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.
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Government meddling triggered all kinds of mutations that led to the current situation in more ways than one.
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.
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).
Please don't call anyone simple-minded, particularly when you don't know them.
Nobody is saying that politicians are the root cause. We elect them. Ultimately it is our fault for allowing it. Then some of these folks appoint people to other positions. The appointments are probably worst than the already-challenged elected official.
When I hear someone carry the "corporate greed and corruption" flag I have a viscerally negative reaction to the statement. I don't know you, so I can't know where you are coming from. To be clear, what I am about to say has nothing to do with you and is not aimed or intended to represent you at all.
Whenever I've heard this from people in person that either I know or have an opportunity to learn more about the profile almost always falls within a certain range. Liberal, democrat, sometimes government worker or union member, no entrepreneurial experience, no understanding of the business process and no experience attempting to launch and run a business.
A lot changes once you've experienced the realities of business. I can't name one business driven purely by greed other than boundary examples such as the Madoff mess. Even the most maligned financial companies have to sell a product and cater to a customer base. Oil companies, for example, are a favorite punching bag. Are they driven by greed? Of course not! They sell a product. And they sell a product that requires huge investment. They are perfectly entitled to earn a profit and they are entitled to earn as much as the market will support. Supply and demand. If they take legally allowed action to enhance their standing or ability to compete, well, that's the law. Until it is changed they are doing nothing different than engaging in the "SEO" of their industry.
Somehow there's an automatic trigger point that says that large companies are driven by nothing but greed. Really? At what revenue level does greed become the underlying driving force? What where they driven by until they got to that level? I don't see anyone talking about companies such as Apple that way? Why? They are large. Very large. They don't do anything any other enterprise does not do. They manufacture in China. So do others, except that, when it is Ford that does it "they are greedy" is the first response.
Anyhow, let's agree to disagree. My world view probably does not intersect with yours in but a few places. And that's OK. I learn a little from everyone. Maybe one day I'll see things as they really are. Thanks.
Of course every issue has a simple visible portion and then there's the 90% of the iceberg under the surface. I view simple ideas as fundamental to start the thought process going. A lot of them are not viable due to the details and real issues deep down inside. I realize that.
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.
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.
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.
Government meddling triggered all kinds of mutations that led to the current situation in more ways than one.