Shareholder Wealth Maximization in Action
posted by Dave Hoffman
From the WSJ comes an article about how the slow flu season hurt the profits of some companies. The article quotes several executives complaining that Americans (initial) resistance to illness hurt their balance sheets.
Thus, Walgreen CEO Jeffrey Rein, speaking to shareholders, said “If attendees of the meeting needed to cough, he joked, they should leave the room and ‘go to a movie theater or on a bus’ to spread their germs. ‘We’re really hoping for a very strong flu season’.” While P&G CEO A.G. Lafley said on a quarterly analyst call: “Unfortunately, people have not been getting sick at a rate that we would all like yet.” Finally, LifePoint Hospitals CFO David Dill mused that “You have a strong flu season, and the ancillary business is very profitable . . . On the pediatric side, young kids coming into the hospital, that’s a nice margin for us, as well.”
I’ve got to think that these officers wish they could take some of this back, at least as phrased. And as reader S.B. pointed out, Rein’s comments in particular raise red flags. I think it fair to assume that most OTC remedies for the winter flu are sold to concerned parents, despite the recent recall and health warnings. If Walgreen’s intends to profit off of the flu season, and in particular in the sale to parents of potentially harmful meds, plaintiffs lawyers should smell blood in the water when bad outcomes occur.
Further, I think the article highlights how invested sectors of the economy are in a status quo of reactive, medicated, health care delivery. I don’t mean to be dramatic, but it is worth pointing out that there is quite a bit of money (not to mention employment) riding on the continuing dysfunction of the health care system.
April 6, 2008 at 1:06 am
Posted in: Corporate Law, Health Law
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Responses (4)
Jeff Lipshaw - April 6, 2008 at 12:30 pm
The CEOs may simply be more honest than others who also support themselves from the pain and suffering of others, including but not limited to lawyers (both plaintiff and defense), dentists, doctors, insurance agents, mechanics installing FRAM oil filters (“you can pay me now or pay me later”), marriage counselors, fire and flood restoration services, 24-hour emergency service sewer and drain cleaners, asbestos removal companies, and tax accountants.
Jeff Lipshaw - April 6, 2008 at 12:30 pm
The CEOs may simply be more honest than others who also support themselves from the pain and suffering of others, including but not limited to lawyers (both plaintiff and defense), dentists, doctors, insurance agents, mechanics installing FRAM oil filters (“you can pay me now or pay me later”), marriage counselors, fire and flood restoration services, 24-hour emergency service sewer and drain cleaners, asbestos removal companies, and tax accountants.
Daniel Goldberg - April 6, 2008 at 11:07 pm
No offense, Dave, but of course. Do you think it’s an accident that we spend on the ratio of 19:1 on acute care/related biomedical research vs. public health and prevention even though there is robust evidence that investment in the former barely improves population health while investment in the latter significantly improves the latter?
It’s not like this is new evidence, either. Though it has arguably reached critical mass recently, it’s been around for years. I’ve had personal conversations with federal policymakers acknowledging that public health policy on both the federal and the state level is not evidence-based.
There is an enormous investment in the status quo; there is tremendous money being made in treatment, and we have not yet figured out any systematic ways to capture significant rents from public health and prevention (which isn’t to say we couldn’t, but it’s not obvious how we could, which creates significant friction to disrupting the revenue streams available in the present arrangements).
This goes through all levels of our health care delivery and financing arrangements. Why do we continue to rely so heavily on technical innovation, when there is little doubt that we have all the technology that we need — and then some — to reduce mortality and human suffering significantly, but our translational system is piss poor, frankly. Moreover, there is good evidence that such investments in technical innovation are a significant factor in our hyperinflationary health care costs (estimates go as high as 40%) and actually drive disparities, in addition to subsidizing expensive, inefficient speciality care while disincentivizing primary care, the latter of which is, based on the evidence, far more likely to improve population health in the long run.
The significant rents available in the status quo is a major reason the U.S. health care nonsystem is so screwed up. Don’t interpret this as a diatribe against market forces — I’[m acknowledging just how powerful they are. If we can find ways of harnessing that in ways that we have reason to believe will significantly improve health and reduce human suffering, I’m all for it. But it’s hard to pretend we’ve really tried to do that thus far; nor is it easy to imagine why private firms would suddenly up and assume the significant transactional costs attendant to switching regimes.
JMO.
Victor - April 7, 2008 at 8:01 am
Perhaps statements like these explain the popularity of a movie like V is for Vendetta, which suggests that companies had a profit motive to keep a plague going. (or am I mixing up movies?!?) see
http://www.youtube.com/watch?v=7i8b7YwMWhs
at 0.50
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