Markets and Medical Care: The United States, 1993–2005

Abstract

Many studies arguing for or against markets to finance medical care investigate "market-oriented" measures such as cost sharing. This article looks at the experience in the American medical marketplace over more than a decade, showing how markets function as institutions in which participants who are self-seeking, but not perfectly rational, exercise power over other participants in the market. Cost experience here was driven more by market power over prices than by management of utilization. Instead of following any logic of efficiency or equity, system transformations were driven by beliefs about investment strategies. At least in the United States' labor and capital markets, competition has shown little ability to rationalize health care systems because its goals do not resemble those of the health care system most people want.

Prices, Volume, and the Perverse Effects of the Variations Crusade

“…Conventional wisdom holds that something called "managed care" controlled costs by reducing volume in the mid-1990s, and costs soared when volume controls were loosened. But the evidence from the Center for Studying Health System Change as well as other studies is quite different: both the period of cost control and the collapse of cost control were much more strongly related to payers' ability or inability to restrain prices (White 2007). In the current market, provider "pricing power" drives up costs, according both to insurers and to neutral analysts (CBO 2008a;Ginsburg 2010).…”

“…It did not happen in the 1990s because it was a poor business model in many ways (White 2007). These policy specialists do not want to leave transformation to the market; instead they want to use Medicare contracting to encourage or force systems to integrate and then downsize capacity, of both equipment and personnel (Dartmouth Institute 2008b: 5).…”

The Obama Presidency and Health Insurance Reform: Assessing Continuity and Change

“…During the 1990s, there was a period when insurance companies managed to control costs but this did not last (White, 2007). And the PPACA leaves the United States vulnerable to further unmanaged rises in health care costs because, unlike many other countries that spend less than the US, it does not introduce caps on health care spending even within government programmes, or impose strenuous regulation of the services that medical experts provide and the rates that they can charge insurers (Marmor and Oberlander, 2010).…”

Public Attitudes Toward Health Care Spending Aren’t The Problem; Prices Are

“…Moreover, the success of managed care during the mid-1990s in restraining medical care spending was largely attributable to price restraints rather than care management. 34 For example, analyzing data from Massachusetts, David Cutler and colleagues found, for example, that virtually all of the savings that managed care plans achieved for heart disease treatment, relative to indemnity insurance, came from price reductions. 27 During this period, health maintenance organizations (HMOs) and other insurers leveraged "purchasing power to negotiate price discounts with providers" who believed they had to make contract concessions "to ensure they did not lose patients or revenue as beneficiaries moved into managed care."…”

“…35 Managed care declined (and cost trends reversed) largely because consolidation of providers made it more difficult for insurers to extract price concessions. 34 The public backlash against managed care was not an objection to controlling prices. Rather, discontent was based on perceived restrictions on services, as well as real limits on choice of providers.…”