American Journal of Law & Medicine

Financial conflict of interest: an unresolved ethical frontier.

Financial conflict of interest has become one of the most contentious issues in medicine today. Several decades ago studies disclosed that physicians who had investments in medical facilities were referring patients for more tests and procedures than physicians who had no such investments. More recently, physicians who forego expensive tests and treatments for patients have been accused of skimping on care for personal financial gain. Physicians who emphatically tout certain treatments have been criticized for possessing hidden financial ties to the manufacturer of the products. Some physicians engaged in clinical trials have been suspected of enrolling patients who do not strictly conform to the research protocols so that they can collect fees from contract research organizations. And in the aftermath of deaths and complications in gene therapy experiments, some scientists and their restitutions have been criticized for possessing a financial stake in companies that are involved in the studies.

In the past, such issues have been handled locally and quietly behind the closed doors of hospitals and medical schools. However, highly publicized examples of financial conflict of interest have stimulated the Federal Government to develop new guidelines to minimize or eliminate conflicts of interest, impose stringent roles to protect human subjects, strengthen government oversight of clinical research, and consider legislation that would levy large monetary penalties for violations.(1)

Have financial incentives gone too far? Has medical care been compromised because of incentives to do too much or too little for patients? Has money motivated for-profit insurance companies to deselect patients, to price gouge, to cherry pick? Is the loyalty of young physicians and students being captured inappropriately by meals and gifts from industry? Most scientists and physicians believe that they cannot be bought, especially by paltry gifts or trips to resorts for meetings. How can we be sure? How large is the hidden epidemic of financial conflict of interest, and what impact does it have on the practice of medicine and the cost of medical care?

This essay looks at the origins of the expanding relationship between academia and industry and the benefits and pitfalls of this collaboration. It assesses available information on the extent of such conflicts and considers the concern that financial conflicts of interest have become pervasive in academic medicine and have led to overt bias on the part of physicians and clinical investigators. This article then examines how the conflicts of interest in medicine fit into the broader aspects of changing societal norms, and finally makes recommendations that might limit the impact of such conflicts.


Is medicine just another commodity and should we be treating it as such? Some argue that health care, being a service, is just that: a suitable object of commerce that is enhanced by rigorous competition. However, the major components of health care, namely medical care, education, and research, have only recently been exposed to the full force of the free market. The economic force of this free market has achieved dramatic social and economic consequences.

Financial incentives are powerful inducements to all the major stakeholders in medicine, just as they are in other walks of life. In the past, a fee-for-service payment system motivated physicians to spend more money on medical care; now capitated systems motivate them to spend less. DRG-based reimbursement(2) motivated hospitals to reduce their patients' length of stay. Ownership of laboratories or imaging facilities motivated physicians to refer more patients for testing. Payment for accepting patients in clinical trials motivated physicians to enhance enrollment. Financial reward is and continues to be a strong inducement for physician-entrepreneurs to generate new ideas and develop new equipment, technology, products and computer applications. Profits have motivated health maintenance organizations to develop new modes of health care delivery and pharmaceutical companies to develop new drugs. As illustrated in these across-the-board examples, medicine is behaving in synchrony with the rest of our free-market system, and this system has worked very well for a great many Americans. Financial incentives work: physicians and researchers are motivated by even modest amounts of money.

The dominance of the free market in medicine has achieved breathtaking results. The United States is the major innovator in drugs and devices and, as a consequence, our economy is substantially strengthened by our medical industry. The amount of money spent in the United States for medical research exceeds most other nations many fold. No matter what the statistics show about higher life expectancies in other countries, few Americans (including physicians) choose to get their health care elsewhere.


In 1980, in a dramatic turnaround of public policy, the Patent and Trademarks Amendments Act ("the Bayh-Dole Act") provided that universities would automatically receive patents for inventions and discoveries based on research sponsored in whole or in part by the federal government.(3) Further, when private companies supply research funding to universities, the statute requires the companies share profits from the resulting invention.(4) The act was introduced to stimulate entrepreneurship, increase the nation's productivity and to compete more successfully with countries whose economies were healthier at that time, such as Japan.(5) The dramatic successes of the cooperative efforts between academia and industry during the Second World War in the development of the atomic bomb and in the production of penicillin for infections on the battlefield were critical forerunners of this policy change.

Before 1980, only a small number of discoveries were converted into patents by universities,(6) but the Bayh Dole Act changed this rate dramatically. Stimulated in part by the striking financial success of Stanford University in licensing a major biomedical tool to industry,(7) as well as Harvard's earlier dramatic twelve year multimillion dollar arrangement with Monsanto,(8) many other universities not only developed their own patent offices but licensing and marketing capabilities as well. By 1998 the number of patents produced by universities increased twenty-fold, and businesses were "spun off" by faculty at an increasing rate.(9) The financial incentives specified by the Bayh Dole Act encouraged faculty members to disclose their inventions to the university, help prepare patent applications, and support the development and evaluation of resulting products.(10) Under the plan, the university retains the patent, licenses it for a fee to one or more commercial enterprises, and industry then attempts to use the invention to develop profitable products. By 1990, more than one hundred universities and medical schools had invested in new companies to promote discoveries of their staff.(11) From a fiscal standpoint, however, the jury is still out on the value of patent and licensing offices to most of these institutions; even though some earn tens of millions of dollars per year on their patents and licensing agreements, many universities barely make up for personnel and legal expenses by the proceeds from licensing inventions.(12)


Indices of the success of academic-industry partnership include a remarkable increase in industry relations with universities and medical centers, the introduction of new drugs and devices at an exceptional pace, and the generous profits by some academic institutions as a consequence of patenting and licensing. Some argue that this growth in technology transfer is simply satisfying the will of the public to achieve economic growth. …

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