NCPA - National Center for Policy Analysis


July 27, 2010

In a normal market, wherever there is waste, entrepreneurs are likely to be in hot pursuit -- figuring out ways to profit from its elimination by cost-reducing, quality-enhancing innovations.  Why isn't this happening in health care?  As it turns out, there is a lot of innovation here.  But all too often, it's the wrong kind, says John Goodman, President, CEO and the Kellye Wright Fellow of the National Center for Policy Analysis. 

Wherever health insurers are paying the bills (almost 90 percent of the market), innovation has been of two forms, says Goodman: 

  • Helping the supply side of the market maximize against third-party reimbursement formulas.
  • Helping the third-party payers minimize what they pay out.  

The tiny sliver of the market (less than 10 percent) where patients pay out of pocket has also been teeming with entrepreneurial activity.  In this area, however, the entrepreneurs have been lowering cost and raising quality, says Goodman: 

  • There are more than 1,000 walk-in clinics spread across the country today, posting transparent prices and delivering high-quality, low-cost services.
  • Whole businesses have been created to provide people with telephone and e-mail consultations because third-party payers wouldn't pay for them.
  • Mail-order pharmaceuticals are a huge and growing market, one which emerged to offer price competition to consumers who buy their drugs out-of-pocket.
  • Wal-Mart didn't introduce the $4-a-month package price for generic drugs in order to do a favor for Blue Cross & Blue Shield; it is catering to customers who pay their own way.
  • Concierge doctors are also providing patients with innovative services that health insurers don't cover. 

With respect to medical care itself, the technological response has been much the same.  Wherever there is third-party payment, the goal of innovation is to produce more products that qualify for reimbursement, even if the effects on patient outcomes are only marginal.  Wherever there is no third-party reimbursement, innovators are focused on ways to lower cost and raise quality, says Goodman. 

The bottom line: If we want more of the right kind of innovation in the United States, we must encourage arrangements (like health savings accounts) that will give patients more control of their health care dollars, says Goodman. 

Source: John C. Goodman, "Where Are the Innovators in Health Care Delivery?" Kaiser Health News, July 26, 2010. 

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