Specialization and Its Discontents: The Pernicious Impact of Regulations Against Specialization and Physician Ownership on the US Healthcare System

Ken Iverson, a technology entrepreneur, almost single-handedly revived the moribund US steel industry. His success contains important lessons for health care. Nucor, the steel-focused factory Iverson managed, differed from the everything-for-everybody steel behemoths of yore, like Bethlehem Steel, with its specialty steel products and relatively small mini-mills, as did his egalitarian, productivity-based management practices. Nucor paid its nonunionized workers like owners, primarily with productivity-based incentives. In contrast, Bethlehem Steel’s unionized workforce was paid wages, largely regardless of their productivity. The results of this revolution in focus and incentives? Nucor required 1 man-hour per ton of steel and Bethlehem 2.7; Nucor’s workers earned $60 000 ($40 000 from bonuses), and Bethlehem’s $50 000; and Nucor was highly profitable, earning $100 million in recessionary 2002, whereas Bethlehem lost $2 billion.1 Nucor did good for its customers, employees, and the US economy, and it did well for its shareholders, including Ken Iverson, currently hailed as the second Andrew Carnegie of the industry. Sadly, were Iverson a cardiologist or cardiac surgeon, he could not create the “do good–do well” healthcare-focused factory equivalent of Nucor.2 Rival everything-for-everybody hospitals would allege that he was robbing them of their most profitable business, leaving them with the money-losing dregs, while federal government regulations would inhibit doctors’ ownership stakes.3 The combination of negative press and legislative prohibitions creates daunting obstacles for productivity-minded entrepreneurial physicians. For example, MedCath, a partially physician-owned heart hospital firm, spends up to $200 000 to counter hospital complaints per project per year.4 Not surprisingly, relatively few focused healthcare facilities exist. A 2003 study found only 92 specialized hospitals, fewer than 2% of the market, and, more importantly, other physician-owned facilities that integrate care are sparse.5 These results are unfortunate: Specialized healthcare facilities, partially owned by entrepreneurial physicians, represent the best …