The illusion of discounts in the health care market

Abstract

Many health care purchasers such as employers, employee organizations, third-party payers, and health and welfare trust funds are coming to view medical care as a commodity like other goods and services on the market. The latest 'commodity' in health care designed to stabilize costs is the preferred provider organization (PPO). The basic concept of PPOs is that consumers get better value for their health care dollar if they utilize more efficient doctors and hospitals. The selling point to purchasers is reduced charges, often as much as 20 percent or more of billed hospital charges or 'usual, customary, and reasonable' physician fees. In order to effectively channel employees into the lower cost health plans, employers frequently reduce the amoung of the deductible and copayment attached to preferred provider care. The most successful preferred provider arrangements in the future will be the ones that involve physicians and hospitals which practice cost-effective medicine, not the ones that merely offer the lowest prices. These organizations will mostly likely outgrow the current practice of price discounting and embrace a combination of cost management incentives which include benefits redesign, utilization control, risk sharing, health promotion, and treatment alternatives to inpatient hospitalization. This will prove to be a far more sophisticated response to current consumer health care priorities than discount arrangements and will prove far more cost-effective in the long run.