From Michael Porter’s Redefining Health Care: Creating Value-based Competition on Results, published twenty years ago in 2006:
Competition in the current system is too local, because it is centered on relatively small, self-contained local institutions catering to local needs. Services are both delivered locally and managed locally. The local bias in health care is a throwback to an earlier era when medical care was less complicated, and travel more difficult. It has been institutionalized by prevailing ownership and governance structures for provider institutions, regulatory and reimbursement practices, and a lack of local provider accountability for performance.”
I’m not sure this claim gets to the root cause of the problem.
Healthcare is inherently a local business like most service businesses, but much of this is unavoidable in the sense that people are local. Unless we want to move further and further into the telehealth era, that will remain the case. And some services, including most emergency and a lot of procedural care, local remains unavoidable (until/unless we have robotic telepresence).
The intervening 20 years have shown us a remarkable degree of increasing regional hegemony in healthcare, and it hasn’t been great. Without that parochial, inefficient local competition, the real result has been no real competition at all. Just big battles between payors and systems.
I also don’t think this is the case:
Moving to value-based competition on results will require significant changes by all system participants, as we have noted. However, the system can, and will, change from within. Each system participant can significantly improve value, and reap the benefits, even if nothing else in the system changes.
Value sounds straightforward, but it’s so hard to define and, in many cases, extremely gameable. There are no magic metrics to durably measure quality.
The failure of competition is evident in the large and inexplicable differences in cost and quality for the same type of care across providers and across geographic areas. Competition does not reward the best providers, nor do weaker providers go out of business. Technological innovation diffuses slowly and does not drive value improvement the way it should; instead, it is seen by some as part of the problem. Taken together, these outcomes are inconceivable in a well-functioning market. They are intolerable in health care, with life and quality of life at stake. They are unsustainable in a sector that consumes a large and growing portion of the national budget.
What’s not captured here: pricing is supply/demand filtered through size/scale/negotiation. Healthcare is not a free market, and those participating in government or commercial insurance do not set their prices and in many cases do not really compete on prices.
Price transparency isn’t enough. Not only is healthcare local, which limits your options (e.g. you probably aren’t going to travel to a faraway hospital for acute pneumonia), but the consumer has no benefit to minimizing costs if they have a plan with an out-of-pocket maximum that they are going to hit, for example.
Rather than measuring results and rewarding excellent providers with more patients, the focus has been on lifting all boats by attempting to raise all providers of a service to an acceptable level. The principal tools have been practice guidelines and standards of care that every provider is expected to meet. Evidence-based medicine is another term for practicing based on accepted standards of care.
Defining excellent performance is actually very hard. Defining outlier performance is relatively easy.
Competition takes place on broad service lines, not individual services. Providers offer every possible service, and gear up to handle any patient who walks in the door. Health plans contract with providers across the board. Yet breadth of services per se has little impact on patient value—it is the ability to deliver value in each medical condition that matters. Health plans and providers have merged and consolidated, but the pursuit of breadth and the duplication of services have only increased. As system participants compete on breadth, competition at the medical condition level has been suppressed or eliminated by health plan networks, captive referrals within provider groups, and the almost total absence of relevant information.
This is true. Furthermore, even in places where some high-quality providers exist, the volume/profit game has led to expansion with lower quality. An outstanding clinician you can’t see doesn’t help you when her panel is full, and even the internal referrals from doctor to doctor within systems get filtered to a growing army of midlevel practitioners.