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Health Care And Competition

Health care needs real competition.

So say two Harvard faculty members based on research and experience discussed in a Harvard Business Review article. Professor Leemore Dafny (Professor Harvard Business School) and Dr. Thomas H. Lee (faculty Harvard Medical School) argue that the lack of competition in the health care sector is perpetuating the system’s inability to deliver efficient, affordable and reliable health care. Their solution is to have all stakeholders – manufacturers, physicians, patients, administrators and regulators – collaborate to create a thriving marketplace to compete on value, not volume.

The question, of course, is how to do this.

Ever since the early 1940’s, health insurance has been designated as a “tax-free” benefit to employees. At the time, it was used as a means to provide additional value to attract scarce workers in a wartime economy subject to price controls on wages. We’re still feeling the effects of those decisions more than 70 years later.

Unlike other sectors in our economy, consumers of health care services have largely been insulated from the actual cost of the services. They had little incentive to shop for the most cost-effective producers. Further, the health care sector has been notoriously opaque on pricing.

The authors cite a number of critical barriers to competition. These include:

  • Limited reimbursement-based incentives
  • Limited market-share incentives
  • Inadequate know-how among manager of health care organizations

Professors Dafny and Lee see these barriers falling as a result of several factors. One was the decision by the U.S. Department of Health and Human Services in 2015 to shift 30% of Medicare fee-for-service payments to alternative models that expressly reward value. The pain of increased premiums and increased deductibles for health insurance under the Affordable Care Act has induced patients to seek out lower cost alternatives for care and for insurance. Finally, better data is becoming available about outcomes and can fuel the move to more accountability for care results.

The authors pointed to five methods for accelerating progress:

  1. Put the interests of patients first in all decisions
  2. Create more opportunities for choice – even if it means opposing the interest groups that stand in the way
  3. Create systems that don’t reward volume of procedures or patients
  4. Standardize methods to pay for value
  5. Make outcomes more transparent to ALL stakeholders – including patients

Dafny and Lee see a key role of government in this process. They cite activities by governmental entities that have supported the process. The most successful seem to have been at the State level (Massachusetts and California) rather than at the Federal level.

My analysis is that using Federalism and the dynamics of various approaches employed by the 50 States will result in a more robust environment to try innovative approaches than the standard Federal “one size fits all” method. Government closest to the people is better able to discern and serve their needs than some remote bureaucracy.

But in any event, change is coming – and MUST come if we are to improve the cost effectiveness of our health care system.

For a link to the article, please send me an email and I’ll forward the message I received from Harvard for their copyrighted article.

Also, if you or any of your colleagues have innovations in life sciences or other technology areas that you’d like to pursue, call my office (908-663-8253) to set up a complimentary consultation with a member of my team to learn how we can help you reach for the next level of success – and avoid costly legal errors.



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