PhRMA, Advertising and Competitive Free Speech

People often assume that business leaders support legislation that strengthens markets, but this assumption is usually false.  Business leaders support legislation that increases the profit of the firms they own and manage.  Given the assumption that drug companies Represented by the Pharmaceutical Research and Manufacturers of America (PhRMA) which represents the country’s leading pharmaceutical research and biotechnology companies, are self interested profit maximizers, Chris Frates of Politico provides evidence directly from PhRMA's advertising budgets that their profits will not be harmed by current reform legislation in his informative article ("PhRMA plans $6 million pro-reform ad buy in 38 House districts").

PhRMA agreed Tuesday to fund an initial $6 million ad buy in the districts of 38 wavering House Democrats. The pro-reform ads will come from the industry-funded coalition Americans for Stable Quality Care and could hit the airwaves as early as today, a top industry official said. The deep-pocketed trade group didn’t decide how much it would spend in total on the campaign; officials are waiting to review the bill first. The decision to flip the switch on five or six days worth of advertising will come when the industry is comfortable with the bill’s direction.

The emphasis added is mine.  Presumably, "comfortable with the bill's direction" means that these firms will benefit from the reform legislation.

A recent Supreme Court decision allowed corporations to spend freely on elections.  Many speculated that the decision would allow corporations to buy elections (see "Justices, 5-4, Reject Corporate Spending Limit").  In a blog post, I noted that business interests were not monolithic and that elections would be competitive.  Frates provides evidence that special interest funding would indeed be competitive.

The drug industry is really the only pro-reform group able to match the millions being spent by opponents like the Chamber of Commerce.

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The NCAA and Social Networking

In an earlier post, "The NCAA Blind Sides Poor Athletes," I suggested that NCAA rules were too restrictive.  Looking for a little more information, I found an article,"NCAA rules place limits on fan enthusiasm," by KUsports.com that describes limits on students' recruiting that I find grotesquely restrictive and completely unnecessary.

What may seem like an innocuous post on a social media forum may be an NCAA recruiting violation, according to what Kansas Athletics is telling fans.

Even though average KU fans may not think of themselves as boosters in the traditional sense, Jim Marchiony, associate athletics director at KU, said they become boosters when they do things that could be considered an effort to attract high school athletes to KU.

The set of rules governing recruiting is sufficiently convoluted and complex to make a Pharisee blush.  Steve Yanda of the Washington Post writes in "Fans' Recruiting Pitches Are Catching On," that

Current students cannot serve as representatives of their schools' athletic interests and thus are not allowed to contact recruits, according to Stacey Osburn, the NCAA's associate director of public and media relations. In fact, NCAA rules state that any individual who is known or should have been known by a member of a school's athletic administration to be "assisting in the recruitment of prospective student-athletes" qualifies as a representative of that institution's athletic interests. Therefore, any fan with a social networking account could possibly cause a violation, not merely those currently enrolled at a school.

"If a school found out this was going on, it would have to self-report it," Osburn said. "The NCAA then would look at the situation within reason." She added that reports of major violations concerning this subject have yet to surface...

Osburn said that if a school were to report a violation regarding fan usage of social networks to contact recruits, the NCAA would try to answer two questions: Did the university in question have a system in place to monitor this type of activity, and was the university responsible in any way for encouraging the students to contact recruits?

Because there have been no reported instances of major NCAA violations regarding social network recruiting, Osburn said the NCAA has established no penalty guidelines for such cases. She said it was likely that secondary violations have occurred but she did not have access to such information.

Let me sum up this mess.  It is against NCAA rules for students and other fans to "recruit" athletes, and their actions are impossible to monitor.  Despite the difficulty of the task, athletic departments must demonstrate that they have a program in place to track and inform fans that their actions are violations of NCAA rules, and being reasonable, the NCAA will not hit the schools with sanctions.

Here's an idea.  Dump the unenforceable restrictions on students and fans that add a new layer of expense to college athletics.  It is clearly a violation of their free speech rights, and, and from a view of economics, it is unnecessary.  Sufficient competition exists between colleges and universities that all schools would be able to compete and if they could not, that probably tells high school athletes something important about the recruiting schools. 
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The Mayo Clinic and Medicare

(HT Drudge Report)  It is hard to reconcile the news that the Mayo Family Clinic in Glendale, Arizona will stop accepting Medicare patients with President Obama's reform goals of extending care, improving medical care and lowering the cost of care to Americans.  David Olmos, writing for Bloomberg ("Mayo Clinic in Arizona to Stop Treating Some Medicare Patients," Dec. 31, 2009) describes Mayo's action and some reaction to it.

Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little.

More than 3,000 patients eligible for Medicare, the government’s largest health-insurance program, will be forced to pay cash if they want to continue seeing their doctors at a Mayo family clinic in Glendale, northwest of Phoenix, said Michael Yardley, a Mayo spokesman. The decision, which Yardley called a two-year pilot project, won’t affect other Mayo facilities in Arizona, Florida and Minnesota.

Obama in June cited the nonprofit Rochester, Minnesota-based Mayo Clinic and the Cleveland Clinic in Ohio for offering “the highest quality care at costs well below the national norm.” Mayo’s move to drop Medicare patients may be copied by family doctors, some of whom have stopped accepting new patients from the program, said Lori Heim, president of the American Academy of Family Physicians, in a telephone interview yesterday.

The Mayo organization had 3,700 staff physicians and scientists and treated 526,000 patients in 2008. It lost $840 million last year on Medicare, the government’s health program for the disabled and those 65 and older, Mayo spokeswoman Lynn Closway said.

Other health care providers may follow the Mayo's lead...

Mayo’s decision may herald similar moves by other Phoenix- area doctors who cite inadequate Medicare fees as a reason to curtail treatment of the elderly, said John Rivers, chief executive of the Phoenix-based Arizona Hospital and Healthcare Association.

“We’ve got doctors who are saying we are not going to deal with Medicare patients in the hospital” because they consider the fees too low, Rivers said. “Or they are saying we are not going to take new ones in our practice.”

Olmos interviews Robert Berenson, who is an M.D.  He provides a justification for the government's actions. 

Robert Berenson, a fellow at the Urban Institute’s Health Policy Center in Washington, D.C., said physicians’ claims of inadequate reimbursement are overstated. Rather, the program faces a lack of medical providers because not enough new doctors are becoming family doctors, internists and pediatricians who oversee patients’ primary care.

“Some primary care doctors don’t have to see Medicare patients because there is an unlimited demand for their services,” Berenson said. When patients with private insurance can be treated at 50 percent to 100 percent higher fees, “then Medicare does indeed look like a poor payer,” he said.

Dr. Berenson's explanation and the model that he uses do not explain why a firm should accept losses from an insurer.  Before I proceed, I confess that I do not like the idea of the policy makers using market power to shove markets in a direction that they think is superior.  Experience has taught that they simply cannot organize knowledge and make decisions from it as effectively as individuals acting within a market.  Perhaps more importantly, market participants are more adaptive and innovative than government policy makers.  But if I did believe that the government should exercise market power, and policy makers thought that there was a shortage of primary care physicians relative to specialists, it seems that their strategy should be to meet the market price for primary care physicians' services and bid down the price for specialists' services, thus lowering the wage differential between the two groups.  This policy would provide an incentive to existing medical students to go into primary care rather than some other specialization but might have the unintended consequence of deterring students from entering medical schools.

In the second paragraph, Dr. Berenson describes a competitive industry; no other has the perfectly elastic demand he describes.  This would imply that the Mayo Clinic could only charge a competitive price.  No government selected price could provide a better outcome to insurers or patients than this price.  Altering his model to one in which medical suppliers collude to set a monopoly price might create a justification for government intervention and price regulation but still does not explain why a firm should accept a price that results in losses from any insurer.  Furthermore, the evidence suggests that firms do not effectively collude.  Some have exited the market for Medicare patients while others have remained.  It is more likely that the government has used its special role as lawmaker to bully health care providers into pushing their losses onto other insured patients. 

Health care reform should start with tax reform.  Those who have their insurance premiums paid by their employer should not have a tax advantage over those who buy insurance individually.  This tax advantage has distorted markets by creating a "tragedy of the health care commons" in which the employer based group insurance patients over consume health care services.  See "Rationing Health Care" for a more detailed explanation of how tax subsidies of employee provided health plans have distorted markets.  Once a more vigorous market has lowered cost, policy makers could more cheaply provide universal coverage. 

Taking the President's view that the Mayo Clinic is a "national model for efficient health care," what can be inferred about the quality of medicine from health care from policy makers' actions regarding Medicare?  Perhaps policy makers are more concerned about providing universal coverage and lowering government expenditures than providing high quality, low cost care.   
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Competition for Google?

Many economists view competition as ubiquitous.  It is everywhere and threatens the position of dominant firms if they fail to innovate.  I don't know which products will be market winners but consumers will certainly win.  Ned Potter describes Wolfram's computational engine in "The Answer Machine? Wolfram Alpha Debuts," (ABC News, June 1, 2009).

Wolfram Alpha. It sounds like a code name from World War II, or perhaps a term a wildlife biologist would know.

Instead, it's the name of an audacious, if quirky, Web site led by the scientist Stephen Wolfram -- not a search engine, and not meant to be the "Google killer" that it was sometimes described as being, but a "computational knowledge engine." It is a Web site that will answer your questions -- at least some of them -- even if nobody has ever asked them before.

"What we're trying to do is much more ambitious," said Wolfram, 49, the lead developer of the technology behind the project, on which he says he has worked 25 years. "We're trying to take the question you ask, and automatically produce for you the answer, not giving you a collection of links, and saying, 'Go read this Web site, go read that Web site.'"

Gordon Crovitz "Google Gets Some Competition," describes Microsoft's Bing search engine (Wall Street Journal, June 4, 2009).

Microsoft says Bing, which goes live on Wednesday, will distinguish itself from Google and Yahoo by focusing on delivering answers, not just search results showing potentially relevant links. Microsoft says it's built a "decision engine, designed to empower people to gain insight and knowledge from the Web, moving more quickly to important decisions."

The goal is to understand what you're trying to know and to come up with answers, categorizing results in more useful ways. Bing has a separate approach, for example, to searches for factual research versus, say, searches for the best price for a new camera.

Finally, John Timmer describes Google's latest product enhancement, Google Squared in "Google squares the Web, hilarity ensues," (ars technica, June 4, 2009).

Yesterday, Google Labs took the wraps off its Google Squared service, which takes a spreadsheet-like approach to finding information on the Web. It's tempting to speculate that this is a bit of a response to Wolfram Alpha, the online computation engine that went live last month. But, although a spreadsheet implies calculation, Google's squared simply uses a cell-based presentation to organize data—the approach to the actual data is actually radically different from Wolfram's. We took the service for a bit of a spin and found it interesting and potentially useful, but only for those willing to put in a fair bit of effort.

The idea behind Squared, which Google announced back in May, is that users often want the results of what's essentially a multidimensional search. So, for example, if I wanted a collection of demographic information on several major US cities, I might need to perform multiple searches, one for each city. Google squared allows you to extend a single search into a second dimension—it's possible to create a square where each city has a row, and each column contains the specific demographic information you're interested in.

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Campbell Soup and Progresso Battle to Produce Healthy Soups

In an earlier post, "The Salt Hath Lost His Savour," I commented negatively on Mayor Bloomberg's plans to pressure restaurants and food processors to reduce salt content. Campbell Soup and Progresso have demonstrated that markets react to consumer demand, and that government leaders continue to arrogantly overvalue their role.

The Food Business Review Soup reports in "Campbell to reduce sodium levels in some soups," quotes Douglas Conant, Campbell's CEO as stating,

Campbell continues to expand our lower sodium soups and in the process we are lifting the entire category to new heights. Our innovations in soup are making a food that is already nourishing even better for consumers and more compelling for customers. This is especially important now as consumers are equally focused on eating well while trying to stretch their food budgets.

Mr. Conant is discrete, avoiding mention of competition with Progresso and other soup processors. Peter Van Allen, writing for the Minneapolis St. Paul Business Journal, in "Progresso’s, Campbell's soup war reaches boiling point," describes the two food processors' competition for consumers.

“The ‘soup battle’ is a long standing one. MSG is the ‘villain’ these days as the public has become more aware. But Progresso and Campbell have been duking it out for years,” said industry consultant Lonny Strum, president of Strum Consulting Group Inc. Strum was a management representative on the Campbell account at advertising giant BBDO in the early 1980s...

The stakes are high: Sales of soups, sauces and beverages totaled $3.674 billion in the fiscal year ended Aug. 3, a 5 percent gain. Campbell’s overall sales last year were $7.9 billion.

“The back of the label is the new focus for an increasing number of people,” Michael Barkley, a Campbell’s vice president of marketing, said at the time.

Businesses expend considerable effort to satisfy their consumers. If consumers want healthy products, they will get it, if they want unhealthy products, they'll get that too. If they do not provide goods and services their consumers' desire, their competition will. Government's role as an intermediary for consumers is very small.

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