But there is no question that the profit motive does distort behavior in certain sectors of the industry. In an earlier essay I wrote about the “60 Minutes” exposé on a hospital chain that pressured doctors to admit more patients to the hospital to increase revenues.

No, not to admit patients who clearly didn’t need to be hospitalized, because then Medicare wouldn’t pay. But please do admit every patient for whom it can be justified, even if the doctor thinks outpatient treatment might work just as well.

The best example of the potential for the profit motive to promote undesirable behavior, quite fully realized, is in the pharmaceutical industry.

Just watch some TV commercials. Do you think you’re seeing all those ads for agents used to treat erectile dysfunction because we have an epidemic of dysfunctional men? No, it’s because of the tremendous profits on these drugs.

And why are there so many different drugs in each class used to treat (and over-treat) common conditions like high cholesterol and indigestion? These are called “me-too” drugs. Imagine yourself running a drug company. Do you spend a little money to develop a new drug in a class that has already shown great profitability for the ones already on the market, and then a bigger chunk of money to get your share of that market, and reap big profits? Or do you spend a lot more money to develop an entirely new drug for a disease that cannot currently be treated very effectively, not knowing whether there will be significant profit realized if you get FDA approval?

Is the money that is going to pay stockholder dividends – which is all profit – “wasted,” in that it is not reinvested in the business and therefore cannot benefit the customer – meaning the patients? Well, we could argue about that. I’d rather see the money reinvested in new plant and equipment or research and development, but it is harder to attract money from investors if they realize gains on their investments only through rising stock prices and never through payout of dividends.

But if you’re talking about hospitals that are classified as nonprofit, that means they have no stockholders, and all of their “excess revenues” (can’t call them profits, by definition) have to be reinvested to make things better for patients. Except for what they pay their executives. We can’t forget about that. Because no one is telling them – yet – that they cannot pay their executives multi-million dollar salaries. But that’s going off on a tangent, and I’ll save that for another essay.