Competition in Health Care for Individuals, Organizations, and the System as a Whole - Essay Example

?Competition in Health Care for Individuals, Organizations, and the System as a Whole Outline Types of competition in force in different health care markets, and their impact 2. Strengths and weaknesses, advantages and disadvantages of competition in health care for individuals, organizations, and the system as a whole. a. Competition can generate and facilitate improvement. b. Competition can minimize clinical access and outcomes. c. Competition affects negatively patients, professionals and other stakeholders in the health care industry. d. Competition can lead to innovation of products and services. e. Competition has become zero-sum that is; it is dividing value rather than increasing it. f. Competition has led to the development of new types of health care delivery and financing. 3. Strategies providers should employ to succeed in a competitive health care marketplace a. Providers should go on with incentives to enhance quality and lower costs by improving the measures of quality and price. b. Providers should adopt positive zero-sum competition. Introduction An important factor in the growth of managed care market is competition between health plans and the association between consumers and health plans. These interrelationships have considerable implications for the overall growth of the managed care market and ongoing product innovation (Andersen, Kominski, and Rice 2011, p556). Competition explains why some health care leaders and policy makers have the desire to a free market mechanism in the health care industry (Janes and Lundy 2009, p159). On the other hand, the government has initiated greater competition between the health care providers (Glennerster 2009, p57). Types of Competition in Force in Different Health Care Markets and Their Impact There exist different types of competition in the health care markets. The competition has affected the manner in which health care products and services are delivered to the consumers. The two common types of health care competitions include competition in insurer-dominated markets and competition in physician-dominated markets. The insurer-dominated market is marked by non-price or quality competition whereas the physician-dominated market is characterized by price competition. In the physician-dominated market, decisions are made by the physician when to admit the patients and largely influence the selection of hospital. When the patient has been admitted, the physicians continue to influence operations related to treatment and the distribution of hospital resources (Glover and Rivers 2008). In this type of model, the hospitals compete for the patients via efforts to attract physicians. Under the usual-customary-reasonable (UCR) and the fee-for-service payment mechanisms, the physicians are not sensitive to the cost of care being offered at different hospitals. Competition for the hospital services is strongly determined by its amenities, quality as perceived by the physicians, and its location. Because quality costs money, it presumes quantitative sufficiency and regular care. Studies indicate that hospital costs have a tendency of increasing quality competition market, which is dominated by the physicians (Glover and Rivers 2008). It is important to note that insurers and hospitals have a crucial role in the market dominated by insurers. To get more network contracts, the hospitals must compete for inclusion in the insurers’ provider network and control the costs effectively. When the hospital fails to secure enough patients, it loses contracts with the managed care plans. In this type of market, price becomes a crucial element in the acquisition of managed care contracts and the preservation of patient base, therefore, the providers are coerced to be price-sensitive. Insurance plans compete for quality of provider networks, quality assessment procedures, credentialing screening, and cost to payers (Glover and Rivers 2008). Strengths and Weaknesses, Advantages and Disadvantages of Competition in Health Care for Individuals, Organizations and the System as a Whole The Evidence Centre (2011, p24) argues that competition is an elements that can be utilized to create in health care, particularly when utilized as part of a wider set of plans to generate and facilitate improvement. There are some evidences that competition can improve some features of quality and affect negatively on others. For instance, recent research done in the United Kingdom indicates probable improvements in clinical outcomes that were not clear in earlier UK research. However, research from other nations such as the United States showed that competition could minimize clinical access and outcomes. Research evidence from the United States indicates that competition can minimize costs for patients, providers, and payers (The Evidence Centre 2011, p24; Smith and Walshe 2011, p526). From the research, it is evident that competition leads to resistance among patients, professionals, and other stakeholders. It generates role conflict between the clinicians and managers. Other consequences of competition in the health care system include reduced professionalism, increased mergers, self-serving professional conduct, and fragmentation of services. There are people who suggest that the economic benefits of competition can be outweighed by administrative costs, negative consequences, and cost of additional capacity needed. However, this depends on the type of market and service, and the evidence is little (The Evidence Centre 2011, p27). The health care system in the United States has registered poor performance in both quality and costs over many years (Porter and Teisberg 2004, p1; Enthoven and Tollen 2005, p420). The US medical professionals and hospital administrators have operated in a rapidly changing, fragmented, and a challenging health care system (Browning, Patterson, and Torain 2011, p3). In the US, health care is mostly private and subject to intense competition than any other industry in the world (Kumaranayake, McPake, and Normand 2002, p135). In a healthy competition, persistent improvements in methods and processes drive down costs. Service and product quality rise in a steady manner. Innovation results in new and better approaches. These approaches diffuse rapidly and widely. Providers who are not competitive go out of business or they are restructured. Prices adjusted based on the value fall, and the market grows significantly (Porter and Teisberg 2004, p1). There are extensive and unfathomable differences in quality and costs among providers. These differences are also witnessed across geographic regions (Porter and Teisberg 2004, p1; Guinness and Wiseman 2011, p142). Furthermore, the differences in the quality of care stay for long periods because the transmission of best practices is extremely slow. For instance, on average, it takes approximately 17 years for the outcomes of clinical trials to be considered as standard clinical practice. In health care, innovation is viewed as a problem instead of an important driver for success (Porter and Teisberg 2004, p1). Despite these issues, Porter and Teisberg (2004, p1) is of the opinion that competition is the solution to the problems faced by health care in the United States. However, for competition to be beneficial to this industry, its nature must change. Research suggests that competition within the health care system happens at the wrong level, at the wrong time, over the wrong things, and within the wrong geographic markets. Competition in the health care industry has become zero-sum, that is, the participants in the system divide the value rather than increasing it. At other times, it can even erode the value by generating unnecessary costs (Porter and Teisberg 2004, p1; Gottret and Schieber 2006, p106). In the health care system, zero-sum competition is indicated in a number of ways. First, it manifests itself as cost shifting instead of the fundamental cost minimization. Shifting costs from one individual to another generates no net value. The resultant scenario is that a participant gains at the expense of the others, and in most cases with additional administrative costs (Porter and Teisberg 2004, p1; Himmelstein and Woolhandler 2007, p1128; Black, Gruen and Wonderling 2005, p180; Hsiao 1995, p139). Second, zero-competition entails the search for greater bargaining power instead of the efforts to offer better care. Hospital groups, physician groups, and health plans have merged primarily to gain more power and strike better deals with customers or suppliers. However, the efficiency and quality gains from the merger are quite reserved (Porter and Teisberg 2004, p1). Third, zero-sum competition limits access and choice to services rather than making care more efficient and better. The current system is structured in a way that health plans generate money by rejecting to pay for services offered and by restricting physicians and subscribers choices. Care providers and health plans limit a patient’s access to medical innovation or restrict the services that are offered (Porter and Teisberg 2004, p1). It is important to note that the whole idea of market competition is to lower prices and raise quality; however, in the case of a consumer in the health care industry, it is difficult for him or her to make an informed choice in a surgery debate (Mahar 2007, p1). Lastly, zero-sum competition depends on the court system to resolve disputes. Instead of making the situation better, the lawsuits complicate the problem. The lawsuits raise the costs directly (through administrative expenses and legal fees) and indirectly (for instance, through the application of unnecessary defensive medicine). These practices add no to the patients. It is important to note that less than 30 percent of money paid by hospitals and doctors for malpractice go to injured patients or even their families (Porter and Teisberg 2004, p1). Competitive demands for cost containment have encouraged the development of new types of health care delivery and financing. Private payers have implemented systems such as preferred provider and managed care organizations to require or encourage consumers to select relatively lower-cost health care. Physicians have attempted new types of consolidations and joint ventures. Hospitals on the other hand, have united through mergers and the establishment of multi-hospital networks (Bodenheimer 2005, p851, 933, and 1001; Bodenheimer and Fernandez 2005, p30). The afore-mentioned organizational types provide the potential for minimizing costs and increasing the bargaining power of the provider (Federal Trade Commission and the Department of Justice 2004, p7). Strategies Providers Should Employ To Succeed In a Competitive Health Care Marketplace Federal Trade Commission and the Department of Justice (2004, p21) suggests that providers, governments, and private payers should go on with experimentations to improve incentives for providers to enhance quality and lower costs and for the consumers to seek better quality and lower prices. This can be achieved in a number of ways such as improving the measures of quality and price, and furnishing more information on quality and prices to consumers in a manner that they find relevant and useful, and go on with experimenting financial structures that will offer consumers bigger incentives to utilize such information. It is also recommended that the providers, governments, and private payers experiment more with payment methods for aligning the incentives for providers with the interests of the consumers in quality improvements, innovation, and lower prices (Federal Trade Commission and the Department of Justice 2004, p21). Porter and Teisberg (2004, p1) suggest that providers should adopt the positive-sum competition. Under the positive-sum competition, providers should not attempt to match the competitor’s every step. Instead, they should create clear strategies around tailored facilities and unique expertise in situations where they can become distinctive. Hospitals should attempt various forms of service areas but they should not attempt to be everything to everyone. For most businesses, it is common for them to create services and products that develop unique value. For most hospitals, the development of uniqueness is an important change in the mind-set (Porter and Teisberg 2004, p1). It is important for the providers to adopt a transparent pricing strategy. This is an important positive zero-sum competition strategy. In this strategy, the prices should be posted and readily accessible or available. The providers should charge the patient with the same price for addressing a particular medical condition without taking into mind the patient’s group affiliation. In the competition environment, providers can set different prices but the pricing should not vary because different insurance companies insured the patients or others are self-insured. Payers can negotiate the prices but any change in the price should benefit the patients as well them. It is imperative to note that the price of treating a particular medical condition should not be tied to patient’s insurance company or their employer. Conclusion In the health care industry, the cost has been increasing and the quality of care has been declining but there have been attempts to improve the two. Some people argue that the decline in the quality of care and the increase of cost is attributed to competition in the health care marketplace. They further argue that competition results in resistance among stakeholders (such as patients, and professionals) in the health care industry. There are significant differences among the providers in the cost and quality of care given. Some authors argue that competition in health care has become zero-sum and this has divided the value rather than increasing it. However, there are those of the opinion that competition is good for the health care system. They suggest that competition can improve some of the features of quality of care. However, all this depends on the type of market and service. Competition has triggered innovation, particularly in the development of new types of health care delivery and financing. The providers can adopt a number of strategies to be successful in a competitive health care marketplace. For instance, they can experiment with more payment methods to align their incentives with the interests of the consumers in lowering prices, innovation, and quality improvements. The providers can also adopt positive zero-sum competition strategy where together with the patients they benefit. References Andersen, R. M., Kominski, G. F., & Rice, T. H. (2011) Changing the U.S. health care system: Key issues in health services policy and management, Hoboken, NJ: John Wiley & Sons. Black, N., Gruen, R., & Wonderling, D. (2005) Introduction to health economics, London, UK: McGraw-Hill International. Bodenheimer, T. & Fernandez, A. (2005) High and rising health care costs. Part 4: Can costs be controlled while preserving quality? Annals of Internal Medicine, 135(1), pp26-31. Bodenheimer, T. (2005) High and rising health care costs. Part 1: Seeking an explanation. Annals of Internal Medicine, 142, pp847-854. Bodenheimer, T. (2005) High and rising health care costs. Part 2: Technologic innovation. Annals of Internal Medicine, 142, pp932-937. Bodenheimer, T. (2005) High and rising health care costs. Part 3: The role of health care providers. Annals of Internal Medicine, 142, pp996-1002. Browning, H. W., Patterson, T. E. & Torain, D. J. (2011) Collaborative healthcare leadership: A six-part model for adapting and thriving during a time of transformative change, Greensboro, NC: Center for Creative Leadership. Enthoven, A. C. & Tollen, L. A. (2005) Competition in health care: It takes systems to pursue quality and efficiency. Health Systems, pp420-433. Federal Trade Commission and the Department of Justice (2004) Improving health care: A dose of competition, Washington, DC: Federal Trade Commission and the Department of Justice. Glennerster, H. (2009) Understanding the finance of welfare: What welfare costs and how to pay for it, Bristol, UK: The Policy Press. Glover, S. H. & Rivers, P. A. (2008) Health care competition, strategic mission, and patient satisfaction: Research model and propositions. Journal of Health Organization Management, 22(6), pp627-641. Gottret, P. E. & Schieber, G. (2006) Health financing revisited: A practitioner’s guide, Washington, DC: World Bank Publications. Guinness, L., & Wiseman, V. (2011) Introduction to health economics, London, UK: McGraw-Hill International. Himmelstein, D. U. & Woolhandler, S. (2007) Competition in a publicly funded healthcare system. British Medical Journal, 335, pp1126-1129. Hsiao, W. (1995) Abnormal economics in the health sector. Health Policy, 32, pp125-139. Janes, S., & Lundy, K. S. (2009) Community health nursing: Caring for the public’s health, Sudbury, MA: Jones & Bartlett Learning. Kumaranayake, L., McPacke, B., & Normand, C. E. M. (2002) Health economics: An international perspective, London, UK: Routledge. Mahar, M. (2007) Why market competition will not mend our health care system [online], Managed Care. Available from: [accessed 8 Dec. 2012]. Porter, M. E. & Teisberg, E. O. (2004) Redefining competition in healthcare [online], Harvard Business Review. Available from: [accessed 8 Dec. 2012]. Smith, J., & Walshe, K. (2011) Healthcare management, London, UK: McGraw-Hill International. The Evidence Centre (2011) Competition in healthcare, London: The Evidence Centre. Read More