Medical-Industrial Complex Essay

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As editor-in-chief of the New England Journal of Medicine, Arnold S. Relman first defined the new medical-industrial complex of the late 20th century as the rise of the for-profit sector in health care, a dramatic market change that challenges physicians’ abilities to best represent their patients’ interests. Throughout most of the past century, analysts viewed medical care primarily as a social service, where nonprofit public or private hospitals and private solo medical practitioners provided care. During this time, pharmaceutical and medical equipment manufacturers in the private sector comprised the “old” medical-industrial complex.

However, a specific chain of events unfolded, leading to the creation of a multibillion-dollar industry, including managed care insurance plans and pharmaceutical and biotechnology companies whose profits challenge our notion of an efficient nonprofit health care system. Experts suggest that only through the continued development of a new type of physician executive with the necessary skills to manage the future complexities of the health care system will the medical-industrial complex be able to prioritize its focus on patient care.

Corporate entities first became a presence in the health care system in the late 1960s, as the reimbursement of medical care by Medicare encouraged their entry. Proprietary hospitals, nursing homes, and a variety of outpatient care facilities first comprised these entities. Continuous inflation in the cost of care throughout the late 1970s and early 1980s, though, eventually created concern among public and private third-party payers, leading to varied cost-controlling interventions. The federal government’s measures involved diagnosis-related group (DRG) Medicare payments to hospitals and fee schedules for physician reimbursements. Large employers negotiated prepaid contracts with managed care plans that took the risk of controlling costs through health maintenance organizations (HMOs), independent practice associations (IPAs), and preferred provider organizations (PPOs), and the large majority of these were privately owned for-profit corporations. The boldest move yet consisted of the Clinton administration’s proposal to completely overhaul the health care system by controlling costs through government-regulated competition among managed care plans. However, the defeat of this plan in 1994 attracted even more private for-profit managed care plans.

Consequently, the fundamental role of physicians in the delivery of health care changed. In this environment of private managed care insurers run by persons responsible to investors, companies essentially “hire physicians” to take care of a certain number of patients on a capitated or negotiated fee-for-service basis. In addition, these contracts typically include financial incentives for physicians to decrease their use of diagnostic tests and to minimize patient hospitalization. This ultimately enables managed care insurers not only to offer competitively low premium prices to employers but also to retain a large portion of the premium to maximize the financial benefit to the investor-owners.

The relationship between payers and providers imposes potential limits on physicians’ autonomy to make decisions in the best interest of their patients with respect to their quality of care. Not surprisingly, some physicians formed groups to negotiate collectively with managed care insurers. Recognizing this trend as another profitable entrepreneurial endeavor, many physician practice management (PPM) companies formed for the sole purpose of contracting with physicians to negotiate favorable contracts between the physicians and managed care insurers. Even though the industry of PPMs no longer exists, the nature of the relationship between payers and providers in today’s managed care marketplace illustrates how, as opposed to independent professionals, physicians in this corporate type of environment are essentially employees of companies that are in effect practicing medicine.

At the same time, though, competition in the managed care market and the rest of the medical care industry may decelerate the rise in medical costs. Competition will continue to grow as unions and state and federal governments demand the most cost-effective provision of care, and the providers who recognize this competition and determine how to employ their resources most efficiently will be the most successful. Providing high-quality care at competitive prices may also entail delegating services that physicians normally perform to physician assistants and nurses. According to the literature, supervised physician assistants and nurses can provide safe and high-quality care that is comparable to that provided by general practitioners. Moreover, the personal level of care afforded by many nurses can improve patient compliance and subsequently reduce hospitalization. Because these outcomes can only occur with utilization of physician assistants and nurses to their full capacity, however, the managerial skill of physicians becomes an important priority.

The global business concerned with the manufacture and sale of drugs and medical equipment also altered the role of physicians in the delivery of health care. Today, it is not uncommon for health care providers in academic medical centers to attend pharmaceutical company-sponsored lunches and grand rounds or to receive pens and pads labeled with the names of proprietary pharmaceutical products. These interactions often also involve medical equipment and drug manufacturers’ offerings of consultancies and honoraria, consequently creating a potential ethical dilemma between physicians’ economic self-interest and their fiduciary duties to their patients.

Nevertheless, the medical product industry does fund a substantial portion of basic and clinical science research in academic medical centers. In addition, industry research and development sections, as opposed to grant-supported research in academic labs, develop many of the technologies utilized in frontline medical care. Clearly, those in the industry of caring for patients cannot afford to live without pharmaceutical and biotechnology companies, and a plan, appropriate for the 21st century, to collaborate with both parties’ interests in mind must therefore be developed. Forums with representatives from academic medical centers and pharmaceutical companies have already called for multi- and interdisciplinary educational programming. These companies have also exhibited interest in improving methods to measure the outcomes of established continuing medical education programming that the pharmaceutical industry substantially supports financially.

The growth in the number of physician-executives trained to provide care in today’s complex environment must continue in order for physicians to best represent their patients’ interests in the medical-industrial complex. With academia focusing greater attention on entrepreneurship within nonprofit and proprietary health care organizations, some suggested that a managerial fund of knowledge is necessary for physicians to interact effectively with all those having an interest in health care. Eight specific skills deemed highly valuable include those in organizational development, financial analysis, cost accounting, micro-and macroeconomic analysis, decision science, marketing, and strategic planning. Medical education has taken early steps to enable physicians to develop these skills, as formal university curricula and continuing education programs in health care management now offer such training. Leading national educational organizations and philanthropic bodies also focus efforts on addressing leadership and management of the medical-industrial complex because of the realization that physician-executives can exhibit an authority unlike nonphysician managers and physicians without management training.


  1. Hillman, Alan L., David B. Nash, William L. Kissick, and Samuel P. Martin. 1986. “Managing the Medical-Industrial Complex.” New England Journal of Medicine 315:511-13.
  2. Jones, James W., Laurence B. McCullough, and Bruce W. Richman. 2006. “Consultation or Corruption? The Ethics of Signing on to the Medical-Industrial Complex.” Journal of Vascular Surgery 43:192-95.
  3. Light, Donald W. 1983. “Is Competition Bad?” New England Journal of Medicine 309:1315-19.
  4. Relman, Arnold S. 1980. “The New Medical-Industrial Complex.” New England Journal of Medicine 303:963-70.
  5. Relman, Arnold S. 1996. “The Future of Medical Practice.” Physician Executive 22:23-25.
  6. Relman, Arnold S. 1997. “The Market for Health Care: Where Is the Patient?” Clinical Chemistry 43:2225-29.
  7. Relman, Arnold S. 1998. “The Corporatization of the United States Health-Care System.” Connecticut Medicine 62:97-98.

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