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The following excerpt is from The Medical Monopoly: Protecting Consumers or Limiting Competition?

Subsidies and the Medical Monopoly

In addition to using government to restrict competition, the medical monopoly also turns to government for subsidies. For example, most physician training is subsidized by the federal government.

In 1927 student fees accounted for 34 percent of medical school revenues.(124) Today less than 5 percent of medical school revenues comes from tuition and fees. Instead, medical schools rely heavily on federal and state support.(125) In 1992 total medical school revenues amounted to $23 billion.(126) State and local governments provided $2.7 billion.(127) The federal government paid at least $10.3 billion to medical schools and hospitals for medical education and training (Table 3). Additional revenues were obtained from charges for services, endowments, and private grants.

Table 3
Taxpayer Support for Physician Education and Training, 1991-92

Billions of Source Dollars

Medicare $5.2
Federal research, training, and teaching $5.1
State and local governments $2.7
Total $13.0

Sources: Fitzhugh Mullan et al., "Doctors, Dollars, and Determination: Making Physician Work-Force Policy," Health Affairs Supplement (1993), p. 142; and Janice Ganem et al., "Review of U.S. Medical School Finances 1992-93," Journal of the American Medical Association 274 (1995): 724.

Medicare payments to hospitals represent the largest source of federal funding for medical education and training.(128) Medicare pays for physician education and training in two ways: First, hospitals receive direct payments from Medicare based on the number of full-time-equivalent residents employed at each hospital. Second, Medicare increases a hospital's diagnostic-related group payments according to an "indirect" medical education factor, based on the ratio of residents to hospital beds.(129)

The average Medicare payment to hospitals was more than $70,000 per resident for both direct and indirect education subsidies in 1992. An estimated 69,900 full-time-equivalent interns, residents, and fellows were eligible for Medicare reimbursement in 1991.(130)

Medicare paid hospitals $1.6 billion for direct medical education expenses and dispensed $3.6 billion for indirect medical education adjustments in 1992.(131) Of the total $5.2 billion that Medicare paid to hospitals for training, approximately $0.3 billion was appropriated for training nurses and allied health professionals.(132)

Medical schools and teaching hospitals receive additional federal funding from the National Institutes of Health, the Department of Veterans Affairs, the Department of Defense, and the Health Resources and Services Administration (Title VII) program. Federal funding for research, training, and teaching amounted to at least $5.1 billion in 1992.(133) That money was awarded to medical schools and affiliated hospitals in the form of grants and contracts.

Supporting biomedical research in medical schools is one way the federal government supports medical education without appearing to do so directly.(134)

As Feldstein has pointed out, "There is no reason why medical students should be subsidized to a greater extent than students in other graduate or professional schools."(135)

That point has also been suggested by Uwe Reinhardt, a professor of political economy at Princeton University, who recently noted, In the context of academic medicine, this inquiry should begin with the question of why the education of physicians is now so heavily supported with public funds, when similar support has never been extended to other important professions, for example, students in law schools or graduate programs in business. . . . In truth, the case for the traditional heavy public subsidies to medical education and training has simply been taken for granted . . . it never has been adequately justi- fied.(136)

A less direct form of subsidy is the ability of the health care establishment to direct government payments from the Medicare and Medicaid programs to "approved" providers and hospitals. As already discussed, chiropractors and other nontraditional providers have generally been excluded from Medicare reimbursement. Furthermore, in order to be eligible to participate in Medicare, a hospital must be accredited by the Joint Commission on Accreditation of Health Care Organizations (or the American Osteopathic Association in the case of osteopathic hospitals). The JCAHO, which the Wall Street Journal describes as "one of the most powerful and secretive groups in all of health care,"(137) is a private organization with a board dominated by members representing the AMA and the American Hospital Association.

As several medical economists studying the issue have warned, in as much as Medicare is a major source of hospital revenues, "the influence of the JCAHO can be used to limit hospital competition and to protect physicians [against competition] from other groups of providers by denying them access to hospitals or influence within hospitals."(138) Thus the medical monopoly is able to use federal funds to reward its members and restrain its competitors.


(124) Medical school revenues totaled $11,983,863 in 1932. Sources of income were as follows: student fees, $4,057,304; endowment income, $2,784,527; state and city, $2,574,973; and other, $2,567,059. Lowell et al., Table 104 and p. 283.

(125) Uwe Reinhardt, "Planning the Nation's Health Workforce: Let the Market In," Inquiry 31 (Fall 1994): 250-63; Janice L. Ganem et al., "Review of US Medical School Finances, 1993-1994," Journal of the American Medical Association 274 (September 6, 1995): 724, Table 1.

(126) Janice L. Ganem et al., "Review of U.S. Medical School Finances," Journal of the American Medical Association 274 (1995): 723-30.

(127) Mullan et al., p. 142.

(128) Congressional Budget Office, Medicare and Graduate Medical Education (Washington: Government Printing Office, 1995), p. 10.

(129) Ibid.

(130) Mullan et al., p. 143.

(131) Ibid.

(132) Ibid., pp. 142-43.

(133) Ganem, p. 724, Table 1.

(134) Kovner, p. 73.

(135) Feldstein, Health Policy Issues, p. 189.

(136) Reinhardt, pp. 253-54.

(137) "Prized by Hospitals, Accreditation Hides Perils Patients Face," Wall Street Journal, October 12, 1988.

(138) Sherman Follard, Allen Goodman, and Miran Stano, The Economics of Health and Health Care (New York, Macmillan, 1993), p. 583.