[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.

[luser001]

You keep repeating the same thing (politicians are the the causing entities, corps. are the reacting entities) even in response to a challenge to rethink that assumption. That doesn't mean it's true.

One can reasonably disagree with your simple-minded answers (imho). Notably wrt the third, fourth and fifth questions. Another possible answer is that corps. and bribers wanted a way to legally bribe politicians (to avoid jail time for illegal bribery), and hence created the concept of legal lobbying (it doesn't exist in many other countries, btw).

[anigbrowl]

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

It would be more accurate to say that there are no laws limiting the practice. You are reasoning as if governments set up the lobbying mechanism and then invited people to form organizations to engage in the practice. Historically speaking, this is not the case. There's a constitutional right to petition the government in the first amendment, and people are simply exercising it.

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.

Like the employees of the businesses that bought the defective chainsaws in order to gain a commercial advantage? The companies in your example weren't given a defective chainsaw, they elected to purchase them because the devices promised a commercial advantage. If they're injuring the employees, then maybe the employers should be compensating them and recovering their losses from the product manufacturer...which is quite similar what happens with workman's comp, funnily enough.

[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.