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Healthcare Competition Policy Needs a Makeover, Says Policy Analyst

 |  By John Commins  
   June 09, 2014

Competition within the healthcare sector will improve only when providers offer products that have "intuitive and measurable value" to consumers, says a healthcare policy expert.

The healthcare system features a unique blending of subsidies and regulations that make it difficult to fabricate a comprehensive and effective competition policy, says William M. Sage, MD, JD, a healthcare policy expert at the University of Texas at Austin.

 


William M. Sage, MD, JD
Healthcare Policy Expert
University of Texas at Austin

As a result, Sage says, antitrust watchdogs and regulators should place more attention on whether or not the goods and services created by healthcare providers are valuable to consumers.

In a recent paper published last month in Health Affairs, Sage suggests that competition in the healthcare sector will improve when providers offer products that have "intuitive and measurable value" to consumers.

That could include bundled payments for a particular course of treatment, or maintenance for chronic conditions, or diagnostic workups. Sage says some products could even come with a guarantee and a warranty that would incentivize providers to improve care quality and safety.

Sage, whose paper was supported by the Commonwealth Fund, expanded on his ideas in a recent interview. The following is an edited transcript.

HLM: What is driving healthcare inflation?

WMS: It is a combination of technology, lack of price sensitivity, subsidies of various sorts—all of the things that have been culprits forever. I don't think there is a new set of villains or even age-related demographics.

But we've gotten to a point in American healthcare where we have run out of money. Originally we seemed to be running only out of public money, but now I think we are even running out of private money with the squeeze on general economic growth and at a practical level salary increases for working Americans is being seriously jeopardized.

The numbers about what is happening with medical inflation over one year or another I always take with a large grain of salt because there are many things that go into those calculations and we've never been talking about cost decreases.

What we have been talking about are changes in the upward trajectory of healthcare costs. As long as we are doing that, given the baseline we are working from, we are spending too much.

HLM: How is healthcare competition policy flawed?

WMS: We have a very tentative competition policy toward healthcare. We encouraged the generation of new healthcare stuff in this country for decades. There was a very nice analytic essay written about 20 years ago by Lawrence Jacobs, who is a political scientist at the University of Minnesota, that while European countries tend to prioritize access to healthcare and then accept the supply of healthcare stuff that is consistent with relatively universal access, the United State has always prioritized the supply and then tried to give as many people as could afford it access to the stuff that we created.

At this point what we've done is created a competition policy that takes as a normal baseline this generation of new healthcare stuff in abundance and many of the capital investments that we've made over the years.

I would just observe that much of what seems to be the competitive landscape in healthcare today was not created through competitive forces and the competition policies that do nothing but protect that landscape aren't accomplishing much.

HLM: What are you suggesting we do to improve competition policy?

WMS: I don't claim to have a magic bullet. In fact a lot of what I am writing I would regard as common sense. But in healthcare we have such a history of both professional governance and public regulation and subsidy that we sometimes lose track of common sense.

The common sense for healthcare competition is that healthcare should be quicker and cheaper and more reliable and those are things that we should be proud of in healthcare in the same way we are proud of them in other sectors of the economy.

One reason our healthcare isn't quicker, cheaper or more reliable is that we haven't really thought about products in healthcare the way that other sectors in the economy think about products. I have a lot of experience dealing with regulated aspects of this sector and what I have observed is that in healthcare, we seldom buy things that are assembled into functioning groups of services that logically do us some good and that measurably do us some good.

Someone who is producing those products could attach some warranty to them. If it doesn't work as promised or expected we will fix it so it does work. That is not the same thing as insurance and it is not the same thing as a guaranteed cure. It's just saying that when we offer things for money in healthcare they should be assembled units that do measurable good and that you can put a warranty on.

HLM: Is the traditional healthcare sector capable of making these changes, or is that change going to have to come from outside?

WMS: It's a little of both. I often describe American healthcare as the world's most expensive cottage industry. Other people have described physician practices as the most undercapitalized businesses in the world.

What we are getting at here, is that the pots of money that exist in healthcare, the capital reserves that you can use to build businesses and grow and change businesses are not usually in the sectors that are actually most likely to change. They sit in the hospital sector. They sit in the insurance sector.

The sectors within the system that should be the most innovative tend not to make the capital investments they need but we have to get them to do that.

A lot of that is going to be unwinding regulation that is counterproductive. For example, all of the regulation that we have created over decades in the United States that keeps hospitals separate from physicians when they act as co-producers of acute and complex care.

It's not that other countries have solved these problems. But if you go to any country in Europe you will find that when we are talking about acute and complex care, these specialized services take place in and around the hospitals and the doctors who are part of [them] are employees of the hospitals. It is not a question of who is in charge. It's a question of there being an organized unit that is producing these products.

We in the US have created a series of regulatory obstacles and traditions that let doctors who are sitting in their private offices admit patients to community hospitals for free and use the hospital facilities and bill for it and nobody is organized much at all. From within the profession we have to make those changes or we have to demand it.

But I also think a lot of this will come from outside the traditional sector. That is why I write about the way that the healthcare system can work with people who are just living their lives and who haven't been designated as patients.

The same way these people run all kinds of things these days from their banking to their travel or whatever, they will be running a lot more of their healthcare. A lot of companies that come in to work in those spaces will be new. They may come from other sectors, but I think the biggest lesson for regulators is to get out of the way.

That doesn't mean that you aren't going to ever have regulation. But if you do want new sectors to come in and shake things up, you are going to have to get out of the way much more than we would otherwise be tempted to do.

HLM: It seems counter-intuitive that consolidating any industry could reduce prices. Is that possible?

WMS: There are simple answers to that question but it is probably a more complex story. I believe in antitrust enforcement and my instincts are with the government nine times out of 10. But I would observe that a lot of the actions in antitrust have been trying to review and in some cases attempt to stop mergers involving hospitals or hospital acquisitions of physician practices in some pretty small communities around the country.

I don't think this is a good use of competition policy. It is much better to change the basis of payments, change the expectations, [and] open different services to new competitors than to obsess over a community of 50,000 or 250,000 people and whether or not there are two or three hospitals.

For example, there are going to be more and more concerns about hospitals acquiring primary care physician practices. Well, step back a little and think about it and you'll realize that there are so many professionals who can provide a lot of primary care other than today's physicians.

We will start with very well trained nurse practitioners and advanced practice nurses, but we can go beyond that if we decided to be innovative. If we could loosen the indefensible barriers to market entry that keeps these people from participating there never would be a coherent submarket in primary care physician services that we would have to worry about getting consolidated.

On some level, it is silly to think there would ever be consolidation in primary care practices because basic medical care in today's day and age come from so many different directions that there will always be a new or potential competitor. That is the kind of thinking that is missing.

That said, there are some great things the antitrust agencies are doing. In a lot of communities there are very large health insurers and very large healthcare providers, typically the hospitals, have a pretty good thing going and they have for many years and whether they are doing this deliberately or not, the upshot of much of their market behavior is to preserve their current benefits and keep other competitors out.

The antitrust authorities are looking for those situations and bringing cases against that type of anticompetitive conduct —that is good work.

I just can't get excited about picking a small market and paying a bunch of economic experts millions of dollars to do retrospective analysis of those markets. They do very sophisticated analyses and the data they use are not the data that really tells about the future of healthcare. As we researchers like to say, 'garbage in garbage out,' no matter how big your model.

HLM: A lot of what you are talking about sounds like value-based care. Are there any distinctions?

WMS: There is always going to be overlap. I offer a common sense, keep-your-eye-on-the-ball way of looking at a lot of the things that are going on. Certainly things that are phrased as value-based care or pay-for-performance have some significant overlap.

The things people are doing the most of, which is payment reform and information transparency, are probably the best starting points for improving the product. But you have to be thinking about the product and there are a few clear lessons.

One clear lesson is that the opposite of fee-for-service is not necessarily capitation. We have acquired a very bad habit of thinking that as soon as you discard fee-for-service you have to be an insurer.

Bearing insurance risk is not something that physicians or even hospitals do well. They have neither the capital nor the expertise. It seems [that] periodically we keep asking providers to bear insurance risk because we think somehow they are good guys compared with conventional insurers. But this all tends to lead us astray.

The value-based care sometimes is very well aligned. Sometimes the bundle is a bundle that is a coherent product that someone has put a warranty on.

But often it slides into some sort of jumbled capitation and then what you are talking about is insurance risk, which means are the people you are taking care of likely to get sick or not, rather than is the care you are providing going to work or not? That is a big difference.

HLM: What role will healthcare consumers play in mandating the changes you are talking about?

WMS: As we go forward pragmatically on consumer price sharing, if we are offering people real products, then I think they will be good consumers about those products. If on the other hand, we don't pay attention at all to the product and ask people to price-compare a random MRI or a lab test or some consultation that may or may not do them any good, then I don't think they'll ever be good shoppers.

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John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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