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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.
Maintaining Provider Market Structures that Support and Reward Shopping
While employer attention has been directed mostly at creating an effective demand side of the retail market—hence the frequent use of the term “consumer-centric healthcare”—the supply side is equally important. The retail strategy presumes that multiple providers of specific medical services exist within a geographical market, and that those providers have the capacity to add patients. However, medical care markets are becoming more and more consolidated,1,37,38 a development that my colleagues Carlin, Feldman, and Dowd (2016)39 and others40,41 have found contributes to medical care price increases.
There is little evidence regarding whether engaged, informed consumers can moderate cost growth in consolidated markets or bring about greater competition with respect to quality. For instance, in communities dominated by small numbers of integrated delivery systems (IDSs), consumers may shop for providers within, or between, IDSs but shopping within an IDS is not likely to create the same degree of competitive pressure on providers to reduce costs. In addition, prices continue to be set through negotiations between health plans and providers42 with larger systems having greater negotiating leverage. More aggressive antitrust action might moderate the consolidation trajectory,43 but it is unlikely to unwind past mergers and acquisitions, something that would need to occur in many communities for effective retail competition to take place.
What Are the Limits of Retail Competition?
White and Eguchi22 addressed this question in their assessment of reference pricing. They used the term “shoppable services” to encompass services that must be scheduled in advance, where more than one provider exists in a geographic area that could provide the service, and where there was price data available for the different providers. Using data from autoworkers and their dependents to assess the potential impact of applying reference pricing to a range of services, they found something of broader importance. With an expansive version of the “shoppable” definition, they concluded that shoppable services only “…accounted for about a third of total spending if both inpatient and ambulatory services are included.”22 By implication, the effectiveness of a retail model in controlling healthcare costs would be limited to those services.
Frost, Newman, and Quincy44,45 revisited the shoppable services issue using a claims dataset weighted to be nationally representative of a population 65 years and younger. They found that 42% of spending (an upper bound) was for shoppable services. Under existing benefit designs, consumers paid out of pocket about 15% of that, or about 7% of total spending for all US medical services. Consumers attempting to reduce their deductible and coinsurance payments through shopping could affect about 65% of that 7%. These authors observed that further changes in the demand side of the market (eg, further increases in deductibles) could raise their estimate of the spending that consumers might influence through more aggressive shopping. But they stated that “we need to be realistic about the power of consumer shopping to rein in excess healthcare pricing when selecting medical services”45 (page 59).
Back to the Future?
It seems fair to conclude that, after 15 years, consumers have better access to quality and cost information and stronger incentives to use this information when choosing their care providers. These developments on the demand side, and the momentum they have generated regarding price and quality transparency, should please advocates of retail competition. In contrast, developments on the supply side appear to have moved the health system away from effective retail competition—perhaps irrevocably in many communities. Looking forward, what options does this leave employers?
One option involves greater direct engagement with providers.44 Some employers are pursuing value-based payment models, such as bundled or global payments, that incorporate various degrees of provider risk sharing. Others support a return by health plans to the aggressive utilization management approaches employed in the 1980s and 1990s, increasingly in combination with more limited provider networks. Employers also are being urged to pursue new strategies in the arenas of behavioral healthcare and specialty drugs.46 This type of hands-on involvement is what employers had hoped to avoid by establishing a successful retail market for healthcare. Additionally, growing provider consolidation is likely to be a formidable longer-term obstacle to payment reform and aggressive utilization management.
Some employers continue to prefer a less hands on approach, retaining faith in competitive market forces to restrain cost increases and improve quality. They are investigating private health insurance exchanges47 operated by health plans and benefit consultants as a way to create competition in consolidated markets.48 For example, health plans could offer employers an array of options for their employees, some of which are IDSs with narrow networks.3 As in managed competition, employees would pay more for more expensive options.
To date, large numbers of employers have not taken this step.49 There likely would need to be at least 3, preferably more, integrated systems participating in the exchanges to encourage competition on cost and quality, and multiple employers in a given geographic area would need to adopt the strategy to maximize its impact. In an early experience with a version of this approach, which was managed by an employer coalition in the Twin Cities, maintaining commitment over time on the part of employers proved problematic.50
These 2 paths are not mutually exclusive, and the demand side changes that have occurred may facilitate their implementation. However, both paths could be characterized as “back to the future.” They suggest declining employer confidence in retail competition as a strategy that, by itself, could bring about the desired health system outcomes. And, they underscore the limits that provider consolidation places on competitive approaches to healthcare reform more generally.51 Drawing on the wisdom of Yogi Berra: “The future ain’t what it used to be.”

Copyright AJMC 2006-2018 Clinical Care Targeted Communications Group, LLC. All Rights Reserved.
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