GETTING THE EMPHASIS RIGHT IN HEALTH-CARE COMPETITION

Date: Saturday, December 11, 2004

Competition generally lowers price or raises quality, and often both. Think computers, for example, or whatever electronic gizmo you're expecting to find under your tree this year.

But it doesn't seem to happen with health care. Yes, you can reasonably argue that the quality of care is improving in that there are many new medical technologies and drugs, but it's difficult to say the same about how fast a proven clinical result spreads into medical practice, or how likely you are to be injured as a result of a doctor's error.

Jeffrey Selberg, the president and CEO of Exempla Healthcare, visited the Rocky Mountain News this week, to talk about a contract dispute his three-hospital chain in the Denver metro area is having with an insurer. I'm not going to weigh in on that, but I think he's right on the broader issue: Competition in health care is competition on the wrong thing.

Selberg says the focus of health care should be on patient safety, clinical outcomes, patient satisfaction and cost-effectiveness. That sounds like a pretty good list to me.

But because the users of health insurance (patients) are not in most cases the purchasers of health insurance (employers are), the chief competition is on premium cost -- not even cost-effectiveness. And it doesn't work very well.

Selberg brought along a June article from the Harvard Business Review by Michael Porter and Elizabeth Olmsted Teisberg that lays out the case for "Redefining Competition in Health Care" in much greater detail.

"Our research shows," they write, "that competition in the health care system occurs at the wrong level, over the wrong things, in the wrong geographic markets and at the wrong time."

That list sounds about right, too, though in fact their article goes on to discuss several more ways the system is wrong.

In the current system, competition "takes place at the level of health plans, networks and hospital groups," the authors say. "It should occur in the prevention, diagnosis and treatment of individual health conditions."

But "disease by disease and patient by patient" there are big differences both in cost and in quality of care. They cite, for example, the Texas Heart Institute, which despite treating the most complex and demanding cases, has surgical costs that are a third to a half lower than many other medical centers. Also, for certain surgeries a hospital that does very few of them may have a mortality rate more than twice as high as a hospital that does a lot.

Competition over value, meaning better outcomes over time for amount spent, would be over the right thing, but instead it is over four wrong things, all "with unhappy consequences."

They are the annual competition among health plans for subscribers, which tends to make both employers and insurers more interested in short-term results. Providers compete to be included in networks by giving discounts to businesses and insurers with large numbers of patients, even though the cost of treating someone is not related to the size of the business he works for. That shifts costs to various smaller players, leading to more people unable to afford insurance at all.

Providers also compete to have the largest networks so they have more leverage negotiating with health plans, but that leads to less competition at the individual level.

And everybody competes to shift costs onto someone else.

Most health-care competition is local, which isn't really surprising for most treatments, but it's more local than it needs to be. The authors note that Medicare payments are calculated at the county level, so even hospitals that are close together but across a county border have little reason to compete.

Health-care competition also has the wrong strategies (too much consolidation), the wrong objective (low cost), the wrong information (plan coverage, not patient outcomes), wrong incentives for payers (who try to sign up healthy people and avoid signing up unhealthy people) and wrong incentives for providers (who have more reason to worry about the cost of providing care than about its quality).

The authors call this "zero-sum" competition, and it is a pretty damning analysis. They also point out in passing that a single-payer plan, the darling of socialists everywhere, makes almost all of these problems worse, which explains why anybody in Britain who can afford it goes outside the National Health and why so many Canadians come to the United States to get timely treatment.

The first step in shifting to "positive sum" competition is to replace the question "Who pays" with the question "Who provides the best value?"

That's the ground on which Exempla wants to compete, Selberg said.

Porter and Teisberg say that employers will have to lead the way, by choosing health plans in ways that will discourage some of the wrong kinds of competition and encourage insurers to offer plans that compete in better ways. But that will be at most a good first step.