development of the germ theory of disease, the introduction of aseptic and antiseptic techniques, the discovery of x rays, and the advent of antibiotics converted the hospital from a medical almshouse into a diagnostic and treatment center. Hospitals began to offer services which attracted paying patients, and private physicians initially viewed this as unfair competition: "As late as 1900, the Journal of the American Medical Association regularly ran editorials on the problem of 'hospital abuse' complaining about patients who could have afforded to pay for medical services, but preferred 'cheating [their] own family physician at home out of his fee' by going to hospitals (Jour. A.M.A. 35:20, p. 1240."22 How- ever, the development of new diagnostic and surgical techniques made hospitals more attractive to physicians. New capital- intensive technology such as x-ray machines were more readily accessible to physicians, and sterile surgical fields and recovery

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374 Why Most Private Hospitals Are Nonprofit

facilities gave hospital-based care a scale advantage over medical care rendered in the doctor's private office.

These quality improvements, combined with rapid population growth, resulted in increases in demand for medical care that exceeded the capacity of the guild system of physician training. Gradually medical training shifted to medical schools, which expanded in number from 5 in 1810 to 160 in 1900.23 Most of this growth was among proprietary medical schools which offered students an alternative to the lengthy apprenticeships of the guild system. The guild control over quality and entry into the profes- sion dissolved as the number of physicians increased. Medical schools took over the role of licensing from the state and county medical boards and by 1864 virtually all of the state licensing laws had been repealed. The reasons for repeal are a continuing con- troversy among medical historians. On the one hand, it has been regarded as resulting from the anti-intellectual and antieduca- tional biases of the Jacksonians24; but it has also been attributed to the public's becoming disgruntled with the inability of state licensing to insure competence.25

Shortly after its founding in 1847, the American Medical Associ- ation began to lobby state legislatures to reinstate licensing for medical doctors. Between 1880 and 1900 the AMA had succeeded in having all states establish standards promulgated by the AMA.26 It also began to establish standards for medical education that eventually resulted in the closing of approximately one-half of the medical schools in existence. The primary vehicle of this change was the 1910 Report on Medical Education in the United States and Canada by Abraham Flexner. Although the study was commis- sioned and published by the Carnegie Foundation for the Ad- vancement of Teaching, it is clear that it was done at the behest of the AMA. The Carnegie Foundation lent an air of prestigious independence to a series of policy changes recommended by the AMA four years before.27 The ensuing restrictions on entry into the profession and the consequent increase in physician income have been well documented.28

Available data indicated that the for-profit hospital sector reached its zenith about 1930, somewhat later than did the proprietary medical schools. The historical record regarding the decline of the for-profit hospitals is sparse, and the interpretations of it are somewhat contradictory. The traditional view has been that for-profit hospitals serve an essentially transitory role in the medical care system. They arise for two reasons. First, they are organized and controlled by physicians who are denied admitting privileges at nonprofit hospitals. Second, they enter areas of rapid population growth where nonprofits are sluggish to respond be- cause of the absence of private philanthropic support. According to this hypothesis, once population stabilizes and personal income reaches a level sufficient to support voluntary hospitals, for-profit hospitals either close or convert to nonprofit status.29

Empirical support for this hypothesis is mixed and deals with only fairly recent periods: Through the mid-1960s, one could

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Why Most Private Hospitals Are Nonprofit 375

discern a conversion from for-profit to nonprofit hospitals, but this is not true for later periods.30 Moreover, as hospital chains began to dominate the for-profit sector in the late 1960s, the relative importance of for-profit hospitals has tended to be higher in the areas with slower population growth, a tendency that runs con- trary to the hypothesis.31

Perhaps there are two reasons for the ambiguous results of studies of the growth of for-profit hospitals. First, part of the cause for the decline of for-profit hospitals had nothing to do with ownership status per se but with changes in hospital size brought about by technological change. The medical discoveries and scien- tific innovations that converted the hospital from an almshouse to a diagnostic and treatment center had the combined effects of increasing the minimum efficient size of the hospital and of increasing the attainable quality of care. A large number of smaller hospitals, both for-profit and nonprofit, disappeared as a result. Because for-profit hospitals on average were smaller than non- profits, the effect on the for-profit sector appeared dispropor- tionate. Second, the emergence of for-profit chain hospitals in the late 1960s was not simply a reversal of previous historical trends but reflected instead the financial advantages of the chain form.

A Cartel Model As the hospital has come to assume a critical role in medical care, the withdrawal of hospital admitting privileges has at various times been very effective in punishing physicians guilty of "unpro- fessional" conduct, such as affiliation with prepaid group prac- tice.32

In several models of the economic behavior of hospitals, the relationship with admitting physicians occupies a central fea- ture.33 Although these models vary slightly in their predictions, they each stress the important role which admitting physicians have in both the short- and long-run decisions of the hospital. It should be noted that the economic interest of an individual physician may differ from the interests of physicians as a group.34 For example, an individual physician may be able to increase his income by ordering unnecessarily large amounts of nursing care for his patients. Because the cost of such care is typically included in the hospital's per diem rate paid by all patients, the physician's patient (or insurance carrier) will pay only a portion of the cost of this overutilization. If all physicians overutilize in this manner, however, the resulting inflation in hospital charges will have adverse effects on physicians as a group: The increases in the hospital component of total charges will have a constraining effect on the price which the physician can charge for his services. The tendency of individual members of a cartel to act counter to the interests of the group has long been recognized.35 Efforts to control such tendencies in medical care are to be found in various widespread hospital policies, such as limiting the list of physicians with admitting privileges and instituting internal peer review.

The problem of an individual physician acting contrary to the collective interests of his peers manifests itself, of course, in

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376 Why Most Private Hospitals Are Nonprofit

contexts other than that of the hospital. For example, price cutting could be an effective way for an individual physician to increase the size of his practice; but to engage in price cutting effectively, the physician must be able to communicate his prices cheaply to potential patients. When advertising is prohibited, information about prices cannot be communicated readily, a fact that reduces the benefit to a physician in charging less than "usual, customary, and reasonable" fees. Indeed, physicians in private practices are encouraged by organized medicine to limit their output, a ten- dency that reduces the pressure on prices. For example, doctors in private practice typically use fewer aides than the number that would maximize their individual profit.36 Standards promulgated and enforced by state medical licensing boards about the kinds of tasks that can be performed by physician's aides such as nurses also limit potential productivity growth among physicians.37 Al- though the AMA has supported federal subsidies to help students meet the cost of their nursing education, it has opposed changes that would allow nurses to become substitutes rather than com- plements to physicians38; these measures reduce the cost of nursing services to the physician without increasing his competition.

The cartel perspective helps to explain the policy stands of organized medicine on hospitals. For example, the AMA strongly supported the federal aid for hospital construction and loan subsidies to nonprofit hospitals. The so-called Hill-Burton pro- gram provided funds and loans guarantees for the expansion of existing hospitals, which lowered the cost of existing admitting physicians' most important complementary input, the hospital; but the program restricted funds for new hospitals to areas with shortages of hospital beds, thus opening up opportunities for new admitting physicians only in the areas where new competition could be absorbed most easily.39 Since the early 1960s the AMA has favored the concept of hospital planning but has insisted that planning agencies-which can sharply limit the growth of new and existing hospitals-must include physicians.4

The cartel model is also a useful hypothesis for explaining historical changes in the relative importance of for-profit hospi- tals. As was observed earlier, the first hospitals in the United States were nonprofit because they were primarily charities. Entry into medicine and professional conduct standards were controlled by the guilds, but there was little need for control over hospitals by organized medicine because they were not yet crucial to the typical doctor's practice. In the late 19th and early 20th centuries, it will be recalled, this situation changed drastically and medical schools and hospitals organized for profit entered in response to the increases in medical care demand engendered by technological change. The guild system was disrupted but was finally reestab- lished under the auspices of the AMA in the early 1900s. For-profit hospitals were tolerated in areas of rapid population growth because the cartel's loss of market share to the interlopers was less noticeable (and less costly) when total market demand was ex- panding. Once population growth stabilized, however, the for-

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Why Most Private Hospitals Are Nonprofit 377

profit hospitals either were forced to convert to nonprofit status- that is, to join the cartel-or were forced to close by discriminatory tax treatment, refusal of accreditation, or discrimination by third-party payers, which were dominated by nonprofit interests. According to this interpretation, physicians as a group prefer nonprofit hospitals not because they are allergic to the notion of profit, but because restrictions against for-profit hospitals have been one way of controlling entry. Individual physicians-who are already in the cartel-prefer nonprofit hospitals because favorable tax treatment and private and government subsidies to nonprofits lower the total cost of the complementary hospital inputs and therefore increase the price that physicians can charge.

The cartel model thus implies that the tax treatment and favored legal status of nonprofit hospitals exist in part because they support the economic interests of private physicians. A comprehensive analysis of the political origins of various state and federal laws that discriminate against for-profit hospitals would help test that conclusion. So far, no such analysis has been undertaken. Still, the casual evidence in support of that view is compelling. For instance, hospital planning agencies appear to have a bias against for-profit hospitals, according to anecdotal evidence,41 empirical research,42 and opinion surveys of health planning agency managers.43 In some states-a notable exception is California-Blue Cross originally refused reimbursement to for-profit hospitals or reimbursed them at a lower rate than that for nonprofit hospitals.44 In negotiations between the Social Secu- rity Administration and the American Hospital Association regard- ing the original Medicare legislation, the AHA convinced the SSA to structure the reimbursement formula in such a way as to discriminate against for-profit hospitals.45 A 1948 federal antitrust suit meticulously documented the role of organized medicine in systematically undermining the for-profit hospital associations of Oregon and Washington.46 These were early versions of the health maintenance organization, which combines the role of hospital, physician, and insurance carrier and constitutes a competitive threat to the doctor-hospital cartel.

Evaluating the Cartel There are questions regarding the cartel model, however. For Model example, why have chain for-profit hospitals apparently been

exceptions to the rule that hospitals run for profit are driven out of the market eventually by a cabal of private physicians and non- profit hospitals? Also, if public attitudes reflect a preference for the nonprofit form, the cartel model implies that citizens and policymakers have been deceived into favoring an organizational structure that benefits one group-physicians-without providing any net benefits to society at large.47 How can so many have been misled so long by so few?

These questions are much less perplexing when placed in the context of a general theory of interest group action.48 The general formulation of the theory is that different interest groups, defined as individuals with a common economic interest, compete for

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Why Most Private Hospitls Are Nonprofit

regulations which redistribute wealth from the rest of society to interest group members. The mechanism that links interest group preferences with regulation is the politician (regulator) who arbit- rates among interest groups to serve his own interests. His inter- ests may be to secure a political majority, or to acquire income, or both.49

The success of an interest group in "taxing" the rest of society depends not only on the tradeoffs the regulator must make among the competing interest groups but also upon the organizational constraints common to all interest groups. For example, condi- tions that enhance the power of the group to secure favorable regulation are the size and homogeneity of its membership, the level of income of its members, and the ability to organize at relatively low cost.50 A conclusion of the model is that in regulatory equilibrium an institutional structure will evolve that-whether it involves price fixing, entry restriction, professional and quality standards, direct subsidies, or some combination of these-will be efficient in the narrow sense that the marginal benefit and margi- nal cost of further action are equated for each participant. That is, any change in policy on the part of the regulator would result in a net loss of votes and any further political contribution or organiza- tional action by interest groups would cost more than the addi- tional regulatory benefits received. It follows that the politician will not usually promote the interests of a given group fully because other groups will have competing demands and because each group will face diminishing returns to further organizational and political action.

This broader perspective can be used to explain the historical fluctuations in the importance of for-profit hospitals in the follow- ing way. Until about the middle of the 19th century, medical training in the United States was in a regulatory equilibrium which relied largely on the guild system of training and quality control. The technological improvements that began in the mid- 1800s disrupted this equilibrium by changing the nature of medi- cal practice and increasing the demand for medical care. Eventually a new regulatory equilibrium was approached in which organized medicine restricted entry by control over medical school curricula, licensing standards, and discrimination against for-profit hospitals. Elected officials responsible for the financing of public hospitals also had an interest in eliminating for-profit hospitals because their alleged "skimming" of profitable patients increased the deficits of the public institutions.51 The ability to close for-profit hospitals was enhanced by the quality argument: Small hospitals of all types offer fewer services than larger hospi- tals.52 Closing smaller hospitals, of whatever type, therefore could be justified on the basis of improvements in quality of care. Nevertheless, efforts at closing hospitals have had dispropor- tionate effects on for-profit hospitals of all sizes and appear to have inhibited their expansion to more competitive sizes.53

Such hospitals have survived and prospered in a few states (most of the survivors are located in California, Texas, and Florida)

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Why Most Private Hospitals Are Nonprofit 379

where long periods of population growth during the late 19th and early 20th centuries begot for-profit sectors that were sufficiently large to counter the influence of competing interest groups. The fact that chains operating for profit have expanded recently while the single for-profit hospitals have continued to decline apparently reflects the greater financial abilities of the chain organization form. The evidence regarding the relative efficiency of the chain hospitals and nonprofits is mixed.54 If the sources of the recent growth among chain hospitals are economies of scale in purchas- ing and administration, then these efficiencies in principle are attainable by nonprofit chains as well. Nonprofit hospitals in fact have begun to combine into chains in recent years but the actual efficiency gains from such consolidations appear to have been quite small.55 It seems likely that the growth of chain hospitals reflects their ability to raise capital through the sale of equity as well as of debt. The total capital costs may be lower for nonprofits because of past donations and subsidies, but nonprofit hospitals have been increasingly compelled to rely on the private capital market since the 1960s because of decreases both in charity and in government construction grants.56 If the cost of the marginal unit of capital is cheaper for the chains because of their superior access to the capital markets, then this could account for their relative growth. It has also been suggested that chain hospitals have exploited the current doctor "surplus" by writing contracts with their pathologists and radiologists that are less costly than those of nonprofit hospitals.57

The view of regulation as a rational outcome of interest group rivalry also helps to explain how small interest groups can success- fully lobby for a regulatory framework that imposes economic losses on the balance of society. A common explanation as to why interest groups prefer indirect subsidies such as price controls or entry restrictions to direct cash grants is that cash grants are much more visible than the subsidies to those who must pay for them.58 However, even if citizens had perfect information regarding the cost and incidence of indirect subsidies, the subsidies may still be tolerated. For example, if we assume that the cumulative effect of the various restrictions inflated the 1979 median physician income of $70,000 by 40%-a conservative estimate59-then the typical consumer's out-of-pocket costs for physician care was increased by less than $20 in that year.60 The per capita cost of organizing a political effort to remove the subsidy would be greater than the benefit to any individual involved. Nor does the existence of a regulatory structure that benefits an interest group necessarily mean that the group in the past had the prescience to contrive that particular structure. Specific regulatory policies can be motivated by reasons other than to increase income of a professional group, but the economic impact of those policies on different groups plays an important role in determining the regulatory structure that evolves. The Flexner report discussed earlier, for example, was not intended (at least by the Carnegie Foundation) as a blueprint for raising physician income. It was motivated by the abysmal quality

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Why Most Private Hospitals Are Nonprofit

of training provided by some of the medical schools of the day. Nevertheless, its main policy proposal-to limit the number of medical schools and graduates-served the long-run economic interest of physicians and therefore helped to create a powerful and cohesive lobby that continues to rationalize entry restrictions in the name of quality care.

A complete test of the interest group explanation for the fluctua- tions in ownership structure of U.S. hospitals would require a good deal more empirical work. Perhaps the primary value of the explanation is in casting light on the course of present and future health policy. Legal scholars now recognize the cartel aspects of organized medicine,61 and serious legal questions have been raised regarding the reduced tax liability of nonprofit hospitals.62 More- over, spokesmen for organized medicine continue to espouse policies that can be evaluated within the context of the interest group model. For example, a 1980 policy statement of the Mas- sachusetts Medical Society decried the growth in the number of private physicians who have direct financial interests not only in hospitals but also in nursing homes, diagnostic laboratories, dialysis units, and other for-profit corporations providing health care services or supplies.63 It urged organized medicine "... to act decisively in separating physicians from the commercial exploita- tion of health care."64

The interest group model would predict that the eventual effect of any formal attempt on the part of organized medicine to "separate" doctors from commercial interests would be limited largely to for-profit hospitals, health maintenance organizations, and perhaps nursing homes, because these pose the greatest competitive threat to the doctor-hospital cartel. Physicians' interests in medical supply organizations that are not directly competitive with the cartel would be expected to escape any effective sanctions. These predictions, by the way, are different from those that would be made if the reason for the dominance of nonprofit hospitals was the doctor-patient trust rationale; the prediction therefore provides a potential way of selecting between the two theories. If maintaining the trust relation between doctor and patient is the true justification for limiting the commercial interests of doctors, then we would expect organized medicine to attempt to enforce prohibitions equally against all potentially conflicting interests.

Another potential test of the two theories is provided by the evolution of the Professional Standards Review Organization. This is a federal program begun in 1972 that established 192 regional review agencies charged with improving the quality of care in hospitals and lowering hospital costs. The mechanism created for this was a formal peer review system in which a panel of physi- cians monitors in-patient treatments, lengths of stays, and charges for all hospitals in its area. Organized medicine was frankly hostile to the PSRO concept during the program's initial years but opposition gradually changed to grudging acceptance and in some cases even support.65 Preliminary tests of the effects of PSRO

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Why Most Private Hospitals Are Nonprofit

concluded that the program had beneficial effects on hospital utilization,66 but these studies have been criticized as conceptually flawed.67 In principle the program can economically benefit admit- ting physicians as a group to the extent that it constrains the inflation of hospital costs that is caused by overutilization. In other words, PSRO provides the doctor-hospital cartel with another way of limiting noncooperative behavior of physicians in using their joint hospital inputs.

A useful piece of future research would be to compare the rates of increase in physician income between areas having strong PSROs with areas in which they were late in organizing or ineffectual. The interest group theory predicts that physician incomes will be increased by effective PSROs and allows the inference that the decline in organized medicine's initial hostility to the PSRO has an economic basis. The trust model, on the other hand, is silent on any predicted relationship between PSRO effectiveness and physician income; that model would explain the shift in attitude toward PSROs as a reaction to the improvements in the quality of care brought about by the program.

CONCLUSION The current policy debate regarding government regulation versus free market allocation may be improperly drawn as it applies to the health care industry. The choice is not between government control of allocation and unfettered competition. Instead, it in- volves a choice along a continuum from market allocation through varying degrees of nonmarket control, both public and private. Removing government regulation does not mean a "return to the market." It is debatable whether market control has ever been the primary method of allocation in the health care industry, with the possible exception of the 19th century. The movement toward more market control in health care now has intellectual respecta- bility and political momentum.68 But a comprehensive overhaul of health regulation is an enormous task requiring both executive and legislative changes at the federal and state levels. Various interest groups can be expected to attempt to exploit these policy changes so as to foster a structure congenial to their economic interests. The recent attempt in the Congress to limit the power of the Federal Trade Commission over the professional activities of physicians is a particularly disturbing example. Antitrust action-for all its imperfections-may be required in the health care field as an indispensable counterweight to interest group action.

CARSON W. BAYS is a member of the Department of Sociology, Anthropology and Economics at East Carolina University.

NOTES 1. This percentage is a very crude estimate both because of the sparse data on health institutions of the time and because of ambiguities in the definition of a hospital. Nevertheless, the data are probably the

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382 Why Most Private Hospitals Are Nonprofit

best obtainable. See Steinwald, Bruce, and Neuhauser, Duncan, "The Role of the Proprietary Hospital," Law and Contemporary Problems, (2) (August 1970): 817-838.

2. For a discussion of the impacts of early health planning legislation on hospitals of different ownership types see May, Joel J., "Health Planning-Its Past and Potential," Health Administration Perspectives No. A5 (Chicago: Center for Health Administration Studies, University of Chicago, 1967). The differential effects of the more recent Certificate of Need laws are discussed in Hyman, Herbert H., Health Regulation: Certificate of Need and 1122 (Baltimore: Aspen Systems Corporation, 1977).

3. Lindsay, Cotton M., "Medical Care and the Economics of Sharing," Economica, 4(4) (November 1967): 351-362.

4. Klarman, Herbert E., The Economics of Health (New York: Columbia University Press, 1965); Somers, Anne R., Hospital Regulation: The Dilemma of Public Policy (Princeton, NJ: Princeton University Press, 1969); Johnson, Richard L., "Data Show For-Profit Hospitals Don't Provide Comparable Service," Moder Hospital, 65(4) (April 1971): 116-118; Stewart, David A., "The History and Status of Proprietary Hospitals," Blue Cross Reports, 7 (March 1973): 10-16.

5. There is evidence of "cream skimming" by for-profit hospitals but this does not necessarily imply either overtreatment or lower quality of care. See Bays, Carson W., "Case-Mix Differences Between Nonprofit and For-Profit Hospitals," Inquiry, 14(1) (March 1977): 17-21; and Clark, Robert Charles, "Does the Nonprofit Form Fit the Hospital Industry?" Harvard Law Review, 93 (1980): 1419-1489.

6. Kwon, Jene K., "On the Relative Efficiency of Health Care Systems," Kyklos, 51 (1974): (fasc 4) 821-837; Pauly, Mark V., and Redisch, Michael, "The Not-For-Profit Hospital as a Physician's Cooperative," American Economic Review, 63(1) (March 1973): 87-99; Rossett, Richard N., "Proprietary Hospitals in the United States," in The Economics of Health and Medical Care, Mark Perlman, Ed. (New York: Wiley, 1974), pp. 57-65; Shalit, Sol S., "A Doctor-Hospital Cartel Theory," Journal of Business, 50(1) (January 1977): 1-20.

7. See, respectively, Parsons, Talcott, The Social System (London: The Free Press of Glencoe, 1951), p. 464; and Arrow, Kenneth J., "Uncer- tainty and the Welfare Economics of Medical Care," American Eco- nomic Review 53(5) (December 1963): 965.

8. Glaser, William A., Social Settings and Medical Organization: A Cross- National Study of the Hospital (New York and Chicago: Atherton- Aldine, 1970).

9. White, William, "A Brief History of the Hospital Industry Since 1900," in Research in Health Economics, Vol. II, Richard Scheffler, Ed. (Greenwich, CT: JAI Press, 1982), pp. 143-170.

10. Davis, Karen, and Foster, Richard W., Community Hospitals: Inflation in the Pre-Medicare Period (Washington, DC: DREW, SSA, OES, 1972).

11. Davis, Karen, "Hospital Costs and the Medicare Program," Social Security Bulletin 23(3) (August 1973): 19-28.

12. Hellinger, Fred J., "Hospital Charges and Medicare Reimbursement," Inquiry, 12(4) (December 1975): 313-319; Joseph, Hyman, "On Inter- departmental Pricing of Not-For-Profit Hospitals," Quarterly Review of Economics and Business, 12(4) (December 1975): 33-44; Harris, Jef- frey E., "Pricing Rules for Hospitals," Bell Journal of Economics, 10(1) (Spring 1979): 224-243; Danzon, Patricia Munch, 'Profits' in Hospital Laboratories: The Effects of Reimbursement Policies on Hospital Costs and Charges (Santa Monica, CA: The Rand Corporation, 1980); Caul-

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Why Most Private Hospitals Are Nonprofit 383

field, Stephen, Cross Subsidies in Hospital Reimbursement (Washington, DC: Government Research Corporation, June 1981); Monheit, Alan C., and Hornbrook, Mark C., "Redistributive Effects of Hospital Reimbursement: Do Private/Charge Paying Patients Sub- sidize the Care of Public/Cost Paying Patients?," paper presented at the annual meetings of the Econometric Society, Washington, DC, De- cember 29, 1981.

13. Harris, op. cit., p. 240. 14. Feldman, Paul, "Efficiency, Distribution, and the Role of Government

in a Market Economy," Journal of Political Economy, 79(3) (May-June 1971): 508-526.

15. For such a theory, see James, Estelle, "How Non-profits Grow: A Model," Journal of Policy Analysis and Management, 2(3) (Spring 1983): 350.

16. Arrow, op cit., Feldstein, Martin S., "Quality Change and the Demand for Hospital Care," Econometrica, 45(4) (October 1977): 1781-1802; Harris, Jeffrey E., "The Internal Organization of Hospitals: Some Economic Implications," Bell Journal of Economics 8(2) (Autumn 1977): 467-482.

17. Hellinger, op. cit. 18. White, op. cit., p. 145. 19. Benham, Lee, "Guilds and the Form of Competition in the Health Care

Sector," in Competition in the Health Care Sector, Warren Greenburg, Ed. (Germantown, MD: Aspen Systems Corporation, 1978), pp. 363-374.

20. Shafer, Henry B., The American Medical Profession 1783-1850 (New York: AMS Press, 1968), pp. 33-34; Packard, Francis R., History of Medicine in the United States, Volume I (New York: Hafner Publishing Company, 1931), pp. 273-274.

21. Shryock, Richard H., Medical Licensing in America 1650-1965 (Balti- more: The Johns Hopkins University Press, 1967), p. 23.

22. White, op. cit., p. 146. 23. U.S. Department of Health, Education and Welfare, Health Manpower

Sourcebook, Section 9, Physicians, Dentists and Professional Nurses (Washington, DC: U.S. GPO, 1959), p. 9.

24. Shryock, op. cit., pp. 30-42. 25. Berlant, Jeffrey L., Profession and Monopoly (Berkeley, CA: University

of California Press, 1975), pp. 234-235. 26. Ibid., pp. 220-221. 27. Kessel, Reuben, "Price Discrimination in Medicine," Journal of Law

and Economics, 1(1) (October 1958): 25-29; "The A.M.A. and the Supply of Physicians," Law and Contemporary Problems, 35(1) (Spring 1970): 267-269.

28. Friedman, Milton, and Kuznets, Simon, Income from Independent Professional Practice (New York: National Bureau of Economic Re- search, 1945): Rayack, Elton, "The Physicians' Service Industry," in The Structure of American Industry, 6th ed., Walter Adams, Ed. (New York: Macmillan, 1982), pp. 388-426.

29. Steinwald, Bruce, and Neuhauser, Duncan, "The Role of the Proprie- tary Hospital," Law and Contemporary Problems, 35(2) (August 1970): 817-838.

30.Ibid., p. 827; Lave, Judith R., and Lave, Lester B., The Hospital Construction Act (Washington, DC: American Enterprise Institute, 1974); Kushman, John E., and Nuckton, Carol F., "Further Evidence on the Relative Performance of Proprietary and Nonprofit Hospitals," Medical Care, 15(2) (May 1977): 55-67.

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384 Why Most Private Hospitals Are Nonprofit

31. Bays, Carson W., "Patterns of Hospital Growth: The Case of Profit Hospitals," Medical Care (forthcoming).

32. Kessel, Price Discrimination in Medicine, pp. 33-34. 33. Manning, Willard G., Jr., "Comparative Efficiency in Short-Term

General Hospitals," unpublished Ph.D. thesis, Stanford University, Palo Alto, CA, 1973; Pauly, Mark V., and Redisch, Michael, "The Not-For-Profit Hospital as a Physician's Cooperative," American Eco- nomic Review, 63(1) (March 1973): 87-99; Shalit, Sol S., "A Doctor- Hospital Cartel Theory," Journal of Business, 50(1) (January 1977): 1-20.

34. For a rigorous yet accessible discussion of the conflict between the interests of the group and of the individuals comprising it, see Olson, Mancur, The Logic of Collective Action (Cambridge, MA: Harvard University Press, 1971), especially chapters I and II.

35. Patinkin, Don, "Multiple-Plant Firms, Cartels, and Imperfect Competi- tion," Quarterly Journal ofEconomics, 57(1) (February 1947): 173-205.

36. Reinhardt, Uwe E., Physician Productivity and the Demand for Health Manpower (Cambridge, MA: Ballinger, 1975); Smith, Kenneth R., Miller, Marriene, and Golladay, Frederick L., "An Analysis of the Optimal Use of Inputs in the Production of Medical Services," Journal of Human Resources, 7(2) (Spring 1972): 208-224.

37. Feldstein, Paul J., Health Care Economics (New York: Wiley, 1979), p. 325.

38. Feldstein, Paul J., Health Associations and the Demand for Legislation (Cambridge, MA: Ballinger, 1977), p. 45.

39. Lave and Lave, op. cit., pp. 8-9. 40. Feldstein, Health Associations, p. 45. 41. American Hospital Association, "Study of For-Profit Chains," unpub-

lished report (Chicago: AHA, 1970). 42. See May and Hyman, note 2, supra. 43. Havighurst, Clark C., Deregulating the Health Care Industry (Cam-

bridge, MA: Ballinger, 1982), pp. 363-365. 44. Feldstein, Health Associations, p. 160. 45.Ibid., pp. 147-148, 160-161. 46. Goldberg, Lawrence G., and Greenburg, Warren, "The Emergence of

Physician-Sponsored Health Insurance: A Historical Perspective," in Greenburg, op cit., pp. 231-254.

47. Clark, "Does the Nonprofit Form Fit the Hospital Industry?" pp. 1433-1441, 1446-1447.

48. The theory was first formalized by Stigler, George J., "The Theory of Economic Regulation," Bell Journal of Economics and Management Science, 2(1) (Spring 1971): 3-21. Contributions have been made by Posner, Richard A., "Taxation by Regulation," Bell Journal of Econom- ics and Management Science, 2(1) (Spring 1971): 22-50; "Theories of Economic Regulation," Bell Journal of Economics and Management Science, 5(2) (Autumn 1974): 335-358; and Peltzman, Sam, "Toward a More General Theory of Regulation," Journal of Law & Economics, 29(2) (August 1976): 211-240. Empirical tests of some aspects of the theory are contained in Jordan, William A., "Producer Protection, Prior Market Structure and the Effects of Government Regulation," Journal of Law & Economics, 15(1) (April 1972): 151-176; Eisenstadt, David, and Kennedy, Thomas E., "Control and Behavior of Nonprofit Firms: The Case of Blue Shield," Southern Economic Journal, 48(1) (July 1981); 26-36; Paul, Chris W., II, "Competition in the Medical Profession: An Application of the Economic Theory of Regulation," Southern Economic Journal, 48(3) (January 1982): 559-569; and Ar- nold, Richard J., and Eisenstadt, David, "The Effects of Medical

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Why Most Private Hospitals Are Nonprofit 385

Society Control of Blue Shield on Fees in the Physician Service Market: Some Preliminary Evidence," Quarterly Review of Economics and Business, 22(1) (Spring 1982): 32-44.

49. See Paul, op. cit. 50. Stigler, op. cit., p. 18. 51. Kushman and Nuckton, op. cit., pp. 190-191. 52. Ferber, Bernard, "An Analysis of Chain-operated For-profit Hospitals,"

Health Services Research, 6(1) (Spring 1971): 49-60. 53. May, J. Joel, "The Planning and Licensing Agencies," Regulating Health

Facilities Construction, Clark C. Havighurst, Ed. (Washington, DC: American Enterprise Institute, 1974), pp. 47-68.

54. Bays, Carson W., "Cost Comparisons of Forprofit and Nonprofit Hospitals," Social Science & Medicine, 13(c) (December 1979): 219-225; Lewin, Larry, Investor-Owned Hospitals: An Examination of Performance (Washington, DC: Lewin and Associates, 1978); Vignola, Margo L., "An Economic Analysis of For-Profit Hospitals," paper presented at the Western Economic Association Meetings, June 18, 1979, Las Vegas, Nevada.

55. Schwartz, William, and Joskow, Paul L., "Duplicated Hospital Facilities," New England Journal of Medicine, 303(12) (December 1980): 1449-1457; Whittaker, Gerald F., "Productivity and Efficiency in Merged Hospital Systems," unpublished manuscript, May 1980.

56. Ginsberg, Paul B., "Capital in Nonprofit Hospitals," unpublished Ph.D. dissertation, Harvard University, 1970.

57. Neuhauser, Duncan, "The Future of Proprietaries in American Health Services," in Havighurst, Regulating Health Facilities, pp. 233-247.

58. Nelson, Philip, "Political Information," Journal of Law and Economics, 19(2) (August 1976): 315-336.

59. Rayack, "Physicians' Service Industry" in Adams, op cit., table 3, p. 411.

60. Computed from Feldstein, Health Care Economics, table 9-2, p. 159. 61. Kissam, Philip C., Weber, William L., Bigus, Lawrence W., and

Holzgraefe, John R., "Antitrust and Hospital Privileges: Testing the Conventional Wisdom," California Law Review, 70(2) (May 1982): 595-685.

62. Hansmann, Henry, "The Rationale for Exempting Nonprofit Organi- zations from Corporate Income Taxation," Yale Law Journal, 91(6) (November 1981): 54- 100.

63. Relman, Arnold S., "The New Medical-Industrial Complex," The New England Journal of Medicine, 303(10) (October 1980): 963-970.

64. Ibid., p. 968. 65. Compare, for example, McCampbell, S.R., "PSRO is a Four Letter

Word," OSMA Journal, 66(1) (January 1973): 3, with Raymond D. Goodman, Ed., PSRO: An Educational Symposium (Los Angeles: UCLA School of Medicine, 1975).

66. American Hospital Association, Reimbursement Survey (Chicago: AHA, October 1978); U.S. DHEW, HCFA, Professional Standards Review Organization 1978 Evaluation (Washington, DC: U.S. GPO, November 1978).

67. Congressional Budget Office, The Effect of PSRO's on Health Costs: Current Findings and Future Evaluations (Washington, DC: U.S. GPO, June 1979).

68. Havighurst, Clark C., Deregulating the Health Care Industry (Cam- bridge, MA: Ballinger, 1982); National Center for Health Services Research, A Synthesis of Research on Competition in the Financing and Delivery of Health Services (Washington, DC: U.S. Public Health Ser- vice, October 1982).

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