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The role of competition in health care

Criticism Number 12

COMPETITION - Provider competition

Samuel claims that provider competition reduces the price of services and increases the quality of care. This is what I christened NMEspeak in 1992 - a dogmatic claim in the face of overwhelming evidence to the opposite. The most competitive system in the world is also the most expensive. Care has been compromised in the life and death battle for survival and in the pursuit of profit.

In the market the pressure for profit is translated into efficiency in making money. Services are efficiently structured to this end. Columbia/HCA's profitable MacMedicine, Tenet/NME's very efficient psychiatric care, and Sun Healthcare's cutting the fat in nursing services while employing vast numbers of money making therapists are obvious examples. The outcomes for patients have been compromised. Setting up a system like this and then controlling outcomes by regulation does not make sense. It does not work.

In a system like that proposed the incentive is to reduce the price of services by cost cutting. Quality is reduced to the minimum which the provider company can get away with. Care is sharply skewed towards services which make money, and those which can be marketed to customers. It is further skewed by the need to meet specific measurable (usually economic) outcomes and consumer demand rather than real need. In practice quality of care outcomes have not been met and regulators have consistently failed to ensure that they are met. Government has been more concerned with cost than care and has only responded when there has been strong pressure from the public.

Where care has been maintained in the market this has been because of the motivation of individual providers, the cohesive strength of professional colleges, and the oversight of the community. Market forces and contracts have not contributed in any significant way. While outcomes are clearly critical, the emphasis on outcomes in the market, particularly financial outcomes has been at the expense of values, humanitarian motives and commitment to the welfare of citizens.


Samuel is partly correct when he claims that providers decide on what care they will provide and that this will coincide with their personal interests. In the market this is determined by profit. In the professional service model it is determined by the interest and expertise of the provider. Special skills are built up in this way. People who would not benefit from this expertise are referred to those with the expertise. This has not happened in the marketplace as profit would be sacrificed. You do not refer profitable business to a competitor.

Samuel claims that provider competition will achieve consumer sovereignty and the consumer will determine what services they receive. Samuel needs to be reminded that it is the community which is attending to the needs of its members through its taxes. It is the community which is entitled to determine what needs it will meet and pay for -- not the individual customer who demands something. This is why health care should be a community service and why the community should be intimately involved in running it.

It is simply not going to be the consumer who decides what service is provided in the marketplace when the government is the funder. Government is not going to let someone else spend its money without some control. The corporate provider and the corporate purchaser are going to pursue their own profit objectives. They provide the services which make money for their shareholders. The model creates a whole set of conflicting interests. The patients' needs are secondary.

The US experience indicates that if Samuel's model actually worked then providers would soon learn to create a demand by advertising. Consumers would then use their market power to force purchasers and provider to provide this new product for them. This circular process is hardly efficient!

Three groups have an interest in the provision of care, the patients who want the best they can get, the health care professionals who want to provide it to them and the community which wants to give that care but is limited by the resources which it can reasonably provide. The primary concern of all three groups is to stretch what is available for maximum benefit. There are consequently a limited number of fundamental conflicts. Clearly the patients may seek to pay for more than the community is prepared to provide and the health service may be willing to provide this. The market simply introduces discordant pressures and should be peripheral.

CLICK HERE -- to explore the issue surrounding consumers, the professions , and the market further. This page uses examples to show how consumer demand was manipulated in the USA and how the market makes decisions about care.


In his fourth paragraph on provider competition Samuel supports Case Mix funding but is critical that it does not introduce market forces. My reasons for criticism are different to Samuel's. My assessment of Case mix is that it distorts services and encourages people to work the system dishonestly in the interests of their patients. The paradigms on which it is based are not congruent with the health care context. Those working in the system do not identify with it and are not motivated to make it work. It is contrary to the principles of a civil society.


In the last two paragraphs Samuel talks about the way in which decisions about cost and quality would be negotiated between purchaser and provider using competitive contracts. I understood from Samuel's earlier comments that it was the customer who was to decide what sort of service he required and look for quality. I thought this was how the marketplace worked. The customer would shop around examining the products - giving them a prod to be sure they were not rotten.

It now seems that it is the "purchaser" who will buy the product and the provider will bid for the contracts offered by the purchaser. It is a sort of mail order system where the customer buys on the provider's brochure without realising just how much the purchaser is squeezing the provider to compromise care. The provider will cut costs to a minimum building profit by looking for volume and increased market share. The glossy brochures needed to increase throughput will be filled with smiling faces and talk of quality. The reality may be very different.

This purchaser is Samuel's equivalent of a managed care company, the HMO or the arms length government agency acting as an HMO. What Samuel is describing is a system which claims to use consumer market forces to secure quality and cost benefits. But it seems it is the "purchaser" who will decide on the service provided, not the profession who are struggling to meet the needs of a community with limited resources. Only to a very limited extent will it be the people in the community themselves.


It is clear that the decisions will be made by the "purchaser". In a commercial enterprise they are likely to be based on cost and probably cost alone. Like the aged care service in Australia there will be rhetoric about quality, but measuring quality is costly and often unreliable. Action is seldom taken. Decisions will be made in corporate or government board rooms. This is simply managed care with all its problems. Samuel is selling us this product to empower consumers. What he is proposing disempowers them.


Samuel like Adam Smith brings the distrust of the marketplace to his analysis and it colours his view of others. We cannot build a society like this.

Despite Samuel's suspicions most professional people are part of the community and are motivated to serve the interests of that community. There are already other groups in the community who have organised sophisticated health care services and are experienced. Instead of all this complexity why not build on something simple and obvious. We already have some of it.

In a cooperative and integrated health service information can be handled without marketplace distortion. The community can look at what services are required to meet their needs and then set up the services to do so. They can decide what they are prepared to pay. They can balance what they would like with what they can supply - mediate between need and demand. They can decide where compromises can be made and when rationing is necessary.

Because the community are involved in structuring information and have access to information they are in a far better position than customers to address standards of care. Monitoring can be ongoing instead of the occasional surveillance visits which we see in aged care. Introducing a complex system of competitive forces to deal with something which could be much better handled by a simple relationships between groups of trusting people is not sensible.

What I am suggesting is a system which will help us to build a human society. We do not want one which will dismember it.

CLICK HERE -- to proceed to the next criticism - Number 13

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

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This page created October 2000 by Michael Wynne