Monday, August 19, 2013

Fwd: qotd: The fallacy of balancing cooperation and competition

Quote-of-the-day mailing list

-------- Original Message --------
Subject: qotd: The fallacy of balancing cooperation and competition
Date: Mon, 19 Aug 2013 06:42:36 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

The New England Journal of Medicine
August 14, 2013
Coordination versus Competition in Health Care Reform
By Katherine Baicker, Ph.D., and Helen Levy, Ph.D.

Many current proposals to increase the value of care delivered in the
U.S. health care system focus on improved coordination — and with good
reason. Badly coordinated care, duplicated efforts, bungled handoffs,
and failures to follow up result in too much care for some patients, too
little care for others, and the wrong care for many. A host of current
reform efforts aim to reduce these inefficiencies in both public and
private markets. These efforts range from penalizing hospitals with
higher-than-expected readmission rates, to rewarding primary care
providers when patients receive higher-value care, to providing
incentives for the adoption of electronic health records. Accountable
care organizations (ACOs) and bundled payments are designed to create
monetary incentives for coordinated care. The hope is that coordination
will improve value by ensuring that the right care is provided in the
right place at the right time.

These laudable efforts, however, may unintentionally be at odds with
another strategy for improving value: promoting competition in health
care markets. In general, less competition means higher prices; one
well-publicized symptom of the lack of competition in U.S. health care
is providers' ability to charge different prices for the same service.
Competition may drive higher quality, particularly when prices are
constrained. The benefits of competition in private markets may even
spill over to higher quality in Medicare, for which the Centers for
Medicare and Medicaid Services (CMS) sets prices. A number of policy
interventions, such as quality-reporting and price-transparency
initiatives, are based on the idea that better information can promote
competition and lead to greater value, and these initiatives have the
potential to be very effective when patients have a choice of providers.

Well-integrated provider networks may promote coordinated care that
improves the allocation of health care resources, but they are likely to
undermine competitive pressures to keep prices down while maintaining
high quality. Coordinated systems may thus deliver the right care to the
right patient at the right time, but at the wrong price. Competitive
markets may do a better job of keeping prices low, but with the
well-documented drawbacks of fragmentation.

The current suite of policies for addressing the ills of the health care
system does not embody a unified approach to the roles of coordination
and competition. In part, this lack of coherence reflects the fact that
our insurance "system" is really several different systems, including
moderately competitive private insurance markets for the nonelderly,
nondisabled population and a single government payer, Medicare, for the
elderly and disabled that largely pays providers set prices on a
fee-for-service basis. These two payers currently pursue different
approaches to reform. The most recent round of Medicare reform
initiatives focuses on coordination, with ACOs as the prime example. In
fact, the FTC has signaled that it will weigh the benefits of
integration in improving quality against the potential harms of reduced
competition. For the privately insured sector, the current focus is on
enhancing competition through price transparency and "skin in the game"
for consumers.

So what should policymakers do? We offer three broad prescriptions that
may help strike the right balance between coordination and competition.
First, we can look for the win–win opportunities to enhance both
competition and coordination. As noted, health IT may be an example of
such an opportunity if it is implemented well. There may also be
win–draw opportunities in which either coordination or competition may
be enhanced without harming the other. For example, the contracting
processes that CMS uses for Medicare Advantage plans, Medicare Part D,
and durable medical equipment have some competitive aspects but do not
fully leverage the forces of competition to promote quality without
sacrificing coordination. These processes could be improved.

Second, the courts and regulatory agencies that are tasked with
enforcing antitrust law could focus explicitly on this trade-off when
they examine health care and health insurance markets. After decades of
relatively unsuccessful attempts to prevent hospital mergers, the FTC
has recently had a string of successes in that arena. Similar vigilance
is needed in other areas, particularly in the new realm of ACOs. As we
gain insight into the reasons for the price dispersion in health care
markets that transparency initiatives are bringing to light, we should
explore whether this dispersion results not just from variation in
quality and efficiency but potentially from anticompetitive behavior.

Third, policymakers could systematically look across silos to consider
the effects that an initiative in one sector will have on consumers in
another — and on providers overall. To do so, they must have a clear
understanding of the trade-offs at hand and the interaction of multiple
policies and regulations aimed at improving quality and value.
Coordination may foster delivery of the right quantity of care to each
patient, while competition may help keep the prices for that care as low
as possible. It is not obvious a priori what point on the
competition–coordination spectrum provides the highest value in terms of
quality of care and health benefit per dollar of spending. But total
spending depends on both quantity and price. We need to evaluate the net
effect of the suite of new public and private insurance-market policies
on both price and quantity as we consider which policies might restore
federal health care spending to a fiscally sustainable path.

Journal Sentinel (Milwaukee)
August 12, 2013
Competitive bidding is no Medicare fix
By John Teevan

Recently, the Centers for Medicare and Medicaid Services (CMS)
substituted its current pricing methodology with an unfair new process
for setting prices known as "competitive bidding." The idea behind this
policy is to lower costs and reduce fraud in the system, and these are
commendable goals. But what resulted was bad public policy that not only
fails to fix the problems it was meant to solve but also creates a host
of new problems.

When round 1 of this program was put into place, it was limited to just
a few test markets. But in July, it expanded to about 100 more,
including one in southeastern Wisconsin. The effects will be devastating
for health care providers, health care systems and the patients we
serve. If round 1 was any predictor of the future under round 2,
numerous providers will go out of business.

Even more troubling, this "competitive bidding" program will lead to
less freedom of choice and access for our patients, and, I believe, a
possible decrease in the quality of care for them. Many Medicare
beneficiaries — seniors over 65 and disabled Americans — have come to
rely on their local health care provider to be there for them when they
are at their most vulnerable. Local providers are there for their
patients during power outages, equipment malfunctions and other
potentially life-threatening moments. When many of these local providers
are put out of business by "competitive bidding," it will be the
patients who suffer the most.

As smaller, local providers disappear, patients will potentially be
forced to rely on providers many miles away. This may mean a delay in
Medicare approval of regular services, as well as longer wait times in
the case of emergency or equipment failure that could leave the patient
stranded, waiting for critical equipment like a wheelchair or oxygen tank.

Not only will this unfair pricing scheme be harmful to health care
providers, health care systems and patients, it also will be more
expensive for taxpayers. Reducing access to in-home medical care will
result in more emergency room visits, delayed discharges and unnecessary
hospital stays. Keeping patients in their homes means significant
savings to the Medicare trust fund; "competitive bidding" does just the

Comment: Many policies today are aimed at providing
cooperation/integration/coordination as a means of improving quality
while obtaining greater value in health care. Although some of the
models are inappropriately directed more to business aspects and less to
patient care quality, nevertheless, everyone working together seems like
a good idea. Free market ideologues may also agree that these efforts
are laudable, but they remain emphatic that, above all, marketplace
competition must be relied upon to drive higher quality and lower prices.

This is not an idle, intellectual exercise. Pro-market enthusiasts are
driving much of our health care system today with the result that health
care is outrageously priced, is of mediocre quality, and has impaired
access for tens of millions due to financial barriers that the market
model has erected. Let's look a little bit closer at the call of
ideologues Katherine Baicker and Helen Levy to "fully leverage the
forces of competition" by injecting more competition into coordinated

They mention Medicare Advantage, Medicare Part D, and the purchase of
durable medical equipment as CMS programs that have introduced
supposedly beneficial competition, although not enough in their opinion.
We already know that Medicare Advantage costs more than the traditional
Medicare program, while taking away patients' choices of their health
care providers. The Medicare Part D drug program was designed to promote
competition between drug plans, yet we are paying much more than we
would be with government purchasing programs such as we have with
Medicaid and the VA system.

Now CMS is expanding its competitive bidding program for durable medical
equipment. The suppliers who win the bids will likely do well when
measured by business standards. But many of the losing firms will be
forced out of business simply because CMS will take away the largest
sector of their clientele - the Medicare beneficiaries. Many patients
will lose the services of their own medical suppliers and have to rely
on other suppliers who may not be readily accessible because of
distances that must be traveled, or who may provide inferior services
simply because they cut back too much in order to win the bid based
strictly on lower prices.

The government is in a unique position to administer pricing on a
take-it-or-leave-it basis. The process is based on an analysis of actual
costs plus fair margins. Health care providers would be foolish to
reject fair prices. If pricing proved to be too low, threatening
sustainability of the providers, it would be the responsibility of
government to adjust prices to make sure that services and products were
there when patients needed them. For those who say that this process
results in $1000 toilet seats, all you need to do is compare costs in
the traditional Medicare program with the higher costs through private
insurance plans, including Medicare Advantage, or compare VA drug
pricing with pricing through Part D plans or even higher pricing through
the open competitive market.

Baicker and Levy offer three policy prescriptions that have a goal of
being sure that competition remains the driving force, yet they seem to
muddle through delivery system reform in order to protect competition.
To no surprise, they remain totally silent on a far more effective
solution - dump price competition and establish a universal program of
government administered fair pricing. It works in all other wealthy
nations; it should certainly work here.

No comments:

Post a Comment