ABSTRACT
In some quarters, the notion of profitability has a tinge of disrespectability. This is particularly true for the health care sector, in which many people believe that profit should not be earned as the consequence of caring for persons who suffer from somewhat random incidence of illness. Historically, many of the institutions in the health care sector, especially hospitals, have been not-for-profit for the simple reason that they were formed by government or by charitable organizations, such as religious orders. We are now used to thinking of insurance firms as for-profit enterprises, but until the early 1950s, the health insurance industry was dominated by the nonprofit Blue Cross-Blue Shield movement. On the other hand, the pharmaceutical industry has always been a for-profit industry and has often been criticized for the “excessive” profits it earns (FamiliesUSA 2002; Public Citizen 2002; Relman and Angell 2002). Although the substance of the issue is always overlooked, there can be no question in my own mind that the physician services industry is an unabashedly for-profit industry; this issue is implicitly and piously denied in periodic statements from the American Medical Association (AMA). But, the AMA has often contradicted this image with its constant complaints about the “low” level of fees that physicians receive from both public and private insurers.1 As Paul Feldstein (2005) has reminded us, nonprofit industries have not always served us well, with respect to the quality and price dimensions of the goods and services they “sell” to us and that we often consume. For example, county
nursing homes are not necessarily better than for-profit nursing homes, and many health economists think that if veterans had the choice between using Veterans Administration (VA) hospitals or for-profit alternatives, they would choose the latter. In many parts of the United States, public schools are considered to be inferior to private schools that are often for-profit.
