Bumpy road ahead for competition in medical care

THIS month, insurers and hospitals in the Netherlands will launch a pilot plan to improve competition among hospitals where ophthalmologists perform cataract surgery.
Under the plan – which includes 17 different surgical procedures – competing hospitals will negotiate deals with health insurance funds to perform the operations based on the cost, volume, and quality of the operations.

Will competition reduce costs?
Ultimately, the Dutch government hopes the plan will help cut health care costs as the hospitals battle among themselves to deliver services cheaper.

At least that’s the theory.
However, as the Netherlands and other European nations eye competition as a way to help reduce health spending, increasing numbers of experts are warning that the road to perfect competition isn’t smoothly paved; there are plenty of bumps and potholes along the way.

Even as the Dutch experiment begins, there are signs that the new initiative won’t work in a way envisioned by the fathers of market-driven capitalism. For instance, the very principles of supply and demand so crucial to the free market are far from unfettered, according to Hans Maarse PhD, of the Faculty of Health Sciences of the University of Maastricht.

Law of supply and demand
Speaking at a symposium entitled "Competition in Medical Markets", which was held late last year in Ireland, Prof Maarse noted that the supply of health services is limited by a number of factors.

Those factors include a scarcity of such resources as hospital beds and operating theatres, a concentration of specialists in major cities, unfavourable attitudes toward competition, and government regulation.
Meanwhile, other factors hamper the effects of the demand side of the free market equation, according to Prof Maarse. For example, patients usually don’t choose their treating physician or hospital based solely on the cost of an operation.

In fact, most patients don’t pay their treating physician or hospital — the health insurance fund does. To make maters worse, patients often don’t even know how much their treatment costs their insurance fund.
Even when a patient must pay for a procedure himself, the patient doesn’t always decide to find the cheapest physician either, Prof Maarse notes.
Also, even if a patient were able to find a cheaper physician or clinic for a procedure, the patient may be unwilling or unable to travel to the physician to avail of the bargain.

Competition doesn’t always add up
As a result, the competition equation — at least when it applies to health care — doesn’t always add up.
The Netherlands isn’t alone.

Across the English Channel, Britain’s National Health Service appears to have benefited financially from competition with the National Health Service, according to Prof Carol Proper of Bristol University.
Under the internal market system, introduced about a decade ago, general practitioners and health authorities use specially designated funds to purchase treatment for their patients from hospitals.

As a result, hospitals are forced to compete on the price of treatment to obtain contracts with GPs and health authorities. Prof Proper notes that studies indicate that the internal market has helped reduce waiting lists for a number of procedures, including cataract surgery.
However, adds Prof Proper, competition hasn’t been a panacea. “Outcome is theoretically ambiguous,” she says. “And there is emerging evidence that competition is associated with lower quality.”

Quality as important as price
In such circumstances, any review of the effect of competition on a health service must involve not only price but also quality. And, she adds, if competition is to have a long-term effect on a health service, the providers of that health service — including physicians — must benefit from any cost savings and quality improvements.

While Europe governments experiment with competition in health care, the US government is pushing competition to its limits through renewed enforcement of the country’s competition laws.

Although competition has been a recognised force in health care in the US for more a century, the American government practically ignored the often anti-competitive behaviour of physicians and hospitals.
About two decades ago, however, that all changed. Then, the US federal government began to become serious about investigating physicians and hospitals for violating competition laws that had been applied business tycoons and shop owners since the late 1800s.

Competition investigations of physicians
Over the last 20 years, the US federal and state governments have launched investigations into how physicians have conspired with each other and hospitals to keep costs high.

Many investigations centred on how competing physicians agreed to fix fees, divvy up patients, and even boycott hospitals and insurance funds. In some circumstances, US prosecutors have even brought criminal charges against physicians for such anti-competitive activities.
Despite such enforcement of such “anti-trust” laws, the cost of US health care continues to be the world’s highest, accounting for about one in every eight dollars of the nation’s economy.
While such costs are admittedly high, competition has helped curb costs and improve efficiency among hospitals, according to Clark Havighurst PhD, an expert in health care law at Duke University.

Physician costs difficult to curb
Curbing physician costs, however, has proved more difficult, Prof Havighurst told the Dublin symposium. He blames a number of factors.
For one, the American Congress has refused to expose physicians to the full rigours of competition law. He points to the co-called “Health Care Quality Improvement Act,” a federal law that protects physicians from being sued by other physicians for anti-trust in certain circumstances.

The idea behind the quality improvement law was to protect physicians who reviewed applications for hospital admitting privileges. Before the law was passed, a number of physicians who were refused admitting privileges sued their colleagues for anti-competitive behaviour.
Without hospital privileges, a physician cannot treat in-patients. As a result, the obtaining and retaining of hospital privileges is an economic lifeline for most physicians.
Although the quality improvement law was intended to promote better medical care, its detractors argue that physicians in a hospital can hide behind the act and keep out new physicians, thus retaining more business for themselves at artificially high prices.

Medical groups escape anti-trust law
Medical associations, too, have escaped the rigour of the anti-trust law, Prof Havighurst argues.
“Although anti-trust law prohibits explicit agreements to abide by particular standards or to boycott those who depart from them, the profession still possesses a de facto monopoly over many vital features of American health care,” he notes.
Like physician groups in virtually every other country, Prof Havighurst adds that the American medical profession "maintains formal programmes for preparing guidelines for clinical practice and for setting and certifying compliance with standards governing virtually all non-price aspects of the health care enterprise that physicians have reasons — including economic ones — to care about”.

Such strong words may sound somewhat distant coming from a US law professor. But as European countries begin to introduce more competition into the health care system, ophthalmologists, like all other European physicians may begin hearing similar arguments from politicians and lawyers on this side of the Atlantic.

Forewarned is forearmed.

If you have any suggestions for future Regulatory Matters columns, please contact Paul McGinn at +353 1 628 9747 or email paulrmcginn@eircom.net.

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