Trump administration’s reform policy principle based on flawed assumptions

The Trump administration’s efforts to reform how medical care is delivered and financed in the United States is based on the dubious assumption that medical care is not much different from any other market-based consumer service. The administration’s fundamental reform policy is better quality and value can be had by creating a more competitive market by arming consumers with more information on cost and value so they can be more discerning “shoppers.” It also presumes most any type of medical care that can be scheduled in advance is “shoppable” and therefore buy side market forces can be brought to bear to act as a natural check on prices and to promote higher value care and outcomes.

There are several inherent problems with that assumption.

• Simply because medical care can often be scheduled in advance unlike emergency care, with the exception of some elective procedures, it isn’t a discretionary purchase like other consumer goods and services. No one really wants medical care unless they need it – and often tend to put it off — regardless of whether it can be scheduled in advance. Hence, few people will be diligent shoppers.

• Because medical care is for the most part not a discretionary purchase, demand for it tends to be inflexible. Inflexible demand strengthens the sell side for providers and conversely weakens buy side purchasing power for individuals and families. A competitive market requires relatively equal market power on both the sell and buy sides.

• Aside from personal services not covered by payer plans like elective cosmetic surgery, individuals and families who receive medical care do not directly select among providers and bargain for services since their medical benefit plans — and not them — bargain for the cost of procedures. Also, their ability to choose among providers is limited to increasingly narrow provider networks.

• Patients’ heavy reliance on trusted relationships with their doctors to recommend both medical care and the provider, substantially diminishing their exercise of choice.

• More costly medical procedures are performed in hospitals and surgery centers. High staffing, equipment and staffing and patient safety regulation create high cost barriers to competitor entry. Those high costs tend to incentivize provider consolidation and create oligopolistic market conditions in most areas, increasing sell side market power.

• Much of American medical care lies largely outside of competitive market forces in government programs on the payer side – Medicare and Medicaid – as well as integrated providers such as the Veterans Administration and programs for military members and their families.