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HEALTH REFORM: Consumers and Competition

October 11th, 2006

Michael Porter and Elizabeth Olmsted Teisberg’s overall vision for health care delivery is an archipelago of free-standing Integrated Practice Units (IPUs), each focused on the total cycle of care for a medical condition. This contrasts to the view of competition among integrated delivery systems (IDSs) [2-week free access] that organize or arrange comprehensive health services for members. Their argument for the archipelago and against the IDS is that in the archipelago, all IPUs face competition from all other IPUs treating the same medical condition and are therefore motivated to excel, whereas “it is unlikely that a vertically integrated system will contain the highest value providers in every single service area.” So competition is inhibited, and the patients are victims of “captive referrals.”

This argument is not very persuasive. For one thing, if results are measured and publicly reported, as they ought to be, IDSs have strong incentives to make sure that all their practice units are up to the best standards (just like Harvard Business School and its departments). If they are not, the shortfall will harm their overall reputations and also often generate more work for doctors in other practice units who will have to find ways to make up for the shortfall. It would be reasonable for IDSs to benchmark each unit against the best units in the country, and to expect their doctors to adopt the best methods.

Moreover, there are many advantages for patients, and for economy of care, to be in comprehensive care organizations. For one, Ken Thorpe recently reported in Health Affairs [2-week free access] that 75 percent of Medicare beneficiaries are under treatment for three or more chronic conditions. Just over half are under treatment for five or more chronic conditions and account for 76 percent of expenditures. Will these poor souls have to run around the archipelago to be seen by doctors who do not communicate with each other and who do not have comprehensive longitudinal records? (The idea that patients should bring their own records sounds good, but, as the authors indicate, significant challenges, such as trust and getting all the doctors to contribute to the records in the same language and format, would have to be overcome, so at best it is far off in the future.) And what if the doctors in one IPU disagree with what doctors in another IPU are doing? How will those differences be reconciled? And what if the treatments for some conditions need to be less than optimal for that condition out of a need to balance the treatments and integrate them into a feasible and practical whole for the patient? If there is a conflict between some prescribed drugs, whose prescriptions will have precedence?

Some people just like the convenience of one-stop shopping. They like the fact that their medical group keeps a complete electronic health record and that their primary care physicians talk about them with their specialists in the group, and they consider that the doctors can and do produce the desired outcome. Some small and uncertain gains in results might just not be worth traveling for.

Finally, there are important professional checks and balances in multispecialty group practice. A recent New York Times article reported that in Elyria, Ohio, Medicare beneficiaries are treated by angioplasty at a rate nearly four times the national average (42 versus 11.5 per 1,000 per year). Doctors believe in what they do, whether it is actually the best treatment for the patient or not. Multispecialty perspectives can mitigate this tendency.

Consumer Choice

Couldn’t we all agree on a level playing field in which each consumer has a wide range of responsible choices of delivery system, including Porter and Teisberg’s proposed new health plans, and also prepaid group practices, and others, and let the best mix emerge in a competitive market? One of the biggest problems today is that competition is at the employer (rather than employee) level, and few consumers have an individual responsible choice among delivery systems. That could and should be changed. Another problem, which the authors correctly identify, is that consumers do not have adequate information to make comparisons. Shouldn’t we all join in the tradition of Florence Nightingale, E.A. Codman, and P.M. Ellwood Jr. and demand more reporting of results?

Read Alain Enthoven’s classic paper on “The History and Principles of Managed Competition.”

Tomorrow Alan Maynard offers a view from Britain.

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1 Trackback for “HEALTH REFORM: Consumers and Competition”

  1. Health Affairs Blog
    March 23rd, 2007 at 10:59 am

3 Responses to “HEALTH REFORM: Consumers and Competition”

  1. Johnathon Ross Says:

    Why is the competition between providers and not against disease and disability? If cost control and quality improvement are the compeititve edge and proprietary then they will not be shared or spread to improve the health of the nation as a whole. Does Macy’s tell Gimbel’s? (Hmm they are both gone now aren’t they). I have spent over half my life training other young physicians to be superior physicians. Many of them have stayed in my community and care for some of my friends and neighbors. They are my financial competitors but they are my colleagues in the fight against disease and disability. We should reward effeciency and quality improvement ideas when they are shared and spread throughout the system. Oh, I guess first we need a system. Maybe we should start there.

  2. bfalit Says:


    Switzerland is a good example of a “major industrialized country that performs better than the US in cost and quality and uses competition as a mechanism to achieve performance.” Check out Regina Herzlinger and Ramin Parsa-Parsi’s JAMA article from a few years back – I believe it is from 2004.

  3. Chuck Kilo Says:

    Alain. Greetings! Thanks for your post.

    Why should we believe that competition of any sort is necessary as a part of health care reform? What is the evidence that competition is necessary or desirable, or that it has had a positive effect to date?

    What other major industrialized country that performs better than the US in cost and quality, uses competition as a mechanism to achieve performance?

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