The ACP Advocate Blog

by Bob Doherty

Thursday, August 6, 2009

Is Making Money on Health Care a Bad Thing?

From time to time, I get an email from an ACP member decrying for-profit health care. One member wrote: "It seems that the other parts of the medical system will do fine under the new plan - for profit insurance companies will make even more money while exerting a strangle hold on how we practice and how we are paid. Pharma, medical device manufacturers, hospitals will all do fine. I don't understand how internists will be better off under this new system then we were before."

Another internist wrote: "We pay enough taxes that health care can be given to all Americans only if the greed and abuse by powerful businesses were excluded. Millions of people file for bankruptcy and millions of businesses die every year due to unaffordable healthcare cost. My HMO agent came to deliver my new Plan and told me that my premium will be up by 8% this year. For what? I hardly use it and my wife uses it 1-2 times per year and so does my kids. How fair is this? For Profit HMOs are not synonymous with better and affordable healthcare of Americans."

The Physicians for a National Health Program, which advocates for a single-payer health care system, points the finger at "for-profit" health care as the culprit behind the problems in the U.S. health care system:

"The reason we spend more and get less than the rest of the world is because we have a patchwork system of for-profit payers. Private insurers necessarily waste health dollars on things that have nothing to do with care: overhead, underwriting, billing, sales and marketing departments as well as huge profits and exorbitant executive pay. Doctors and hospitals must maintain costly administrative staffs to deal with the bureaucracy. Combined, this needless administration consumes one-third (31 percent) of Americans' health dollars."

An opposite perspective is offered by Stephen L. Carter, a law professor at Yale. In a commentary posted on the Washington Post web site, he argues that, "High profits are excellent news. When corporate earnings reach record levels, we should be celebrating. The only way a firm can make money is to sell people what they want at a price they are willing to pay. If a firm makes lots of money, lots of people are getting what they want." When it comes to health care, he says this:

"Indeed, one reason the 'public option' health insurance program under debate may turn out to be more expensive than advocates suggest is that here, unlike in Europe, we are unlikely to put up with government restrictions on what sorts of care will be available, especially for seniors. A board of experts might decide to limit access to hip replacements, for instance, but there is little chance Congress will let them get away with it. Private insurers, by contrast, will cut whatever they can. This puts them at constant war with regulators and patients, but beneath this tension is a certain useful discipline. We want health care to be cheaper, and the for-profit health-care industry has every incentive to make it so."

I can see why many ACP members are troubled by health care profit-making - the idea of making money off sick people just doesn't ring right to people who have dedicated their lives to treating the sick. (Although truth-be-told, most doctors - including I would imagine some members of PNHP - make healthy incomes off the sick.) But I also believe that elimination of profit-making in U.S. health care could stifle innovation that leads to better treatments and efficiencies in health care delivery. Besides, making money in America is ... well ... as American as apple pie - sold by your local baker to make a profit, for course!

Today's question: Do you think profit- making is good or bad for the U.S. health care system

3 Comments :

Blogger Steve Lucas said...

In my very first economics class we were taught that government had a role in establishing consistent business practices across a wide geographic area, along with maintaining an orderly market. To that end we have see the rise of various governmental agencies such as the ICC, SEC, FAA, FDA and others.

We have also seen the rise of regulators to assure price controls are in place to provide society with needed services. In my state electric, natural gas and telephone rates are regulated. The object is to make the cost of these necessary items as cheap as possible while still allowing the providers a profit. Along with this regulation also comes a pledge to control competition so that the providers can make long term decisions.

In a perfect market without conflicts of interest, kick backs, or other aberrations the market will function to offer the largest selection of products, at the most acceptable price. Unfortunately medicine does not operate in this open market. Fragmented, segmented, often with only one provider, we find the opportunities for pricing abuse to not only exist, but to be exploited by many providers.

Every organization needs to more than break-even. What we have seen in the past several years is the breaking of the social contract that medicine will make a profit, but not such a large profit as to make it appear they are only a profit making company.

Insurance companies and hospitals are no longer locally owned. Drug companies are run as a business where every drug needs to be a blockbuster. ($1B+ in sales). Executives live in a distant cities, often in a gated communities.

Sadly, I feel we have reached a point where the excesses in the drive for profit now require greater regulation, always a bad way of solving a problem. For every regulation you will immediately have an exception, or group that will devise a way to sidestep the new rule.

Medicine needs to be treated more like a utility than an open ended for profit enterprise. We all need these services, but cannot continue with the system currently in place. This will also mean limits will be placed on doctors business practices. No more doctor owned hospitals, stricter rules regarding disclosure of drug company relationships, and even limits on patients seen per day, to name just a few.

Medicine does not operate in a vacuum, as I see similar situations arising in education and the clergy. Colleges now charge what the market will accept. The growth of the mega-church has changed the financial dynamic in church organizations.

What we have lost is any sense of responsibility to the community. What we see is a constant striving for more profit to support executive salaries and as a means to measure a misplaced definition of success.

Steve Lucas

August 7, 2009 at 10:14 AM  
Blogger Jay Larson MD said...

Medicine is not suited for a business model. People are not widgets. Commercialization of medicine has deteriorated professional values of physicians. Perhaps this is one reason for the decline of primary care. Physicians should have an ideology that assigns higher priority to patient care than economic rewards. Sure physicians should receive compensation for their work, but current reimbursements over compensates a large slice of the health care pie.

How much of the $2.3 trillion dollar spent on health care annually is related to greed? Take for instance Dr. Bill McGuire, former CEO of United Health Group. In 2006 his portfolio was worth $1.6 billion (yes, billion). This is more than the CEO of GE and IBM. Bill ultimately stepped down during a SEC investigation into unsavory business practices.

Medical care debt should not be the major cause of bankruptcy. Especially while insurance companies boast huge earnings and hospitals continue to build and buy the latest shiny new gizmo.

Its time that this system is overhauled and the focus is placed back on what is important for patients. Health care reform is not about physicians, pharma, insurance companies, or device manufactures, it is about patient care.

August 7, 2009 at 6:22 PM  
Blogger jfddoc said...

I believe that making money in healthcare is not a bad thing. One of the main reasons that the current system does not work is that the consumers of health care are isolated from the true costs. Because of World War II era wage and price controls, the employer was encouraged to provide benefits to their employees. Over the years, health insurance has come to mean nearly "dollar one" coverage and not just assistance when there is a major medical expense. Along with this has come the idea that health care is a "right" which too many people believe means that "I don't have a responsibility..someone else should provide it for me."

Government regulation of Electric, Gas, and telephone rates developed because utilities were essentailly monopolies. In the past, we didn't have several different companies that could compete on price. There was just one, and without regulation, they could charge what they wanted. Of course, this has changed over the past 20 years or so. I don't know that medicine should be considered a "utility." That might require that we all work for the government and that they be the single provider of care.

August 12, 2009 at 10:27 AM  

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About the Author

Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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