Healthcare competition happens at the wrong level
28th July 2011 · 0 Comments
In most sectors of the economy, market competition consistently improves quality while reducing costs. Healthcare seems to be an exception. But it’s not because competition couldn’t work, it’s because it’s not allowed to happen.
It’s clear that the health insurance markets are stifling the essential elements that create a competitive environment i.e. choice and transparency. They control the supply (influx of patients) and the pricing (based largely on discounts of imaginary numbers) making it virtually impossible for a provider to be able to offer better pricing, better service, and better quality and market that directly to the buyers.
With healthcare reform, there’s been a lot of debate about where competition should be inserted into the system. Many talk about competition between health plans (in fact, the new Healthcare legislation is supposed to provide a new level of competition) and transparency in information and pricing. But consumers have limited information about the quality of providers, hospitals and pricing that they need to make well-informed decisions.
Payers, health plans, providers, physicians, and others in the system wrestle over the wrong issues. In fact, the Harvard Business Review says that “System participants divide value instead of creating it, and in some instances, they destroy it. They shift costs onto one another, restrict access to care, stifle innovation, and hoard information–all without truly benefiting patients. This form of zero-sum competition must be replaced by competition at the level of preventing, diagnosing, and treating individual conditions and diseases.”
I think it’s a given that payers, providers, and health plans should all establish more transparent billing and pricing mechanisms that would reduce confusion and other inefficiencies. But if competition in healthcare is really going to change, it needs to begin with the purchaser at a different level.
The largest purchasers of healthcare in the U.S. are actually the self-funded employers that cover over 120 Million lives. And the crazy thing is, they have almost no say in where they send patients and no ability to negotiate pricing. Most companies can negotiate down to the penny over where they are going to buy pencils, but when it comes to healthcare, they just write checks.
On the other side of the coin, there are many providers of healthcare who are efficient (they can accurately predict the costs of many procedures, they want more patients and the ability to negotiate directly with self-funded employers.)
Our platform works on this premise. We first negotiate pricing directly with providers for planned procedures, which is as much as a 30 -50% percent savings over the health plan’s “discount.” Then we offer the platform directly to the self-funded employers so they (along with their employees) can make informed decisions about where they will actually get procedures performed based not only on price, but on quality service.
If we’re truly going to bring the costs of healthcare down, it’s going to have to start with the providers being able to negotiate pricing directly with employers, and employers demanding transparency for what they are paying.
