Market principles begin to influence health care
Washington Business Journal - by Thomas M. Reardon and Rebecca L. Jackson Special To Washington Business Journal
For years now in health care, we have been grappling with a trilogy of issues which are inexplicably intertwined: cost, access and quality. If you squeeze one, it affects the other two in ways that are often unpredictable.
Managed care has reversed economic incentives and clearly had a salutary impact on costs. Squeezing costs has catalyzed massive integration in the health care industry, creating so-called integrated delivery systems prepared to be all things to all people.
Consumers have rebelled, rejecting the narrow access these systems contemplate. And newspapers are replete with anecdotal accounts of quality concerns.
In her wonderfully provocative book, "Market Driven Health Care," Harvard Business School Professor Regina Herzlinger paints a vision of how "focused factories" and consumer pocketbooks could help solve the access, cost and quality issues facing health care.
She analyzes the eye care industry, which, generally not reimbursed by third-party payers, is responsive to consumers on all three issues. Herzlinger suggests tax changes that could help harness the full benefits of a market-driven health care system by transferring purchasing power to health consumers.
Serendipitously, several developments may stimulate such a transformation without requiring a major tax overhaul.
First, health maintenance organizations are surging ahead with plans to become "access brokers" through open access plans with Internet and telephone triage demand and disease management programs that make the consumer the ultimate integrator of care.
Second, employers -- and now Medicare, the biggest payer of all -- have been moving from defined benefit to defined contribution plans. That shift will be profound. In essence, what both are saying is: "This is what we will pay. You choose how to spend it within certain parameters."
Third, even as integrated delivery systems are being cobbled together, niche players are emerging, even carving out core businesses such as cardiac care.
Health care is not consumer-funded, and never will be totally so. Nevertheless, market principles are beginning to apply to the vast health care market, presenting opportunities for first movers and challenges to established health care systems to transform themselves into supermarkets of consumer-focused niche products.
Thomas M. Reardon is co-chairman of the Health Law Section of Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo PC in Boston. Rebecca L. Jackson practices in the firm's Washington office.
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