Traditionally, physicians practiced as sole proprietors or as small partnerships. A small number of physicians worked for employers such as railroads to provide care to the employees, and, in some cases, care to the employee’s families. Patients paid directly for their care, usually in cash, but sometimes with barter. The physician’s only institutional relationship was with the local hospital. Hospital privileges were simple independent contractor relationships, usually vetted by the local medical society. Medical law was simple, dealing mostly with medical negligence, hospital privileges, and perennially controversial areas such as abortion and narcotics prescriptions.

These patterns reflected the simplicity of the pre-World War II medical environment. There were relatively few effective drugs, technology was limited and not capital intensive, and hospitals were run mostly by religious orders and provided little more than nursing, laundry, and food services. Physicians worked alone and specialty practice, beyond surgery, was very limited. After World War II, medical specialization and advances in technology and pharmacology profoundly changed hospitals and physician practice patterns, but the old business organizations persisted beyond the point where they made business sense for anyone but the physicians. Business innovation was stifled by state laws, called corporate practice of medicine laws, that protected the private practice model.