“Competition [in healthcare] has taken place at the wrong levels, and on the wrong things. It has gravitated to a zero-sum competition, in which the gains of one system participant come at the expense of others. Participants compete to shift costs to one another, accumulate bargaining power, and limit services. This kind of competition does not create value for patients, but erodes quality, fosters inefficiency, creates excess capacity, and drives up administrative costs, among other nefarious effects.”
Michael E. Porter
Out of the thick dust cloud caused by Haven Healthcare’s recent implosion, a key question about US healthcare once again rises: Can free market principles create greater value for patients and purchasers? Can our adored “free market” approach make healthcare more reliable? More affordable? Or will it continue to “foster inefficiency and “erode quality?”
Despite Haven’s collapse and co-founder Warren Buffet’s admonition that there are now well over $3.6T reasons why changing healthcare is difficult, I see no reason why the market cannot work. If we are to make that happen, I propose starting with four observations – each based on the working thesis that healthcare is, in fact, driven by and subject to traditional market forces. And although those forces, as Michael Porter points out, are not currently working to improve value for patients or purchasers, they probably could be made to do so…given changes in employer purchasing. (Click here to read more.)
Observation #1: The Problem. Rather than echo how “our healthcare system is broken,” a more helpful, insightful diagnosis is likely that the healthcare market is dysfunctional. How would I define that? From two separate market perspectives:
Observation #2: The cause is NOT Hospitals. It is: Contracting practices past 2+ decades. Yes, our largest health system hospitals, as CBGH recently documented, are being paid 2 to 3 times their average breakeven requirements. And yes, hospital consolidation – wearing the sheep’s clothing of “clinical integration” – has served only to increase prices while leaving quality variable. But that’s “merely” the result of opportunistism on the part of providers. The underlying causes that provide those opportunities derive from purchasing and plan designs practices of the last two or three decades. Such practices, at once actively and passively endorsed by employers themselves, had a number of harmful effects. Due to a combination of health plan self-interest and employer timidity, these practices effectively:
Observation #3: Alternative Solutions to the Problem. Expecting a single-payer system to happen in the US would be like waiting for Godot. There would seem only to be two practical solutions to the sort of market dysfunction that allows providers of non-discretionary care to price to what the market will bear for life-saving drugs or in-patient care:
Observation #4: Role and Responsibility of the Purchaser. There’s no point in beating around the bus on this one: Of the alternative solutions cited above, some sort of proactive change in purchasing is probably a matter of fiduciary responsibility. Besides, just to be practical: only changing purchasing and benefit practices are under control of purchasers.
Three Conclusions: It seems to me that the above observations lead, rather directly, to three conclusions.
Solution. History makes one thing clear about free-markets: purchasing power must, at the least, counter-balance the power of suppliers. As Dr. David Blumenthal and colleagues recent advised, to solve healthcare costs US employers should create purchasing alliances.