Competition in Healthcare

Competition in healthcare refers to the interaction between healthcare providers and third-party payers. This interaction is designed to obtain the business of consumers in the form of the purchase of healthcare services or insurance. This interaction also represents the marketplace for the purchase and distribution of healthcare services.

From a normative perspective, an emphasis on competition reflects a preference for private-sector control and delivery of healthcare services. It also reflects a preference for minimum government intervention and regulation of healthcare markets. Decision making in a competitive environment is also considered to reflect rational choice based on the best available information.

In its ideal form, when healthcare markets operate properly, competition will determine the appropriate prices for medical services, the appropriate organizational forms for healthcare financing and delivery, and the appropriate range and availability for cost/quality/service trade-offs. However, there are also major tensions built into how competition operates in the healthcare system. The major tension is over whether to support competitive mechanisms within a market paradigm on the one hand and whether to preserve access and fairness through government intervention on the other hand.

Competition is thought of as determining who gets what, when, and how, and this process, in turn, influences the pace and character of policy change. However, the American healthcare system is not structured to maximize consumer choice or sovereignty. Providers and third-party payers are in a much more powerful position than consumers due to issues related to asymmetric information, economic dominance, and structural arrangements. The federal and state levels of government on the [Page 215]one hand, and employers on the other, have taken on the role of an umpire whose responsibility it is to resolve tensions and provide mediated or negotiated solutions.

Competition in healthcare markets is one of the primary tools used in the United States as a strategy to contain costs, promote efficiency, and encourage innovation. Indeed, competition has been the preferred strategy for cost containment in the nation, much more so than other cost containment strategies that are prevalent in many European countries, such as the use of price setting, global budgets, and rationing of access to healthcare services. In fact, some have argued that rigorous government enforcement of antitrust regulations and the resulting protection of private innovation have allowed the healthcare industry in the nation to remain a predominantly private enterprise, as opposed to one that is government run, as in most other nations. Because of this, the United States provides many examples of how competition can work in the market for hospital care. Market-oriented health policy highlights the role of incentives in generating appropriate behavior on both the demand and the supply sides of the medical marketplace, among both consumers and providers.

The laws of competition in the United States affect the way healthcare is financed and delivered, as well as its quality and affordability, through their effects on the interaction of providers and patients within the organizational and structural framework of the healthcare industry. Competition law has traditionally focused on the process of market interactions, not necessarily on the individual actors in that process or on the outcomes—it does not concern itself with whether the outcomes that result from the operation of an efficient market accord with a particular definition of optimal social policy. However, given changing market dynamics and expectations of consumers, the framework of competition law is expanding to take into account trade-offs between price, quality, innovation, and access, which are all features of the healthcare system that consumers are demanding.

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