The potential costs and benefits of free market competition within the health care field have been, and will continue to be, the focus of intense debate.
– Advocates of market competition in health care stress numerous benefits, including reduced costs, increased quality, improved efficiencies, and an incentive to innovate.
– Opponents argue that distinct differences exist between hospital markets and other markets, cautioning against the use of basic economic models.
Kenneth Arrow’s Perspective
Nobel Laureate Kenneth Arrow addressed this debate in his 1963 article “Uncertainty and the Welfare of Medical Care,” arguing that the market is incapable of insuring against uncertainties in health care.
– Arrow concluded that “the laissez-faire solution for medicine is intolerable.”
– Recent arguments suggest that competition within the hospital market has led to a commercialized environment incompatible with community needs.
Opposing Viewpoint
Opponents of competition in health care argue that without a competitive market, individuals lose their freedom to choose and consume medical care for “free.”
– The prevalence of health insurance has led to price insensitivity among consumers, affecting their decision-making.
– Health insurance and fee-for-service systems create a moral hazard where providers are compensated for performing more services.
Complexity of the Debate
The debate on competition in health care is complex and goes beyond a simple pro or con stance.
– The multifaceted nature of the health care system raises questions about where competition can produce the largest overall utility for society.
– Some argue for competition among integrated delivery systems, while others advocate for competition at the individual provider level.
Restructuring of U.S. Healthcare
The 1990s saw a significant restructuring of the U.S. health care delivery system, driven by technological advances and changes in reimbursement.
– Emerging health care organizations formed in response to increasingly competitive markets.
– The transformation of health care professions into a service industry enterprise has accelerated, with increased corporatization of medicine.
Specialization and Niche Providers
Specialized inpatient and outpatient facilities, often owned by physicians, have emerged as a reaction to these changes.
– These developments allow for more cost-effective provision of health care services while maintaining quality and improving outcomes.
Rising Healthcare Costs and Reform
The continuing rise in healthcare costs has led to increasing appeals for health care reform.
– The Patient Protection and Affordable Care Act (ACA) and the Health Care and Education Reconciliation Act (Reconciliation Act) were passed in 2010 to address these issues.
Analyzing Competitive Tensions
Michael Porter’s “Five Forces of Competition” offers a model for analyzing market competition in health care.
– The analysis is divided into five major sections based on Porter’s Five Forces and concludes with a case study.
– It aims to provide health care administrators with an interdisciplinary approach to strategic planning and management.
Barriers to Free Market Competition
Various barriers hinder free market competition in health care delivery.
– Patients do not purchase services directly from providers.
– The government is the largest purchaser of health care.
– Many providers have monopoly or near-monopoly power.