Article The changing value of money

Money and Medicine: How financial incentives affect our healthcare system


“I am a neurosurgeon, the brain is my business”, proclaimed Katrina Firlik, one of the more famous neurosurgeons of our times. In a strange allegorical manner, this is representative of the current state of the healthcare system throughout the world. The entire human body, its mental and physical landscapes, has become the battleground for competing financial interests that drive our medical enterprises. The practice of clinical medicine started out with the objective of providing care to our fellow beings. Medicine, in its Hippocratic youth, was supposed to be driven by ‘agape’, a form of caring love, for the patients. This is not to say that financial and other material rewards didn’t play their roles in incentivising the physicians to provide care but the stress was put on the altruistic urge of the physicians to care for the suffering. We still have a modified version of the Hippocratic Oath that every graduating doctor is supposed to take but as with most other institutions, our healthcare system has also come to be dominated by economic interests. This is not a bad thing in itself and financial incentives have their way of maximising the efficiency of a given system in a short time and are easier to regulate and monitor than other intangible reward systems that might have driven the practice of medicine prior to the advent of money. The problems arise when the financial interests trump our ethical responsibilities or when they conflict with evidence.

In this article, we will try to untangle this complex interplay of money and medicine. At first, we will attempt to look at various examples of how financial incentives affect clinical decision making. Then we will attempt to understand the varying nature of this dynamic relationship across different countries that adopt fundamentally different models of healthcare. Then we look at how some of the leading modern economic theorists and social commentators of our times connect this with a bigger trend prevalent in our times which they have dubbed as ‘economic imperialism’ or ‘market triumphalism’. Finally, we attempt to suggest a few ways out of this.

It should be made clear at the onset that this article will be biased towards highlighting the darker aspects of the process of monetisation of the practice of medicine but this is not representative of the entire story. Medicine remains, by and large, a profession that is driven by empathy and altruism. Much like the purpose of clinical medicine, as we do not attempt to find maladies in patients in order to malign them but to cure them, we are here to identify the problems in our healthcare system so we can find better ways to address them.

Caribbean Resorts, Lap Dances, and Evidence-Based Medicine

From 2007 to 2009, Victory Pharmaceuticals, a company based in the US, paid physicians in the form of cash, tickets to sporting events and concerts, luxury dinner passes, outings to strip clubs, paid for lap dances for the female employees of a physician’s staff. In response to a whistleblowers’ complaint, the company has agreed to pay $12.2 million to the federal and state governments and has deferred a criminal prosecution agreement. The bribing was done to promote the sale of a few of the company’s pain-killer medications. This problem is not unique or new nor one limited to the USA. Chinese regulatory authorities have accused GlaxoSmithKline of resorting to bribery in the forms of cash and sexual favour to boost the sale of their drugs. Glaxo is alleged to have spent close to £320 million since 2007 as bribes to physicians through various middlemen and travel agencies in China. Glaxo has been charged with similar offences in the US where they sent doctors to lavish resorts to promote one of their antidepressants that helps smokers to quit. Pfizer reached a $2.3 billion settlement in response to charges that it paid for the jet-ferried vacation of five thousand American physicians to luxury resorts in the Caribbean islands. Johnson and Johnson has been accused of bribing Texas Medicaid officials with trips and perks to sell their antipsychotic medication. Similar allegations have come up against almost all the big surgical implants companies in the way they pay up surgeons to promote surgical procedures that require their products.

Apart from the direct financial incentives, pharmaceutical companies have also resorted to other means to boost the prescription of their products. This requires tapping into or fiddling with the evidence and rationale behind using drugs and surgical products. Doctors are required to attend certain Continuing Medical Education (CME) courses to keep themselves updated with the latest developments in their respective fields. A significant percentage of these CMEs are sponsored by pharmaceutical companies which mean that they are biased heavily towards highlighting the beneficial effects of their products. To top that, the instructors at these courses are usually funded by the companies so that it adds to the bias. At the next level is the problem of ghost-writing. Most physicians attempt to publish a certain number of peer-reviewed articles in a given time-frame to enrich their academic profile and in some cases it is mandatory to be promoted to the next higher position in the job hierarchy. The usual busy schedule of the doctor allows for the pharmaceutical companies to tap into this. They are willing to write the articles in the names of the doctors so long as they agree to publish the results in favour of their products. Even the clinical trials, upon which most of the results of these articles are based upon, are funded by the pharmaceutical companies thereby adding to the problem. The rot runs even deeper. The backbone of clinical practice is the evidence we gather from basic research in biomedical sciences. In the US, almost sixty percent of the biomedical research is funded by the pharmaceutical and device industry compared to almost half that amount being funded by the state. Almost half the researchers associated with basic research in the life sciences are somehow related to these industries and a significant percentage of them receive financial remunerations. These lead to design and reporting biases, results are selectively published in favour of the companies. The companies then use these basic science findings to market their products. Thus we see that the entire field of biomedical sciences is tainted with financial incentives from the level of basic research to the prescription of drugs and election of surgical procedures by doctors.

In the next section, we attempt to look at how the scenario varies across two countries and how, if at all, the systems in certain countries provide a safeguarding mechanism against this overt monetisation of the practice of Evidence-Based Medicine.

The US and UK Healthcare Systems: A Comparison

There’s a meme that’s been doing the rounds over the internet for the last few weeks and it says, “The average hip replacement in the USA costs $40,364. In Spain, it costs $7,371. That means I can literally fly to Spain, live in Madrid for 2 years, learn Spanish, run with the bulls, get trampled, get my hip replaced again, and fly home for less than the cost of a hip replacement in the US.” An MRI scan costs close to a thousand dollars in the US compared to almost a quarter of the cost in most other countries. A survey carried out by the International Federation of Health Plans or IFHP, a global insurance a global insurance trade association that includes more than 100 insurers in 25 countries, showed that of the twenty-three medical procedures and services they studied across different countries, twenty-two cost significantly higher in the United States. An examination of the health statistics of the different nations show that when healthcare expenditure per person is plotted against the life expectancy, USA glaringly stands out as an outlier. USA spends almost double the amount of money on healthcare per person compared to most other developed nations but ranks poorly in most indicators of health. If one were to examine the extreme effects of economic motives influencing the healthcare system of a nation, the US of A would probably provide the best example.

Various causes have been proposed to explain the poor performance of USA across different markers in health statistics despite the huge expenditure. But if we were to skip aside the debate of the performance, the question remains, why does the US have to spend so much more on the healthcare of its citizens? In a 2003 study published by Anderson et al in the journal HealthAffairs, the authors attribute this to the expensive nature of most procedures and drugs in the US. In the UK and in Canada, the prices of healthcare services are set by the government. In Japan and Germany, the government steps in to set the price when the healthcare provider and the insurer fail to reach an agreement about the cost. These regulatory mechanisms are largely absent in the US. Until the early 1960’s, the US hospitals were mostly charitable organisations barely managing to survive. In 1966, when the Medicare and the Medicaid came into being, the federal funding boosted biomedical research and the technological and scientific advancement started an era of unprecedented growth in the health industry. The Wall Street which had overlooked the healthcare industry previously, suddenly found interest in it. This combined with the general apathy of the US citizenry towards central regulatory mechanisms spiralled the transformation of the healthcare system into a business enterprise. The medical system is particularly vulnerable to exploitation under these circumstances as the normal price regulatory mechanisms of the market do not apply when it comes to providing care to the sick. The patients and their families often fail to negotiate the fair price of a product or service with the caregivers in the face of a grim health crisis resulting in the exorbitant final prices we encountered. Couple this with the aggressive marketing strategies by the pharmaceutical and devices companies and the cost they incur and we can understand why healthcare in the US faces a grim crisis. The recently passed Affordable Care Act (and the Sunshine Act and a few other legislations) addresses a few of these intrinsic problems, by increasing transparency in disclosing the cost of healthcare procedures for example, but the core problems remain and the US is likely to have a higher cost burden in healthcare until some fundamental changes are done.

At the opposite end of the spectrum is the largely socialised healthcare system of the United Kingdom. The UK spends 9.4% of its GDP on healthcare compared to almost 17.7% in the US, spends about 40% of what the US spends per citizen but performs better than the US across almost all metrics of quality of health of its citizens. The National Health Service or NHS in the UK provides almost all kinds of cares to the patients including preventive services, outpatient and inpatient services, drugs, mental healthcare, palliative services, rehabilitation services, and long-term care. All of this is available for to any person who is ‘ordinarily resident’ of the UK (which basically means everyone except visitors and illegal immigrants) as long as they are paying the taxes. Some outpatient drugs are supposed to be paid for by the patient but there are subsidies for certain groups and the final statistics show that less than 6% of the costs of these are ultimately borne by the patients. About 80% of the healthcare spending in the UK is done by through public healthcare expenditure, almost all the GPs work for the government, and almost every citizen is benefitted through this system. There have been complaints of lack of availability of expensive drugs and medical procedures through the NHS due to the nature of their prohibitive costs, the long waiting time for patients who are to see specialists, and general inefficiency in the hospitals due to the inevitable problems that come with the running of such a huge institution. But all in all, the citizens of UK love their NHS and it is certainly one of the better systems of healthcare that most other countries would benefit from emulating.

Thus, we encountered two different systems of healthcare that pretty much fall on the opposite ends of the spectrum. The UK healthcare system is more resilient to the process of monetisation while the US system is already coping with a severe form of it. In the next section we aim to analyse the general trend of economisation of most of our enterprises and how that affects our healthcare system and what, if anything, should be done to change it.

Marketization of Medicine

An oft-cited study published in the Journal of Applied Psychology was carried out in 2008 by Adam Grant at the University of North Carolina on what motivates people to do their jobs. The study looked at janitors who clean the floors in office buildings and the ones who cleaned the floors in hospitals. The latter group perceived their jobs as being more significant and they were significantly more involved and enthusiastic about their work than their counterparts in offices. Nowhere on their job description were mentioned the patients they were helping and their work-list mainly comprised of simple to-do things but when they were interviewed, most of them mentioned how they were integral in maintaining and caring for the health of the patients and the human element predominated in most of their narratives. This is not surprising. Most of the jobs we do in our lives were originally centred on the purpose of maximising a certain utility function. Medicine, as a profession, is designed to help our fellow beings to get out of their ailments and sufferings. In what has been dubbed as ‘economic imperialism’ by American psychologist Barry Schwartz and ‘market triumphalism’ by Harvard political philosopher Michael Sandel, we have to mediate most of our interactions and jobs through the concept of money. Financial incentives became our panacea to all the problems that limited us from exercising our full potential. But modern evidence shows that financial incentives do not work as linearly as expected. They even turn out to be counter-productive at times. The conflict, in my opinion, arises when the disconnect of the present purpose of a job becomes too high from that of its utility function. The purpose of medicine and our healthcare system is not to generate profitable quarterly statements to be presented to investors who have no stake in the health of the patients. But with the increasing influence of financial incentives in affecting the decisions doctors make as healthcare providers, this is becoming the case. As a result, doctors are vulnerable to the lures of bribing by the pharmaceutical and devices companies and other things. Healthcare is in a crisis because somehow a significant percentage of physicians stopped practising for the right reason, which is to treat patients, and started doing it to achieve other ends.


Mark Reid, a physician who posts medical aphorisms on Twitter, recently said this, “If you have lost your faith in the purpose of the practice of medicine, attend a medical school graduation.” The empathetic spirit that lasts one through medical school has to be kept alive throughout the professional lives of physicians. They have to be constantly reminded of the purpose of their jobs. Legislations have proven to be effective but we need to address this problem at a much more fundamental level. Only then will we be able to reconnect the profession of medicine with its raison d’être, helping fellow human beings out of their sufferings. Only then can we fix our healthcare system.

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