Disrupting the Health Care Industry: Choice Through Competition
Published: July 11, 2017
The most important driver of revolutions in price and quality comes from new companies entering a market. But numerous rules and regulations have made health care into a uniquely uncompetitive market. A revolution in health care will require eliminating the restrictions that prevent new entrants to the market.
Discussion Questions
- Why have we passed regulations that prevent new businesses from entering the health care market?
- How can we eliminate restrictions that prevent new companies from entering the health care market?
- What can we expect our health care market to look like with more innovative companies competing with each other?
Additional Resources
- In “After the ACA: Freeing the Market for Healthcare,” John Cochrane discusses on what to do instead of Obamacare.
- In “Cochrane on Health Care” hosted by Russ Roberts, John Cochrane discusses existing regulations that distort the market for health care.
- In “Here's what healthcare looks like in a perfect world,” John Cochrane makes an argument for what the future health insurance should achieve.
- John Cochrane discusses Holman Jenkins and Cliff Asness’s commentaries on the health insurance reform effort in “A Healthy Reform?”
In most industries, it’s easy to identify innovators.
But it's rare to hear of a new and disruptive health care provider that has made something better, faster, or cheaper. Why is that?
In short, it's because health care is a uniquely uncompetitive market.
Take price visibility - when consumers can compare prices, it forces businesses to compete. But in health care, you almost never know what you owe until after a service has been performed.
The most important driver of revolutions in price and quality, comes from NEW companies entering a market.
But we've passed thousands of laws and regulations that make it next to impossible for new competitors to offer medical services at a lower cost.
For example, health care providers in 35 states must obtain “certificates of need” in order to open a new hospital or clinic, or even make major purchases. But the boards that grant them permission explicitly protect existing providers, at the expense of new competition.
The rules that regulate the provision of health care are set up to prevent new and innovative companies from offering better, more cost effective services.
If we want a revolution in health care, we should think more about expanding supply.
And to do that, we need to identify and eliminate the restrictions that prevent new entrants to the market.