CONFLICT OF INTEREST

In a conflict of interest, one's obligations to a particular person or group conflict with one's self-interest. A physician, for example, is ordinarily obligated to provide his or her patients with only the care that is reasonable and medically necessary, even if the physician may earn more money through unnecessary interventions. Conflicts of interest should be distinguished from conflicts of obligation, in which one's obligations to one person or group conflict with one's obligations to some other person or group. The latter need not necessarily involve any threat to the agent's own interests. For example, a physician is normally obligated to keep patients' medical problems confidential; however, when a patient poses a danger to others (by transmitting AIDS to a spouse, for example) the physician may have an obligation to protect that third party by violating the confidentiality that would otherwise be owed to the patient. In a healthcare context, conflicts of interest can arise for individual providers, such as physicians, dentists, nurses, or physical therapists, or for institutions, such as hospitals, health maintenance organizations (HMOs), insurers, or pharmaceutical companies.

Conflicts of interest can be found in any human endeavor; indeed, the clash between self-interest and altruism lies at the heart of morality. However, conflicts of interest in healthcare are especially serious because of the patient's vulnerability. Illness can impair a patient physically, emotionally, and rationally. To secure treatment, patients must expose physical and emotional intimacies normally reserved for loved ones, and they frequently face further risks from invasive diagnostic and therapeutic technologies. Patients usually have no choice but to submit to such exposure and risk, because typically they lack the knowledge and skill to identify and treat the illness or to ascertain whether care is being rendered appropriately. This vulnerability creates ample opportunities for providers to exploit patients for personal gain. Physicians or dentists might recommend costly, unnecessary care, or an insurer or an HMO might attempt to lure subscribers by promising more than it can deliver.

Accordingly, providers such as physicians and dentists are often regarded as fiduciaries, in both a moral and a legal sense. Fiduciaries hold beneficiaries' (the patients') interests in trust and are obligated to promote the latter's interests, even above their own hospitals, insurance companies and HMOs. Nursing and allied health professions are not ordinarily considered fiduciaries in the legal sense, but they do share a strong ethic of dedication to patients' interests.

For many years, a serious commitment to professionalism and an effacement of self-interest seemed sufficient to manage conflicts of interest. The traditional fee-for-service system admittedly encouraged unnecessary services, but prior to the mid-twentieth century providers had relatively few interventions to offer, beyond their own care and concern. As technologies emerged, a relative shortage of providers meant that each had more than enough to do. Furthermore, in the long-term relationships that characterized most healthcare, providers had to live with the consequences of their decisions, right alongside their patients. Exploitive or abusive practices thus carried strong disincentives.

Since about the mid-1960s, however, healthcare has become high cost and big business. Providers now face a plethora of conflicts of interest, ranging from the traditional but much-exacerbated conflicts implicit in fee-for-service to powerful pressures to cut the cost of care by doing less for patients.

Conflicts of Interest for Physicians

For physicians, conflicts of interest can arise in two distinct realms: the clinical setting, where medical care is primarily designed to help the patient, and the research setting, where physicians seek scientific knowledge that will only sometimes benefit the patient or research subject.

THE CLINICAL SETTING. In the clinical setting, a number of factors could encourage a physician to alter a patient's optimal care, whether it be to secure a personal gain or to avoid a loss. Conflicts can be posed by third-party payers, institutional healthcare providers, private industry, the legal system, and physician investment.

Third-party payers. Traditional fee-for-service reimbursement encourages physicians to deliver as many services as possible and, in a maneuver called "unbundling, " to break down each service into as many separately billable small interventions as possible. Maximizing income may thus mean excessive care, which in turn threatens needless inconvenience, expense, and iatrogenic injury for patients.

Partly because fee-for-service is an inflationary reimbursement system, healthcare costs grew at an alarming rate from the mid-1960s through the early 1990s. In response, those who pay directly for healthcare—government, businesses, and insurers—placed powerful pressures on physicians to do less for their patients. Payers sometimes offered bonuses to physicians to discharge patients earlier than normal, and they often refused to pay for various tests and treatments unless they were performed in an outpatient setting. Through extensive utilization review (UR), many payers reimbursed only hospitalizations or medical interventions that met their criteria of medical necessity. Physicians therefore spent large amounts of time (usually uncompensated) justifying their plans of care to payers in order to secure reimbursement.

As a supplement, or sometimes an alternative, to such controls, many health plans instituted financial incentives. Capitation systems, for instance, attempt to save money by paying a single fee for a large unit of care, thereby creating an incentive to avoid rendering care beyond the budgeted fee. Medicare inaugurated its diagnosis related group (DRG) system in the early 1980s, paying hospitals a set amount for a specific episode of illness, based on such factors as the patient's diagnosis, age, and coexisting illnesses.

HMOs, in a broader capitation concept, began to provide all necessary healthcare for each subscriber in exchange for a single annual premium. In order to ensure that their physicians delivered services within the year's budget, most HMOs, in turn, applied downstream financial incentives to their physicians, often withholding 20 percent or more of the physician's salary or fees until the end of the year, when they would be paid (or not) depending on the HMO's financial health. HMOs also have commonly set aside a special fund for diagnostic tests, consultants, and hospitalization. Primary-care physicians, acting as gatekeepers whose permission is required for the patient to gain access to these services, would share any surplus funds (or debts) remaining at the end of the year. Other HMOs placed physicians under subcapitation systems in which the physician provided a range of services for a set fee per patient. These arrangements could make a substantial difference in a physician's year-end income, thereby providing a powerful incentive for physicians to economize on the level of care they provide or authorize for patients.

The mid-1990s saw a brief reprieve from healthcare cost inflation, which, combined with a booming economy and widespread horror stories about the abuses of managed care, prompted most health plans to scale back these cost controls and incentive arrangements. However, as healthcare costs began rising rapidly again in the early twenty-first century, health plans and providers again struggled to keep them in check through a variety of mechanisms.

Although these mechanisms have evolved, certain features have remained constant. Ultimately, all payment systems create conflicts of interest by creating an incentive to provide more of the services that are most profitably reimbursed, and less of those that generate less income. However, the challenge is markedly exacerbated in the healthcare setting. Every medical decision is a spending decision, yet payers ordinarily cannot control their costs by directly dictating what care the physician will and will not provide. To do so would be to practice medicine in the physician's stead. Rather, payers attempt to influence physicians, who control up to 80 percent of healthcare costs through their power of prescription and their professional influence over patients. That influence is almost always gained by placing physicians' personal interests in peril as they are rewarded or penalized for fiscally (im)prudent healthcare decisions.

Institutional providers. Institutional healthcare providers, such as hospitals and clinics, can establish incentives to encourage physicians to do more (or less), depending on the institution's economic status (proprietary or charitable) and the patient's financial status (well-insured or not). A for-profit walk-in clinic, for instance, makes its money through the tests and treatments its physician-employees order. Hence, high-profit physicians may be praised and invited to share profits, or even to own a share of the business, while low-profit physicians may receive administrative warnings or lose their jobs if they do not improve. In other cases, physicians and proprietary hospitals may enter into joint ventures to share both the profits and risks of running the facility.

Whether proprietary or charitable, all institutional providers need to contain costs. Monthly printouts comparing the costs of each physician's care may be shared with medical staff in an attempt to shame the high spenders into delivering more conservative care. And those whose patients consistently leave too many unpaid bills may lose their staff privileges in a strategy called economic credentialing.

Such incentives systematically place physicians in conflicts of interest. The potential loss of income, peer esteem, staff privileges, or even one's job creates powerful pressures to align one's judgment with the institution's interests, even at some cost to patients' interests.

Private industry. Many medical drugs and devices are sold only with the prescription of a licensed physician and, notwithstanding some notable exceptions, are often not readily advertised to the general public. Therefore, manufacturers' marketing typically targets physicians. Because physicians tend to be busy people with substantial incomes, pharmaceutical companies can go to great lengths to get their attention. Promotions over the years have included allexpense-paid trips to exotic locations, ostensibly to hear a lecture on a new product; cash payments to physicians who agree to read literature describing nonapproved uses of a drug; "frequent prescriber" programs that award frequent-flyer points with the physician's preferred airline for every prescription of the company's drug; lavish parties and tickets to entertainment events; costly gifts such as luggage and decorative arts; inexpensive gifts such as pens and notepads; and subsidies for local educational colloquiums and travel to professional meetings.

The conflicts of interest are obvious. Such gifts reward physicians for prescribing drugs and devices whether or not they are necessary, and whether or not that particular product choice is most appropriate and least costly for the patient. Acceptance of gifts can engender a sense of personal gratitude and indebtedness that can put corporate loyalty above patients' interests. Furthermore, patients ultimately bear the costs of such promotions and gifts, whether through higher costs of the drugs and devices, higher costs for health insurance, or by forgoing higher salaries or fringe benefits because their employers are paying higher insurance premiums.

Legal system. Parallel to the escalation of healthcare costs, both the frequency and cost of medical malpractice litigation have increased. Physicians fearful of lawsuits may order extra diagnostic tests and more potent therapies to ensure that no one can accuse them of missing a diagnosis or doing too little for their patients. The cost of such "defensive medicine" has been estimated at up to 15 percent of the total cost of physicians' services. When physicians order procedures that are not medically necessary in order to protect their actual or imagined legal interests, they expose patients to extra inconvenience and iatrogenesis—at the patient's expense and usually without the patient's knowledge. It is a clear conflict of interest.

Physician investment. In some cases physicians create their own conflicts of interest by investing in facilities to which they refer their patients. Examples include freestanding diagnostic imaging centers, home health services, clinical laboratories, and physical therapy services. Although such investments can enhance the availability and quality of healthcare facilities in a particular locale, the physician owners of such facilities nevertheless have an incentive to refer patients there, even when the care is unnecessary, costly, or of poor quality. In the 1990s a series of federal laws and administrative regulations forbade many, but not all, of these arrangements.

The conflicts embedded in investments are not limited to freestanding facilities. One study found that physicians who owned radiographic equipment in their own offices tended to use it four times more often (generating costs seven times higher) than physicians who referred patients to independent radiologists for those services.

THE RESEARCH SETTING. The research context sometimes involves testing new treatments on ill patients, but it can also involve healthy volunteers when researchers look for toxicities of the very newest drugs. In many instances there is no expectation that participation in research will benefit the patient at all, whether because the subject is a normal control subject, because many people in the study will receive a placebo instead of active medication, or because the patient is too hopelessly ill to benefit from any treatment. Whatever the research protocol, however, the physician must respect the research subject's rights and interests.

Physicians can enjoy many personal rewards for successful research. Private companies such as drug manufacturers commonly sponsor research, in some cases paying the physician-investigator a fixed fee of several thousand dollars per person enrolled. The sum is intended to cover the costs of each subject's participation in the study, but in fact can result in a considerable surplus of money pocketed by the investigator. The more patients one enters in a study, the higher one's rewards, and an overzealous recruiter may be tempted to understate the inconvenience, discomfort, or risk that research participation may present for the patient, or to compromise the integrity of the study by signing up patients who are not truly eligible for the protocol.

Research that is funded by the government or other nonprofit sources can mitigate some, but not all, of the conflicts of privately sponsored research. Physician researchers still have strong incentives to gain the prestige, larger laboratory, increased technical support, academic promotion, science awards, and institutional power that come with securing grants and producing publishable research. In addition, some research projects have paid finders' fees to those who recruit patients for studies. As a result, investigators have powerful incentives to recruit patients into studies without necessarily taking full account of the patients' best interests.

Physicians can also create their own conflicts of interest. Sometimes physicians invest in corporations that are sponsoring their research, or they may serve as the corporations' paid spokespersons when research is completed. They may earn money from producing a valuable commodity, such as a cell line, by using tissues that patients either knowingly or unwittingly donate (see Moore v. Regents of the University of California ). In a few cases physicians performing for-profit scientific research have charged subjects a fee to participate. Although such entrepreneurial research is controversial, the con.icts embedded in for-pro.t research are not necessarily worse than those found throughout the high-pressure world of medical research.

Other Health Professionals

Whereas physicians and dentists often are private practitioners or independent contractors, nurses, physical therapists, dietitians, and allied health professionals usually are employees of hospitals, HMOs, clinics, home health services, or public health agencies. These professionals' conflicts of interest most often arise where their contractual duty to administer the therapies ordered by a physician or to follow established institutional rules clash with their own beliefs about what is best for a patient. Such health professionals may suffer personal retaliation if they violate institutional mandates in order to do what they deem best for the patient.

In these cases the problem begins with a conflict of obligation in which one's obligations to the institution do not match one's obligations to the patient. The conflict of interest arises as one faces a personal price, perhaps in the form of retaliation, for favoring the patient over the institution. Thus, though conflicts of obligation are not the same thing as conflicts of interest, in these cases they are connected. For example, in one instance a nurse was fired for informing a patient about alternative cancer treatments (the dismissal was later vacated on procedural grounds (see Tumav. Board of Nursing ). In another case a nurse was discharged for refusing to dialyse a patient for whom she believed the treatment was pointless and inhumane (see Warthen v. Toms River Community Memorial Hospital ) . Such clashes between administrative requirements and one's professional judgment are probably the greatest, though not the sole, source of conflicts for allied health professions.

Institutions

The interests of institutions and their administrators, like those of individual professionals, often mesh with patients' best interests. Ideally, in a competitive market where consumers seek quality and value for their dollars, a healthcare institution will prosper by serving patients well. However, such a happy match does not always occur, partly because ill patients are often not equipped to appraise and challenge the quality of their care, and because generous insurance policies insulate many patients from caring about the costs of care. Accordingly, the financial best interests of a hospital might prompt excessive charges, inadequate staffing and equipment, bloated advertising, or the premature "dumping" of uninsured patients into public institutions. Similarly, a pharmaceutical company may be financially rewarded for producing and marketing new drugs as early and as vigorously as possible, even if the drugs and their production methods are not as refined as they could be. As a result, some drugs may have more side effects, or cost more, than is necessary.

Managing Conflicts of Interest

The existence of a conflict of interest does not mean that a provider has done anything wrong, or has mistreated or will mistreat any patient. It means only that while there is a mandate to promote the patient's (or someone else's) best interest, there are self-interested reasons to do otherwise. To be tempted is not necessarily to succumb.

Providers cannot escape conflicts of interest. If they are paid according to how many services they provide, their interest is to provide more services, with the concomitant dangers of excessive interventions, costs, and risks of iatrogenesis. If they are paid according to how many patients they care for, their financial advantage lies in taking on too many patients. Physicians who are strictly on a salary have an adverse incentive to minimize their own labor, even if they cannot increase their income, by seeing fewer and less-needy patients.

Formal protections can help. Regulatory agencies, such as state boards of medicine, nursing, and dentistry and the Joint Commission on Accreditation of Healthcare Organizations, can establish standards of performance for individuals and institutions, and the legal system can redress individual cases where providers' self-interest injures patients. Fiduciary law, for example, requires a fiduciary in a conflict of interest to disclose that conflict fully to the beneficiary (here, the patient) and also empowers the latter to determine how the conflict should be resolved (see Fulton National Bank v. Tate ). Patients thus can have common-law remedies for breach of fiduciary duty, lack of informed consent, and other causes.

Although regulation and litigation can thus provide important protections, they cannot supplant personal integrity. The prospective employee of an HMO, a hospital, or other institutional provider should check carefully into its incentive structure and refuse to join any organization that links financial consequences too closely to individual patient care decisions. The physician in private practice can refuse to accept costly gifts from drug company representatives. Those who would invest in ancillary facilities within or outside of their offices can ensure that there is a genuine need for the facility, and they can empower their patients with information and freedom to make their own choices regarding their ancillary healthcare providers. Researchers can refrain from investing in corporations sponsoring their research, and they can work with other research-sponsoring institutions to minimize conflicts. Where private industry pays universitybased physicians a large per-patient fee, for example, that fee can be put into a general fund to benefit the institution after research costs are paid. Nurses and allied health professionals can work individually or collectively for contract terms that protect their right to exercise professional integrity.

Institutions must ensure that they do not create inordinate conflicts of interest for the professionals they employ. HMOs, for instance, should refrain from instituting incentive systems that unduly influence individual patient-care decisions. They and other payers should likewise disclose to current and potential subscribers any such incentives or limits on care. Informed subscribers are better empowered to guard their own interests. Institutions can also ameliorate their conflicts by pursuing ongoing quality improvement as a way of promoting quality care while economizing on costs. A focus on the success that comes from long-term quality should replace any preoccupation with short-term profitability.

Conflicts of interest affect providers pervasively, powerfully, and personally. Where fiduciary duty once consisted mainly of refraining from vulgar exploitation, the obligation to place the patient's interests before one's own can no longer be an unlimited obligation. Providers must exercise great care to avoid conflicts where possible, and to uphold a strong fiduciary presumption to favor patients' interests over their own. However, they cannot be expected to commit professional self-sacrifice in what may be a futile unilateral attempt to battle economic forces beyond their control. Therefore, one of the most important and difficult moral challenges of medicine's new economics is to consider not just what providers owe their patients but also the limits of those obligations. As healthcare systems continue to evolve, one important remedy will be to provide patients with greater choice and control over the content of their healthcare benefits, and thereby with more power to make their own trade-offs between the cost and quality of care. This will alleviate at least some of the conflicts of interest that arise as providers attempt to make these trade-offs on their patients' behalf.

e. haavi morreim (1995)

revised by author

SEE ALSO: Commercialism in Scientific Research; Divided Loyalties in Mental Healthcare; Healthcare Resources, Allocation of; Just Wages and Salaries; Managed Care; Maternal Fetal Relationship; Nursing Ethics; Pharmaceutical Industry; Pharmaceutics, Issues in Prescribing; Profession and Professional Ethics; Surrogate Decision-Making; Whistle blowing in Healthcare

BIBLIOGRAPHY

Ansell, David A., and Schiff, Robert L. 1987. "Patient Dumping, Implications and Policy Recommendations." Journal of the American Medical Association 257(11): 1500–1502.

Batty v. Arizona State Dental Board. 112 P.2d 870 (1941).

Berenson, Robert A. 1987. "In a Doctor's Wallet." New Republic May 18, 11–13.

Berkey v. Anderson. 82 Cal. Rptr. 67 (Cal. App. 2 Dist. 1969).

Berwick, David M. 1989. "Continuous Improvement as an Ideal in Health Care." New England Journal of Medicine 320(1): 53–56.

Blum, John D. 1991. "Economic Credentialing: A New Twist In Hospital Appraisal Processes." Journal of Legal Medicine 12: 427–475.

Bock, Randall S. 1988. "The Pressure to Keep Prices High at a Walk-In Clinic: A Personal Experience." New England Journal of Medicine 319(12): 785–787.

Brown v. Blue Cross and Blue Shield of Alabama. 898 F. 2d 1556 (11th Cir. 1990).

Butler, Stuart M., and Haislmaier, Edmund F., eds. 1989. A National Health System for America: Critical Issues. Washington, D.C.: Heritage Foundation.

Chittenden, William A. 1991. "Malpractice Liability and Managed Health Care: History and Prognosis." Tort and Insurance Law Journal 26: 451–496.

Chren, Mary-Margaret; Landefeld, C. Seth; and Murray, Thomas H. 1989. "Doctors, Drug Companies, and Gifts." Journal of the American Medical Association 262(24): 3448–3451.

Darling v. Charleston Community Memorial Hospital. 211 N.E. 2d 253 (Ill. 1965).

Eddy, David M. 1990. "What Do We Do About Costs?" Journal of the American Medical Association 264 (9): 1161–1170.

Figa, S. Fred, and Tag, Howard M. 1990. "Redefining Full and Fair Disclosure of HMO Benefits and Limitations." Seton Hall Legislative Journal 14: 151–157.

Fulton National Bank v. Tate. 363 F.2d 562 (4th Cir. 1966).

Garber, Alan M. 1992. "No Price Too High?" New England Journal of Medicine 327(3): 1676–1678.

Hillman, Alan L. 1987. "Financial Incentives for Physicians in HMOs: Is There a Conflict of Interest?" New England Journal of Medicine 317(27): 1743–1748.

Hillman, Bruce J.; Joseph, Catherine A.; Mabry, Michael R.; et al. 1990. "Frequency and Costs of Diagnostic Imaging in Office Practice—A Comparison of Self-Referring and Radiologist-Referring Physicians." New England Journal of Medicine 323(23): 1604–1608.

Institute of Medicine. 1986. "Committee Report." In For-Profit Enterprise in Health Care, ed. Bradford H. Gray. Washington, D.C.: National Academy Press.

Institute of Medicine. 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, D.C.: National Academy Press.

Jonsen, Albert R. 1983. "Watching the Doctor." New England Journal of Medicine 308(25): 1531–1535.

Kessler, David A. 1991. "Drug Promotion and Scientific Exchange. The Role of the Clinical Investigator." New England Journal of Medicine 325(3): 201–203.

Lind, Stuart E. 1990. "Finder's Fees for Research Subjects." New England Journal of Medicine 323(24): 192–195.

Lockett v. Goodill. 430 P.2d 589 (Wash. 1967).

Moore v. Regents of the University of California. 793 P.2d 479 (1990).

Morreim, E. Haavi. 1989. "Conflicts of Interest: Profits and Problems in Physician Referrals." Journal of the American Medical Association 262(3): 390–394.

Morreim, E. Haavi. 1991. Balancing Act: The New Medical Ethics of Medicine's New Economics. Dordrecht, Netherlands: Kluwer.

Morreim, E. Haavi. 1991. "Economic Disclosure and Economic Advocacy: New Duties in the Medical Standard of Care." Journal of Legal Medicine 12: 275–329.

Morreim, E. Haavi. 1991. "Patient-Funded Research: Paying the Piper or Protecting the Patient?" IRB 13(3): 1–6.

Morreim, E. Haavi. 1993. "Am I My Brother's Warden? Responding to the Unethical or Incompetent Colleague." Hastings Center Report 23(3): 19–27.

Morreim, E. Haavi. 1993. "Unholy Alliances: Physician Investment for Self-Referral." Radiology 186(1): 67–72.

Oldham, Robert K. 1987. "Patient-Funded Cancer Research." New England Journal of Medicine 316(1): 46–47.

Randall, Teri. 1991. "Kennedy Hearings Say No More Free Lunch—or Much Else—from Drug Firms." Journal of the American Medical Association 265(4): 440–441.

Relman, Arnold S. 1983. "The Future of Medical Practice." Health Affairs 2(2): 5–19.

Reynolds, Roger A.; Rizzo, John A.; and Gonzalez, Martin L. 1987. "The Cost of Medical Professional Liability." Journal of the American Medical Association 257(20): 2776–2781.

Robinson, James. 2001. "The End of Managed Care." Journal of the American Medical Association 285: 2622–2628.

Rodwin, Mark A. 1993. Medicine, Money, and Morals: Physicians' Conflicts of Interest. New York: Oxford University Press.

Shimm, David S., and Spece, Roy G. 1991. "Conflict of Interest and Informed Consent in Industry-Sponsored Clinical Trials." Journal of Legal Medicine 12: 477–513.

Tuma v. Board of Nursing, 593 P.2d 711 (1979).

Warthen v. Toms River Community Memorial Hospital. 488 A.2d 229 (N.J.Super.A.D. 1985).

Wohlgemuth v. Meyer. 293 P.2d 316 (Cal. 1956).