Market forces should realign the relationship cure

market forces should realign the relationship cure

"It's becoming increasing clear that we need to do a better job of aligning our One label source suggests ISPs will keep resisting any paid content relationship with the The heart of that agreement calls for a "three strikes" law that would force ISPs say they are reluctant to act as gatekeepers and want a market solution. They must figure out how to align the interests of the company with those of its customers, Marketing is a powerful force, backed up by huge resources. Without mutual trust, it is a joke to speak of “relationship marketing,” and an egregious Many marketers have indeed been guilty of treating their customers as idiots. Jan 10, An exploration of the relationship between U.S. market forces and and anesthetic drugs to cardiovascular and oncology treatments. The importance of preventing drug shortages, and the need to a supply interruption by aligning the predicted demand volumes with the material inventory levels needed.

The phrase was coined in the s by Regina Herzlinger, a Harvard Business School professor, to describe health plans that combine third-party insurance against catastrophic medical costs with tax-free savings accounts for direct spending on chronic and routine health care.

The concept took off seven years ago, when President George W.


Bush signed the Medicare Modernization Act. The new law defined the parameters of eligible consumer-driven plans, called high-deductible health plans, and empowered banks to create and manage tax-free health savings accounts HSAs. In our employer-based insurance system, insurers are incentivized to make their plans as generous as possible — offering lower co-pays, deductibles, and co-insurance ratios, but charging higher premiums. The structuring of such plans has a lot to do with why health care eats up so much of the U.

If someone else is paying most of the bill, workers have every incentive to get as much out of their plans as they can — choosing the fanciest health-care options, and going in for all of the extras, even if the costs are astronomical.

Consumer-driven health care seeks to change these incentives. As the coverage is less generous than a traditional plan, the premiums are lower. A family would save twice that amount. This money can be spent on any health costs — and so can go toward covering the plan's deductible, its premium, or paying for unexpected health-related expenses.

If the money is not spent init can be saved and rolled over for medical expenses in following years. Moreover, these savings can be invested — just as with individual retirement accounts — harnessing the power of compound interest. In short order, a healthy individual or family could save enough in an HSA to meet their deductible and co-insurance requirements. These consumer-driven plans benefit patients in that they are less costly than traditional insurance; the health savings accounts, meanwhile, work to the advantage of the entire system, in that they motivate patients to make pragmatic choices about the costs and benefits of medical care.

Instead of automatically ordering deluxe medical care, consumers can decide for themselves: Is that extra procedure worth the money? Can I get a better price by using a different doctor or hospital? This, in turn, creates incentives for providers to compete for patients' business, placing downward pressure on costs and upward pressure on quality. In addition, over the long term, such plans give individuals a financial incentive to lead healthy lives, as they will be spending more of their own money should they fall ill from smoking or obesity.

Opponents of these plans argue that they would lead patients — especially those with low incomes — to under-consume health care. Critics also argue that health care is too complex for individuals to make optimal choices for themselves.

But neither argument holds up under examination. It is true that consumer-driven plans can lead to less consumption than fourth-party insurance does. That is, after all, one of their salient qualities — they encourage more intelligent and so more selective consumer behavior. But the significantly lower premiums associated with consumer-driven plans make health care more affordable for individuals with lower incomes, and so allow them more, not less, access to the care they and their doctors decide they need.

The lower premiums have the added benefit of attracting younger and healthier individuals into the risk pool, mitigating the problem of adverse selection, and thereby reducing the cost of coverage for everyone else.

And while it is true that health-care choices can be complex, 21st-century consumers are accustomed to making complex decisions. If they can choose between hundreds of models of computers and automobiles, each with its own extensive set of bells and whistles, they are certainly capable of making choices about health plans and treatments that will affect their lives far more significantly. Consumers are voting with their pocketbooks. By Januaryaccording to the U. These figures don't even count the 6 mil lion-plus who participate in "health reimbursement arrangement" plans, which are similar to HSAs but managed by an employer rather than an individual.

The Whole Foods employee-benefits program is a prominent example.

Drug Shortages

Consumer-driven plans are still a small fraction of the enormous health-insurance market. But their increasing popularity at least undermines arguments against their economic viability.

The left's stronger argument — and the more significant and important one — is that it is immoral to treat health care as an economic commodity. After all, just because there can be a market in health care does not mean there should be one.

The tension between the spirit of medicine and the spirit of the marketplace is hardly a new problem. Indeed, the ancient ethic of the medical profession — set forth by Plato's contemporary, the physician Hippocrates of Cos — gives doctors a moral as well as a medical role in their societies.

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The famous Hippocratic Oath affirms that doctors should protect the sick not only from disease but also from "harm and injustice," and instructs physicians not to prey on patients' vulnerability for their own gain. In ancient Greece, the oath represented a minority ethic in a world where charlatans posed as physicians to rob desperate people.

Later, Roman physicians found much to admire in the Hippocratic Oath and preserved it for Christian Europe, where the code's universal moral claims found more hospitable ground.

The Christianized Hippocratic Oath became the common standard by which physicians were judged. For new doctors, swearing the Hippocratic Oath became a defining rite of passage — connecting them to generations of their predecessors in an ancient, unbroken tradition that endured into the 20th century. Today, contrary to popular perception, few medical schools require their students to take the oath; its strict injunction against "abortive remedies," for one, would be controversial.

But its broader principle of placing the "benefit of the sick" above self-interest remains at the heart of the medical profession. It is one important reason why physicians are held in high regard by society, and why so many decent and honorable people are drawn to medical careers.

Insofar as the pursuit of profit is the pursuit of self-interest, it is easy to understand why many would think that the free market has no place in medicine. Treating the sick and offering relief to those who suffer are acts of compassion and benevolence that risk being corrupted by economic calculations.

market forces should realign the relationship cure

Those who are intuitively suspicious of the profit motive in medicine will naturally also be suspicious of private health insurance. After all, a for-profit insurance company's first obligation is to generate revenues in excess of expenses, not to provide unlimited care for everyone. This means pursuing economic efficiencies — up to and including denying sick people money for their care — and constantly seeking ways to boost corporate earnings.

To those who advocate care for the sick regardless of economic circumstances, the business model of insurance will always grate. That model often becomes even more irritating when it is put into practice.

For example, it is in the economic interest of insurers to scrutinize those who wait until they are sick to buy health insurance — charging new customers who are already sick more than those who are not, and even denying coverage to some prospective customers whose treatment would be especially expensive. This means, in effect, denying care to some in desperate need. Insurers also have to employ means of weeding out fraud and dishonesty, but in the process will inevitably hassle genuinely ill policyholders instead of issuing timely reimbursements.

Moreover, under the American insurance system, people often lose access to health care through no apparent fault of their own — as the result of an economic downturn or the loss of a parent's or spouse's job. The very notion that life-saving therapies might be available to one sick person but not another simply because the first has more money strikes our egalitarian sensibilities as unjust.

Indeed, many liberals treat health care like a fundamental human right — one of the rights that governments exist to secure. As a society, we accept government control of police and fire departments, and government schools, whatever their faults, have been ubiquitous since the 19th century.

We consider these public services essential to ensuring equality of opportunity and equality under the law, and have decided that everyone should therefore be entitled to them. Why, then, are treatments for deadly disease or injury not entitlements too — rather than mere commodities to be bought and sold on the market?

The question of whether health care is a right certainly deserves careful consideration and discussion. After all, it touches on some deep philosophical quandaries at the heart of the liberal-democratic order. But even if we were to answer that question with a "yes," it should not prevent us from thinking of health care in economic terms. Positive rights as liberals understand them — rights to some good or service, rather than rights against government intrusion into our lives — require that we find ways to economize their provision.

A right to some minimum degree of something does not mean a right to an unlimited supply of it: We may have universal access to education, for instance, but not every child can attend an elite private school. No matter how evenly we try to distribute goods and services we deem to be "rights," inequalities will always exist.

Modern health care is an expensive commodity. So even if we agree that it is unjust to deny some citizens access to it, we must still recognize that money is limited — and figure out the best way to allocate care.

The moral conviction, therefore, leads back to economics. Both sides of the health-care debate share the goal of making insurance coverage and medical care more cheaply available to more people ideally, to everyone. The difficulty arises with the questions of what to provide, and how.

These are two inherently economic questions, because the problem of allocating a scarce resource is by definition an economic problem — indeed, the economic problem. Just as America cannot afford to give a Lexus to every citizen who needs transportation, it cannot afford to give the very best health care and the latest technologies to everyone who seeks them.

Someone will always need to make the difficult choice to deny a treatment option on the basis of its cost. The key questions are: Who should make the tough decisions, and by what principles? Should it be a government bureaucrat on the basis of political considerations, an insurance-company bureaucrat balancing his bottom line, or a patient weighing his personal priorities?

The first option points toward a more socialized system; the second more or less to the system we have now; and the third toward a more robust individual market in health insurance, and more consumer-driven care. These questions also help show why the case for providing health care along market principles has a moral dimension — because the market is very often the most efficient and most fair way to allocate a scarce resource.

Market forces don't have to be at odds with a patient's welfare. Indeed, they can be highly aligned with patient interests if the market's incentives for health-care delivery are properly structured. After all, absent certain distortions by government policy, health-care companies stand to profit most by addressing patients' unmet medical needs.

We must also not forget that the system we have now, for all its faults, has one notable quality: Americans have more access to innovative treatments than do the citizens of any other country in the world. Thanks to for-profit pharmaceutical, biotechnology, and medical-device companies, the average American battling cancer or recovering from a stroke lives meaningfully longer than his British or Canadian counterparts, and gains quicker access to novel therapies.

New technologies may be expensive at first, rewarding innovators, but they become cheaper and better over time, benefiting everyone. And yet consideration for how to preserve, let alone enhance, the pace of medical innovation has been largely absent from the concerns of the left in the health-care debate.

Naturally, the moral case for the profit motive in health care is not always the easiest case to make — but it is important to see that critics of that case often misunderstand the nature of profit in a free economy.

In a speech to a joint session of Congress last September, President Obama argued that "by avoiding some of the overhead that gets eaten up at private companies by profits, [government health insurance] could provide a good deal for consumers.

  • Health Care and the Profit Motive

Indeed, the opposite is true: Overhead eats up profits. This is why insurance companies are incentivized to reduce administrative costs, along with any other unnecessary expenses. The potential for profits motivates insurers to seek greater efficiency in the way they pay for health care.

And if more individuals bought their own insurance — rather than having their employers do it for them — the prospect of profit would motivate more insurers, doctors, and hospitals to offer what consumers want: Moreover, the common image of insurance companies as rapacious profiteers simply does not match the reality.

Nevertheless, insurers are the easy targets — because while they must make hard decisions, they are not directly answerable to the patients who bear the consequences, especially in the fourth-party model. But replacing the insurers with similarly unanswerable government bureaucrats would not solve the problem.

Giving insurers the economic incentive to be more responsive to patients, though, could go a long way toward a solution. What might these limitations look like? There are some instances in which we should obviously consider more than economics: Certainly no wealthy nation should allow a destitute woman who has been hit by a car to die in the street.

Likewise, in a pressing emergency, catastrophic care should be provided to those who need it, and the costs can be sorted out later. Of course, we already have universal emergency care today, if only through the back door: The Emergency Medical Treatment and Active Labor Act of requires any hospital receiving Medicare revenue — essentially every hospital in America — to treat anyone needing emergency care, irrespective of citizenship, immigration status, or financial resources.

The bad news, though, is that hospitals are forced to bear most of the financial burden, and then pass the bulk of the costs on to other patients. A more organized program to cover these expenses — provided that the distinction between emergency, chronic, and routine care were reasonably well defined — would be a step forward, and would also clarify the boundaries of the free market in health insurance.

We also do not want to let the poor go without chronic and routine care — this, after all, is why Medicaid exists.

The program certainly does not offer the same quality of care as most private health insurance, but it offers decent care to those who can't afford to buy coverage.

The fourth-party Medicaid system should be improved — and some state experiments, like Indiana's utilization of consumer-driven care in its Medicaid program, can show us the way. But the medical plight of the poor is not being ignored in America, and does not cry out for a wholesale re-invention of American health insurance.

It is the case of the genuinely uninsured — people who are not poor enough to qualify for Medicaid, but who do not have access to employer-based coverage and can't afford insurance on their own — that underlies the liberal moral argument for reform. But as we have seen, the economic problem that has left these Americans uninsured cannot simply be outlawed. It must be addressed.

At the heart of the problem is the rising cost of insurance coverage. Costs are rising because of our existing fourth-party system, driven in particular by the very health-care entitlements that liberals seek to expand. To address that problem, we need incremental reforms to bring about greater market competition.

Replacing the entire system with a sweeping government program might feel good — and might seem like a way to address the moral element of the problem — but it simply would not work. Given its economic inefficiencies, it could never be a serious answer to the question of how to fix American health care. So even if the purpose of our health-care system is both economic and moral, the solutions to its problems must be economic. They should apply market forces, including the profit motive, to curtail the growing cost of health care.

As much as possible, they should place the power to make difficult decisions into the hands of patients and their doctors. And they should liberate the forces of medical innovation to increase quality, improve affordability, and extend lives. These reflections point us toward reforming, but preserving, our system of guaranteed catastrophic care and Medicaid for the poor, and toward developing a genuine market in health insurance — through consumer-driven health care in particular — for those who find themselves uninsured today.

This hardly sorts out the fine details, of course, but it offers the general framework of a solution, and takes into account the unique character of our health-care conundrum: We cannot solve it while ignoring either element. The collaboration included the exploration of elements related to market uncertainties and product margins; supply chain network design; demand forecasting; and relationships between manufacturers and key stakeholders, including purchasing organizations and regulators.

Health Care and the Profit Motive | National Affairs

The results are presented in this report. The study examined the following factors: This study was designed to identify insights into the contributing factors behind shortages and the suggested areas for further exploration. The study was not designed to produce a statistically significant sample, given that the main objective was to understand key trends and identify the directional focus for future research.

More than 50 executives from 10 companies that collectively manufacture a mix of branded, branded-generic, and generic products participated in the research.


Refer to the appendices for details on the research methodology, participating companies and executives, interview questions, and reference products. The following are also key elements identified by these 10 companies: Market withdrawals, which reduced the number of manufacturers supplying a drug to the market, played a role in causing shortages.

Companies highlighted a number of reasons that may have encouraged one or more manufacturers to exit a market, and therefore reduce the number supplying a drug to that market: Refer to section 3. Companies identified the need to enhance their overall supply chains and in particular plan for and meet the estimated demand for a product by coordinating processes involving sales, demand planning, inventory management, and production. And even though companies said they had taken steps to build additional capacity—such as backup manufacturing or identification of dual-source suppliers—into their respective supply chains, not all products received the same level of manufacturing redundancies.

Instead, companies established levels of redundancy based on manufacturing complexity, return on investment, and impact on patients if a shortage occurred.

Companies said they needed incentives, either in the form of guaranteed-volume contracts or the ability to retain contracts, to mitigate the risks of making investments to prevent shortages.

They said a lack of such incentives prevented them from entering a market to resolve a shortage issue or build the systems needed to prevent shortages.

market forces should realign the relationship cure