Arnold Relman, M.D., worries. For years, Relman -- the respected editor of The New England Journal of Medicine -- has fretted that investor-owned health-care companies are corrupting American medicine. Profits and professionalism don't mix, he argues. It's a legitimate worry. Should good health care be subordinated to dividends? But now comes a study from the Institute of Medicine (part of the National Academy of Sciences) that, in effect, indicates these fears are largely irrelevant to the deeper problems of the health-care system.

Controlling one of every eight hospitals -- double the level of a decade ago -- investor-owned health companies have been portrayed as both the curse and salvation of U.S. health care. For every Relman, there's a cheerleader shouting that good profit-making managers can provide quality care at less cost. The institute's report plays down both the fears and hopes. No, it doesn't find that "for-profit" hospitals provide lower-quality care than nonprofit hospitals. Good care may be essential to survival. But no, investor-owned hospitals aren't more efficient. On average, their charges have been higher than the nonprofits'.

In short, the health system's defects can't be distilled into stereotypes. It's not, as Relman and others would have it, caring doctors against heartless accountants. The basic problem is that Americans are neither willing to socialize medicine -- turn it over to government -- or abandon it to the free market. The hybrid system of public and private control produces glaring contrasts. Most Americans receive good health care, but one in seven is uninsured. Dazzling medical advances coexist with huge waste and runaway costs. The average occupancy rate of hospitals is now only 64 percent.

Essentially, we can't decide what health care is. We don't think it's a "private good." When it comes to illness, we don't think the rich should ride in a Rolls while everyone else has roller skates. Therefore, government provides hefty health subsidies for the elderly under Medicare, for the poor under Medicaid and for the middle class through favorable tax treatment of private insurance. But neither do we consider health care a "public good," provided exclusively by government. There's no clamor for a national health service. Traditionally, the doctor-patient relationship has been considered private. And doctors and hospitals jealously guard their autonomy.

Our health care system reflects these inconsistent preferences and, even without investor-owned hospitals, the basic problems would be the same. We expect the impossible: to have health care on demand, but at a limited cost. We reconciled the desire for democratic access with an aversion for government control through a system of open-ended reimbursement of government and private insurance. In 1940, Americans paid more than 80 percent of their medical bills directly; by 1984, third parties (mostly insurers) paid about 70 percent. But this system embodied an illusion: that medical needs are relatively fixed and that spreading the costs over the population -- through insurance -- simply would provide fairer access.

In reality, open-ended reimbursement guarantees skyrocketing costs. It blurs the line between good medicine and the self-interest of doctors, hospitals and patients. The more hospitalization, the more tests, the more surgery -- the more doctors and hospitals get paid. All hospitals (not just investor-owned chains) are encouraged to maximize income so that they can buy new technology or expand services. Patients equate good medicine with more treatment, in part because it seems "free," as former Health, Education and Welfare secretary Joseph A. Califano Jr. writes in "America's Health Care Revolution."

The "revolution" heralded by Califano and others -- called "prospective payment" -- aims to kill open-ended reimbursement. But the needed changes inevitably limit the sovereignty of health-care professionals and, ultimately, affect individual care. Consider one form of prospective payment, DRGs. In 1983, Medicare began reimbursing hospitals based on 468 "Diagnosis Related Groups." A hospital receives one amount for a heart attack, another for a case of pneumonia, regardless of any patient's actual costs. For the hospital, severe and mild cases are supposed to balance. DRGs pressure hospitals to send patients home sooner -- "quicker and sicker," say critics.

As long as government doesn't nationalize medicine, it can control costs only by the way it reimburses doctors and hospitals. Large employers and insurers are now taking the same approach. They're increasingly insisting on second opinions for surgery or restricting employes to doctors and hospitals that agree, in advance, to charge reduced fees. Competition among doctors and hospitals for large pools of patients is supposed to cut costs without undermining quality.

Will it? No one knows. It may create savings for some groups, while shifting costs to others. Health-care prices are still rising faster than overall inflation. Even so, downward price pressures make it harder for doctors and hospitals to treat the rising number of uninsured patients: people who don't qualify for medicaid and lack private insurance. Under a lax reimbursement system, these costs could be spread over insured patients. Ironically, success at easing one problem may worsen another.

There's a further irony: More competition may hurt for-profit companies. As creatures of a generous reimbursement system, they flourished. For example, Medicare paid their costs and also guaranteed a profit. Today's much stingier formula may cripple the ability of for-profit hosptials -- which have shareholders and pay taxes -- to compete against nonprofit hospitals. But whatever happens, our hybrid health-care system, with control split between government and the private market, will endure because it accurately reflects Americans' inconsistent expectations.

The system is so complicated and confusing because it's always making choices -- who will get care, how much and at what price -- that we as a society aren't willing to make explicitly. The complexities camouflage what the choices are. The system's basic problem is not that it's being plundered by profiteers, but that it's being asked to deliver more than is possible.