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Keep the Profit Motive in Health Care

Steve BucksteinQuickPoint!

Why do many Oregonians think we should take the profit motive out of health care? At a public meeting in Portland last week, this theme was repeated and applauded over and over again.

Yet, when participants were asked about the recent trend toward $4 generic drug prescriptions, their views began to change. Why is Fred Meyer now offering $4 prescriptions? Why is Safeway offering to match competitors’ prescription prices?

The answer is that last year Wal-Mart launched an aggressive program offering 30-day supplies of common generic drugs for just $4. Both Fred Meyer and Safeway decided to match that low price rather than risk losing customers to a competitor. Each of these big chains is a for-profit company. Yet, each realized that to make profits in health care, they needed to offer something that would attract and retain customers.

Taking the profit out of health care wouldn’t necessarily do anything to reduce prices. Who believes that government centralized drug purchasing, or price controls, would drop prescription prices down to just $4 each?

The “profit motive is bad” fallacy is based on the misconception that profit is a cost of doing business. But profit is not a cost; profit is a signal that consumer needs are being met. Satisfy more consumers, and a business can earn more profits.

So, rather than eliminating profit from our health care system, we need to encourage companies to innovate and to earn profits by lowering prices to consumers.

Founder and Senior Policy Analyst at Cascade Policy Institute, Steve Buckstein is Director of Cascade’s Government Transparency Project and the Oregon Economic Opportunity Project. Based in Portland, Cascade Policy Institute is Oregon’s free market research center.

© 2008, Cascade Policy Institute. All rights reserved. Permission to reprint in whole or in part is hereby granted, provided the author and Cascade Policy Institute are cited. Contact Cascade at (503) 242-0900 to arrange print or broadcast interviews on this topic. For more topics visit the QuickPoint! archive.

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