THIRD QUARTER:
Volume 3, Number 3
Aug-Oct 2008
MARKET COMPETITION IN HEALTHCARE
By: Robert James Cimasi; MHA ASA CMP™
Founder Health Capital Consultants, LLC
Introduction
The potential costs and benefits of free market competition within the healthcare field have been, and will continue to be, the focus of intense debate. Those who advocate market competition in healthcare stress numerous benefits which include reduced costs, increased quality, improved efficiencies, and an incentive to innovate. Those who oppose competition in healthcare argue that distinct differences exist between hospital markets and other markets, thus cautioning against the use of basic economic models when drawing conclusions concerning improving the healthcare delivery system.
Nobel Laureate Kenneth Arrow Ph.D broached one side of this debate in his 1963 article “Uncertainty and the Welfare of Medical Care,” in which he argued that that the market is incapable of insuring against uncertainties that an individual will likely face in the healthcare arena. Arrow concluded that “the laissez-faire solution for medicine is intolerable.” More recently, it has been argued that competition within the hospital market has created a commercialized environment which is incompatible with the needs of the community and can further lead to a reduction in social welfare. For example, in the highly specialized area of organ transplants, competition may decrease a medical centers’ incentive to increase organ donation due to likely possibility that the gains will be shared with their competitors.
The opposing viewpoint argues that, without the existence of a competitive market, individuals lose their freedom to choose, or are allowed to consume medical care for “free,” therefore the market cannot learn what an individual values most. An additional complication in the healthcare market is the prevalence of health insurance which has resulted in price insensitivity in consumers leading to peripheral variables weighing more heavily on an individual’s decision, rather than price and quality of service. This argument additional states that to further exacerbate consumers insensitivity to price, health insurance and fee-for-service systems create a moral hazard where service providers are compensated for performing more services regardless of whether the patient may benefit directly, and conversely the patient does not assume the costs of seeking out and receiving additional services regardless of need as they would in a free market. Free market economics argues that when individuals are left to interact uninhibited in a competitive market, producers are encouraged to provide higher quality goods at lower prices in an effort to attract the greatest number of consumers. Kessler and McClellan conducted a study regarding the consequences of hospital competition for elderly American Medicare patients with heart disease for the period 1984 to 1995. In this study the authors established that for the time period after 1990, competition led both to substantially lower costs and significantly lower rates of adverse outcomes. The study concluded that “hospital competition unambiguously improves social welfare.”
This debate and chapter is far more complex than simply a pro-or-con “competition in healthcare” stance. The multifaceted and layered structure of the healthcare system begs the question, “if competition is prudent, at what level within the healthcare sector will competition produce the largest overall utility for society?” This exhaustive update therefore examines this query, as outlined below.
TABLE OF CONTENTS
Introduction
A. Barriers to Free Market Competition in Healthcare Delivery
1. The “Four Pillars” of Healthcare Economic Markets
2. Regulatory, Reimbursement and Technological Environment as Major Considerations for Competitive Market Landscape
B. Growing Tension in Healthcare Services Markets
1. Pressures of Market Competition versus Community Benefit
(a) The Shift from Defined Benefits to Defined Contributions
(i) Consumers as Purchasers of Healthcare
(ii) Pay for Performance (P4P)
(iii) Hospital Medical Errors and Resulting Transparency and Quality Initiatives
(b) The Rise of Specialty and Niche Providers
(i) Benefit of Physician Ownership
(1) Economic Benefits
(2) Patient Quality of Care Benefits
(i) Campaign Against Physician Ownership
(1) CHAMP Section 651
(2) New Jersey ASC “Codey Act’ Decision
(3) State Tax Initiatives
(4) Self Referral “Under Arrangement Scrutiny” and IDTF Prohibitions
(5) Certificate of Need (CON)
2. Changing Payer Environment
(a) Consolidation of Managed Care Industry
(i) Provision of Care for the Uninsured – Settlement with BJC
(b) Integrated Healthcare and Antitrust
(i) Lawsuits against Hospitals
(ii) Lawsuits against Physician Practices
(iii) “Out of Network” Reimbursement Disparities
C. Competitive Analysis
1. Porter’s Five Forces — Definition and Application to Healthcare
2. Porter’s Generic Strategies
(a) Overall Cost Leadership
(b) Differentiation
(c) Market Niche / Segmentation
3. Applying Porter’s Five Forces to Hospitals and Physician Groups
(a) The Threat of New Market Entrants
(b) The Bargaining Power of Suppliers
(i) Rise of Urgent Care Walk-In Clinics
(ii) Boutique – Concierge Medicine
(iii) Hospital System and Physician Practice Realignment
(1) Hospital Acquisition of Physician Practices
(2) Shortage of Supply of Physician Manpower
(iv) Joint Ventures between Community Hospitals and Niche Providers
(c) Threats from Substitute Products or Services
(i) “Purple Pill”
(ii) Battle Lines among Providers (e.g. ophthalmologist v. optometrists; CRNAs v. anesthesiologists; midwives v. ObGyns
(d) The Bargaining Power of Buyers
(e.) Rivalry among Existing Firms
4. Community benefit — a Unique Sixth Force?
(a) Increased Scrutiny of Community Hospitals as Providers of Charity Care
(i) IRS Form 990 Disclosures
(ii) GAO 2006 Report
D. Implementing Successful Approaches from Other Industries
(1) Why Healthcare Management Appears to Lag Behind Other Industries
(2) Recognizing Differences between Healthcare and Other Industries
(3) An Industry in Conflict: Excess Capacity and Certificate of Need Laws
E. Lessons for Emerging Healthcare Organizations
(1) Integration as a Competitive Strategy in Healthcare
(2) Love Everyone, Trust No One, and Paddle Your Own Canoe
MANAGING AND ENHANCING HOSPITAL REVENUE CYCLES
By: Ross Fidler
Partner ACS Healthcare Solutions
By: Karen White; PhD, MSE
Introduction
Most hospitals that use a revenue cycle management systems [RCMS] see improvements in their cash flows. But, how well are they integrated with their health information technology [HIT] and/or electronic patient medical records [EPMRs]?
“The clinical information is a prelude to financial systems - and the financial systems need clinical information for the invoicing systems - in a synergistic revenue management cycle”, according to leading industry expert Rachel Pentin-Maki; RN, MHA of Marquette, Michigan.
And, although providing high-quality care with improved health outcomes remains the primary concern of hospitals of all sizes, geography, and demographics, money matters. The maxim “no margin, no mission” still applies.
Hospitals seeking to improve their bottom lines through better managed and enhanced revenue cycle operations in these three areas: front, middle and back-end, and usually encounter challenges with people, processes, and technology. This succinct chapter update therefore examines ways of enhancing hospital revenues through the following: [1] optimizing organizational structure; [2] raising the bar through benchmarking; and [3] adopting technology, as outlined below.
TABLE OF CONTENTS
Introduction
A. Organizational Structure
B. Benchmarking
C. Technology Adoption
D. Revenue Cycle Performance Evaluations
E. Denial Management
F. Conclusion
Case Model 1
Improving Registration Levels at a Southeastern Community Hospital
Case Model 2
Improving Revenue Cycle at a West Coast Public Hospital
Checklists:
Checklist 1: Organizational Structure
Checklist 2: Benchmarking
Checklist 3: Technology Adoption
Checklist 4: Revenue Cycle Performance Evaluation
Appendix 1: Director of Revenue Cycle Management Job Description
TOC: TABLE OF CONTENTS.pdf
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