Quality Competition Without Third-Party Payers

In those healthcare markets where third-party payment is nonexistent or relatively unimportant, providers almost always compete for patients based on price.

As I wrote in my recent book, Priceless: Curing the Healthcare Crisis, where there is price competition, transparency is almost never a problem. Not only are prices posted (e.g., at walk-in clinics, surgicenters, etc.), they are often package prices, covering all aspects of care (e.g., cosmetic surgery, LASIK surgery, etc.), and therefore easy for patients to understand.

Wherever there is price competition, there also tends to be quality com- petition. In the market for LASIK surgery, for example, patients can choose traditional LASIK or more advanced custom Wavefront LASIK. Prices vary with type of procedure and where it is performed, ranging from less than $1,000 to more than $3,000 per eye. [1]

Even when providers do not explicitly advertise their quality standards, price competition tends to force product standardization. This reduced variance is often synonymous with quality improvement. Rx.com, for example, initiated the mail-order pharmacy business, competing on price with local pharmacies by creating a national market for drugs. Industry sources maintain that mail- order pharmacies have fewer dispensing errors than conventional pharmacies. [2]

Walk-in clinics, staffed by nurses following computerized protocols score better on quality metrics than traditional office-based doctor care and have a much lower variance. [3]

In general, medical services for cash-paying patients have popped up in numerous market niches where third-party payment has left needs unmet. It is surprising how often providers of these services offer the very quality enhancements that critics complain are missing in traditional medical care. Electronic medical records and electronic prescribing, for example, are standard fare for walk-in clinics, concierge doctors, telephone, and email consultation services, and medical tourist facilities in other countries. [4] Twenty-four/seven primary care is also a feature of concierge medicine and the various telephone and email consultation services.

Competition in the provision of amenities is also common in the niche markets. Cancer Treatment Centers of America takes third-party payment, but its patients usually have to travel some distance to get to its facilities—at both inconvenience and expense. To attract them, the Centers go to great lengths to ensure the comfort of its patients and facilitate the needs of accompanying family members—offering services similar to what medical tourist facilities offer in other countries (they also post their cancer survival rates). [5]

In general, providers who compete on price are competing to lower the money price of care. Where this occurs, they tend to compete to lower the time price as well (hence the term “MinuteClinic”). Teladoc promotes its services by publishing the response times (a doctor’s return call) for its clients. Most concierge doctors promise same-day or next-day appointments. Some diagnostic testing services make the test results available to patients online within 24 to 48 hours. [6]

In general, these markets do not appear to be fundamentally different from non-healthcare markets. Competition tends to produce more uniformity of fees and waiting times than would otherwise be the case. Similarly, quality competition also tends to produce either uniform quality or a uniform trade-off between money prices and quality.

Note: Cross-posted at Psychology Today blog, “Curing the Healthcare Crisis”

[1] Liz Segre and Marilyn Haddrill, “Other Corrective Procedures,” AllAboutVision .com, October 13, 2011.

[2] J. Russell Teagarden et al., “Dispensing Error Rate in a Highly Automated Mail- Service Pharmacy Practice,” Pharmacotherapy 25 (2005): 1629–1635.

[3] Minnesota HealthScores.

[4] Devon M. Herrick, Linda Gorman, and John C. Goodman, “Information Technology: Benefits and Problems,” National Center for Policy Analysis, Policy Report No. 327, April 2010.

[5] Herrick et al., “Information Technology: Benefits and Problems.”

[6] Devon M. Herrick, “Healthcare Entrepreneurs: The Changing Nature of Providers,” National Center for Policy Analysis, Policy Report No. 318, December 2008.


John C. Goodman is a Research Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the Independent books, Priceless: Curing the Healthcare Crisis and A Better Choice: Healthcare Solutions for America.
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