Recently, Amazon, J.P. Morgan Chase, and Berkshire Hathaway announced a partnership to try to address the healthcare problem.
In their announcement, the partnership said that the joint venture will “pursue this objective through an independent company that is free from profit-making incentives and constraints.”
At first blush, the widespread reaction was: now here’s an interesting proposal. Yet something about the announcement was bothersome.
After rereading several times, what was bothersome became apparent. Listen to Berkshire Hathaway CEO Warren Buffett:
The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.
What Buffett says contradicts the idea that this will be an independent company free from profit-making, and profit-making incentives.
Here’s how and why this is important.
First, the contradiction.
The new nonprofit company is supposed to be free from profit-making incentives and constraints. Yet at the same time, the goal of the company is to fix “the ballooning costs of healthcare” which are acting as a “hungry tapeworm” on the American economy. Buffett also mentions enhancing patient satisfaction and outcomes, but it seems pretty clear the real goal is to lower costs so companies can enjoy greater profits (once freed from this onerous tapeworm).
Incentives matter
In economics, incentives matter.
You can tell people in your company all day long to do something, but if the organization is structured so that they are incentivized to do something else, they won’t do it. Here’s one example frequently seen in the work force: sales bonuses and/or commissions.
Companies frequently reward members of their sales teams with commissions or bonuses if they reach a certain level of sales for a quarter. Often the commission will go up if they hit a certain level. This incents sales teams to hit a sales goal.
This is great if short-term quarterly goals are the focus. What this can do, however, is override any other message that you are giving your sales team.
For example, if you’re telling the sales team that they should be looking out for the long-term interests of their customers, you can say this all you want. It will have little affect, however, so long as the incentive is for the short term.
I recently spoke with a person who was in charge of compliance for his company. I mentioned that I deal with organizational culture. He told me of a problem he had where members of his sales team were breaking company rules to pursue sales. The first question I asked him was, “How are they being incentivized?” He told me they get bonuses if they hit certain quarterly goals. I told him if he was really interested in changing behavior, they might want to think about their incentives.
How this applies to health care (and beyond)
While it’s interesting that Mr. Dimon, Mr. Bezos, and Mr. Buffett are looking at taking on health care, the message that I’m really hearing is that they’re not interested in health care.
What they’re most likely interested in is lowering costs.
What they will produce is an organization that is focused on cost in a similar manner to what our healthcare system before the ACA focused on: costs over patient care.
If we want an organization that is focused on health care, it should start at the top with patients and health. If the driving forces behind it are for-profit corporate enterprises and the incentives are cost, the organization will focus on controlling cost.
For this reason, a much better solution would come from people through our representatives. It would come from a government whose primary focus was the public good, the general welfare. It would come from a government like the one our founders envisioned, rather than the corporate-driven government we have today.
Government by the people, for the people would start with where we want to get to. What do we want to achieve? Then it would figure out how to get there. Instead, our plutocracy tends to start with what the plutocrats want. Lately, that seems to be wanting all the benefits without having to pay for anything about our country.
If we want better health care and better everything else for that matter, we need to fix our democracy and return it to its original goal: the general welfare of the people.
David Akadjian is the author of The Little Book of Revolution: A Distributive Strategy for Democracy.