The changing nature of health care competition

The concept of competition extends beyond price competition to differentiation of services by attributes. In health care, not only is price critical, but the quality of the care rendered and the amenities surrounding its provision are factored among the elements of competition. When competition is driven by patient perceptions, it may not be effective in reducing outlays. When competition is payor-driven, within certain limits of quality, price becomes a deciding factor. As payment vehicles become more concentrated, carriers can exert greater competitive clout. This article describes the finding of significant reductions in cost of hospital care in large metropolitan centers where competition is rife. In less competitive markets, hospital profit margins tend to be considerably higher. These findings would support the concept that managed competition may provide a tool for restraining health-care cost escalation.