Cost Conflicts-of-Interest in Medicine

Clinical Care versus Finance

By Render S. Davis MHA CHE

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Conflicts of interest are not a new phenomenon in medicine. In the fee-for-service system, physicians controlled access to medical facilities and technology, and they benefited financially from nearly every order or prescription they wrote. Consequently, there was an inherent temptation to over-treat patients. Even marginal diagnostic or therapeutic procedures were justified on the grounds of both clinical necessity and legal protection against threats of negligence. 

Costs Rarely Considered

While it could be construed that this represented a direct conflict of interest, it could also be argued that most patients were well served in this system because the emphasis was on thorough, comprehensive treatment – where cost was rarely a consideration.  It was a well known adage that physicians “could do well, by doing good.” 

Managed Care

In managed care, the potential conflicts between patients and physicians took on a completely different dimension.  By design, in health plans where medical care was financed through prepayment arrangements, the physician’s income was enhanced not by doing more for his or her patients, but by doing less.  Patients, confronted with the realization that their doctor would be rewarded for the use of fewer resources, could no longer rely with certainty on the motives underlying a physician’s treatment plans.  One inevitable outcome was the continuing decline in patients’ trust in their physicians.  This has been exacerbated to some degree by revelations of significant financial remuneration to physicians by pharmaceutical and medical products firms for their services as researchers or active participants on corporate-funded advisory panels, calling into question the physician’s objectivity in promoting the use of company products to their peers or patients.

Conflicts of Interest

Conflicts of interest may also create concerns at a much higher level, as evidenced by the issues raised in 2008 litigation against Ingenix, a company that for more than a decade, provided information to the insurance industry on payments to out-of-network physicians for their “usual and customary rates (UCR).” As noted in court documents, Ingenix was a wholly-owned subsidiary of United Healthcare and the UCR information sold by the company to insurers may have been fundamentally biased in favor of the insurers, causing patients to pay larger out-of-pocket fees.


As a result, New York attorney general Andrew Cuomo filed suit against Ingenix.  This action was followed by suits brought against major insurers by the American Medical Association and several state medical groups for systematic underpayment to members, based on the biased data.  To date there have been monetary settlements, but the issue continues to raise growing concerns regarding conflicts of interest among the key payers for health care.


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3 Responses

  1. Why is it so hard to reduce US health care costs?

    Professor Victor Fuchs and Dr. Arnold Milstein, both of Stanford University, have an article in a recent issue of The New England Journal of Medicine that asks: Why is it so difficult to reduce health care costs in the US?

    Any thoughts?



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