Healthy Profit

INESS – The Institute of Economic and Social Studies has decided to contribute its arguments to the discussion of the legitimacy and utility of profit in healthcare through its latest publication, Zdravý zisk (Healthy Profit).

Along with the change in government in 2006 there also came a change in direction for healthcare policy in Slovakia. Arguments casting doubt on the functioning of market mechanisms and their legitimacy in the field of healthcare provision began to dominate political and professional discussion. A negative posture toward private investment – and profit as such – is once again beginning to come to life. In the first chapter, therefore, we define what profit is and how it arises. The basic function of profit in the economy is to motivate businesses to innovate and to fulfill customer demands from the cost perspective.

The arguments against earning profit in healthcare often confuse economic terms or use them imprecisely, making meaningful discussion impossible. In response, the second chapter identifies the fundamental economic categories in healthcare. Health is not a product, and therefore cannot be a subject of trade. But healthcare is certainly a service from the economic perspective, and is thus subject to the generally-applicable economic principles of scarcity. To provide healthcare sensibly, then, we must necessarily take account of economic costs and benefits.

The third chapter describes the tools and declared goals of healthcare policy. A requirement for strict regulation and governmental production in healthcare does not arise from the specifics of the healthcare market. Political decisions and regulations influence the direction of research and development and contribute to the substantial growth in cost of healthcare systems around the world. A prohibition on profit in some segments of the field impacts the management style of the field’s actors and potentially negatively affects their efficiency. State ownership amplifies these negatives, especially since politically-appointed managers lack the motivation to meet patients’ needs.

The negatives connected with state ownership and a high degree of regulation of the field are present in Slovak healthcare as well, and the final, fourth chapter is devoted to this topic. Public resources used by inefficiently-functioning state agencies will not necessarily be transformed into adequate healthcare for patients. The partial deregulation and transformation of healthcare organizations and the greater emphasis on market forces during the previous administration almost completely put a stop to insolvency in the sector. Today, however, this trend is reversing. Further problem areas include relatively high expenditures for medications – which is connected with the poor alignment of motivations in the system – and the over-broad scope of public health insurance which creates conflict between the resources available and the demand for healthcare.

In spite of the healthcare marketplace’s many peculiarities, the fundamental laws of economics apply here as well. Even in healthcare, the ubiquitous principle of resource scarcity compels the question to be addressed every day: “Which needs will be satisfied sooner, which later, and which will not be satisfied at all?” Political solutions to these problems bring arbitrariness, corruption, pursuit of personal interests and losses due to inefficiency with them. Suppressing market forces in healthcare shackles the system’s ability to react to patients' continuously changing needs. Thus, prohibiting profit and restricting competition with the goal of saving public funds yields exactly the opposite: waste. If we are to eliminate profit from the system, we shall also eliminate the chief motivation of its agents to fulfill patients’ desires as efficiently as possible, to continuously innovate and improve their services and, last but not least, to invest the capital necessary to increase productivity in the field.

This publication is intended for healthcare specialists and politicians as well as the interested public at large. Zdravý zisk was distributed to selected doctors and others shaping healthcare policy in Slovakia. The publication may be purchased directly from INESS as well as in selected bookstores.

Karpiš, Juraj; Ďurana, Radovan; Ďurana, Richard: Zdravý zisk (Healthy Profit). INESS, Bratislava, September 2007

Translated by Mike Gogulski