Tuesday, March 23, 2010

Franchising Urgent Care

One of the themes in my health care economics class is that if we want to lower health care costs, we need to create policies and allow markets to have more competition, not less competition. Most of the time the focus is on how changes in government policy can try to achieve lower health care costs. Rarely do we hear of ways in which health care markets can increase competition. Here is an exception. One physician wants to franchise urgent care across the US. This is the type of innovation that seems to be lacking in the health care industry. By fostering entry of various health care services into health care markets, we can see how consumer's will benefit with more choices and have greater supply-side substitutes that will put downward pressure on health care prices, reducing the market power of existing health care providers.

Admittedly, not the answer for every health care market, I am sure that with more entrepreneurial effort, we can end up with other markets that increase entry, increase competition and lower prices for health care.

1 comment:

Andy said...

I appreciate your perspective and I’ve book marked your blog to keep up on your views. I miss opportunities to have these theoretical discussions in my “real world.” However, your blog on theoretical economics is obviously very real.
It sounds like you have an excellent class going with health care economics. In my experience, I haven’t heard of anything like this before, but it would be an excellent learning opportunity for our politicians in Washington!
In regards to your blog on lack of competition in the health care system, I completely agree. Every system when introduced with proper incentives (potential profits in the franchising case) has the ability to produce a more effective and ultimately more competitive product, thus benefiting the consumer and business owners.
However, I don’t want to let our politicians off that easy. Competition is an easy answer that will in the long run produce desirable results. But, we have a serious short term problem. Taxpayers don’t want the system to bear the time and costs associated with answer of laissez-faire. For example, if the government eliminates regulations that would allow an entrepreneur to become successful franchising urgent care across the US, the entrepreneur may still operate in an inefficient system. The entrepreneur will in the long run recognize these inefficiencies and try to lobby other companies and our government for change. However, why wait? The real question is what inefficiencies do we have in our current health care system that prevents all providers from operating in a competitive AND efficient environment?
Consider the price of urgent care. How do consumers differentiate price between different health care providers? Many times illness is a time sensitive issue, and planning for care is an unrealistic option. However, even if sufficient time were allowed to shop for care, consumers don’t have the tools and information available to evaluate price from one provider to another. Along similar lines, how do consumers understand and shop quality of healthcare? Since little information exists, perception becomes the status quo. Providers that give perception of quality care (attentiveness, timeliness, etc.) will have the highest perceived quality. But, perception of service is not necessarily correlated with results of service. If we don’t know the price or quality of service, how can we value competitive health care service?
As previously mentioned, an entrepreneur will find a way to gain a competitive advantage in this “free market” environment. Unfortunately, this perceived excellence may come at the expense of sub-quality health care. Unfortunately, this operating philosophy will in the long run cost a government and its economy tax dollars as consumers with sub-quality service will find themselves more frequently entering the medical system than those who receive the highest value of health care. If this were not a problem, the US would not have the highest per capita costs health care costs and yet the 46th highest total life expectancy among all nations.
Other than the shortcomings of evaluating a subjective system, why can’t we provide consumers better information? Can we somehow standardize information in the system to allow for consumers to shop balancing price, quality of service, and ultimately value? These are the questions we need to be answering, not how do we insure more people. If there’s opportunity to capitalize on the uninsured, competition should take care of them, not the government.

Andy Knopp