An MBA Candidate Looks at Health Care

While the health care debate in the US ebbs a bit, I've been finishing up Amity Shlaes' The Forgotten Man, an account of the Depression that goes into the contemporary politics of the time. I understand it's considered at least slightly revisionist, critical of missteps by the Roosevelt administration, as well as a bit more forgiving of the Coolidge and Hoover administrations, though in my opinion she doesn't outright condemn or condone either. In any case, what I find most intriguing is how much the debate over power utilities during the Depression matches the debate over health care in the current period.

The most similar argument is that a government option will put private providers out of business, or at least make the fields so unprofitable as to be not worth pursuing. Roosevelt built the Tennessee Valley Authority and similar public power works; Obama's much-debated and ill-defined public option arguably will provide the same.

I don't believe I know enough about either arrangement to make a cogent argument for or against. What I do believe, however, is that while the free market may be the most efficient provider of services, this is not always true, and there are certainly gaps that the market does not address. In the case of electrical power (and telecommunications, I might add), the market does not have the incentive to develop service in areas that are not profitable, such as rural homes and smaller municipalities. Similarly, the market has no incentive to provide health care coverage to those who are unemployed, underemployed, self-employed (except at a steep premium than corporate policies) or simply not profitable such as consumers whose premiums no longer cover the cost of care.

Creating an incentive mechanism to cover these gaps is just one of the many problems in health care reform. The more I learn about health care as an industry, the more clearly I can see why health care reform is and always has been so difficult.

There's the method in which doctors are paid. There is the complex relationship between government and hospitals, as well as the distinction between public and private service. There's preventive medicine, catastrophic care, end of life and long-term disability, pharmaceuticals, advanced imaging, prosthetics, and research.

Oh, and we still can't cure the common cold, Airborne notwithstanding.

Add politics to the financial complexity of health care, and you'll get an entanglement of cables, doused in molasses, encased in ice.

Ask most Americans about health care reform, and they'll agree it is needed. Where to start? If they have any idea at all, it usually comes from personal experience. If someone tries to stand up and offer a specific idea, all their opponents need to do is convinced the uninformed that that person is wrong.

It's frustrating to watch.

An Economist on an Economist's Prediction

I recently saw a Bloomberg article that I thought contradicted the general consensus of just a few months ago, so I asked one of my Economics profs about it. Here is his response:

"What [corporate economic advisor] says is not that much different from [another corporate economic advisor's] view. [Previous Guy] had suggested about 4% growth in the next four to six quarters- and that is pretty robust indeed. I can understand the arguments for that and I think it is plausible. [Opposing View's] view of 2% growth in the coming years is propaganda for [Company's] position- not a serious view."

Weeks Later . . .

Another term has flown by. I did alright in my Foundations of Finance class; not spectacular, but alright. I really busted my butt for the final, and even before then was going in for extra help. That's got to be the biggest difference in being an adult getting an education; I am a much less passive learner than I was in undergrad.

Right now I am on hiatus. While many of my classmates took one class, then another, and are now in summer intensives, I took two classes, then Finance, and no intensives. It is awesome to have a life back. I practically don't know what to do with my time. I've been easing back into my summer activities: riding my bike and kayaking, plus staying up late and sometimes even going out at night.

I've had time to think about what I want to do with my MBA; now I must think of it as this MBA, an MBA from a finance-heavy school in the town that plays home court to Wall Street. I find the financial M&A world interesting but I don't have the quantitative chops to be competitive; I do like strategy and management, and I'm very analytical, so I think perhaps I could go into a different part of the M&A world, or straight into Management Consulting. Strangely, consulting does not hold the appeal that it did when I started. I don't know if that's age, or the realization that I've more or less acted like a consultant in my career to date, and I get a little frustrated when clients don't take my advice.

My company is going through a re-org, and that includes my department. There may be internal opportunities to pursue. I'm polishing up the resume and dressing a bit more like an adult. Forty percent way through my degree should count for something.

Final

Last night I took my last final for Summer I. The course was "Competitive Advantage from Operations" or Comp Ops for short. It was taught by the department head, a wiry Dutchman who's been teaching for thirty years.

It was a very interesting class, once I'd been looking forward to for quite a while. It was a bit more quantitative than I had expected, though fortunately since my near-death experience in Statistics, I seem to have ingrained some of the fundamentals of how to utilize the normal curve. Where I got lost at times was in parsing the problem, that is, how to express it in math.

The final was hard, but not inordinately so. It was, as the CFEs describes, "appropriately demanding of my time". We were given two and a half hours, and I clocked out at two hours twenty-five minutes. I later learned he let people run long, since most of the class was still on the case when I left. This morning, there was an email about extending partial credit more generously on the last problem; apparently a lot of people had difficulty with it.

All of that being said, I found the class very informative and useful in my present position. Reviewing my study notes, it's clear we covered a lot of very distinct topics: queing, supply chain management, project management, resource management, quality control, and using statistical models for decision making. It's the kind of thing that I used to make fun of in my youth - that period when we rebel against ourselves in order to prevent mono-dimensional personalities. I have to say, if (for example) you're shipping boatloads of cars overseas to market, you'd better have an accurate way to predict demand and resource your warehousing appropriately.

So, with that, Summer I is done. Summer II begins tonight! This time I am taking only one course - Foundations of Finance. I'm sure it will be a more demanding course, but the simple fact that I'm not getting home at 10 four nights a week will be greatly appreciated.

Xbox

I recently bought an Xbox, and I've come to a realization: the Xbox is Microsoft's iPod.

It's not a totally accurate comparison - the Xbox unit has yet to be profitable, while the iPod has been enormously profitable - but in terms of strategy, it occupies a similar space. Microsoft has spent a lot of money creating not just a product but a platform on which additional goods and services can be built.

The Xbox is not just a game machine, but a DVD player and network media center. It's what WebTV was supposed to be and so much more. WebTV was ahead of its time; now that broadband is commonplace and third-party suppliers of media content such as Netflix exist, Microsoft can concentrate on developing a platform with hooks into other services. Add to that the lowering cost of HD televisions, and you have a device where the game play is almost an ancillary function. At half the price, I could almost buy an Xbox for everything but the gaming functions.

That being said, the Xbox is an example of a strategy I learned about in business school. A firm may spend a lot of money just to enter and exist in a market space, even if the business is not profitable. The reasoning is that the market will eventually be profitable, and it is easier to enter the market when is still being developed rather than later. Instead of letting two (or three, depending on how far back you go) other firms lock up the market - say, Sony and Nintendo - enter the market, develop your internal operations to support additional goods and services, and eventually you'll take enough market to make it all worthwhile.

I do not know for certain, but I have read that the Xbox would be profitable if Microsoft hadn't taken a $1BN charge to facilitate repairs of units that fail due to a bad manufacturing process.

In any case, the Xbox is an interesting product to watch. Compare to the Sony Playstation 3, which is similar in aspiration and scope, but a year or so behind in development (which makes sense -it came out a year after the Xbox360). Sony is still trying to develop the backend connectivity and business relationships. Watch the business, not the device.

It will be interesting to see how these firms evolve their products to fit the market.

Shopping and the Market

The NYT has a piece today about changing strategies for retailers. A number of strategies are being attempted. Having recently engaged in various forms of shopping myself, I compared my experiences to the retail reality.

For one thing, supply chain management is huge. I have recently come into the market for a television, and after tons of research, settled on a particular model. While I normally shop online, I decided to check the local stores and kick the tires, so to speak, finding my model on the floor. Three times now, in the past two weeks, I have been thwarted in my attempts: the model is out of stock, and there are no guarantees as to when new stock will arrive. In fact, even when I use the retailer's online store to find where they stock the model, I have found them to be sold out by the time I get to the store.

This is one of two points in the NYT article. For one thing, retailers are beginning to combine their online shopping with in-store shopping, through shopping kiosks where customers can essentially order online within the store for in-store pickup. For another thing, consumers are buying within shorter, less predicatble time horizons, and so stores are not stocking as much inventory ahead of time. The result sems to be - in my case at least - that items in production are still hard to come by, unless I commit by ordering online, which is what I tend to do anyway for small items. It's one thing to order an external hard drive through the mail, quite another to order a television.

Apt

It's worth mentioning that I am actually wearing pinstripes and denim today - the name of this blog. Pinstripe pants from H&M and a denim jacket from the Gap.