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John Kruzel
By John Kruzel May 1, 2019

No, it was not illegal to profit off U.S. healthcare before a Nixon-era law

An Internet post about the commercialization of American health care misread history by claiming it was illegal for companies to turn a profit until President Richard Nixon signed a law that opened the floodgates.

"Did you know that before 1973 it was illegal in the US to profit off health care?" the post states. "The Health Maintenance Organization Act of 1973 passed by Nixon changed everything."

The post was flagged as part of Facebook’s efforts to combat false news and misinformation on its News Feed. (Read more about our partnership with Facebook.)

The viral post does contain a kernel of truth: The industry became more commercially driven during this era. But while health care did go from a mostly nonprofit venture to one that was more lucrative as a result of the law, it’s an overstatement to say profit-making was illegal prior to the Nixon era.

The HMO Act of 1973

The definition of what an HMO is has morphed a bit over time. But essentially it’s a company that blends insurance functions and health care functions, said Daniel Polsky, a health economics professor at Johns Hopkins University.

"The HMO act of 1973 promoted the development of HMOs," Polsky said. "After the act, these types of organizations became easier to form and operate."

The early prepaid group practice plans — the prototypes for HMOs — were all nonprofit. But the 1973 legislation unleashed the development of for-profit HMOs, said Paul Starr, a sociology professor at Princeton University.

"Many of the early HMOs were subsequently bought by for-profit insurers," said Starr, who authored a Pulitzer Prize-winning book about the history of American health care. "So the industry as a whole has changed quite dramatically."

It’s worth noting the post also claims that Nixon pushed the federal HMO Act as a kickback to his political backer Edgar Kaiser.

"In 1973, Nixon did a personal favor for his friend and campaign financier, Edgar Kaiser, then president and chairman of Kaiser Permanente," the post states, adding that the company "got the first taste of federal subsidies" as a result of the law.

Our friends at Snopes noted this element of the claim — which it calls the post's "primary emotional hook" — is false.

Featured Fact-check

The fact-checking outlet cited a Kaiser Permanente fact sheet, which notes that due to legislative tweaks, the bill Nixon signed into law "had been so diluted by the political process ... that Kaiser Permanente, a central model at the outset, did not qualify as an HMO until the act was amended four years later."

Profiting off health care was legal prior to 1973

While the legislation scrambled the economics of health care, it did not have as dramatic an impact on American law. In short, it was legal to profit off health care before the act — but there’s an important wrinkle to the legal dimension.

Allison K. Hoffman, a law professor at the University of Pennsylvania who studies health care, told us the law can be seen as "part of the tide of the corporatization of medicine that is now fully turned."

"The HMO act did bring the idea of competition into the spotlight in health care," Hoffman said. "But it neither began this trend nor transformed it from illegal to legal, for the most part."

Hoffman hedged somewhat on that last point — no legal transformation "for the most part" — because the Nixon-era act did rejigger the relationship between HMOs and state legislatures.

Specifically, the 1973 act made HMOs exempt from state laws that kept medical decisions in the hands of doctors. As a result, the medical practice was subject to more corporate influence.

"That could be characterized as making profiteering legal in health care," she said. "But, even with these laws in place, MDs and hospitals had profit motives well before the HMO Act came to be."

Hoffman added, "There was clearly profit in health care — and profit motive — before 1973."

Some U.S. health care stakeholders — from insurers to hospital chains — have operated for profit since the 1950s and 1960s — prior to the act’s passage. Others have done so for their entire existence, said Katherine Hempstead, a senior advisor at the Robert Wood Johnson Foundation.

"The drug and device industries have always been for profit," she said.

Our ruling

Internet bloggers said that "before 1973 it was illegal in the U.S. to profit off of health care."

The legislation did make the industry more commercially driven, but it’s wrong to say profit-making in the U.S. health care sector was illegal prior to Nixon’s signing of the HMO Act of 1973. Insurers and hospital chains generated profits decades earlier, and drug companies and medical device makers have always operated for profit.

We rate this False.

Our Sources

Facebook post, April 29, 2019

Kaiser Permanente fact sheet, "Kaiser Permanente’s Prominent Role in American Health Care Reform," June 22, 2007

Snopes, "Was It Illegal to Profit from Healthcare Prior to the HMO Act of 1973?" Dec. 4, 2018

Email interview with Paul Starr, a sociology professor at Princeton, April 29, 2019

Email interview with Allison K. Hoffman, a law professor at the University of Pennsylvania, April 29, 2019

Email interview with Daniel Polsky, a health economics professor at Johns Hopkins University, April 29, 2019

Email interview with Katherine Hempstead, a senior advisor at the Robert Wood Johnson Foundation, April 29, 2018

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No, it was not illegal to profit off U.S. healthcare before a Nixon-era law

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