TCS Daily


It`s Okay to Make a Profit, Even in Medicine

By James Freeman - June 19, 2000 12:00 AM

Most of us generally understand that a free market encourages people to create useful products and services. When you allow people to earn a profit from their inventions, they tend to invent lots of things. So in Silicon Valley, where people can earn huge rewards for creating new chips and software, people create lots of chips and software. In Cuba, where people don't have the same right to profit from their creations, they don't contribute a whole lot to the Internet economy. Everyone's trapped in a time warp of 1950s technology.

Of course, most of us prefer the Silicon Valley model over the Cuban model. The pursuit of profit drives our economy, and we enjoy the benefits. But when it comes to health care, we seem to want the benefits without allowing anyone to make money. Since the Supreme Court ruled Monday that a patient can't sue an HMO just because it tries to limit costs, many politicians have renewed their call for some kind of "patients' bill of rights."

To be clear, the health care system in this country is by no means a totally free market. Our tax system encourages people to get health insurance through their employers, instead of encouraging individual consumers to make choices. State and Federal rules dictate which items must be covered in insurance plans, forcing all of us to buy coverage that we may not need. And while it's hard to put an exact figure on it, certainly lawyers and the courts impose costs that we ultimately pay in higher premiums.

But within the government's rules, the HMOs are giving Americans what many of us seem to want -- low-cost health care. Personally, I'm not a big fan of HMOs. I like to have some freedom to choose a doctor, so I buy a high-deductible plan and do my best to stay healthy. But it's nice to have other options. HMOs are offering broad coverage at a low price and in return the patient gives up some control over treatment decisions. Now before you send angry mail about how you're forced into the HMO by your employer, think about that. Is that the HMO's fault? Maybe your company should choose another plan. Maybe it's the government's fault because it allows your company to deduct all the costs of health insurance as a business expense but doesn't give you the same right if you buy on your own.

HMOs are not beyond the law. Patients already have the right to sue. In fact, as USA TODAY's Joan Biskupic noted on Tuesday, the plaintiff in the Supreme Court case has already won a lawsuit against her HMO and received a damage award. Cynthia Herdrich's HMO doctor forced her to wait eight days for an ultrasound test for abdominal pain. In the meantime, her appendix ruptured and required major surgery. So she won a malpractice suit. Herdrich then filed another suit based on the fact that the HMO rewards employees for controlling costs. That's what the Supreme Court knocked down. The Supremes said that if you could sue simply because the HMO is trying to control costs then lawsuits would destroy the industry. So HMO patients are free to punish HMO doctors for malpractice, negligence, etc., but they can't sue just because their hospital is trying to make money.

If Congress unleashes a wave of such lawsuits, clearly lawyers will get rich, and clearly medical costs will rise. What company will have an incentive to provide low-cost medicine if efforts to limit costs become a smoking gun for plaintiff attorneys? If you don't allow people to pursue a profit, you can't expect them to provide the things you want. A similar drama is playing out with the AIDS crisis in South Africa. Along with the UN, the government there is pressuring drug companies to cut prices on drugs to treat AIDS and related infections. It may seem inhumane to charge high prices for needed medicines, but why would any company ever invest the money to develop another AIDS drug if they're not allowed to make money off it?

And why is it the drug companies' responsibility to pay? According to the South African government, it costs $10,100 to treat each patient, and there are an estimated 4.3 million infected people in South Africa. So to treat everyone in need this year, it would cost $43.4 billion. That's roughly 10% of the endowment value of America's charitable foundations. Why isn't the UN pressuring them to respond to this crisis?

Whether you're talking about good software, good microchips or good medicine, people need an incentive to create it. Let health care companies make a profit and we'll all enjoy better health.
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