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Health Alert: Quality Competition

John_GoodmanMost providers don't compete for patients either on price or on quality. Since out-of-pocket payments by patients are well below the true cost of their care, demand exceeds supply and services are rationed by waiting - just like in Canada. In such an environment, quality improvements do not increase provider income and quality degradation does not decrease it. That's why so much of the health care system resembles the Department of Motor Vehicles.

In some specialized markets, however, providers actively seek more customers, often advertising directly to patients - on TV, in magazines, etc., sometimes in other cities and sometimes nationwide. For example, New York's Mount Sinai Medical and Memorial Sloan-Kettering and Massachusetts General in Boston are all aggressive advertisers on cancer care.

In these markets, third-party payment significantly exceeds the marginal cost of care, and supply often exceeds demand.

Providers in these markets typically compete for patients based on quality. They need patient-pleasing services in order to attract their clientele in the first place and to retain them as ongoing customers. And their activities raise an obvious question: Why can't we have quality competition system-wide?

Here's a personal experience: Standing in the foyer, I see the head of the hospital hugging a patient. Hugging? Yes, hugging. It happened more than once on my visit there; and it gave me new insight into a little-understood phenomenon in health economics.

I am visiting a Cancer Treatment Centers of America (CTCA) facility in Tulsa, Oklahoma, and from the moment I entered the foyer it is clear this is not an ordinary hospital. It's different. And it has to be. The average patient travels some distance to get to one of these facilities and has already been treated at two other hospitals before coming to CTCA. (Full disclosure: CTCA is a modest contributor to the NCPA.)

So who are the customers? They are mainly Stage III or Stage IV cancer patients. They are in a life-and-death struggle with a deadly disease. One thing they get at CTCA is first-rate traditional care. In fact, the facility in Tulsa claims to have every piece of equipment you would find at the Mayo Clinic. And CTCA boasts that it has significantly better survival rates than the national experience. But I'm not sure this is the main reason why patients come to CTCA.

Most cancer centers operate like ordinary hospitals. They get patients by referrals from doctors. What they do for patients is influenced by their third-party insurance. For these facilities, the patient is not really the customer. The real customers are doctors and insurance companies. But CTCA patients have to get on a plane and travel an average of 500 miles to get there. Then CTCA has to motivate them to return for future treatments. Clearly, this requires a different business model.

Under a system now being introduced at the Tulsa facility, every patient who comes to CTCA sees an oncologist, a nutritionist, a naturopath and a care manager. Nutritionist? Naturopath? Yes. And more. Patients at CTCA routinely get acupuncture, chiropractic services and mind/body counseling.

Do naturopathy, chiropractic care and spiritual counseling cure cancer? Probably not. But these services meet other patient needs. And in doing so, they may indirectly help cancer survival.

As it turns out, cancer therapy patients have to cope with nausea, sleeping disorders, fatigue and pain - just to name some of the more obvious problems. Two-thirds of patients are malnourished when they arrive at CTCA. Some are more likely to die of starvation before they die of cancer. These are issues that traditional medicine, focused only on tumors, too often ignores.

Nutrition, vitamin supplements and even acupuncture help patients deal with the side effects of cancer. In fact, it is estimated that, nationwide, from 80% to 85% of cancer patients seek out naturopathic therapies - usually on their own.

Without any prompting from the Department of Health and Human Services (HHS), CTCA has electronic medical records and what seems to be state-of-the-art coordinated care. And these features are not reflecting the latest fad. They are part of the company's business model.

CTCA gets very few referrals from doctors. Insurers won't pay for some of the therapies they provide. The company finds patients by advertising and word-of-mouth, patient-to-patient referrals. It attracts patients and retains them by meeting needs that other facilities do not meet. It provides us with a small glimpse of what the market for medical care might look like were it not dominated by impersonal, third-party payer bureaucracies.

[An interesting sidebar here concerns restrictions on the flow of information in the medical marketplace. Basically, a hospital can say almost anything (boast of higher cure rates, etc.), constrained only by the common law strictures against fraud. By contrast a drug maker, regulated by the Food and Drug Administration (FDA) cannot make any claim unless it is backed up by a mountain of evidence and cannot promote "off-label" uses, no matter how much evidence there is. Whereas a hospital can trot out patients for testimonials at the drop of a hat, testimonials by clients of weight loss clinics are regulated by the Federal Trade Commission (FTC). Here is Natasha Singer on these issues in The New York Times and here is a critical study of hospital advertising.]

I've saved for last the issue that is surely at the back of everyone's mind. Don't we all agree that our health care system spends too much money on people who are terminally ill? Aren't CTCA facilities examples of wasting resources that at most add a few more months to peoples' lives?

As it turns out, we don't all agree on that. A fascinating new paper by Nobel Laureate Gary Becker and his colleagues at the University of Chicago makes a strong case that the traditional economic approach undervalues terminal care. Based on the century-old principle of diminishing marginal utility, the Chicago economists argue that a year or a month of life becomes more valuable for all of us, the less time we have left. Also, there is the "hope value" of survival. During the interim, new discoveries can be made that extend life even longer (as was the case with AIDs).

Space does not permit me to do justice to the full richness of this paper. So I invite readers to read it on their own.

John C. Goodman is president and CEO of the National Center for Policy Analysis. The Wall Street Journal and the National Journal, among other publications, have called him the "Father of Health Savings Accounts," and the Media Research Center credits him, along with former Sen. Phil Gramm and columnist Bill Kristol with playing the pivotal role in the defeat of the Clinton Administration's plan to overhaul the U.S. health care system. He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system.

Dr. Goodman's health policy blog is the only right-of-center health care blog on the Internet. It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts throughout the country-conservative, moderate and liberal. 

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