Profit maximization, is that all? An analysis of the Brazilian Private Healthcare System
Posted On May 2, 2020
Article by Cesar Shimura | Illustration by Niccolò Cedeno
The Brazilian Healthcare system can be analysed through the lenses of the Stakeholder Approach. The development of this theory has been contrary to economists’ usual belief, i.e. a propensity to maximize value for shareholders over stakeholders’ interests.
According to Freeman, in a nutshell, the Stakeholder Approach theory states that company’s interest must not be prioritized over any other group’s interest. In fact, managers should look after the health of the corporation by balancing all stakeholders’ interests.
My goal in this article is to support the idea that “managing stakeholders relationships is non-optimal, it’s morally required” (Freeman, 1994) and that “there is no prima facie priority of one set of interests and benefits over another” (Donaldson and Preston, 1995).
In order words, nowadays, the value of people’s relationships between different stakeholders is an important element to consider when analysing society. Sometimes, it might be far more valuable than only focusing on generating profits to stockholders.
Brazilian Healthcare system and its connection with Stakeholder Approach
This broad perspective of the Stakeholder Approach gives light to one of the biggest currently issues in the Brazilian Healthcare Private System: its increasing cost. From 2012 to 2017, the accumulated annual variation of prices in Brazil, measured by Índice Nacional de Preços ao Consumidor Amplo (IPCA), was 44,4%, while in the same period the annual variation of healthcare insurances’ fees added up to 85,5%.
This increasing cost causes part of the beneficiaries to leave the Private Healthcare System: in 2014, there was 50,4 million people in Brazil with private insurance plan; three year later that number dropped to 47,3 million.
One might argue that this is a direct consequence of the crisis that Brazil went through in 2014 or of the increasing unemployment rate, but this is also related to Fee-for-Service payment method intrinsic to the Healthcare system.
Since Fee-for-Service encourages quantity over quality and the system has asymmetry of information, insurances companies and beneficiaries don’t have full information about hospitals’ decisions, and every charge that hospitals incur to insurances, it is passed on in terms of costs to beneficiaries. As shown before, this cycle of payment flow reached a point in which some beneficiaries couldn’t afford the increasing annual costs and left the private Healthcare system.
Additionally, the use of Fee-for-Service in the Private Healthcare System can be interpreted as an ethical issue. Based on this payment method and considering that hospitals will mostly receive money from insurance companies for every service rendered or product consumed, hospitals and physicians might be motivated to increase their consumption in order to generate more revenues for the hospitals.
However, we know that it is hospitals and doctors’ responsibility to prioritize the quality rather than the quantity of the health service. The conduct of a hospital or physician cannot be incentivized towards the maximization of profits.
Analyzing this issue considering the Stakeholder Approach, hospitals and physicians should consider all the stakeholders involved: not only people with insurance plan might leave the private system, but as cost increases, another portion of people with low income might not have the chance to use private health services since it gets over expensive.
As they slowly move to the public one, Brazilian Public Healthcare System might not support additional amount of people. Hence, hospitals’ profit maximization impacts beneficiaries’ purchasing power and quality service as well as other communities outside the private Healthcare system.
The problem of the increasing costs in the Healthcare System opens opportunities to innovate, giving more value to beneficiaries. One main example is Dr. Consulta which is a startup founded in 2011 that delivers medical services for affordable prices, without monthly payments, lines and bureaucracy. Besides offering low prices for medical services, this startup is expanding its units in order to offer more convenience in different locations. One of main differentials is that patients only pay for the services that they use.
Another example is the recently built Hospital Alemão Oswaldo Cruz (Vergueiro unit), in which all procedures have a fixed cost. The idea behind this business model is to tests different payment method besides Fee-for-Service. Therefore, the hospital established the price for 89 procedures in which they follow a quality medical standard.
In this model, different stakeholders redistribute medical costs and, therefore, risks are shared. Since all prices are fixed, if there is overconsumption of materials by the hospital because of any inefficiencies, insurances will only pay a fixed amount. Looking at the end of the chain, beneficiaries are also benefit from this model since, in theory, the cost should not increase too much for them.
The relationship between Stakeholder Theory and the Brazilian Private Healthcare System points out that Healthcare Providers, mainly hospitals and physicians, should consider other stakeholders whenever they make medical decisions. Although the Fee-for-Service model encourages quantity (which it can be translated to more revenues for medical providers), medical decisions should not be guided by profit maximations in detriment of beneficiaries’ losses.
This ethical discussion is important, because the increasing number of people leaving the private Health sector means that less people has the chance to have private medical services. Given that Brazilian public health services are not well managed and that more than 75% of the whole Brazilian population consumes these public services, its inefficiency might leave many patients unsatisfied. People can easily wait many months to get medical supply, ambulatories can get overcrowded and there might be lack of medical supplies.
Although this article focused on the impacts that hospitals and physicians can cause for the whole Brazilian private Healthcare system, is worth mention that all stakeholders should consider the Stakeholder Approach theory.
Not only hospitals are responsible for the increasing cost of the whole system, but also beneficiaries. We should be responsible for understanding that our actions have direct impacts to the all Healthcare System’ costs. Managing our behaviors, health habits and decisions plays an important role in solving the issues mentioned above.
Initiatives regarding primary care and public consensus to decrease chronic diseases go in this direction. In a time in which Covid-19 is changing our perception towards prevention and our consumption of health services, it is good to reflect on to what degree we are responsible for our own health when health institutions are incapable of take care of everyone.
Data retrieved from ANAHP: https://www.anahp.com.br/dados-do-setor/