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The role of competition in health care

Criticism Number 13


Managed care by any name

Samuel's model becomes very confusing as he talks about purchasers. It becomes more and more tortuous and increasingly complex. At this stage of the speech it becomes apparent that the customer will not be shopping for a provider but for a purchaser - or could it be that he will shop for both. How can he shop for a provider if the superior provider he selects is not contracted with the purchaser. The most desired provider refused to compromise care and its superior service was consequently not competitive in the tendering process. The poorest providers are contracted to provide the services. This is what happens in the USA and citizens have forced legislation which will allow them to go outside the contracted provider.

The system which Samuel proposes is likely to also select for the poor providers and force the good providers out of business. The consumer will be restricted to the providers contracted to the purchaser. To win a contract any new provider would have to bid well below the current holder of the contract. Ways would be devised and explanations developed so that care could be progressively compromised without this becoming obvious. Every time the contract is changed the "consumer's" care would be disrupted and he would have to search for a new provider. This has been one of the many major problems with managed care. Government has repeatedly been forced to regulate in order to patch the system and contain problems like this.

As I understand Samuel's model the customer will be shopping for a purchaser who will market a health care product to him - yet the government will be paying. Samuel is talking about a public health service.

We now have a customer who is spending government money. In whose interests will he be buying - his own or the governments? Will government allow him free reign in spending its money? This is what the government did for the elderly in the USA. They encouraged them to join HMO's and medicare paid the HMO's. There have been many problems.

What Samuel is proposing is the worst form of managed care. This is what he is describing. It is only the names which have changed. It is not clear whether Samuel is trying to deceive his audience. Perhaps he has deceived himself.

Samuel has not explained how what he proposes differs in fundamental concept, and it is the fundamental concepts underlying what Samuel proposes which are the problem - more than the details.

Managed care is failing in the USA. A recent managed care conference evaluating managed care projects found that managed care "has not lived up to its potential". Participants accepted this and some concluded that "in 10 years time there would be a totally different system".

A reported comment could have been describing Samuel's model when it said "-- providers are likely to find the road between planning and realization to be unpredictable slow, convoluted, bumpy, complex and resource-consuming." One participant described how a managed care company was set up which actually provided good care which satisfied consumers and providers. It was unable to compete and became bankrupt. This is how the health care market works.

[HMO Promise Not Realized for Chronically Ill By Chris Gearon -- (conference co-sponsored by the Robert Wood John Foundation and the Center for Health Care Strategies Inc.) WASHINGTON (Reuters Health) Friday June 16 1:48 PM ET]

CLICK HERE -- to explore the consumer's role in greater depth

What's in a word?

International Health care advisers describe the profits to be made by managed care in foreign countries in glowing terms. They advise managed care corporations not to use the term managed care when marketing their products because it has such a bad name. Visitors and doctors going to the USA would be aware of the anger and criticisms of managed care, but because it is such a complicated system they would not have fully understood it. It can still be sold by using another word. Samuel uses the same strategy when talking to the World Bank.

What Samuel proposes is simply a complicated form of managed care and it needs to be called that. The intention is to squeeze the system to reduce costs by using a system of financial incentives and disincentives mediated through contracts. This is managed care and Samuel believes that quality will be maintained. Aetna the worst of the HMO's claimed it would improve quality immediately. It is now the subject of a massive class action alleging it failed to provide the care it had promised.

Marketplace pressures are to be introduced into an area where market forces do not work. They are to be used to "reform" the health care process. The connection between the market and improved standards of care is tenuous and has always been so in health care. The sort of system which Samuel proposes has already resulted in denial of care and a lower standard of care.


Samuel says "An important benefit of purchaser competition is its ability to improve the level of integration in the provision of services". It is difficult to understand how a competitive system characterised by a series of arms legth roles would facilitate integration, a cooperative process for the benefit of the community. In the corporate marketplace vertical and horizontal integration have been adopted as a means of pursuing the company's profit priorities and of exploiting vulnerable citizens. It has been a large part of the problem.

CLICK HERE -- to examine integration in the marketplace

For profit and Not for Profit

Samuel's model allows for both government and not for profit groups to compete but his orientation towards a market and competition reveals his preferences for a corporate for profit model.

The experience from the USA is that not for profit groups and government agencies seldom compete effectively against large corporate groups. The former are oriented and focussed on care. Corporations are primarily focussed on the business of the market and competition. Human and financial resources are diverted from care to these activities.

CLICK HERE -- to explore the problems when nonprofit organisations compete in the marketplace.


Samuel does not confront three other issues which would have a greater impact on the corporate marketplace in Australia because of our dispersed population. The first is the control of sectors of the market by large corporate groups. This allows them to ignore regulators.

The second is the difficulty in enforcing contracts in a dispersed environment. Out of sight is out of mind. There are also legal considerations.

The third is the problem of gate keeping. If Samuel's customer was a real customer and was spending someone elses money, in this instance government's then she would buy the best for herself. Somewhere there would have to be a gate keeper, someone who allows or disallows services. In the USA this is part of managed care - the most hated part. Would Samuel's purchaser do this?

Some comments about Control, Contracts and Gate Keeping have been included in the page on integration.

CLICK HERE -- to proceed to the next criticism - Number 14

CLICK HERE -- to go to the next section of Samuel's speech

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This page created October 2000 by Michael Wynne