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Use Profit Motive to Improve Health Care- Bloomberg

January 24, 2013 Leave a comment Go to comments

In talking about health care, we seem to forget what profits are: the return on capital employed in an activity. In the nonprofit world, this return may be called surplus, but there’s no escaping the need to service the capital employed in buildings, equipment, training and even labor. So nonprofits’ performance is, roughly, the same as that of for-profit providers.

Yes, we could have the government take over private functions in health care and benefit from a lower cost of capital (especially since government is so good at disguising that it has an actual cost of capital, as the bank bailouts illustrated).

But regardless of who provides the care, most of the costs involved — time spent by doctors, nurses, and orderlies; building construction; equipment and supplies — are still going to be set by private parties. The 15 million people who work in the health-care industry, and all of its outside vendors, will continue to be motivated by economic considerations.

Which is why abandoning the profit motive in health care would be such a waste. We rely on it to make almost all of life’s other essentials cheaper and better.

Yes, private actors require a little more return on capital than governments do; but their competition with one another produces better results and more innovative services that usually overwhelm this small government advantage. Our health- care mess actually proves that the profit motive is working in health care, even if it is in response to perverse incentives.

Let’s restructure those profit incentives to better match our social needs — so that providers of more appropriate care with better prices, safety and customer service earn more, rather than less. We’ll get much better results.

(David Goldhill, the president and chief executive officer of the cable TV network GSN, is the author of “Catastrophic Care: How American Health Care Killed My Father — and How We Can Fix It.” The opinions expressed are his own.)

To contact the writer of this article: David Goldhill at dgoldhill@gsn.com.

via Use Profit Motive to Improve Health Care- Bloomberg.

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