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Most people have come to realize that we spend a lot on health care in this country and, in many ways, we aren't getting our money's worth. "Better health outcomes at lower cost" has become the common theme of efforts to transform health care. The billion-dollar question is: How do we reach that goal? A key element is to restructure incentives so that health care buyers and sellers are subject to the same market discipline that shapes most other areas of commerce.

A market-based model would address some of the problems that have created health care's price inflation and lagging quality. They include the absence of sellers' accountability for cost-efficiency and quality, and the absence of buyers' accountability for the cost paid. Also missing: the requisite transparency to enable buyers to evaluate the cost and quality of the services that they are purchasing so that they can begin to make an informed decision.

In a typical market, consumers usually make purchasing decisions based on the functionality of available products or services relative to their cost. The consumer benefits from the functionality and is accountable for the cost. But in health care, costs reflect the treatment decisions made between physicians and their patients, yet neither party feels accountable for the cost consequences of those decisions. Physicians historically have focused exclusively on providing the highest level of care to patients, without regard to cost. And patients — at least those covered by public or private insurance — feel that once any deductibles have been met, they are spending someone else's money.

As a result, both providers and consumers drive unnecessary utilization, which in turn drives unnecessary costs. Providers contribute to unnecessary utilization when they reflexively order diagnostics that provide little new information or do so at patients' insistence, or when they provide expensive therapies that offer little incremental benefit, sometimes with more downside potential than less expensive alternatives. Patients add to the problem by insisting on intervention at any cost.

Accountability for quality also is an important part of the picture. Historically, when quality problems occurred, providers have been compensated for fixing the very problems they created. This has led to an industry that is appallingly tolerant of its own shortcomings — one that unintentionally encourages inefficiency and overutilization rather than quality and cost control.

A perfect example of this lack of market discipline is the industry's record on health care-associated infections. According to the Centers for Disease Control and Prevention, HAIs are responsible for approximately 99,000 deaths a year, at an average cost of between $35 billion and $45 billion annually. Yet, providers not only seem to get a pass on their failure to enforce the basic act of hand washing by staff and the tragic deaths that result, they are able to pass on the costs of treating those HAIs to payers. In industries subject to market discipline, such tolerance wouldn't occur.

Consider the 2010 recall of Toyota automobiles for defective brake problems. Allegedly, 37 people lost their lives as a result of design flaws, prompting congressional hearings, testimony by the president of Toyota Inc. and a media firestorm. But when it comes to health care, somehow the rules are different.

The situation has been reinforced by lack of transparency from providers about both their costs and the quality of the care they provide. Quality information has been very hard to come by and mostly consists of gross mortality and morbidity statistics available only to those who know where to look. More specific information on outcomes by procedure and by physician generally have been unavailable to the public.

And consumers, viewing health care insurance as a workplace benefit with no cost to them, have been lulled into complacency by the notion that medical costs largely are borne by a faceless insurer. While the financial responsibility of employees has been increased by higher deductibles, they are still largely price-insensitive. That's the only explanation for the fact that providers are rarely asked about cost in advance of care provision, and most can't provide a meaningful answer to the question. Even fewer providers are prepared to discuss the course of care and its outcomes across the continuum, including the hospital, physician, home care or rehab components.

Consumer-driven Decisions

A market-based model for health care would put consumers at the center of decision-making, with meaningful cost and outcome information to enable reasoned cost/benefit choices.

The basis for coverage would need to be changed to give consumers incentives to manage their health care costs, including modifying their own behaviors. That would reinforce market demands for better information than the mortality and morbidity outcome data that are still the provider-industry norm.

Consumers routinely would ask questions about the price and outcomes that health care providers deliver and would get meaningful, consumer-friendly answers.

Without this data, how can a consumer choose one hospital over another when they are just miles apart? This is the future of health care, and health care systems and independent physicians need to get ready for it.

How Do We Get There?

Much of the resistance to real change in health care stems from the reluctance of market players to envision a world in which the consumer — not the insurer, the physician or the hospital — is at the center. As the business model shifts to a consumer orientation, those players who have long dominated the health care marketplace will be challenged by market leaders to become more nimble and retail-savvy. Over the last several years, employee responsibility for health costs haves grown rapidly, and that trend is likely to continue. As consumers bear a greater part of their health care costs, they will be forced to become more cost-conscious. As a result, the market will move from a wholesale model to a retail model, the former focused on the employer or corporation, the latter on the individual consumer.

With this shift will come a change in core competencies required by providers and payers. Customer service will become a significant differentiator, characterized by availability, 24/7 access support, broad choice and customized services to meet the unique needs of specific customer segments.

In a free market for health plans and providers, competing delivery organizations will have powerful incentives to demonstrate that their services deliver economic and clinical value. To create accountability, providers must address variation in treatment practices and inefficiencies in care delivery. Establishing predictive care paths and effectively using evidence-based medicine would help providers and organizations achieve better quality and cost-effective health outcomes.

Until we create a true market-based approach to health care, we won't be able to crack rising costs in any meaningful way. Transparency, increased accountability and a consumer-centered model for health care will be the minimum requirements to achieve the goal of better health outcomes at lower cost.

Michael N. Abrams, M.A. (info@nai-consulting.com), is managing partner at Numerof & Associates Inc., St. Louis, and co-author of Healthcare at a Turning Point (2012).