The U.S. healthcare system has always maintained a certain level of detachment from the needs of the population. In the early 20th century, hospitals were mainly for treating deadly illnesses. Eventually, as modern medicine evolved, hospitals had the ability to treat a wider range of conditions effectively, but the cost increased as well. In the 1920’s hospitals were empty. A system was launched at Baylor University Hospital which allowed individuals to contribute a small amount each month in exchange for the full health bill covered on visits. This increased public visitation rates. With the Great Depression and World War II, patient loads decreased which led to the popularization of this idea leading to the first health insurances being sold under the name of The Blue Cross (Blumberg & Davidson, 2009).
Many employers began to offer health insurance and government initiatives such as Medicaid, both covering out of pocket costs for patients, increasing visitation rates. However, the health system took advantage of this and began to raise costs without fear of deterring patients since they never saw the bill. There was no inherent market competition which led to tremendous expenditures, exceeding the rate of inflation. The following events led to the emergence of market competition in healthcare. Federal initiatives were passed to increase the supply of physicians (Health Professions Educational Assistance Act) and contain costs (Health Maintenance Organization Act of 1973) which sought to address the critical issues of limited competition and overextended government payments to health organizations. Furthermore, the private sector which provided 2/3 of the population with healthcare took action. High labor costs due to health benefits led to industries pressuring health insurers to create individual plans as well as redesigned benefits which caused the marked demand to transfer away from employers to health insurers. Finally, anti-trust laws began to be enforced in the healthcare sector which disrupted inhibited competition by professional associations and legal loopholes which supported price-fixing (Feldstein, 1986).
Some consequences of market-based competition include improved efficiency and entry of new providers. As hospitals compete for patients and information on quality and process becomes publicly available, the quality of care increases. Economic theory implies that organizations will seek to be more efficient and innovative. Furthermore, the market will result in new competitors seeking to enter the market. In theory, it will result in improved access to healthcare, both geographically and in terms of services provided (Barros, Brouwer, Thomson, & Varkevisser, 2016). However, in recent years, the healthcare market has become increasingly consolidated which has led the rise in the cost of care. Anti-trust enforcement has little effect on this trend. Larger organizations are merging or acquiring smaller service providers, consolidating market share. Meanwhile regulation is requiring a scale of operation for survivability on the market, which small medical practices or even insurers are unable to maintain (Ginsburg, 2016). Healthcare systems believe that costs are justified due to the expense of modern medical technology and the necessity to maintain profitability in operations.
The dichotomy between market competition and public healthcare provides a barrier to understanding the realities of the sector which is usually neither of these. The healthcare system’s participation in the market is complex. Unlike a regular business, it does not necessarily compete for a customer in a traditional sense. The position on market competition in healthcare is mostly political and value-based. It can be seen as a consequence of privatization that leads to a primary purpose of making money rather than offering health care. Meanwhile, it can also serve as a mechanism of efficiency (Goddard, 2015). The complexity of the topic suggests that a compromised balance should be found between competition and public medicine. Regulation should exist not to limit health care systems but ensure the protection of patients and maintain a reasonable level of prices for the consumer.
References
Barros, P. P., Brouwer, W. B. F., Thomson, S., & Varkevisser, M. (2016). Competition among health care providers: Helpful or harmful? The European Journal of Health Economics, 17, 229–233. Web.
Blumberg, A., & Davidson, A. (2009). Accidents of history created U.S. health system.NPR. Web.
Feldstein, P. J. (1986). The emergence of market competition in the U.S. health care system. Its causes, likely structure, and implications.Health Policy, 6, 6-20. Web.
Ginsburg, P. B. (2016).Health care market consolidations: Impacts on costs, quality and access. Web.
Goddard, M. (2015). Competition in healthcare: Good, bad, or ugly? International Journal of Health Policy and Management, 4(9), 567-569. Web.