10 Cases of How Competition in Health Care Lower Costs and Raise Quality Outcomes

Long before a patient enters a doctor’s office, third party bureaucracies have determined which medical services they will pay for, which ones they will not and how much they will pay. The result is a highly artificial market plagued by problems of high costs, inconsistent quality and poor access. In addition, critics complain about fragmented care, uncoordinated care, failure to use simple technology (including the telephone, e-mail and the Internet), lack of electronic medical records (EMRs), the absence of safety-enhancing software, the lack of adequate patient education and problems related to rationing care by waiting.

Can the market for medical care be different? Interestingly, in health care markets where patients pay directly for all or most of their care, providers almost always compete on the basis of price and quality. And because they are not trapped in a system that pays for predetermined tasks at predetermined rates, providers are free to repackage and re-price their services — just like vendors in other markets. It is primarily in these direct-pay markets that entrepreneurs are creating many innovative services to solve the very problems about which critics of the health care system complain. In fact, these solutions are usually a necessary part of the entrepreneurs’ business models.

What follows are 10 examples.

Cosmetic Surgery. Cosmetic surgery is rarely covered by insurance. Because providers know their patients must pay out of pocket and are price sensitive, patients can typically (a) find a package price in advance covering all services and facilities, (b) compare prices prior to surgery, and (c) pay a price that has been falling over time in real terms — despite a huge increase in volume and considerable technical innovation (which is blamed for increasing costs for every other type of surgery).

Laser Eye Surgery. Competition is also holding prices in check for vision correction surgery, and laser surgeons compete on quality as well. Recent quality improvements include more accurate correction, faster healing, fewer side effects and an expanded range of patients and conditions that can be treated. For instance, rather than traditional Lasik surgery, patients can pay $200 to $300 more per eye for the newer, Wavefront-guided Lasik.

This work/research was funded by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the Grantee, the National Center for Policy Analysis.

Laboratory and Diagnostic Testing. Patients can order their own blood tests without a doctor’s appointment and compare prices at different diagnostic testing facilities. Prices are 50 percent to 80 percent lower than identical tests performed in a hospital setting. These services lower the patients’ time costs as well as money costs. In many cases, the results are available online within 24 to 48 hours.

Price Competition for Drugs. Walmart became the first nationwide retailer to aggressively compete for buyers of generic drugs by charging a low, uniform price — $10 for a 90-day supply. In many cases, patients with drug coverage have found the cash price at Walmart is lower than their health plan’s copay at conventional pharmacies. Other chain drug stores have responded with their own pricing strategies.

Price Competition for Drugs over the Internet. Rx.com was the first mail-order pharmacy to compete online in a national market for drugs. To compete with local pharmacies, they offer lower costs and ore convenient service, including free home delivery. They also compete on quality. For instance, high-volume mail-order pharmacies have much lower dispensing error rates than conventional pharmacies. Online mailorder pharmacies have thrived on the business model of improved quality, lower cost and greater convenience.

Patient Education for Drugs as a Product. DestinationRx.com is a pharmacy benefits management company. In addition to operating an online mail-order drug delivery service, it also offers a Web site to help patients identify low-cost therapeutic substitutes to the drugs they currently take. In addition, the firm is partnering with Safeway supermarkets to install drug comparison kiosks in store pharmacies.

Retail Clinics. Walk-in clinics in shopping malls and drug stores offer primary care services. They compete by offering low money costs and low time costs. In order to ensure a consistent level of quality, nurse practitioners follow computerized protocols, and EMRs are a natural adjunct of that process. Further, once an EMR system is in place, electronic prescriptions are a straight-forward next step. And electronic prescribing allows the use of error-reducing software. Thus, one study found MinuteClinics follow treatment guidelines better than traditional medical practices.

Telephone-Based Practices. TelaDoc now has two million customers — paying for something that is almost impossible to get from a conventional general practitioner: a telephone consultation. It offers patients access to a doctor at any time of day from any location. And because each on-call physician needs access to patients’ medical histories (and the treatment decisions of previous physicians), personal and portable EMRs are a necessary part of the company’s business model. The physicians prescribe drugs electronically — facilitating the use of safety-enhancing software that checks for harmful interactions. Concierge Medical Practices. Some innovative physicians are re-bundling and re-pricing medical services in ways that are not possible under third-party insurance. For a fixed monthly fee, they offer such services as price and fee negotiations for diagnostic tests and specialist services, patient education and more convenience and accessibility for primary care. Concierge physicians tend to relate to their patients in much the same way lawyers, accountants, engineers and other professionals interact with their clients — including phone calls, e-mail consultations and convenient Webbased services.

Medical Tourism. Increasingly, cash-paying patients are traveling outside the United States for surgery. Facilities that cater to such medical tourists typically offer: (1) package prices that cover all treatment costs, including physician and hospital fees, and sometimes airfare and lodging as well; (2) electronic medical records; (3) low prices that are often one-fifth to one third the cost in the United States; and (4) high-quality care in facilities (and by physicians) that meet American standards. Moreover, a new company, Healthplace America, has been formed to facilitate medical travel within the United States. It offers price and quality transparency for a network of 15 hospitals. Savings are typically 30 percent to 50 percent.

Third-Party Payer Innovations. Some entrepreneurs are adopting innovative practices within the third-party payer system. For example, American Physician House-calls treats Medicare patients with multiple health problems in their homes and assisted living facilities. Because each specialist needs to know how others are treating the patient, EMRs and the consequent coordinated care are a necessary part of the treatment model. If a senior is readmitted to a hospital, the company loses a paying client. Thus, it has a financial incentive to adopt the best medical practices as part of its business plan. What lessons can we learn from these examples of entrepreneurship in health care? The most important is that entrepreneurs can solve many of the health care problems that critics condemn. Public policy should encourage, not discourage, these efforts.

Read: http://www.ncpa.org/pdfs/st318.pdf

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