NCPA - National Center for Policy Analysis


November 7, 2006

"Redefining Health Care," by Michael Porter and Elizabeth Olmsted Teisberg is a must read for anyone interested in health policy.  The authors have identified the single most important problem in health care and it is a problem health economists tend to routinely ignore.  To wit: We don't bundle and price health services the way we would if the medical marketplace even remotely resembled an efficient, competitive market.  

Take diabetes, for example:

  • Care tends to be delivered in discrete bundles, each with its own price. 
  • No one provider is responsible for the end result (fewer ER visits, lower blood sugar level, etc).
  • This is because no one has bundled "diabetic care" as such -- taking    responsibility for final outcomes over a period of time -- in return for a fee. 

The authors produce a rich smorgasbord of other examples of failures to bundle and price in sensible ways, and they argue persuasively that costs are higher and quality is lower as a result.  But as good as they are in analyzing problems, they are weak on showing us how to get solutions, says John C. Goodman, president of the National Center for Policy Analysis.

Where they go wrong is in thinking that many of these problems could be solved if only we had more entrepreneurship on the provider side, explains Goodman:

  • Doctors in particular are unable to be entrepreneurial because the bundles and the prices have already been determined for them by third-party payer bureaucracies.  
  • Long before you ever reach the doctor's office (even with a health savings account (HAS) card), what will be paid for, what will not be paid for and how much will be paid has already been determined.  

Entrepreneurship will eventually find a way around our bureaucratic third-party payment system.  The more dollars that are controlled by patients, the faster that change will come, says Goodman.

Source: John C. Goodman, "Review of Porter/Teisberg Book," National Center for Policy Analysis, November 6, 2006; based upon: Michael Porter and Elizabeth Olmsted Teisberg, "Redefining Health Care," Harvard Business School Press, May 25, 2006.


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