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Disrupting the Health Care Industry: Choice Through Competition

Why focus on the supply side of providing health care?

While most people focus only on much-needed changes to the demand side of health care, it is important to consider the changes that can help on the supply side.

The key to improving health care on the supply side is through intense competition, in particular from new entrants to the market. Health care is a uniquely uncompetitive market because numerous rules and regulations protect incumbent businesses at the expense of new competition.

The biggest thing we could do to “bend the cost curve” is to look for every limit on the supply of healthcare services, especially entry by new companies, and get rid of them.

Aren’t there plenty of new, disruptive technologies in the medical field?

Revolutions in industries tend to come from new entrants to the market. While technology plays a large role, often those revolutions take the form of process innovation. So while new medical advances continue – especially in the United States – the process through which everything occurs relatively stagnant.

What is a certificate of need?

A Certificate of Need (“CON”) prevents new or existing healthcare providers and facilities from expending a large amount of money on services or equipment unless a genuine public need exists. Certificates are often granted by hospital equalization boards, whose membership is appointed by the state’s governor. To be granted a certificate of need, proponents must demonstrate that the proposed service or facility will improve access to and affordability of needed services in the area.

The CON programs were created to restrict the growth of high cost health care, long-term care, acute care hospital beds, and ambulatory surgical centers. In reality, they have been used as a barrier to competition and in the process increased costs and slowed innovation.

To learn more, click here.

Why is price visibility absent from the health care industry?

Health care is a uniquely uncompetitive industry. There are so many rules and regulations on the provision of both health care and health insurance that competition among providers of care has been stifled.

The lack of competition means providers of care haven’t had to make prices visible. There isn’t a competitive industry that can get away with not providing prices up front. Other industries where insurance remains the dominant method of payment are competitive and transparent with prices.

What can be done to increase price transparency in the health care market?

More competition among health care providers would lead to price transparency, lower costs, and better quality care.

Consider the case of online records. Online banking took off decades ago, yet most people’s medical records exist offline and need to be reentered for every doctor’s visit. No law needed to be passed to tell banks to put records online; competition did that all on its own.

For more, read John Cochrane’s essay “After the ACA.” A PDF link is here.