Strategies to Enhance Price and Quality Competition in Health Care: Lessons Learned from Tracking Local Markets

Drawing on observations from tracking changes in local health care markets over the past ten years, this article critiques two Federal Trade Commission and Department of Justice recommendations to enhance price and quality competition. First, we take issue with the notion that consumers, acting independently, will drive greater competition in health care markets. Rather we suggest an important role remains for trusted agents who can analyze inherently complex price and quality information and negotiate on consumers' behalf. With aggregated information identifying providers who deliver cost-effective care, consumers would be better positioned to respond to financial incentives about where to seek care and thereby drive more meaningful competition among providers to reduce costs and improve quality. Second, we take issue with the FTC/DOJ recommendation to provide more direct subsidies to prevent distortions in competition. In the current political environment, it is not practical to provide direct subsidies for all of the unfunded care that exists in health care markets today; instead, some interference with competition may be necessary to protect cross subsidies. Barriers can be reduced, though, by revising pricing policies that have resulted in marked disparities in the relative profitability of different services.