“Competition drives improvements in efficiency and effectiveness, offering consumers higher quality goods and services at lower cost. It can have the same effect in the health care system, if given the chance to work.”– Mitt Romney
Creating “robust competition” is at the core of Mitt Romney’s approach to Health Care Reform. He would be right–if health care were commodity like any other. In many industries when more sellers compete for customers, prices come down. Think of thin-screen TVs. But the healthcare market is not like other markets, as a great many health care economists have explained.
When it comes to medical care, the consumer does not have the leverage that he enjoys in other markets because there is too much uncertainty about a) what he needs, and b) the value of what is, in the end, a very complicated product.
First, consider his needs: Should he purchase an expensive, comprehensive policy with no caps on annual or lifetime payouts? If he has a big family, he knows he needs a big car. But he has no way of knowing whether he, his spouse or one of his children will develop cancer, MS., Alzheimer’s or be in an accident that leaves one of them paralyzed for life. So there is no way that a savvy consumer can bring down insurance prices by shopping for the “least expensive policy that fits his needs.”
Secondly, he has no way of knowing whether the network of hospitals and doctors that an insurer offers is “the best,” because he is not in a position to measure the quality of care. Even medical researchers will tell you that “outcomes research” is still an infant science. At this point, the ambiguities and complexities of medicine make it extraordinarily difficult to measure quality. For example, we might know that the patient survived the operation. But does this mean that it was a success? Maybe he didn’t need the operation in the first place.
What if, following the operation, he was shipped from the hospital to a nursing home, where he spent the next three years unable to recognize friends or relatives? How do we rate that outcome? What if “complications” –that might or might not have been preventable–left him in such a sorry state? Return to the original question: Did he need the operation in the first place?
In order to measure outcomes, we need to go beyond: “Did the patient live or die?” to ask “Did he receive the right care at the right time? Was the care patient-centered? Did preventable mistakes add to his suffering? If he died, was he in extreme pain? “
Quite naturally, a layman will simply assume that the most expensive medical care must be the best. He does not realize that market leverage, rather than quality, determines how much an insurer will pay. He only knows that as a patient he wants the best–whatever the cost. We spend most of our health care dollars when we are very sick. So if we can possibly afford it, most of us will pick the most expensive provider. This will not bring down the price of care.
Providers understand this. Thus, they rarely attempt to compete on price. No one advertises a 10% discount on hospital stays in August (when 1st year residents begin learning how to practice medicine in the nation’s hospitals.) Instead, hospitals vie for well-insured customers by offering ever more sophisticated, high-tech equipment (which may or may not improve outcomes, because, too often, it hasn’t been fully tested.)
Hospitals’ ad campaigns also promise amenities: better food, better views and private rooms with two thin-screen TVs so that a vistior can watch “the game” on TV while the patient (or another viistor) watches something else. These “extras” enhance a hospital’s reputation, even-though they have nothing to do with infectionon rates, or whether or not surgeons use “checklists” to avoid preventable mistakes
As for doctors, in many cities, those who vie for well-insured patients rent prime real estate in pricey neighborhoods, and spend lavishly furnishing their waiting rooms. Patients find this reassuring. They tell each other: “He must be doing very well.” Again, these expenses lead to higher bills– and have little or nothing to do with superior care.
Mitt Romney may understand that doctors don’t compete on price. But he somehow assumes that if more insurers were vying for your business, our health care bills would fall. This is one reason why he would like to see insurers compete across state lines.
What he doesn’t understand is how little market power many insurers have. The truth is that if too many insurers are dividing a market, none of them will have the market clout to negotiate lower prices with powerful providers.
Finally, free market competition has never driven down the cost of care–either in the U.S. or anywhere in the world. Developed countries that pay far less for care that often is as good or better than ours use some form of “regulation” and negotiation—not “free market competition” to achieve that goal.
Only in the U.S. do we let the “free market” set prices for the medical care that we all need. This is one reason why U.S. healthcare is fast becoming unaffordable.