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The competition conundrum: Can better care cost less?
Ano Lobb | Monday 26th October 2009
 Kevin Long introduces the argument that more competition might actually increase healthcare costs in the US. The logic: Competition opens the field to more players, but having fewer players endows each with larger market share, and therefore greater leverage to negotiate lower prices. This line of reasoning is extended to discourage the entry of not-for-profit healthcare.The central problem with competition in healthcare is that the wrong metrics are currently used to assess winners. Competing on price guarantees that costs will not decline, and in many cases will actually increase. How? Cost is driven by two variables: price and volume. Evidence has shown, and good business practice dictates, that when you decrease the amount that you pay for a service, providers will compensate by increasing volume. Currently in the US, contractual negotiations between insurers and providers tend to focus on the price of services, not the volume. Quality is an afterthought. Volume is left at the discretion of doctors and hospitals, which is bad for costs and for health outcomes. The likelihood that you will receive discretionary services such as non-emergency hospitalization has nothing to do with your underlying health, but on the availability of hospital beds, or doctors available to perform procedures. Once hospitals build more beds, they must keep them filled to get paid, and over 30 years of research by the Dartmouth Atlas of Healthcare, and others, shows that is exactly what they do. Have a new operating room and a top notch surgeon? The same business logic applies: You have to feed the surgeon patients to maintain revenue stream. The irony is that regions of the US with the highest costs tend to have the worst outcomes, even after you control for the health of patients. A quartet of solutions to reduce costs while increasing the quality of care: 1. Competition based on cost-effectiveness. This requires measuring and reporting doctor and hospital outcomes. Doctors and hospitals providing the best outcomes at the lowest cost are the winners. 2. Reward evidenced-based treatments. US patients receive care that is scientifically shown to be the best choice about 55% of the time. The rest of the care provided is based on theories, habits, and doctor's preferences. Encouraging the use of care that actually works reduces wasteful treatments that don't work, aren't necessary and can only bring harm. 3. Informed patient choice. Studies show that when given sufficient information to compare treatments, patients overwhelmingly choose the most effective treatments, which are generally the least invasive and least expensive. Not only does informed patient choice make business sense, it's usually the most ethical approach. 4. Pay doctors a salary. Most American doctors are paid on a per-procedure basis. This incentivizes over-use of procedures, driving up costs and putting patients in danger. Those who argue that this would lead to unmotivated doctors providing shabby care might not realize that this is the payment model at the Mayo Clinic in Rochester Minnesota, arguably the best medical center in the world. |
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Paul Birkeland | Posted: 27 October 2009
Good NYT op-ed by Paul Krugman on the subject:
"So, how well will health reform work after it passes? There’s a part of me that can’t believe I’m asking that question. After all, serious health reform has long seemed like an impossible dream. And it could yet go all wrong."
http://bit.ly/O36h9
Paul Birkeland | Posted: 27 October 2009
Good discussion, Kevin, but one thing tends to be missing from health care debates. Most don't know that health insurance companies are immune to anti-trust regulations. The industry was exempted from antitrust laws by Congress in 1945 after the Supreme Court ruled that the insurance firms, like utilities, are quasi-monopolies and should be regulated by the government. State agencies are the primary regulators of the industry.
The upshot is that the insurance companies do not really compete in a free market. They can legally "collude" to set prices in various markets, and jointly build and make their case to State regulators. Not to mention fund PACs. (You can see the problem here.)
State regulators have varying degrees of diligence in the various states, resulting in an indecipherable multitude of market distortions. The free market does not now, and never has, set insurance rates.
I would like to see a study of health care quality as a function of state regulator diligence.
Kevin Long | Posted: 27 October 2009
I am starting to think the Obama public option will not work. Why not just regulate standards that hospitals bill to ALL insurance companies regardless of their market share and yes, put doctors on salary. I assume that can not be touched because hospitals are privately owned...right? Make insurance companies compete over better services, not price.
Magdalena Serpa MD MPH | Posted: 26 October 2009
British Lessons on Health Care Reform
Posted by NEJM • September 9th, 2009 http://healthcarereform.nejm.org/?p=1702
Magdalena Serpa MD MPH | Posted: 26 October 2009
Physicians’ Views of the Massachusetts Health Care Reform Law — A Poll
Posted by NEJM • October 21st, 2009 http://bit.ly/MQOa1
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