In a normal market, competition drives incremental improvements in quality and cost. Innovation leads to a fast deployment of new technologies and better ways of doing things. Competitors grow and prosper, while weaker companies suffer and go out of business. Quality goes up, prices fall, value improves and the market expands to meet the needs of more consumers. This is what happens in a normal market.
But healthcare is not a normal market. On the contrary, in healthcare costs go up, relentlessly, in some sort of permanent technological inflation, and quality seems to go down. Patients around the world are more and more disgusted with the system. Healthcare providers (hospitals, physicians…) are the central actors in the healthcare sector and the place where most value is actually delivered (see my previous post on the value chain of healthcare). But they don’t compete among them, and at the end of the day, it is how medicine is practiced and the way patients are cared for, that will determine the success or failure of the healthcare system.
It seems then that competition is not working well in healthcare. It is not focused on delivering better service to patients, it is focused on cost: participants compete on shifting costs to one another. For example, does the technology we are introducing really add value for patients? Sometimes it doesn’t, but as someone thinks it does (even if it remains unproved), the technology is adopted. And guess what, all new technologies are more expensive than the previous one.
Maybe healthcare is focused on the wrong kind of competition. Competing on value for patients and not on cost should be the right focus, and certainly the system is not aligned to that, not here in Europe, not in the US or the rest of the world.
I strongly recommend reading Michael Porter's book, "Redefining Healthcare", as an eye opener on this.
Wednesday, January 16, 2008
Subscribe to:
Post Comments (Atom)
1 comments:
Heavily regulated industries (such as energy, utilities and, yes, healthcare) usually employ cost-plus methods to fix prices or reimbursement. Hence, the incentives for cost reduction are low.
I agree that Porter´s proposal to shift competition from individual services to whole value chains is attractive. I disagree, however, with the view that all technological advance is intrinsically cost-increasing. Weisbrod´s "Health Care Quadrilemma" (a great reading if nothing else) clarifies this point. What he calls "high technology" (vaccines are a good example) are indeed cost reducing. The problem lies, again, in the lack of incentives to develop such value-increasing technologies under the current system.
Post a Comment