Is Competition in Healthcare Good?

Believe it or not, one of the most common questions that I get is about competition in the industry. While it seems like a pretty basic question, it really isn’t. But before we get into that, let’s address the elephant in the room. Yes I mean the idea that its “un-American” or socialist to simply consider competition as being anything other than divine. The fact of the matter is our current system isn’t a perfectly competitive market, and its actually built on a load of regulations and rules dictated by the government. What we’re left with is a series of complex industries that are trying to compete within the given set of rules. This doesn’t always equate to providing the best result for the consumer.

You see – there’s competition in multiple areas, you’ve got medical devices and medications, medical providers (i.e. Your hospital and general practitioners office), insurance and a multitude of other players within the industry. They all have to look at what each other is doing and make sure that they’re doing as well, or better than those other players, regardless of the needs of the patient.

Let’s look at the example of hospital networks. A huge chunk of healthcare spending happens in rural areas where the largest employers are often the hospitals. Consider this – A small town may have 3 large medical providers. One decides to build a new cardiac wing with all of the latest technology, 1,000 beds and its all housed in a beautiful shiny new building. Pretty great right? Good for the people, right? Not necessarily.

In order to retain “clients” (very sick people who want to get better), and employees (they all want to attract the best doctors, nurses and staff), each hospital is going to have to up their game if they want to compete with this new cardiac clinic. So each of them may build their own cardiac clinic. And they will all feature the newest technology and are capable of handling at least one thousand patients. Great! This is going to be the best town in the world for heart failure!

As it turns out, the annual need for cardiac care in this small town is probably in the range of 700 people. That’s less than the thousand beds that the first hospital can easily satisfy. Now we’ve got at the capacity to care for over 3,000 patients, but there are no patients to be found. But that doesn’t mean that these shiny new hospital wings don’t need to be paid for. They do. And as you might have guessed, its expensive.

Now I’m not going to say that unnecessary surgeries are going to be given, or that people are pushed into the cardiac wing for no reason. The ending result is that the new units still have to be paid for, some how.

So lets go back to the question, is competition good in healthcare? Yea, it really can be. But what about the times when its not so good? What about the times when hospitals have to compete, but competition isn’t really necessary for the patient’s needs?

I’ll leave that up to you. Partly because I don’t want to be known as the anti-establishment angsty teenager of the insurance world, and partly because its just not a simple answer.

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