Consumerism Versus Managed Competition in health care

This is the moment for a second generation of consumer-driven health policies and products. The shortcomings of HMOs, capitation, IDSs, and the other components of managed competition have opened the way for alternative approaches to using market mechanisms for improving the health care system.¹⁵ Consumerism appeals to the widespread and legitimate desire for a more transparent, flexible, and personal system and provides a salutary counterbalance to the organizational hypertrophy and opaque administrative mechanisms of the managed care era. However, consumer-driven health care suffers from its own shortcomings.

Blunt cost-sharing provisions, unadjusted for the patient’s income or health status, will penalize the poor and the sick while allowing their wealthier and healthier compatriots to retain higher balances in their HSAs. Nonselective network designs, the dismantling of utilization management, and a reversion to fee-for-service payment will encourage spending for high-cost services that fall above the insurance deductible. The emphasis on measurement, payment, and choice at the level of the individual practitioner rather than the provider organization will disvalue the information technology, managerial, and cultural infrastructure necessary to integrate care across comorbid conditions and codependent services.

After having tried every alternative, it is to be hoped that a market-oriented health care system will do the right thing and combine the best elements of the demand-side approach embodied in consumerism with the best elements of the supply-side approach embodied in managed competition. The combined approach could be termed managed consumerism.

A market-oriented approach must always put the consumer first before the provider as the locus of rights and responsibilities. But the full potential of a consumer-driven system will be realized only when insurers create meaningfully distinct networks and providers create meaningfully distinct organizations among which informed and cost-conscious consumers can choose.

As suggested in Exhibit 2⇑, different consumer-centric benefit designs and provider-centric network designs will be appropriate for different health services, depending on whether utilization is strongly consumer preference–sensitive, provider supply–sensitive, both, or neither. Health plans are experimenting with various forms and levels of cost sharing and provider payment across services according to the sensitivity of demand and supply to financial considerations. As sketched in Exhibit 3⇑, different forms of organization may offer the best combination of cost, quality, and convenience for different services depending on their clinical and technological characteristics.

The health care landscape is blooming with minute clinics for low-acuity primary care, medical homes for chronic care management, centers of excellence for high-acuity surgical procedures, and focused factories for ambulatory surgery and oncology. Consumer choice needs to be combined with organizational management so that the pursuit of individual self-interest through market competition vicariously supports the social interest in an efficient, fair, and effective health care system.