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Need Healthcare? Let's Go Shopping or Not

Medica Research Institute is a non-profit, research organization determined to improve health outcomes for all, especially the most vulnerable through advancing knowledge that informs value-based healthcare and accountable communities for health. We are committed to contributing to evidence through independent, data-driven health services research that is placed in the public domain.
This article was written by Jon Christianson, PhD, Medica Research Institute senior fellow and James A. Hamilton chair in health policy and management at the School of Public Health at the University of Minnesota.
We all shop. Every day we decide which products and services to buy. But shopping for medical care, typically, has been different.
In the not-too-distant past, most of us enjoyed insurance coverage that was comprehensive. We knew little about the prices of medical services and had no reason to seek out price information. We judged quality based on the experiences of family members or neighbors, or physician recommendations. For most of us, employers were our surrogate shoppers, choosing the health plans and, consequently, the providers available to us. Employers that offered us a choice among multiple plans, requiring that we contribute more when selecting higher-priced plans, hoped to stimulate competition in healthcare at the “wholesale” level. To be offered by employers, and chosen by employees, health plans needed to compete successfully on premiums, fees, and provider networks.
The intent was that this “managed competition” among health plans would have a “trickle-down” impact on providers, forcing them to compete to be included in plan networks or risk losing access to patients.1 Employers expected plans to use a mix of financial incentives and utilization management techniques to control the prices and costs of network providers, without jeopardizing quality of care.
For a variety of reasons, culminating in the “managed care backlash” of the late 1990s, employers became frustrated with this strategy.1-3 Seeking an alternative, many supported the notion that the key concepts of competitive markets should be brought to bear at the “retail level” in healthcare.4,5
The idea was that “…providing consumers with compelling performance data and increasing their responsibility for the costs of care will slow the increase in healthcare expenditures and motivate clinicians to improve the quality and efficiency of their care.”6 In this scenario, providers would compete to reduce costs and improve quality (the “supply side”) in response to pressure applied through the shopping behavior of engaged, informed consumers (the “demand side”).
After 15-plus years, what progress has been made in implementing this strategy? Where do things stand now? And, looking forward, what is the future for “retail competition” in healthcare?
Is Retail Competition a Good Idea?
Before addressing these questions, it is worth noting that this new approach is controversial. Some critics focused on technical problems (described below), but the proposal also re-surfaced deeply held views that market “solutions” to healthcare problems were not appropriate. Skeptics have referred to this strategy as the “…myth of ‘consumer-driven’ healthcare.”7 They worry that “the consumer-driven model of medicine unfairly calls on individual patients to interpret all available information and serve as de-facto industry watchdog. This is a weak corrective for all that ails our system.”8
In contrast, proponents have argued that “US healthcare would be far better, of higher quality, and less burdensome in terms of costs … if citizens, in their roles as patients and consumers of health services … were ultimately in charge of making the important decisions.”7 And, “consumer choice works well in other sectors of the economy, and it can work well in healthcare as well, once consumers are given the tools and incentives.”9
Even early advocates acknowledged that reconfiguring both demand and supply sides of the market to support retail competition would be a “heavy lift” given “the paucity of data to guide this new approach and the substantial challenges involved…”6 On the demand side, financial incentives would need to be put in place to reward consumers for aggressive shopping, while cost and quality information would need to be made available to help consumers make informed decisions. On the supply side, there would need to be a sufficient number of providers to encourage competition for patients.

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