How Money Always Ruled Medicine: The Rise and Fall of Medical Doctors

History classes always bored me. They are generally all the same. Memorize this date. Memorize this dead person’s name. Then regurgitate it all on an exam. I hate memorizing. I hate wasting money and time on such useless classes. (And in many ways, medical school is like history class: boring and meaningless.)

This article will contain a lot of history. But I promise there will be no memorizing of dates and names. Instead, I want to teach you a lesson about money and power in medicine.

Medicine Was Totally Different Back Then

Western, science-based medicine did not exist until the beginning of the 20th century. Before the 20th century, medicine was unregulated. Anyone could do whatever he wanted.

  • Anyone could call himself a doctor. This led to too many doctors. In 1870, there were 64,414 doctors. In 1900, the amount of doctors more than doubled to 132,000.
  • Anyone could treat anything and everything. Cure-all pills were quite common. Snake-oil salesmen and well-intentioned healers both peddled their own drugs, making claims without any proof.

Since there were so many “treatments,” patients would easily get whatever they wanted. And based on the laws of supply and demand, the increase in supply meant that doctors’ salaries were at an all-time low. They made as much as an average worker. (Imaging a doctor making $40,000 today.)

The Rise of a New Leader Leads to a New Era

In 1901, Joseph McCormick stepped up as the leader of the American Medical Association (AMA). Unlike the past leaders, he wanted to unite medicine under one standard. With unity comes power. With power, he can increase the prestige and wealth for doctors.

The legendary Joseph McCormick led this transformation of the AMA from a weak association to the uniting center of “organized medicine.” This charismatic president traveled tirelessly across the country to attack the bitter fruits of competition and oversupply: rivalry, advertising, contact medicine, price competition, unethical behavior, and a surplus of badly trained doctors. He held out a uniting alternative: higher standards, good schools, fewer doctors, and fees set at reasonable levels.

Pretty much everything he accomplished resulted in two outcomes: reduced supply of medical treatments and increased salaries for doctors:

  • He gained control of the licensing process. Doing so basically gave him control of the amount of doctors in the nation. If you are not licensed, you cannot practice medicine.
  • He based licensing on meeting the high standards of scientific medicine. To avoid charges of being a monopoly, graduating from medical school became a prerequisite for being licensed. However, you could not graduate from any old medical school. The medical school had to have a 4-year curriculum that taught scientific medicine. It was costly for many schools to switch from their curriculum to the new scientific curriculum. Many were forced to close. By 1924, only 50% of the original medical schools remained; 80 schools survived the conversion. A substantial amount of the schools that did not survive the process were schools that catered to blacks and women. Less graduating medical students means less practicing doctors.
  • He campaigned against anything that threatened doctors’ pay. He attacked midwives as a cause of high infant mortality and wanted them outlawed. He rallied against insurance.
  • He wanted to do away with dispensaries, which provided free health care mainly to the poor. Hospitals were transformed from charitable institutions to business “centers of surgery and scientific techniques,” trying to woo the middle class. Profit became the main motive; providing medical care to whoever needed it became secondary.

Surprisingly, Joseph McCormick was successful and ultimately changed the landscape of medicine to what we have today. One of the main reasons for his success was political backing.

The rise of professional medicine — like the rise of great corporations in the same period — relied on political power rather than on efficiency. Markets, in this view, are constructed by the participants with the cooperation of government. Control over training and licensure gave the profession property rights over medical knowledge.

McCormick’s changes worked so well from a money-generating point of view. But when people can’t pay, they can’t pay. Unpaid hospital bills became so great that the American Hospital Association (AHA) broke ranks with the AMA and began to look for insurance that help pay for the poor. The AHA discovered and shaped what became Blue Cross.

The creation of Blue Cross paved the way for federal health insurance. For insurance to work, the government needed doctors to accept it. One of the ways to convince doctors to accept it was by paying doctors generously.  Doctors soon realized how easy it was to get paid and began to get greedy. Through unnecessary, over-zealous medical care and sometimes even fraud, doctors send hefty bills to the government. The bills were promptly paid and doctors became rich.

The Fall of Medicine’s Golden Age

But this could not last. In the beginning of the 80’s, the government realized that medicine was growing more and more expensive. It got fed up. And it soon implemented strict controls and reforms, in order to curb costs. This led to the creation of HMOs to monitor and control healthcare providers. The HMOs became another entity fighting for medical dollars. Their main goal is to make a profit. This means the more they collect and the less they pay out, the more they keep for themselves and their shareholders. On the consumer’s side, they increase premiums and reduce benefits. On the medical provider’s side, they restrict payment by implementing excessive rules and by demanding an overwhelming amount of paperwork for reimbursements.

Today, doctors must see more patients only to be paid less. A huge amount of money goes to hiring staff in order to meet and demands and regulations of the third-party payers.

If doctors do not fight back, it will get only worse.

It Is Because of Money …

It is because of money that medicine was based on science.

It is because of money that hospitals started insurance companies.

It is because of money that doctors abused Medicare.

It is because of money that HMOs were formed.

It is because of money that so much regulation and paperwork is heaped upon doctors.

If you have ever applied to medical school, you will know that the personal statement is a game. No one writes about the true reason why she wants to be a doctor — stability and money. Well, I did. Once. And I wasn’t invited to the interview. But, let’s be honest. Unless you plan to become like Dr. Paul Brand and live in a colony full of lepers, you and I both know it is always about the money.

Why do you think there is a shortage of primary care physicians? Why do you think most medical students want to specialize? If America wants to produce more primary care doctors, it needs to pay them more. As much as people may think doctors are altruistic and self-sacrificing, in the end, it is human nature to take care of yourself first.

Money rules the world of medicine.

How History Became Cool

By the way, what sparked my interest in history is Robert Greene’s book, The 48 Laws of Power. History is not a bunch of dates and names. Rather, it is a collection of successes and failures. Apply what people have done right and avoid what people have done wrong so you can reach your version of success.


Health Politics and Policy (4th edition)

  • Chapter 10 – American Health Care: How It Became Inefficient, Inequitable, and Costly

This article is part of the Money in Medicine series. Click on the link if you want all the money-making secrets available to doctors.

Speak Your Mind