[robomartin]

As an entrepreneur I have dedicated most of the last 25 years to doing hardware (read: manufacturing) ventures. Manufacturing in the US is hard, if not impossible, save cases where the ecosystem or nature of the market can support it. Problems one could face include: ip (patents) mine field, government regulations, liability issues, lack of localized supply chains, high labor costs, high insurance costs, high taxes and more.

Then, to boot, if you are lucky enough to have to deal with the government or in an industry where government has decided they know better, well, this can be described with two words: Pain and Frustration.

The mechanisms described in the article kept me from even considering making an effort to do some good in the medical field. It's just too painful.

Finally, about two years ago, I had enough and decided to be done with making stuff and pivot into software-only products. This was not a huge pivot in that most of the products we manufactured during the last 20 years had significant software elements (embedded, FPGA and related workstation applications). The transition just meant making a very conscious effort to not go after hardware ideas. This was hard in that I personally like making physical products. But, no more.

My point in relating this personal story is that I have the scars to understand what this little syringe company must have been through.

The article in question highlights something that we should all understand very well at this point: Government rule-making is, more often than not, fraught with unintended consequences that, ultimately, end-up costing us in terms of money, freedom and choice. And, when it comes to the medical field, might even result in people dying.

Part of the problem is that we continue to give the keys to the shop to bureaucrats who have zero real-world, business or employed-by-a-non-government-business experience. You really can't expect much from anyone who has lived their entire life within the confines of an ecosystem where personal decisions carry almost no risk. That is vastly different from the real world, where, if you are a bad programmer or lousy barista you get fired and, no, you don't get to enjoy 80% of your salary for the rest of your life.

Programmers, for example, know and live this issue of making the wrong decision. In the course of solving a problem we choose an approach and go with it. Sometimes it works and often-times there are unintended consequences that need attention. Other times the approach is entirely wrong and has to be scrapped in favor of a different idea. The solution is evolved rapidly until the right approach surfaces. This ultimately leads to better solutions, particularly if peer reviewed.

The trouble with government decision making is that you have the equivalent of managers who don't know how to code --at all-- telling you what algorithm and database to use to solve a problem. Furthermore, it is equivalent to these non-technical managers making their decision the law for the company. And, yes, regardless of what the overwhelming reality of the matter might indicate, changing their laws is either impossible or you need 2/3 of said morons (non-technical managers) to agree to the change. In other words, you should expect the beatings to continue until the morale improves. Of course, reality in the technology world is closer to the idea that those who actually understand the subject should make the decisions. Wouldn't it be cool if every single politician had to have a real job 3/4 of the year? Work three months for government and then go back to the private sector. Now that could be interesting.

[anigbrowl]

Part of the problem is that we continue to give the keys to the shop to bureaucrats who have zero real-world, business or employed-by-a-non-government-business experience. You really can't expect much from anyone who has lived their entire life within the confines of an ecosystem where personal decisions carry almost no risk.

A lot of the time the rules are not made by bureaucrats but by politicians in receipt of lobbying money and an industry-supplied amendment which the politicians has neither read nor understood; also, when private actors dislike bureaucratic decisions, they frequently sue the bureaucratic agency in question to prevent its implementation. Blaming the problem on timid bureaucrats without acknowledging these frequently encountered situations is a hollow argument.

FTA: As it turns out, Shaw’s retractable syringe hit just as these trends were converging. In fact, the year his product came onto the market, three of the nation’s largest GPOs merged to form a company called Premier, which managed buying for 1,700 hospitals, or about a third of all hospitals in the United States. Shortly thereafter, Premier signed a $1.8 billion, seven-and-a-half-year deal with Becton Dickinson. Under the agreement, member hospitals—among them Dallas-based Presbyterian, where Shaw would hit a brick wall—had to buy 90 percent of their syringes and blood collection tubes from the company. Over the next two years, BD landed similar deals with all but one major GPO. As a result, almost everywhere Shaw turned, he found hospital doors were closed to him.

Here, for example, no government bureaucrats were involved at all.

[robomartin]

Nope. Read it again. Government rules is what changed the nature of these GPO's from hospital-funded to being funded by kickbacks from the various vendors. That one act alone seems to have triggered a massive shift in power.

Businesses will adapt to the environment they operate within. If they can identify an advantage they will use it. I am not going to blame a business for moving within the existing framework any more than I would blame someone for taking advantage of SEO. In other words, given an environment where you can optimize your website for better search engine results, you do it. And that's fine. The problem is that those making the rules that create the opportunity for optimization are morons who have no clue about what they are doing or are simply corrupt.

Lobbying is a problem, but it is NOT illegal. I fully agree with disallowing it. So long as it isn't, those who can will use it. Again, you use the SEO tools available to you. When something starts to work against you or is no-longer allowed you stop using it.

Something else that needs to change: Government workers cannot be unionized. Why? They form a voting block that can influence the very laws that regulate them as employees of the government. It's as clear a conflict of interest situation as I can imagine. They vote as a block and favor anything that will keep them employed, protect their pensions, etc. The private sector has had to take haircuts for the last several years and suffer the consequences of ill-conceived plans from government. In sharp contrast to this the typical government worker is living in an isolated bubble where they can look forward to retirement while earning 80% to 90% of their pay for the rest of their lives and enjoying an amazing health-care package. Some even got raises. All on our backs.

In the real world the government workforce should have been cut by at least 25% to 50% and their salaries by another 20%+. Lifetime pensions seriously cut down and completely eliminated at some level. If you want to have a nice retirement make the right decisions and invest your money yourself, don't to on my back and my kids backs. This is so broken it's a tragedy.

I mean, see what's happening with the health-care law? They are hiring some 4,000 IRS agents to support it. These people are NEVER going to get fired. They'll probably cost us well in excess of a billion dollars a year in salaries, benefits and support systems.

[anigbrowl]

'Nope' is not an argument. Government rules previously forbid kickbacks, a common commercial practice. the rules were changed to remove this restriction. If legislators are corrupt for changing the rules, who is corrupting them? why should they skate? This was clearly a reduction in government interference in the marketplace, and what we've got instead is a situation where the dominant market player uses its commercial power to negotiate long-term exclusive contracts. Nobody in government forced them to issue such contracts or the hospitals to sign them without negotiating the right to purchase competing products.

Lobbying is a problem, but it is NOT illegal. I fully agree with disallowing it. So long as it isn't, those who can will use it.

Then advocate for that instead of putting all the blame on the government, and explain what you're going to fill the campaign finance gap with, or how you'll circumvent existing first amendment precedent. Bribery is one of those dances where it takes two to tango.

Something else that needs to change: Government workers cannot be unionized.

I happen to agree, but this is hopelessly irrelevant to the subject at hand.

In the real world the government workforce should have been cut by at least 25% to 50% and their salaries by another 20%+.

Suprisingly, Obama has cut government more than Reagan [1], and wants to cut it more [2]. Rome was not built in a day and it isn't torn down in a day either. Your argument seems adrift from reality and increasingly resembles mere ranting.

1. http://economix.blogs.nytimes.com/2012/01/06/under-obama-a-r...

2. http://articles.latimes.com/2012/jan/13/news/la-pn-obama-see...

[robomartin]

"Your argument seems adrift from reality and increasingly resembles mere ranting."

I really have to thank you for that. I appreciate personal comments of this kind in the middle of an otherwise civil discussion. I apologize for not agreeing with you and moving on. Thanks.

[anigbrowl]

I haven't made any personal remarks about you. I've just observed that you've devoted more than 50% of your comment above to argument about irrelevant topics, and that those arguments rest on inaccurate assumptions, such as the inevitable expansion of government.

[joe_the_user]

Actually, it sound like he's agreeing with you. Be gracious and accept that. Good job.

[Tycho]

Government interference isn't a homogenous force that is amplified or reduced. While one particular rule or restriction may have been removed, the end result can still be an even more distorted marketplace (eg. because one side is disproportionately favoured), depending on the nature of the remaining rules.

[anigbrowl]

It's not like marketplace actors are devoid of agency.

[praptak]

> The article in question highlights something that we should all understand very well at this point: Government rule-making is, more often than not, fraught with unintended consequences that, ultimately, end-up costing us in terms of money, freedom and choice.

This is how I see it:

1. Government makes an anti-kickback rule.

2. It relaxes the rule.

3. Corporations take advantage of the opportunity using kickbacks to entrench themselves in the market, costing us money, freedom and choice.

4. Your conclusion: government rule making is bad.

[anamax]

> 4. Your conclusion: government rule making is bad.

Feel free to provide 3 examples where there's significant regulation AND little/no regulatory capture.

[jleader]

1. Laws against murder.

2. Laws against theft.

3. Contract law.

4. Traffic laws (right of way, behavior at stop signs and traffic lights, etc.).

None of the above are perfect; all of the above have been used abusively at times; all of the above are needed to some degree for the smooth functioning of society. There are some debates in the area of traffic regulations about whether some situations would be safer with a little less regulation. There's also been some regulatory capture of contract law by lawyers, but because contract law is relatively symmetric, it's less of a problem there.

[anamax]

That's not the kind of rule-making under discussion, so thanks for conceding the point wrt that kind of rule-making.

As to contract-law, mandatory arbitration is getting "interesting".

[gamble]

I'm not seeing how the government was an issue in this case. The article is about how private companies use kickbacks and cartel behaviour to restrict what products are available to hospitals. It seems like a lack of government action is the problem here.

[robomartin]

No,no. Read it again. The government setup the rules that enabled exactly that behavior.

If they (government) didn't try to play entrepreneur or investor we'd be far better off. There are cases where government involvement is warranted. I'm with Ron Paul on this one: Get them off our backs, we do and did just fine when they had less hooks into us. This is particularly true with the existence of the Internet. It's pretty hard for a large company to misbehave today and not pay a serious price for it. Laws are far less powerful in this regard.

[anigbrowl]

No, in 1986 the government removed rules (forbidding kickbacks) designed to prevent such behavior. In 1996 the government exempted medical supply companies from many antitrust regulations. The facts laid out in the article are diametrically opposed to the point your are trying to make.

It's pretty hard for a large company to misbehave today and not pay a serious price for it.

for example?

[robomartin]

I disagree. Here's the relevant section:

  <quote>

Then, in 1986 Congress passed a bill exempting GPOs from the anti-kickback provisions embedded in Medicare law. This meant that instead of collecting membership dues, GPOs could collect “fees”—in other industries they might be called kickbacks or bribes—from suppliers in the form of a share of sales revenue. (For example, in exchange for signing a contract with a given gauze maker, a GPO might get a percentage of whatever the company made selling gauze to members.) The idea was to help struggling hospitals by shifting the burden of funding GPOs’ operations to vendors. To prevent abuse, “fees” of more than 3 percent of sales were supposed to be reported to member hospitals and (upon request) the secretary of health and human services.

But, as with many well-intended laws, the shift had some ground-shaking unintended consequences. Most importantly, it turned the incentives for GPOs upside down. Instead of being tied to the dues paid by members, GPOs’ revenues were now tied to the profits of the suppliers they were supposed to be pressing for lower prices. This created an incentive to cater to the sellers rather than to the buyers—to big companies like Becton Dickinson rather than to member hospitals. Before long, large suppliers began using “fees”—sometimes very generous ones—along with tiered pricing to secure deals that locked GPO members into buying their products. In many cases, hospitals were obliged to buy virtually all of their bandages or scalpels or heart monitors from one company. GPOs also began offering package deals that bundled products together. To get the best price on stethoscopes, a hospital might have to agree to buy everything from pacemakers to cotton balls from the GPO’s preferred vendors. Hospitals went along because they got price breaks, usually in the form of rebates if they met buying quotas.

This situation only grew thornier in 1996, when the Justice Department and the Federal Trade Commission overhauled antitrust rules and granted the organizations protection from antitrust actions, except under “extraordinary circumstances.” Once again, the idea was to help struggling hospitals, this time by allowing the buying groups to grow big enough to negotiate the best deals for their members. But the decision led to a frenzy of consolidation. Within a few years, five GPOs controlled purchasing for 90 percent of the nation’s hospitals, which only amplified the clout of big suppliers.

  </quote>

Government meddling triggered all kinds of mutations that led to the current situation in more ways than one.

[luser001]

What you generically call "government meddling", I call (more precisely, imho) "corporation-funded, lobbyist-enabled legislative corruption".

[robomartin]

What you generically call "government meddling", I call (more precisely, imho) "corporation-funded, lobbyist-enabled legislative corruption".

This is a very popular view generally promoted in the more liberal corners of the political ecosystem. Not being in either the liberal or conservative extremes I tend to see things differently.

You have to ask a few questions to get to the bottom of it:

  Q: What are lobbyists?
  A: Organizations that create a way to reach out to 
  law-makers directly, voice opinion and have some 
  influence on relevant matters.

  Q: Why do businesses use lobbyists?
  A: Because they can and it provides them with a way 
  to navigate an already complex system.

  Q: Why are corporations able to fund lobbyist?
  A: Because it is legal

  Q: Why is it legal?
  A: Because politicians passed laws allowing it.

  Q: Why did they do that?
  A: Many reasons.  
  One might be that they need that funding to stay in power.
  Another might be that they don't really care about us but
  would much rather ensure their own political existence.
  Yet another might be that we, the people, don't really
  show-up in any meaningful way on their radars outside of
  elections.  
  And, finally, one more reason could be that, well, we allow it.

  Q: What should we do about it?
  A: Make it illegal.

  Q: Would corporations and lobbyists then be able to influence legislation?
  A: Maybe, but at least not through those legally-provided channels.

You don't have to ask too many questions to get to the fundamental reasons behind a problem. It's hard to hide from reality. I don't have a problem with someone (or a corporation) using the available legal framework to advance their cause or standing. If the means for political influence produce bad results the system is to blame, not the user of the system.

A simpler example might be in product design. If I design a chainsaw that is faster and more powerful to use I'd expect businesses to use it to gain advantage over competitors and make more money. If, as a result of this more people are getting hurt because the design isn't very sound, you don't turn around and blame the businesses using it. The design was at fault. Bad engineering. People will use what they are given to work with. Fix the problem, not the symptoms. It's not a perfect analogy, but it illustrates the fundamental idea.

[cynicalkane]

What you generically call "government meddling", I call (more precisely, imho) "corporation-funded, lobbyist-enabled legislative corruption".

Most legislators don't wake up in the morning and say, "Oh boy, time to do evil deeds for money today". Regulatory capture normally involves exploiting the government's natural tendency to meddle.

[Aloisius]

People like to pretend like all government regulation is stifling to innovation, but it is pretty clear that some regulation is necessary for a properly functioning market.

The trick is, how much is too much. There needs to be a very good reason to shield any company from anti-trust regulations and I can't think of a valid one that would apply to medical supply companies.

[lotharbot]

It's not just a matter of "how much" regulation, but which regulations.

A field can be both over-regulated and under-regulated at the same time, in different ways. It might have the right total number of regulations, but too many that stifle innovation and too few that actually protect consumers. (Unfortunately, due to the nature of politics, those trying to remove the stifling regulations and those trying to add consumer protections often end up at each others throats.)

[specialist]

Quantity AND quality.

Market design is wicked hard. That's the role of governments. Business (court) law, a fair and impartial judiciary, enforcement, currency, etc.

I don't mind so much that any particular system is broken.

What troubles me is how hard it is to fix.

We're all staring at the elephant in the room. But the incumbent vested parties making a buck from a broken system, to the detriment of everyone else, are super effective at blocking reform.

[Symmetry]

I think that saying that regulation is necessary (as opposed to desirable) might be too strong. In most cases things can still function without regulation, because people know things aren't regulated and can take that into account by being cautious. Now, this is often inefficient and causes some number of people to get screwed over, but it still works.

I'm sure there could exist some golden system of regulation for health care and there are even countries like Singapore seem to have found something close enough, but its not clear to me that our current system in the US actually manages to be better than no regulation at all.

[Aloisius]

I disagree. Regulations are absolutely necessary for a functional market.

Corporate espionage, sabotage, outright lying about your products, financial fraud, tying, price fixing, collusion, bid rigging, geosplitting, ponzi schemes and dozens of other manifestations of bad corporate practices that regulations prevent (or try to) were put in place in the first place because they destroy markets. These aren't hypothetical problems either, there are many many instances of these practices happening over the last few centuries.

Hell, this article effectively says that medical providers are engaged in product tying and it is destroying the market!

Truly free markets are a myth. The best you get is mostly fair markets.

[jleader]

"Saying that regulation is necessary might be too strong"?

Some regulation is always necessary. How would you expect contracts to work without contract law (i.e. regulations governing how contracts are to be interpreted, enforced, disputes about them are to be resolved, etc.)?

It is very clear to me that our current system manages to be better than no regulation at all (even though it is arguably worse than the ideal quantity and quality of regulation). To my knowledge, the only places with no regulation are places like Somalia, where the guy who has the largest number of the fiercest relatives and friends with guns gets to decide what the people around them should do.

[rosser]

The government setup the rules that enabled exactly that behavior.

I see you making this argument over and over in this discussion, but you seem to be ignoring the flip-side of that fact: People exploited those government rules.

Any calculus of culpability for the current state of affairs that ignores that fact, pointing fingers solely at the government, is myopic to the point of absurdity. No-one forced these medical supply cooperatives turned for-profit organizations to exploit the rules for their own advantage, establishing a system of pay-to-play kickbacks that demonstrably holds back progress and actually kills people. (Don't mind me. I'm a little pissed off about this particular subject right now; I just had an uncle die from sepsis.)

The people in those organizations made conscious, rational choices to engage in that kind of behavior. If they didn't foresee the consequences of doing that, they're as dumb, blind, and undeserving of the responsibility for stewarding their corner of the world as the government bureaucrats who created the rules in the first place.

Or are you actually arguing that people who exploit unintended consequences for their own benefit, regardless of the impact to the rest of the world, are somehow blameless? That only the people who made those consequences possible have any culpability?

It takes two to tango, after all.

[chernevik]

First, I'm very sorry for your loss.

Second, there is no more predictable rule of human behavior than the conscious, rational pursuit of self-interest. Adam Smith was very clear on this, businesses will seek to form cartels at every opportunity. We can legislate against explicit collusion, but these laws are very tough to enforce. It's very possible that the executives in these companies are deviating from legal standard, but enforcement of laws governing intent is even harder. As a policy matter, better / stricter law is unlikely to solve the problem.

The stronger solution is discouraging barriers to entry. Competitive entry of new players is the best discipline against cartel behavior.

Commenters elsewhere in this sub-thread are arguing that one bad regulation isn't an argument against regulation generally. But the problem is distinguishing the bad regulations from the good. It's very likely that at some point there was some policy argument for these stupid rules, sufficiently plausible at the distance held from all but the most expert. The formulation of such arguments to justify known-bad policy is a constant component of our governance. It's possible that the intelligence of the rules depended on some other rule or aspect long since departed.

That's the beauty of markets: The players' incentives lead them to constantly monitoring and adapting to conditions. And those incentives provide discipline that forces analysis from "sounds good enough to me" to more exacting standards. Congress here has suspended a large chunk of market operation, in a medical market where many other chunks have been suspended. It is not the least bit surprising that this has lead to grotesqueries.

[kylebrown]

i know the memo is late but thought you should get it anyway: market fundamentalism died in the '08-'09 superbubble implosion.

[Tycho]

The point is that it's entirely predictable that unscrupulous business men would swoop in and exploit a weakness in the legislation/system.

[ubernostrum]

No, no. Read it again.

The government did away with an oppressive, invasive, business-destroying regulation which limited the free operation of the market and the absolute and unfettered sanctity of contract. Suddenly subject to nothing more than pure market forces -- what lesser minds might call a "loophole", unless they've read the right economists -- rationally self-interested actors in the market did what rationally self-interested actors do.

Welcome to Libertopia.

[narrator]

It's not just medical devices. Monks trying to enter the casket making business have run into licensing issues too.

http://www.stltoday.com/news/national/article_44747e48-649e-...

[luser001]

Also car manufacturers can't sell directly to consumers.

[Symmetry]

I don't think that politicians having real jobs for part of the year would help, particularly. They'd still only have one job, which wouldn't be nearly enough to get the expertise needed to legislate on all the topics that they make laws on.

I could talk about how any organization tends to become less tolerant of risk over time. Failures happen and when they do the tendency is to make sure that they are prevented from happening again. And when they happen again (they will) the tendency to add more laws which, since the resources devoted to enforcing laws won't be increased, causes all laws to be enforced less well.

I remember a while ago The Economist had a feature one issue on the Dodd-Frank Financial bill that was pretty critical. Dodd and Frank then wrote in the next issue with letters that I though were, frankly, rather illuminating.

One gave the "Something had to be done, this was something, we did it" syllogism nearly perfectly. The other talked about all the hard work that went into the bill, how he'd talked with all sorts of professionals working in the financial industry and added all sorts of special cases so that the currently existing set of businesses weren't unduly inconvenienced.

[robomartin]

Well, as you indicated, this isn't a simple problem to solve. The "let them have real jobs" statement is more of a statement of frustration than a real solution.

Maybe there's an angle there. I'll use the example of an MBA degree to illustrate. A friend of mine complete an MBA at Pepperdine. Over dinner I asked him: "What's an MBA good for?". He said "Not a damn thing without context". He got the MBA after over a decade as an engineer. He knew what to do with it and how to apply it to something concrete.

Perhaps rules for government employ could change in that you would be required to have had a career in the private domain for, say, ten years, before even qualifying to apply. And I'm not talking about working at a fast-food joint. Different positions would have different requirements. There's a difference between someone working at the department of motor vehicles vs. the Mayor of a city. I would be OK with DMV workers having five years experience in a non-trivial job (no flipping burgers) but would want a Mayor with a solid twenty years in a position of responsibility in a private enterprise. I don't know if this even makes sense, but we need better people in government than what we are getting. That's probably a huge part of the problem.

[tel]

And, when it comes to the medical field, might even result in people dying.

No, it does with a great deal of certainty. HIPAA protects patient privacy, but often prohibits healthcare research, certainly increases the cost of health IT by orders of magnitude, and certainly destroys the opportunity to make good decisions about how to run a hospital or treat a patient.

The original plan was for the "P" in HIPAA to mean "Portability" but those parts of the bill were delayed and eventually dropped.

[theatraine]

I think that one of the biggest advantages with software, is that you have access to the best distribution network, the internet, immediately. With hardware, and physical products in general, there's many hurdles (ie manufacturing, regulatory, shipping) to overcome before you can reach an end user. Furthermore, iteration is much, much slower with a physical product.

I think that that is one of the reasons we're seeing such a huge shift to the virtual world. Problems that used to be physical are gradually becoming software problems. A great example is how media is starting to largely be distributed through online channels, ie iTunes, or what Amazon is doing to retail. I recently started http://www.AudioNotch.com, a site that provides tinnitus therapy through online music. Before the proliferation of mp3 players, this problem would have had physical elements, I would have to mail CDs with the audio therapy for example, and users wouldn't be able to change their music easily. But now, due to pre-existing technology, I can do everything virtually. Unfortunately, it looks like the medical devices industry will be one of the last to make this change.

[kposehn]

Hah!

Very well put in general. We're avoiding the device angle as well, due to the same things you've mentioned.

[robomartin]

It's infuriating when you imagine just how much creativity and innovation is being wasted. Time is something you never get back.

[garrettkuhlmann]

"The solution is evolved rapidly until the right approach surfaces"

Government solutions to real-world problems are the EXACT opposite of this