Increased competition among medical providers seems to have few downside medical risks and leads to lower costs and less utilization. American hospital markets are fairly small. The Dartmouth Atlas splits the country up into 306 hospital markets. There is cross-regional flow as insurance networks are not laid out on the same pattern as hospital networks but it is a pragmatic measure of small markets.
This matters as hospital regions can be very concentrated among only a few ownership groups. The national hospital concentration indexes are not that high but regional concentration can be very high. Concentrated hospital systems means they don’t have to be that good to collect economic rent as there are few reasonable alternatives.
Martin Gaynor, Rodrigo Moreno-Serra and Carol Propper examined the impact of market concentration in English hospitals. They found the following:
We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost.
My colleague at Duke-Margolis, Professor Barack Richman, published in the New England Journal of Medicine a business analysis of the Indian cardiac hospitals and notes the localization of the American hospital markets:
U.S. hospitals, in contrast, have oriented their business strategy toward obtaining market leverage and exerting monopoly power in setting prices. The U.S. health care market is characterized by payers and providers maneuvering to squeeze each other financially. The most recent wave of reforms — the spread of Accountable Care Organizations — has too often merely enshrined hospital monopolies in local markets. In addition, because this leverage is accumulated to extract higher prices from insurers, not patients, providers give little thought to what consumers actually can afford. A business strategy geared toward expanding and leveraging market power in an effort to raise prices is antithetical to one that focuses on providing value to consumers.
Chad Terhune at Kaiser Health News looked at an innovative private insurance program in California:
Retiree Leslie Robinson-Stone and her husband enjoyed a weeklong, all-expenses-paid trip to a luxury resort — all thanks to the county she worked for.
The couple also received more than a thousand dollars in spending money and a personal concierge, who attended to their every need. For Santa Barbara County, it was money well spent: Sending Robinson-Stone 250 miles away for knee replacement surgery near San Diego saved the government $30,000.
Expanding the relevant competition regions lowers prices. If there are Indian style cardiac hospitals within a four to six hour flight of most major American cities, sooner or later, non-time sensitive surgeries will be using those centers to at least leverage better pricing out of mainland hospitals. More likely, people will start to be told that they can pay no deductible and travel six hours or pay $7,000 deductibles to stay near the house for non-critical care needs. Increasing the size of the competition space should help break the localized monopolies that have driven up the cost per unit of healthcare delivered in the United States.
Nicole
This is really interesting; thank you. Fascinating to think that a person could get all of those fringe benefits and STILL save the county money.
Jumbo76
David,
What’s your reaction to the reinsurance law in Minnesota? I was reading this story about it over the weekend: https://mobile.nytimes.com/2017/09/02/us/politics/minnesota-health-care-reinsurance.html
The main point is that reinsurance provided by the state helps the insurance companies to handle excess claims. This was passed with a lot of Republican votes in the legislature, over the objection of many Democrats. Minnesota state legislature republicans are undoubtedly different from national Republicans, but setting that aside, I can’t see why this is a bad law or why Democrats shouldn’t support more of this. After all, there were the “risk corridors” that Rubio had taken out of the ACA.
Barbara
Santa Barbara is so non-competitive with such a wealthy upper tier of patients that many doctors don’t even bother to participate in Medicare. This can’t be expanded fast enough.
Xantar
Somewhat OT:
Are we still keeping the “Mayhew on Insurance” tag?
David Anderson
@Xantar: as of now, yes; eventually I will think up something smart and funny to change it to.
A Ghost To Most
Good luck, flatlanders. This one sounds bad.
I guess the goddess Gaia is pretty pissed at the southern states.
Humdog
I have never heard of getting financial support for having to go out of the area for healthcare. The docs were ready to send me 400 miles south for care when they ran out of ideas for what was wrong with my health. I met people in my situation who had spent more than $25,000 on travel and hotel bills for their out of town health trips. One couple was facing bankruptcy over their hospital, hotel, pet boarding and copay or coinsurance. Going out of town can quickly eat up your $7000 deductible when they send you to Stanford or San Francisco.
jl
Thanks for interesting post on important topic, and one that is hard to crack since it concerns higher than necessary expenditures by the popular heroes of US medicine” specialist docs and hospitals.
David’s conclusion is upbeat. But IMHO, the choice of staying close to home or traveling to get care is still a very second best solution. That is a choice that doesn’t need to be made in all cases. Some system of transparent pricing, and forcing uniform pricing for similar services would be better, and there are mechanisms to do just that ins some European and Asian countries that have more cost-effective systems. I admit that David’s example, cardiac care, may be an exception,since there is good evidence that high volume in that specialty pays off in much higher quality care. But i think that is an issue that should be considered separately for each kind of service.
If this approach to expanding competition is an approach that can arrive at the same result in other countries, but one that can be implemented in the US legal and economic environment, so that prices come down close to home with similar quality whenever possible, then that would be a reason to be very upbeat about it. I hope that is the case.
JFA
What are the various barriers of doing this more? Reading up on “medical tourism”, especially Cohen’s Patients with Passports, it seems that individual state regulations play a big role, particular in network adequacy and in the ability to offer those kinds of incentives? In some states, discounts that the insurer can provide might be capped due to laws that have (it seems) mistaken ideas about coercion (and confusion on the difference between coercion and undue influence).