Corporate misbehavior in the health-care sector is widespread: irresponsible opiate marketing, misrepresentation of research data, price gouging, and on and on. Some see it as capitalism run amok.
In one sense, this isn’t surprising. As the Business Roundtable acknowledged in a recent statement, American companies have too long prioritized shareholders and profits over the interests of employees, customers, and communities. Health-care companies are businesses, so why shouldn’t we expect them to act the same way?
Why? Because health care isn’t just another consumer product. It is more than that. The Hippocratic ideals of putting patients first are ingrained in our culture and reflected in the regulation of medical licenses and malpractice law. But although Hippocratic ideals have long been the basis of expectations for medical professionals, they haven’t yet been formally applied to health care companies. This is a major shortcoming in an era when the actions of large health systems, pharmaceutical companies, device companies, and insurance companies can have even greater effects on patients than the actions of individual clinicians.
All of which is why I, a physician working in the clinical laboratory industry, am excited about the growing interest in stakeholder capitalism that the Business Roundtable laid out: for a business to be sustainable over the long term, it must explicitly address the interests of all major stakeholders. Owners (shareholders) are an important stakeholder group, but so are customers, employees, and the community in which the business operates.
Of all industry sectors, I am convinced that health care has the most to gain from this model. Health care may also have the clearest path to stakeholder capitalism due to some of its distinctive characteristics.
First, the health-care industry includes groups that share a common ethical culture and language. These include physicians, nurses, scientists, and other professionals, all of whom are schooled in medical ethics during training. It also includes mission-driven hospitals and health systems, including many with religious affiliations.
Second, health care will find it easier than many other industries to find the right balance among its various groups. The doctrine of shareholder supremacy has a certain elegance in that it simplifies the decision about which group comes first — shareholders. Medical ethics and patient-centered capitalism offer an equally elegant solution: patients come first and all others, including shareholders, come second.
Third, health care has a mature and well-defined set of ethical principles against which to measure corporate behavior. The ethical codes of the American Medical Association and the American Nurses Association are well-known examples, though they are worded specifically for individual practitioners. Another example is the Belmont Report, commissioned by the U.S. government in 1978, which laid out rules for conducting research on human subjects. All of these codes are based on three core principles: respect for persons, beneficence, and justice.
Respect for persons includes autonomy and informed consent. If medical device manufacturers followed this principle, they would have to disclose to patients how likely they will be to actually benefit from a particular hip replacement or pacemaker or cardiac stent. They would also have to disclose whether there might be a competing device with a higher success rate and a lower complication rate.
Beneficence includes the Hippocratic maxim of “Do no harm.” If oxycodone and fentanyl manufacturers had followed this principle, they would not have downplayed the abuse potential of these drugs in their marketing messages to doctors.
Justice involves fairness for all patients. Health insurers following this principle would need to ensure equitable coverage across all ages, genders, disease categories — including mental health — and among vulnerable populations.
Fourth, health care guided by patient-centered capitalism offers a rich set of structural opportunities for accountability to all stakeholders. Large health systems and group-purchasing organizations, for example, have enormous market power over suppliers of medical products. This power is currently leveraged mainly to obtain lower prices, but it can just as easily be used to preferentially choose suppliers whose marketing meets scientific standards of objectivity, who contribute all clinical data to public registries, and who meet other defined standards.
Likewise, medical professionals such as physicians and nurses have enormous potential influence on health care companies. They can openly — and ideally collectively — declare their expectations regarding the companies they work for and whose products they use, and then back up these statements with their career choices and medical product choices.
There is an obvious accountability role for regulatory agencies in patient-centered capitalism such as the Food and Drug Administration and the Centers for Medicare and Medicaid Services, but distributed mutual accountability will be more robust than one-directional regulation alone.
Changing corporate culture across an industry as huge as health care will take time. But the barriers can be overcome. And the Business Roundtable just took away one of them — the business doctrine of shareholder supremacy — or at least signaled a willingness to do so.
The public expects and deserves ethical actions not just from individual health care workers but also from the organizations and companies in this sector. It’s time we make this happen. Patient-centered capitalism can point the way.
Brian R. Jackson, M.D., is an associate professor at the University of Utah School of Medicine, as well as a medical director at ARUP Laboratories, a nonprofit enterprise of the University of Utah.
It’s an interesting concept, Brian. EACH stakeholder would be responsible for the beneficence to EACH of the other stakeholders. For example, let’s consider 5 of the major stakeholders: patients, physicians, hospitals, commercial payers, and government payers. So, physicians have to figure out what’s best for the patient, what’s best for the payer (whether commercial or government), what’s best for the hospital, and what’s best for him/herself (the physician. And, the payer would have to do the same for the patient, the physician, and the hospital. And, of course, to complete the mutuality of the construct, patients would have to consider what’s best for the physician, the hospital and the payer. Sounds terminally naive to me. How about each party follow strict rules of what is acceptable behavior, and then EACH party tries to maximize ITS OWN outcome in the game? That sounds like a system that humans are naturally inclined to participate in successfully to me.
Jay, I’m not sure I would go that far. Clearly each player should act in ways that are morally appropriate from their own perspective. But I’m also trying to make the point that each player in this business ecosystem has some level of influence with other players. Call it negotiating leverage. And that leverage can be used for whatever factors are important to the first party, whether financial or moral or both. In a world where many health care businesses explicitly down-prioritize patient welfare in their pursuit of profits, we need counterbalances that go beyond government regulation.
A couple thoughts here: One is that I’d like to see a much larger, more active role for business partners and the workforce, so that it’s not just shareholders exerting the pressure. Health system purchasing departments, for example, are starting to include ESG issues such as recycling and female- and minority-ownership of businesses into their criteria for choosing suppliers. I’d like to see these criteria expanded into more medical ethical areas. In order for the workforce to have a louder voice will require collective action, and that’s where medical and nursing professional societies need to expand their vision. My second thought to your question is that transparency is foundational to much of this. With your shareholder meeting example, you might push for public reporting of data that sheds light on ethical corporate behavior. SASB standards are a good start, but I think they’re only a start. Specific example: I’d love to see all large pharmas report their breakdown of R&D expenses to show how much they’re investing in lifestyle drugs, how much they’re investing in patent-extending technologies with no social value, how much they’re investing in high-social-need areas such as antibiotics, and so forth.
Consider Milton Friedman’s classic essay, The Social Responsibility of Business is to Increase its Profits:
Exactly — that essay keeps cited as the source of moral cover for companies engaging in socially harmful activities. Personally I think Friedman was just being naive with regard to the social messiness of business. In his idealized world, regulations would constrain businesses to behave ethically, and then shareholders could choose to spend part of the profits on charity. But in the real world, businesses work hard to exploit loopholes. Thus, corporate values actually matter.
All of the “corporate misbehavior” that you cited in the first paragraph is illegal and was prosecuted. What is an example of legal “misbehavior” that companies engage in sustainably, and would thus require a reorientation to stakeholders?
One example is pricing of generic drugs, including insulin. Traditional market theory would expect prices to come down over time, but companies use a variety of legal tactics to acquire monopolies, extend patent protection, pay kickbacks to middle men, etc., and the end effect is that prices grow rather than shrink. Another example is pharma and device marketing, where companies “mostly” stay within FDA limits on their messages, but push way beyond standards of scientific objectivity. A third example is when hospitals pursue “profitable” patients at the expense of serving the whole community. I could go on and on. Regulation alone isn’t sufficient to align companies with social values; we need additional accountability mechanisms.
What accountability mechanisms do you favor?
I think the important thing about accountability is that it be widely distributed across multiple different mechanisms, including both legal/regulatory and business relationships. The analogy I sometimes use is traffic safety. There are many different categories of laws at different government levels, covering drivers, vehicle manufacture, vehicle maintenance, roadways, etc. The insurance industry plays a huge role here too, setting standards and various incentives. Fixing the healthcare industry can’t just involve one government agency; it needs to be a pervasive set of articulated values, backed up by a wide range of norms and rules.
Thanks for engaging with me here, but that still sounds like management being accountable to shareholders and regulated (perhaps more so) by government, as is the case in auto manufacture. What are you proposing that is different from that system? What policies would you have me vote for in a shareholder meeting or public election to satisfy your vision?
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