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The Role of Competition, Markets, and Regulation
View related content: Health Care
There is ongoing controversy over how to improve the American health care system, expand coverage to the uninsured, and slow the growth of wasteful spending. Proponents of sweeping reforms argue that the fragmented nature of the health system is a weakness, and suggest that the more centralized systems used in other developed nations are models to be emulated. But many of those systems have important shortcomings, including unsustainable growth in spending and intolerable waiting times for essential health services. It is not at all clear whether the benefits of centralized control would offset the costs. The balance of evidence suggests that markets have more to offer than centralized health care systems.
Competition in health care spurs innovation, induces efficiency, and enhances quality, just as it does in other industries. The Business of Health examines the influence of market competition and government regulation on hospitals, health insurance, managed care plans, and prescription drug advertising. Reformers must determine which components of the system are suitable for market competition and which would benefit from more direct government control. While some hybrid of the two approaches has strong political appeal, two things are clear: the current U.S. system fails to take full advantage of the benefits of market forces, and the alleged benefits of government regulation may be greatly exaggerated.
Some areas of potential improvement include: (1) the reduction, revision, or elimination of laws and regulations that inhibit the functioning of markets; (2) the development of a more coherent strategy to evaluate new medical technologies and services; (3) the infusion of transparency into the making of contracts between health plans and enrollees; (4) redesigning health insurance to imbue a greater degree of price sensitivity within health services transactions, and (5) improved marketing and coordination among existing public insurance programs.
The key to improving health care delivery lies in striking a balance between market competition and appropriate government regulation. Such a system would maximize the benefits of informed consumer choice while assuring appropriate access to care for low income and disadvantaged Americans.
Robert L. Ohsfeldt is a professor in the Department of Health Policy and Management at the School of Rural Public Health, Texas A&M Health Science Center. He is author or coauthor of more than eighty papers published in peer-reviewed journals and has been the principal investigator for research grants funded by the Agency for Healthcare Research and Quality, National Cancer Institute, Centers for Disease Control, and the Robert Wood Johnson Foundation. Ohsfeldt has served as a peer-reviewer for more than thirty scientific journals and has been a member of grant review panels for the National Institutes of Health, the Agency for Healthcare Research and Quality, and the Department of Veterans Affairs. He also is a member of the editorial board for the Journal of Managed Care Pharmacy. Before moving to Texas A&M, Ohsfeldt was a Professor in the Department of Health Management and Policy at the University of Iowa. Previously, he was employed as a manager of health outcomes research for Eli Lilly and Company, where he received the President’s Award from Lilly Research Laboratories in 2001. Ohsfeldt also has been a research economist with the Center for Health Policy Research at the American Medical Association, an assistant professor in the School of Health Administration and Policy at Arizona State University, and a professor in the Department of Health Care Organization and Policy at the University of Alabama at Birmingham, where he served as interim department chair in 1997. Ohsfeldt completed his doctorate in economics at the University of Houston in 1983, and was a Robert Wood Johnson Foundation Fellow in Healthcare Finance at Johns Hopkins University and the Texas Medical Center during 1987-88.
John E. Schneider is an assistant professor in the Department of Health Management and Policy at the University of Iowa College of Public Health. He also holds secondary appointments in the Department of Economics and the Iowa City VA Center for Research in the Implementation of Innovative Strategies in Practice. His doctorate is in Health Services and Policy Analysis from the University of California, Berkeley. He has over fifteen years of experience studying economic and organizational aspects of the health care industry. Schneider was a research analyst at the Center for Health Economics Research from 1989 to 1993, involved extensively in analyses of large databases, cost analyses, and economic modeling of regulatory programs. Prior to coming to Iowa, he was the director of research at the California Association of Health Plans. His research interests and expertise include health insurance and managed care, regulation, hospital competition, specialty hospitals, economic effects of clinical practice guidelines, insurer–provider contracting, cost effectiveness analysis, and workplace health promotion. Schneider has served as a consultant to managed care organizations, state health departments, trade associations, and research organizations.
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