The Logic of Medical Markets

Ronald Reagan's election in 1980 signaled a policy shift in the United States that reduced government regulation and promoted markets. This set the stage for the fourth phase of the history of the American medical economy, which is characterized by the logic of markets. This chapter examines how market logic influenced physicians, hospitals, insurers, and drug firms. Physicians decided what services and therapies patients received, who provided the services, and in what setting. As a result, physicians allocated income through their clinical choices. Market logic heightened the effects of arrangements that created physicians' conflicts of interest. Hospitals, insurers, drug firms, and firms selling other medical services all understood that physicians' decisions controlled their financial success. They sought out physicians for joint ventures and created incentives to align physician financial interests with their own. Physicians' conflicts of interest grew because the state placed relatively few legal restraints on physician entrepreneurial activities while the complex medical economy generated an increasingly wide variety of opportunities.