With national healthcare reform on hiatus like a highly anticipated television show that failed to catch on with viewers, it’s time to revisit competition as a remedy for many of the chronic conditions plaguing the healthcare industry. Instead of regulating the industry to its knees, as would be the case under the massive reform bills passed by the House and the Senate, the federal government should embrace competition in healthcare as its reform strategy and pursue statutory and policy changes to that end.
Up-sizing the competition
With health reform foundering, here's a modest proposal to get the ball rolling
The first step would be repealing the 65-year-old McCarran-Ferguson Act, which provides insurance companies, including private health insurers, with a limited exemption from federal antitrust laws. The act gives states the authority to regulate the business of insurance. Under a legal theory called the “state action immunity doctrine,” activities that are supervised and actively monitored by states are exempt from federal antitrust laws.
Health insurance companies can exploit the exemption to share underwriting and experience data, which they use to set prices for the policies they sell. It’s a legalized form of price-fixing. Here, think of the group database that health insurers were using to set reimbursement rates for services provided by out-of-network hospitals and physicians. That database was dismantled after a legal challenge from the New York attorney general’s office and the American Medical Association and is being replaced by an independently run database funded by millions of dollars in settlements paid by the offending health insurers. Health insurers were able to operate the database because of the McCarran-Ferguson Act.
The second step would be ending the effort to ban physicians from owning their own hospitals. Physician-owned general and specialty hospitals add a much needed dose of competition to markets dominated by a handful of hospitals—and in many cases just one hospital—owned by not-for-profit and for-profit corporations. That competition improves patient choice, helps moderate prices for services and improves quality.
Yet the hospital lobby continues to push for federal legislation that would put physician-owned hospitals out of business. Ironically, the same hospital lobby thinks it’s OK for hospitals to own physician practices. Hospitals want to own physician practices for the same reason they chastise physicians who want to own their own hospitals: to control patient referrals. End the push for protectionist legislation and let the best providers win regardless of ownership.
The third step would be eliminating state certificate-of-need laws. Currently, 36 states have various forms of CON laws that regulate what hospitals can build and what equipment they can purchase. Hospitals and health systems use those laws to insulate themselves from competition. CON disputes often take years and millions of dollars to resolve, and in many cases, the proposed project moves ahead anyway. A better approach would be to let hospitals, physicians and other providers build whatever they want, wherever they want, at their own financial risk just like any other business in America. Then, patients, payers and insurers will decide what facilities stay open by providing the best service at competitive prices.
We’re not advocating a return to the patient-beware days of the late 1800s and early 1900s where hucksters could pass off snake oil as miracle cures. Increasing competition in healthcare would require strengthening patient-protection laws to safeguard the public from shoddy or unproven medical care. Reimbursement policies that deny payment for avoidable medical errors are a great start. But more should be done to take dangerous hospitals, physicians and other facilities and caregivers out of action. Open competition combined with strong consumer protections, which operate in concert in many other industries, would be a potent combination for what ails the healthcare industry.
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