Study: Entrepreneurial Care a Model for Entire System

Published March 1, 2009

Health care markets where patients pay directly create price and quality competition, according to a study by Devon Herrick, Ph.D., a senior fellow with the National Center for Policy Analysis.

“There are many entrepreneurs in health care whose examples show us how to solve many of the health care problems that critics condemn,” Herrick said. “It’s important that public policy encourage, not discourage, these efforts.”

Exemplary Entrepreneurs

Herrick’s study, “Health Care Entrepreneurs: The Changing Nature of Providers,” cites cosmetic surgery as an example. “Since procedures are rarely covered by insurance, patients pay out of pocket,” said Herrick. “This makes patients sensitive to price, causing them to compare costs and choose based on price and quality.”

The study also cites laser eye surgery, where “competition is holding prices in check and improving quality” in many ways, “including accurate correction, faster healing, fewer side effects, and an expanded range of conditions that can be treated.”

The prescription drug market is becoming “an especially notable example of competition in the marketplace,” said Herrick. The study notes, “[WalMart] became the first national retailer to aggressively compete for buyers of generic drugs by charging a low, uniform price ($10 for a 90-day supply). Other chain stores have responded with their own pricing strategies.”

Expanding Options

In addition, the study notes, “walk-in clinics in shopping malls and drug stores compete by offering low money costs and low time costs, and electronic prescribing improves quality using error-reducing software.”

For patients willing to travel farther, Herrick said, “medical tourism provides cash-paying patients health care outside of the United States in high-quality facilities that rival domestic facilities and are 30 to 50 percent less expensive.”

Also on the rise are telephone-based medical practices, the study notes: “TelaDoc provides telephone consultations to 2 million customers. It allows patients access to a doctor any time of day from any location and also uses electronic prescribing to reduce errors.”

Lessons for All Health Care

“It’s important we learn from these examples,” said Herrick, “because they demonstrate the benefits of a true health care marketplace built around competition rather than bureaucracy.”

Herrick explained, “The [current] market for medical care is different than every other market. Because third parties like insurance companies or the government actually pay most health care costs, patients aren’t aware of or sensitive to what they’re being charged for goods and services, and therefore providers don’t feel the need to compete for their business.”

Herrick observes most health care providers today have no need to disclose prices, which “are not really market-clearing prices” but instead “reimbursement rates negotiated with bureaucratic institutions and networks,” because providers don’t compete with one another based on cost or quality.

The lack of competition results in a “highly artificial” market weighed down by high costs, poor or inconsistent quality, and inadequate access to care, the study concludes.

Joe Emanuel ([email protected]) writes from Georgia.

For more information …

“Health Care Entrepreneurs: The Changing Nature of Providers,” National Center for Policy Analysis: