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If More Competition Is the Answer, Why Hasn’t It Worked?

O’Neill, Liam PhD

doi: 10.1213/ANE.0000000000000476
Editorials: Editorial

From the Department of Health Management and Policy, University of North Texas, Fort Worth, Texas.

Accepted for publication August 27, 2014.

Funding: Study was not funded.

The author declares no conflicts of interest.

Reprints will not be available from the author.

Address correspondence to Liam O’Neill, PhD, Department of Health Management and Policy, University of North Texas–Health Science Center, 3500 Camp Bowie Blvd., Fort Worth, TX 76107. Address e-mail to

According to classical economic theory, increased competition in health care should lead to both higher quality and lower costs. If reality were bound by economic predictions, then surely the United States would have the least expensive health care in the world, because no other health care system has relied more on market-based policies. For example, the Hospital Value-Based Purchasing Program, initiated in 2010 as part of the Affordable Care Act, aims to improve quality by increasing competition among hospitals. For the first time, the Medicare payment formula incorporates publicly reported quality metrics, derived from the “Hospital Compare” database. Hospitals with low scores on these national quality metrics now stand to lose up to 2% of Medicare revenue, while those in the top quartile may receive bonuses. As in other industries, dissatisfied customers now equate to lost revenue.

In this issue, the results of a study by Glick and colleagues1 raise important questions about the efficacy of value-based purchasing. The authors found no evidence that hospitals compete on quality, insofar as “quality” is equated with publicly reported quality measures. Rather, costs were found to be greater in the most competitive markets after adjusting for median household income and surgical volume. The authors focused on the treatment of two procedures: heart valve surgery and acute myocardial infarction. They used process measures of care, such as “antibiotic given within 1 hour of incision” and “glucose control after surgery.” In contrast, patient satisfaction scores constitute the majority of quality metrics in the Hospital Compare database. However, the authors chose not to include these in their study, due to the limitations and inherent subjectivity of patient satisfaction scores.

Patient satisfaction scores are determined by various aspects of hospital care, such as physician communication, responsiveness of nurses, and a quiet room during sleeping hours. Patients may not be aware of (or have the knowledge to assess) the more technical aspects of quality (i.e., those consistent with current best practices).

A fundamental tenet of economics is that people and organizations respond to incentives. Thus, it is critical to have the right incentives! Under the Hospital Value-Based Purchasing Program, the incentive for hospitals is to focus on the low-hanging fruit, such as patient parking, improved signage, gourmet dinners, and an aquarium in the waiting room featuring exotic fish. Tackling the truly difficult problems is much harder, for example, reducing nosocomial infection rates through improved sterilization. Moreover, even in states that publish hospital “report cards” comprising risk-adjusted mortality rates (e.g., New York and Pennsylvania), such statistics are rarely considered by patients when choosing a hospital.2 Glick et al. found that hospitals in more competitive markets do not behave as if “quality matters.” It would have been interesting to see whether higher patient satisfaction was associated with increased hospital costs.

As a new generation of specialty hospitals has emerged that feature valet parking, gourmet meals, and fitness centers, one could be forgiven for mistaking these facilities for luxury hotels. Yet, the “hospitals-as-hotels” analogy is a flawed one at best. When it comes to hotels, consumers have ample choice. Guests can choose Motel 6 or the Four Seasons, as their budget allows. Yet few of us would send our family members to the “discount outlet” hospital. Even for public safety-net hospitals, a marketing strategy borrowed from Costco of being the “low-cost leader” is sure to backfire. Thus, many hospitals in urban markets have followed market leaders in purporting to offer luxury amenities and first-class accommodations.

The other major difference with these specialty hospitals is that patients with health insurance are shielded from the true costs of their hospital stay. The result is an endless escalation in “nonprice competition,” especially for the most lucrative service lines, such as cardiology and orthopedics.3 Whereas certificate-of-need laws have served to limit such nonprice competition, many states have relaxed these regulations (e.g., Arizona, California, and Texas). Future work by Glick and colleagues (or others) could evaluate whether results are different for these states.

While the Glick et al. study considered only cardiac patients, the same relationship may not hold for other specialties. In our previous study, we examined the potential to increase surgical volume for 8 different specialties.4 In each market region, there could be a surplus of capacity for 1 specialty (e.g., cardiac surgery, making marketing important) while not for another (e.g., gynecology).

In the not-too-distant past, “hospital marketing” was something of an oxymoron. Yet the ubiquitous influence of marketing has finally caught up to the hospital sector, for better or worse. Even as health care costs continue their inexorable rise,5 the science of marketing aims to stimulate demand for hospital resources while many regions already have excess capacity. If the overarching policy goal is to reign in health care spending via market-based competition, the Hospital Value-Based Purchasing Program may be one more example of “rewarding A, while hoping for B.”6

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Name: Liam O’Neill, PhD.

Contribution: This author helped write the manuscript.

Attestation: Liam O’Neill approved the final manuscript.

This manuscript was handled by: Franklin Dexter, MD, PhD.

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1. Glick D, Wroblewski K, Apfelbaum S, Dauber B, Woo J, Tung A. The relationship between competition and quality in procedural cardiac care. Anesth Analg. 2015;120:220–9
2. Sinaiko AD, Eastman D, Rosenthal MB. How report cards on physicians, physician groups, and hospitals can have greater impact on consumer choices. Health Aff (Millwood). 2012;31:602–11
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6. Kerr S.. On the folly of rewarding A, while hoping for B. Acad Mang Exec. 1995;9:7–14
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