Health care entrepreneurs: The changing nature of providers

The market for medical care does not work like other markets. Because health care costs are usually paid for by a third party (insurance, government), patients are not price-sensitive and providers don't feel the need to compete for their business. Lack of competition results in a highly artificial market plagued by problems of high costs, inconsistent quality and poor access, says Devon Herrick, senior fellow with the National Center for Policy Analysis.

But in health care markets where patients pay directly for all or most of their care, providers almost always compete on the basis of price and quality. Examples include:
 

• Cosmetic surgery: Since it is rarely covered by insurance, patients pay out of pocket and are thus sensitive to prices; they can typically compare prices prior to surgery and pay a price that has been falling over time in real terms.
   
• Laser eye surgery: Competition is holding prices in check and improving quality in vision correction surgery, including accurate correction, faster healing, fewer side effects and an expanded range of conditions that can be treated.
   
• Price competition for drugs: 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.
   
• 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.
   
• Telephone-based practices: 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.
   
• Finally, medical tourism provides cash-paying patients health care outside of the United States in high-quality facilities that rival domestic facilities. Patients can save 30 to 50 per cent by going abroad.
  
  What lessons can we learn from these examples of entrepreneurship in health care? The most important is that entrepreneurs can solve many of the health care problems that critics condemn, says Herrick. Public policy should encourage, not discourage, these efforts.
  
  Source: Devon M. Herrick, Health Care Entrepreneurs: The Changing Nature of Providers, National Center for Policy Analysis, Policy Report 318, December 2008.
  
  For text: http://www.ncpa.org/pub/st/st318
  
  For more on Health Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=16
  
  FMF Policy Bulletin/ 13 January 2009