The competition conundrum: Can better care cost less?

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.