So what are you really saying, John? What are those
marvelous supply-side innovations you hint at?
— Uwe Reinhardt, Commenting on “Reforms that Don’t Work“
Critics of the U.S. health care system complain that price and quality data are not transparent; care often is fragmented and uncoordinated; best practices often are not followed; time and money are wasted on procedures of questionable value; preventive care and patient education are underutilized; such common communication vehicles as the telephone and e-mail are rarely used; and electronic medical records and error-reducing software are not part of normal practice.
But why are these things happening? Is it the doctors who are at fault? Or is it the third-party payer system (which, ironically, the AMA helped put in place) that is to blame? An NCPA study by Devon Herrick finds that, where patients pay directly for all or most of their care, providers almost always compete on the basis of price and quality. And because they are not trapped in a system that pays for predetermined tasks at predetermined rates, providers are free to repackage and reprice their services — just like vendors in other markets. It is primarily in these direct-pay markets that entrepreneurs are solving the very problems about which the critics complain. In fact, these solutions are usually a necessary part of the entrepreneur’s business model. What follows are some examples.
Kate Capshaw: Anything Goes
Cosmetic Surgery. Cosmetic surgery rarely is covered by insurance. Perhaps for that reason, patients can typically (a) find a package price in advance covering all services and facilities, (b) compare prices prior to surgery, and (c) pay a price that has been falling over time in real terms – despite a huge increase in volume and considerable technical innovation (which is blamed for increasing costs for every other type of surgery). [link]
Lasik Surgery. Competition also is holding prices in check for vision correction surgery, where laser surgeons compete on quality as well. Patients who pay more can expect more accurate correction, faster healing and fewer side effects. [link]
Laboratory and Diagnostic Testing. Patients can order their own blood tests without a doctor’s appointment and compare prices at different diagnostic testing facilities. Prices are 50- to 80- percent lower than identical tests performed in a hospital setting. These services lower the patients’ time costs as well as money costs. In many cases, the results are available on-line within 24 to 48 hours.
Price Competition for Drugs. Walmart became the first nation-wide retailer to aggressively compete for buyers of generic drugs by charging a low, uniform price – $10 for a 90-day supply. Other chain drug stores have responded with their own pricing strategies.
Price Competition for Drugs over the Internet. Rx.com was the first mail-order pharmacy to compete on-line in a national market for drugs, offering lower costs and more convenient service, including free home delivery. They also compete on quality. High-volume mail-order pharmacies have much lower dispensing error rates than conventional pharmacies.
Patient Education for Drug Purchases as a Product. In addition to operating an online mail-order drug delivery service, DestinationRx.com also offers a Web site to help patients identify low-cost therapeutic substitutes for the drugs they currently take. In addition, the firm is partnering with Safeway supermarkets to install drug comparison kiosks in store pharmacies.
Retail Clinics. Walk-in clinics in shopping malls and drug stores compete in the market for primary care by offering low-money costs and low-time costs. In order to ensure a consistent level of quality, nurse practitioners follow computerized protocols; electronic medical records (EMRs) are a natural byproduct of that process. Further, once an EMR system is in place, it is a straightforward next step to prescribe electronically, allowing the use of error-reducing software. A study of MinuteClinics shows that they follow treatment guidelines better than traditional medical practices.
Telephone-Based Practices. TelaDoc now has two million customers – paying for something that is almost impossible to get from a conventional general practitioner: a telephone consultation. It offers patients access to a doctor at any time of day from any location. And because each on-call physician needs access to patients’ medical histories (and the treatment decisions of previous physicians), personal and portable EMRs are a necessary part of the company’s business model.
Concierge Medical Practices. These physicians tend to relate to their patients in much the same way lawyers, accountants, engineers and other professionals interact with their clients – including phone calls and e-mail consultations. Their primary care services tend to be convenient and accessible; patient education is part of their product line; and they help their patients navigate through the health care system, including negotiating for diagnostic tests and specialist services.
Medical Tourism. Increasingly, cash-paying patients are traveling outside the United States for surgery. [link] Facilities that cater to such medical tourists typically offer: (1) package prices that cover all treatment costs, including physician and hospital fees, and sometimes airfare and lodging as well; (2) electronic medical records; (3) low prices that are often one-fifth to one-third the cost in the United States; and (4) high-quality care in facilities (and by physicians) that meet American standards. Moreover, a new company, Healthplace America, has been formed to facilitate medical travel within the United States. It offers price and quality transparency for a network of 15 hospitals. Savings are typically 30 percent to 50 percent.
What lesson can we learn from these examples of entrepreneurship in health care? The most important is that entrepreneurs can solve many of the health care problems that critics cite. Public policy should encourage, not discourage, these efforts.