WITH AMAZING SPEED, American medicine is evolving in uncharted directions. Managed care has transformed a "cottage industry" run by highly individualistic physicians into a far more controlled enterprise in which many other players wield major influence, both financial and professional. In the process, two medical economies with greatly differing perspectives and fortunes have emerged. Once mutually supportive, their relationship has deteriorated.
The core economy comprises the work and economic output of physicians and related professionals who diagnose and treat patients themselves. Though medical doctors are licensed and regulated, they have historically been accorded substantial autonomy and a primacy among peers, much like that accorded the captains of ships. Privileges and authority have been closely coupled with reciprocal obligations and responsibilities for both. The captain may command, but he is the last to leave the ship; physicians may give the orders, but they are not free to abandon patients or to refuse to give care in emergency circumstances. Physicians tend to work longer hours and more years than other professionals.
The peripheral economy provides the financing, management, and technology that support the care of patients. Enterprises as diverse as manufacturing drugs and writing health insurance policies all contribute to patient care, though not independently. The face of modern medicine would be very different without this peripheral economy, but it is physicians who ultimately give the orders that are required to diagnose and treat patients.
The distinction between core and peripheral medical economies may appear to be either arbitrary or a misnomer, not least because the "peripheral" medical economy accounts for more than 80 percent of health dollars. Remarkably, until recently, the "core" earnings of physicians have remained fixed at 18 percent to 20 percent of health expenditures despite all the innovations of the past 50 years--Medicare, managed care, new technologies, and a doubling of the number of practicing physicians. The consistency of physician earnings in relation to the rest of the medical economy suggests that physicians have occupied a constant place even as the structure of health care has undergone dramatic change. The peripheral economy, meanwhile, has enjoyed remarkable success under managed care. In one fabled success story, nonprofit California Blue Cross was on the verge of insolvency in 1992 when it reinvented itself as for-profit WellPoint and went on to become a $6.77 billion corporation by 2001. The pharmaceutical indust ry has also enjoyed record profitability. On the other hand, Healtheon, now WebMD, failed to realize its dream of "capturing the doctor's desktop" and making itself indispensable to health care -- despite the prestige and resources of its founders. And physician management companies, once Wall Street favorites, have failed spectacularly, leaving physicians skeptical of overarching controls.
But in general, the peripheral economy has been successful. And perhaps unsurprisingly, the success of the peripheral economy has provoked a backlash. State medical associations in New York, Florida, and California are suing major managed-care insurers for a variety of practices, including take-it-or-leave-it contracting and retroactive lowering of physician fees. Frequent inflammatory statements from CEOs of Aetna and WellPoint have heightened the adversarial climate; the two companies have recently been embroiled in litigation over unfair business practices. Physicians have protested bitterly as their incomes have fallen and their autonomy has eroded in a managed-care world that blurs the roles of insurer, physician, and patient.
Ironically, managed care first emerged with the pledge to modernize and streamline medicine's cottage industry. Yet, in practice, fragmentation of authority has become pervasive. …