Making Health Care Markets Work: Competition Policy for Health Care

Posted by Social Science Research Network

Making Health Care Markets Work: Competition Policy for Health Care

By Martin Gaynor (Carnegie Mellon University), Farzad Mostashari (Aledade) & Paul B. Ginsburg
(Center for Studying Health System Change)

Abstract:     The US health care system does not work as well as it could, or should. Prices are high and vary in seemingly incoherent ways, yet quality of care is uneven, and the system lacks the innovation and dynamism that characterizes much of the rest of our economy. The dearth of competition in our health care markets is a key reason for this dysfunction.

There is a growing understanding that comprehensive efforts to control health care costs and improve the quality of care must address the functioning of the markets that undergird the health care system and the prices paid to providers. Ensuring that markets function efficiently is central to an effective health system that provides high quality, accessible, and affordable care. A large body of evidence shows that patients, employers, and private insurers pay more for health care in highly consolidated provider markets — for instance, where only one or two hospital systems exist. Higher health care costs lead to higher premiums, making insurance more expensive and less affordable. Even in public programs, such as Medicare, a lack of competition among providers is associated with lower quality care. The same is true of health insurance — it has been extensiv…

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