Theories of Government Intervention in Health Care

Theories of Government Intervention in Health Care
James Wise
Class: HCA205


Abstract

We will explore two conflicting theories concerning Government intervention in the health care market. The first theories we will explore are the special interest group theory (Becker, 1983) and second the public interest theory (Johnson-Lans, 2004). Once we introduce these two theories, we will contrast Government’s current intervention in the health care market. In conclusion we will share our view using fact-based rational.

Special Interest Group Theory

Entrenched in political survival, politicians create legislative programs that compliment a special interest groups’ agenda for the return for votes that keep political representatives in office. Lobbying for legislative changes is an expensive endeavor, including organizing a legitimate counter political movement, inform the public, gaining petitions, and finely engage in lobbying. With that considered it leaves the general public out of important decision making when it comes to the health care market. In this theory special interest groups receive wealth transfer in scarce resources causing the general public to pick-up the cost in inefficiencies created by this model. Furthermore the political negotiations process consumes large amount of money that would be better used in productive purposes.

Public Interest Theory

We introduce this model as the more perfect in theory when contrasting the special interest group model. The core of this theory is Government intervenes in the best interest of society. This means several interventions through encouraging competition, providing information, and reducing harmful externalities or the fatal phrase “redistributing income in society.” This encompasses addressing market failures, in imperfect information “lack of transparency”, and breaking up monopolistic behaviors. By now we can clearly see these two theories are in direct conflict with one another; both continuing to compete with each other for Government intervention. So our question is which theory is currently the prominent one in our health care market? We will explore this question in our next section Current Health Care Trends, with fact-based rational.

Current Health Care Trends

Let us take a look into mergers which is a reliable snapshot on which theory is dominate in our current health care system. Mergers and consolidations have been increasing in our health care system at an alarming rate and to a point where companies have formed to help companies in a merger. Woodard and Lindstrom assert that health care organizations are consolidating at an unprecedented rate. With the number of mergers and acquisitions not likely to abate, healthcare organizations will need to become involved in strategic planning to manage the effects of this transaction activity and exert more control over the direction it will take. In particular, healthcare organizations need to know how to respond when their organizations are approached about a consolidation opportunity and how to determine whether a consolidation transaction would be strategically advantageous.
Furthermore hospitals and long-term health care are becoming the largest mergers in our current health care system. Market Watch explains the trend in health care mergers and acquisitions for the last ten years. NORWALK, Conn., Apr 08, 2010 (BUSINESS WIRE). More than $7.5 billion was committed to fund 459 mergers and acquisitions of home health care companies announced during the 10-year period ended December 31, 2009, according to DealSearchOnline.com. The largest of these transactions, the acquisition of Apria Healthcare Group by The Blackstone Group for nearly $1.6 billion, was announced in 2008. The deal between Apria and Blackstone is almost twice the size of the next-largest home health transaction for the same 10-year period: the acquisition of Option Care, Inc. by Walgreen Co. for $850 million, which was announced in 2007. Option Care itself was on the buy-side in 27 of the home health care mergers and acquisitions announced during the same 10-year period, while Apria Healthcare Group was on the buy-side in 15 of the home health care mergers and acquisitions announced during the decade.
Clearly these fact based examples show the special interest groups is the theory most dominate in our current health care system. We will now contrast this to current Government intervention within the public interest theory in our conclusions.

Conclusions

So far we have only shown the dominate special interest theory; however our Government is making inroads to addressing public interest theory. The new health care reform has achieved greater access, eliminated penalties to pre-existing conditions, and continually informs the populist in a myriad of official government website that address every aspect of healthcare. Furthermore the Government is taking a hard look at antitrust laws under the rule of reason. Alonso-Zaldivar (2010) assert that Washington, in a blunt warning to the health insurance industry, the Obama administration said Monday it won't hesitate to block mergers that threaten to stifle competition. Justice Department antitrust chief Christine Varney told a lawyers' conference that vigorous enforcement of anti-monopoly laws is vital to the success of the new health care law, particularly in trying to control rising premiums. In conclusion we see these changes important in favor of public interest, but we are also seeing the price as it relates to special interest groups. Simply the Obama administration has acted upon public interest concerns rather than special interest groups causing perhaps political suicide in his acceptance rate. We admire his sacrifice in his attempt to make health care a more competitive market and closer to the perfectly competitive market.

Reference:

Sultz, Harry A.. Health Care USA, 6th Edition. Jones & Bartlett Publishers

Dewar, Diane, (2010). Essentials of Health Economics, Jones & Bartlett Publishers

Business Wire. (2010) Key Stats on Home Health Care Mergers and Acquisitions for 10-Year Period Ended
December 31, 2009 Generated by DealSearchOnline.com. Retrieved on June 5, 2010, from
http://www.marketwatch.com/story/key-stats-on-home-health-care-mergers-and-acquisitions-for-10-year-period-ended-december-31-2009-generated-by-dealsearchonlinecom-2010-04-08

Health Care Financial Management (1997) Analyzing and executing mergers and acquisitions –
managing healthcare mergers. Retrieved on June 5, 2010, from
http://findarticles.com/p/articles/mi_m3257/is_n5_v51/ai_19645353/

The Huffington Post (2010) Justice Department: Expect “Vigorous” Scrutiny of Health Insurance Mergers.
Retrieved on June 5, 2010, from http://www.huffingtonpost.com/2010/05/24/justice-department-health-
insurance-mergers_n_588150.html