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A Medical Proletariat

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04/05/2010Melchior Palyi

[Chapter 8, Compulsory Medical Care and the Welfare State (1950)]

The doctors are, of course, the key figures of governmentalized medicine. The prime purpose is to procure their services and all that goes with them. Their honoraria alone, disregarding the dentists', constitute anywhere between nearly 50 percent (in Switzerland) and little more than 15 percent (in Britain) of the total cost. But far more is at stake.

Being the focal point of medical procedures, the doctor directs the course. He decides who is sick and for how long, and thereby determines the trend of cash benefits, the quality and quantity of pharmaceutical products, the need for hospitalization, X-ray, laboratory, and hydrotherapeutical services, etc. Even the cost of administration is dependent in part upon the degree of control over the profession. And what is more important than all cost problems — the welfare of the patient is in the doctor's hands.

Governmentalized health services sooner or later run into the iron curtain of mountainous costs. The easiest way out is to curtail honoraria, denouncing the doctors as profiteers. That may or may not be true, but it is both popular and money saving.

German Doctors' Miscalculation

There was no serious medical opposition to Bismarck's sickness insurance when it went into operation in 1884. Indeed, the profession was gratified. Legally it still was a Gewerbe like any other, different from barbers in degree of education but subject to police regulations, especially to a tariff with minimum and maximum rates. Governmentalization raised the social level of the profession by bringing it almost to the dizzy height of civil-service status. Also, new vistas of financial and scientific progress seemed to open. The radius of healthcare was to extend a broad front, medical studies to receive a great impetus and encouragement.

Be it out of enthusiasm for the new idea or out of sheer subordination to the almighty Prussian bureaucracy, if not out of greed, the German doctors gave away their birthright and that of their patients from the outset. They did not stand on the principle of professional secrecy but tolerated from the very beginning the rule of panel employees over professional decisions. And they agreed on being paid by the panels rather than directly by the patients. When they recognized the consequences it was too late.

At first the panels experimented with engaging physicians as poorly paid employees. This method had to be abandoned due to the general malcontent and to the airing of corrupt practices — selling of jobs to doctors.[1] The next step was to establish the free choice of the doctor by the patient, but only among doctors who entered into contractual relations with the individual panel. Any of them could do that.

Otherwise medical practice was to be the same as in private, except that the fee was controlled by contract on the basis of medical performances, the so-called attendance system. Naturally, the number of performances mounted as it did under the same provision of the Lloyd George system[2] and tends to do under similar arrangements even in Switzerland. The kassen retaliated by cutting the fees.[3] The lower the fees, the greater was the incentive for the doctors to raise the number of attendances. The war was on.

To squeeze the doctors' fees at each contract renewal became a major job of the panels. They were at great advantage in dealing with individual physicians. The latter organized a fighting trade union, the Hartmann Federation, in 1900. Collective bargaining — the very first in Germany — was to replace individual contracts. A further purpose of the Federation was to take out of the hands of panel administrators the arbitrary power of accrediting panel doctors. Free competition among physicians was to be restored.

Doctors vs. Monopoly

But that was just the beginning of the real battle. By 1913, after a prolonged exchange of threats of strike, lockout, boycott, etc., between the Hartmann Federation and the panels' association, the "Berlin agreement" was concluded. From then on, the number of accredited practitioners was to be limited, such as to one general practitioner per 1,000 to 1,350 insured, and similarly, specialists. The patient could choose among panel doctors only. These were organized in a separate federation, the number one function of which became to regulate by red tape the accrediting of panel doctors — to block newcomers. The panels, too, insisted on restricting free competition: more doctors mean more patients.

The bulk of the profession itself was broken up into three classes with antagonistic interests: the so-called panel doctors, eligible to the insured, many of them retaining their private practice; the "trustee" doctors employed in a supervisory capacity; and the rest who practiced in private only and as occasional consultants of the panels. This last group of physicians was largely responsible for the once renowned medical progress in Germany. Friction among these medical groups has become a standing feature of the system, in addition to the class warfare between the association of panels and the federation of panel doctors.

Having become quasi monopolists — a role doctors do not deign to assume — did not make the panel doctors any happier. Their incomes kept declining while the abuses were rising.[4]

The Great Depression was the proverbial "last straw." It ruined the doctors' bargaining position and opened the door for a radical reform. That was imposed finally by Brüning's emergency decrees, especially the one of December 8, 1931. He was running the Reich by emergency decrees as a "constitutional dictator," unwittingly preparing the ground for the real one.

The main feature of the new system was a quarterly capitation fee that was to set the pattern for Holland, Britain, etc. It had been applied by individual panels before, but became mandatory with the Brüning reform and still is in force.

The total capitation fee (pauschal-betrag) for all accredited doctors is being figured out by way of a complicated formula, based on the number of insured and the sum of contributions collected by each panel, and on a number of minor factors. Presently, approximately 20 percent of panel revenues is paid per quarter to each panel doctors' federation that distributes the money among its members. Fees of specialists and for special services are deducted first together with contributions to a pension fund for the panel doctors (who are forced into early retirement) and a 2 percent charge for the federation's own expenses. The rest is divided among the practitioners, which means to them never more, and often less, than a quarterly 4.20 marks per patient — the equivalent, before the Roosevelt devaluation, of about $1.00. Their special services are recognized by the federation very reluctantly, if at all. No one doctor is supposed to cut too great a slice of the fixed total at the expense of the others.

The system has led to the unprecedented proletarization of the German profession, disregarding a small minority. Specialists receive such very moderate fees as 50 marks (nominally $12) for an appendectomy. But they fare better than the average practitioner who has to handle up to one hundred consultations and visits a day — to make a living. Even under the stable monetary conditions of the late 1920s, a doctor was paid, for a consultation, less than one-half of what a barber received for a haircut. By this time, he is even worse off; remuneration rates are almost unchanged, while the mark's purchasing power has substantially depreciated again.

Doctors' Status Under Bevan

Bevan's intention to reduce the profession's status is quite apparent. In accordance with the collectivist undertone of his scheme, most specialists are to become employees of the governmentalized hospitals at moderate salaries. Appointments, promotions, and special remunerations already are colored by Party politics. The specialists can choose to be part-time employees and are then paid in proportion to the number of hours they devote to hospital work. Their regular basic pay for full-time staff work begins with an annual 1,400 pounds sterling, or $3,900 paid to those up to 31 years of age, and rises to about $7,000 at retirement, with remuneration for "special merits" to a fractional number.[5]

"The easiest way out is to curtail honoraria, denouncing the doctors as profiteers. That may or may not be true, but it is both popular and money saving."

The specialists who used to serve in hospitals for no pay — which is characteristic of their attitude under the free enterprise system — now receive a uniform per-hour fee without much regard to qualification, efficiency, knowledge, or experience. They are pressed into the bureaucratic routine if they sign up for full-time with security of tenure and a seniority incentive. In any case, the nationalization of their function largely eliminates the private practice of specialists, which is their major source of income.

The beginner may be better off than before, and the untalented or shy may prefer the mediocrity of safe tenure to the hazards of the market place. But the body of medical experts becomes an adjunct of the Ministry of Health, dependent for promotion presumably on good political behavior rather than on accomplishment and the patients' satisfaction.

"Men who for many years," stated Time and Tide (London),

have been acknowledged by their colleagues as consultants and specialists now find themselves reduced to the rank of Senior Hospital Medical Officer with an income which is quite inadequate and with little hope of supplementing it from private practice. Does the man on the stretcher know what the specialist will get for healing his wounds, treating his disability, saving his life or relieving his suffering? He will get fifteen shillings ($2.10). Take away income tax and he is left with seven and six-pence ($1.05).

If the specialist's chances are reduced to a modest, though relatively secure, economic existence — at the potential price of subordination to bureaucratic routine and political favoritism — the general practitioner carries the full burden of the lowering of professional standards. He is on a yearly capitation fee of nominally eighteen shillings ($2.52) per patient paid out of a pool of $112 million. But before distribution of the pool, mileage fees (about $5.6 million), fees for emergency treatments, a premium to provide for superannuation, etc., are being deducted.

Even with three thousand registered patients — almost two thousand too many, from the point of view of medical responsibility, and a number considered to be greater than can be attended by the doctor of average physical or mental endurance — the doctor's gross annual income would be less than $7,600. But given the amount of paper form-filling involved, any such exceptionally "fortunate" practitioner is in need not only of ample office space — in the right location — and of equipment, but also of full-time secretarial and assistantial aid, the latter, at any rate, during his vacation.

All told, for a year or two, his net income before taxes perhaps might reach $5,090, but he could not keep up the tempo of work needed without serious damage to his professional self-respect and to his health. The vast majority has little chance of drawing that much. And few are lucky enough to retain a share in the dwindling volume of private practice. It dwindles for a second reason: the fewer private patients, the higher the doctor's fee to each. Excessive demand on the doctors' time reduces its availability and raises its price.

In any case, the British practitioner's income depends on the number of patients who register with him. It bears no relation to the number of consultations and visits, to the amount of time and discomfort devoted to the individual case, to the ingenuity of his art or of his science, to the success or failure of diagnosis and therapy — nor to the' patient's ability to pay. The pecuniary motive that provided a positive incentive for higher quality of performance is turned in the negative direction of driving for more patients and less "work" with each of them.

The dentist is paid on a schedule that assumes his average prewar earnings as the equivalent of $4,500, at the latest pound-dollar rate, and actual chair-side work as 35 hours per week, adding a 20-percent allowance for the rise in the cost of living. (Wages have risen 124 percent.) Each individual performance has been timed and the remuneration fixed according to the number of minutes it takes, practically ignoring such nonmeasurable, "capitalistic" standards as the effort, inventiveness, art, or risk-taking involved.[6]

As long as the orgy of tooth pulling lasts, the dentists work overtime on overtime, putting patients in chairs side by side, but at least "earn well." True, their professional expenses are officially estimated at 52 percent of their income. Even so, they are making hay while the sun — Bevan's miscalculation of the demand — is shining. Gross earnings as high as $40,000 per annum occurred in some instances. But after ten months of such bonanza, the Minister first decreed the confiscation of all dentist incomes over and above a gross of $17,000. Later, this was changed to a 20 percent cut across the table.

Doctors' Insecurity

The experience of panel systems provides the lesson that unless the doctors are regimented, the schemes' costs of operation never can be controlled. And to be regimented they have to be pauperized. Mr. Bevan deserves the distinction of having clearly recognized the inherent logic of the system and of having drawn the conclusion manfully. That his intention is to lower the economic status of the profession so as to be fully able to control it is shown by some of his methods. They would be unintelligible if looked at merely from the point of view of saving operating expenses.

British practitioners used to provide for their own retirement by selling their practices. The new scheme prohibits this once and for all. Physicians already practicing are compensated, if they enter the new scheme, by an annuity that represents, supposedly, the average capital value of their practice. Henceforth, subterfuges, such as a doctor giving up his office space for the benefit of another, are to be punished severely. Evidently this has nothing to do with the quality or quantity of medical service.

Why, then, the interference with elementary property rights, equivalent to prohibiting the sale of patent rights or of business "goodwill," all of which would be unconstitutional in the United States? The reason should be obvious: to compel the medical man to seek a safe haven in government service for which a modest retirement pension will be provided.

Young Doctors' Prospects

A further consequence is even more serious. How should a young practitioner start his career? To hang out a sign and to wait for patients is extremely hazardous for anyone without ample means. Until the new scheme came in force, the young doctor either had enough means to buy an old colleague's practice or he could borrow from a bank, pledging his future income. Similarly, he could buy a partnership in a medical firm — which is now prohibited, too, except in the dying-out private practice — and be introduced to the patients by the senior partner. In either case, in due course, he would have liquidated his debt and become independent.

Now, he has to wait until a local executive council announces a vacancy and has then to apply. That he has to wait many more months for a decision is a minor detail. What matters is that the local doctors tend to exclude new competition. Due to the narrowness of their own incomes and to their need for more patients, they tend to become a closed group, trying to keep out new competition.

In all likelihood, the young doctor's chances amount to an opening in some remote area, with few patients, no private practice on the side and difficult living conditions. He may even run into the problem of finding space for his office and for his family, given the housing shortage and the embargo on acquiring office space through the purchase of a practice.

Outside of Russia, nowhere has the intentional strangulation of the general practitioner gone so far as in socialist Great Britain. But even in Russia, as elsewhere on the Continent, the poorly paid practitioner may suggest that his panel patient become a private patient. That, too, is prohibited in Britain.

As to the young specialist in Britain, his chances are equally reduced unless he enjoys a bureaucratic existence and the political game.[7] To start a new private practice is virtually out of the question. The same holds in many other compulsory systems.

Wherever the doctor is being paid by the authorities and not by the patients, the outcome of compulsion is a set of fees that does not cover the investment in expensive instruments. This has an additional effect that could scarcely have been unintended: It forces the patient into governmentally controlled dispensaries which can afford the investment — at the taxpayer's expense.


[1] For the early development of medical relations in the compulsory schemes, the best treatises are T. Plant, Der Gewerkschaftskampf der Deutschen Aerzte (Karlsruhe, 1913); H. Korkisch, Die Arztfrage in der Sozialversicherung (symposium, Prag, 1926); G. Augustin, Die Arztfragein der…Sozialen Kranken-Versicherung (diss., Berlin, 1931); and Finkenrath, Die Kassenarztfrage im In-und Auslande, (Berlin, 1931). Best up-to-date summary of the doctors' and pharmacies' legal status in the German scheme: Gustav W. Heinemann, Kassenarztrecht (Berlin, 1942). The complex regulations of entering panel practice in Germany are fully reprinted, and interpreted in Fr. Thieding's Die Zulassung zur Kassenärztlichen Tätigkeit (Hamburg, 1948).

[2] Editor's note: The "Lloyd George system" is a reference to British Prime Minister David Lloyd George's 1911 health-insurance plan.

[3] Editor's note: The German krankenkassen were trade associations.

[4] According to one expert, medical incomes were declining since the seventeenth century. See Kurt Finkenrath in Gross-Berliner Aertzblatt, September 18, 1926.

[5] Report of the Inter-Departmental Committee on the Remuneration of Consultants and Specialists, Cmd. 7420 (1948).

[6] Report of the Inter-Departmental Committee on the Renumeration of General Dental Practitioners, Cmd. 7402 (1948).

[7] G. W. Morrey, "The Position of the Specialist To-day," in Fellowship for Freedom in Medicine, Bulletin no. 6 (October 1949).


Melchior Palyi

Melchior Palyi (1892–1970) was an American citizen of Hungarian descent — a distinguished, internationally recognized educator, author, economist, and financial expert. He taught in the Universities of Kiel, Goettingen, and Berlin. In 1928 he was appointed chief economist to the Deutsch Bank in Berlin. From 1931 to 1933 he served in the capacity of scientific advisor to the Reichsbank of Germany. In the United States, he taught at the Universities of Chicago, Wisconsin, and Northwestern. He acquired a national reputation as a scientific and popular writer, public lecturer, radio commentator and consulting economist.