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The United States was in an uproar in the late twentieth century over whether medical care was or ought to be a business. The prestigious New England Journal of Medicine made the Health Policy Advisory Center's earlier warning about the rise of a "medical-industrial complex" a mainstream concern. 1 Political scientist James Morone advised that medicine was suddenly and rapidly becoming a "corporate enterprise organized and run along business principles."2 Group practices, promoted for decades as progressive reform, took on a new business identity as health maintenance organizations (HMOs) in what sociologist Donald Light called perhaps the "greatest rhetorical reversal in the history of American health care."3 HMO and other managed care supporters declared that the cottage industry of medicine was finally having its industrial revolution.4
Identifying cottage industry as the problem mandated an industrial and corporate development as the solution. So-called market reformers sought to transform medicine into a "modern corporate system, featuring the sophisticated financial and managerial controls associated with big business."5 They advised that such a system offered "economies of scale and scope through mass production manufacturing techniques."6 Critics pugnaciously described the same developments as an "invasion of commerce into medical care" and an "epic clash of cultures between commercial and professional traditions."7 Medical care did reproduce industrial, corporate, and commercial models of organization, but it was not so sudden. Ray Lyman Wilbur defined medicine as an industry when he was chairman of the 1927-1932 Committee on the Costs of Medical Care (CCMC). The committee defined its purview in terms of reforming the economic organization of medicine, defining it as the "methods of producing and financing" medical services.8
What This Book Is All About
In contrast to most historical and policy studies that focus on financial aspects of medical reform, this book investigates the production side of the economic organization of medicine. It is compatible with an approach that historian Louis Galambos called "organizational synthesis."9 This interdisciplinary method combines scholarship from history and the social sciences to describe how a wide range of social institutions adopted similar forms of economic organization. It allows an integration of individual actions and beliefs with institutional momentum and systemic dynamics as motors of change. Like other organizational synthesis approaches, this book identifies functional specialization and the building of complex production units as significant structural developments in the early part of the twentieth century.10 In rejecting the hypothesis that doctors at that time looked to business for their organizational strategies, historian Donald Madison held that the "immediate commercial interests of medical practitioners steered them on an opposing course," leading them toward individualistic rather than bureaucratic organization.11 This patently successful continuation of individual entrepreneurial practice led historian Thomas Goebel to reject the pertinence of organizational synthesis to medicine, even as he acknowledged that the rise of specialties and bureaucratically managed, large-scale institutions "reconfigured American medicine."12 I specifically address that reconfiguration structurally and clinically. Conventional medical as well as historical explanations of medical care organization and its therapeutics have assumed that both are driven by scientific and/or technologic development. Two spectacularly successful approaches to fighting disease-immunization and antibiotics-supported a positive view of scientific and technologic progress in medicine. Investigators increasingly questioned, however, the extent to which medicine was a "structure shaped by an inexorable and laudable accretion of scientific insight," as historian Charles Rosenberg put it.13 Much that twentieth-century medicine had to offer was not nearly so effective as immunization and antibiotics. Experts acknowledged the inadequacy of evidence to support existing intervention levels and that the evidence that was available sometimes contradicted practice patterns. Joseph Califano, former secretary of the U.S. Department of Health, Education, and Welfare, answered "certainly" to his 1988 query, "Is it possible that in this era of high-tech medicine we just don't know with any precision whether many procedures truly affect the medical outcome?"14 This book examines how widespread use of medical procedures came about in the face of insufficient evidence of their efficacy.
My first thesis proposes that many medical care developments and reforms throughout the twentieth century applied contemporary elements of economic organization to the structure of medical care. In examining this thesis, I use health administration scholar Avedis Donabedian's framework defining structure in terms of characteristics of medical providers, their tools, and their organizational settings.15 The thesis does not merely draw an analogy between business and medicine; it examines how medical occupations and institutions incorporated elements of business organization into the foundation of medical care. This process created institution-based specialties, academic medical centers, and (somewhat later) multi-hospital regional systems. Medicine did not exactly "escape" the corporation prior to 1965, as Paul Starr maintained in The Social Transformation of American Medicine, using the prevalence of organized groups as his measure16-medicine became the corporation. This first thesis stands alone: medicine did apply business models; the second thesis builds on the first.
My second thesis links the economic organization of medicine to its clinical content, practice, or what Donabedian called "process"-the sets of diagnostic, treatment, and interpersonal interventions that providers use on patients. The business elements built into medical care had a powerful impact on shaping its clinical interventions. Without denying that clinical process development also entailed many other factors, this thesis means that the economic organization of medicine shaped the clinical activities and the theories that we know as twentieth-century medicine. It means that the business elements are not neutral tools that merely enhance efficiency without impinging on medical science itself; rather, the science, the practice, and the business of medicine are intertwined at the most fundamental level. What exactly are these elements, and where did they come from?
Twentieth-Century Economic Order
A new kind of enterprise boomed in the American economy in the late nineteenth and early twentieth centuries, creating organizational changes that some would call a second industrial revolution. This new enterprise changed the workplace, the nature of work, and its products. Its productive features included concentration in large plants, labor specialization, process standardization, monopoly of technology, and professional management.17 Extending the division of labor of Adam Smith's pin factory, Frederick Winslow Taylor further subdivided and managed labor processes, publishing The Principles of Scientific Management in 1911.18 Incorporating such a labor division, managers designed production processes to achieve the most efficient and intensive use of their highly capitalized facilities.19 The assembly line, which added a flow of material to scientific management's task differentiation, grew up in Chicago's slaughterhouses (where they were actually disassembly lines) and came to maturity in Ford Motor Company plants. Corresponding with the new production systems, the new economic order valued uniformity, control, and efficiency.20 Initially referring to mechanical efficiency, that is, the energy output- input ratio of productive machinery, efficiency came also to mean financial efficiency, or the "output-input ratio of dollars."21
The corporation emerged as the major organizational strategy for integrating and managing the new production, its finances, and its markets. Organized into divisions with their own accounts, the corporation applied bureaucratic management methods, centralized financial control, and accumulated capital.22 The new mass production required mass consumption, which necessitated marketing products on regional and national scales, creating demand, and designing products for their salability in the marketplace.23 Corporate combines integrated vertically and horizontally, seeking economies of scale and scope as well as control of competition.24 Their leaders tried to order industries as a whole with regional organization and monopolistic market structures. These elements of economic organization-scientific management of functional division of labor, assembly line production, corporate organization, horizontal and vertical integration, and regional marketing-formed the business model that spread across the economy. With varying degrees of success over the course of the century, medical leaders and reformers tried to apply the same model to medicine. All of its elements will appear in this book-as professional and institutional accomplishments and as reform strategies. But, first, it is necessary to define my terms and discuss some difficulties in using them. There is no single best term to characterize medicine's model of economic organization, in part because its features changed over time. In addition, existing terms carry disciplinary and philosophical baggage that I do not mean to imply.
Medicine conventionally portrayed its organizational model as professional, and scholars contributed to viewing it through the lens of professionalism.25 Like the critics who perceived a sudden invasion of commerce into medical care, doctors often used the concept of profession as an antithesis of economic organization. They emphasized medicine's service over self-interest and its production of knowledge over commodities. Sociologist Eliot Freidson, however, defined professions as structurally similar to other occupational groups. To Freidson the key difference-an important one-was that professions retained control over their work. He used the term professional dominance to refer to medicine's continued control over its division of labor, its skills, its technology, and its "production standards."26 Assuming an evolutionary development of a corporate model of medicine, Freidson saw professional dominance as a developmental lag for which stronger management was the solution.