Policy Challenges in Modern Health Care

By David Mechanic; Lynn B. Rogut et al. | Go to book overview
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Entrepreneurial Challenges
to Integrated Health Care


The U.S. health care system is an ongoing experiment in the effort to achieve social goals through market mechanisms— to pursue the public good through private interests. The era of managed care encouraged competition among insurers, capitation contracting between health plans and providers, and the organizational integration of physicians and hospitals to contain costs and foster access to primary care. The ensuing consumer and provider backlash and the failure of many diversified organizations to deliver improvements in quality and efficiency have today substituted a different set of social goals. These include the unwinding of many consolidated organizations, unconstrained access to specialty services, and a commensurate reversion to broad insurance networks and fee-for-service payments. As before, much of the energy for change comes from the private sector. Rather than focus on reducing costs and integrating organizations, however, the entrepreneurial emphasis today is on enhancing revenue and creating niche organizations such as ambulatory surgery centers and single-specialty hospitals.

The record of the private sector during managed care was mixed. That sector marshaled the energy to overcome the organizational fragmentation of the indemnity era but then engaged in overconsolidation. The contemporary drive toward specialization is producing an analogous mix of desirable and undesirable effects. Unbundled services foster managerial and clinical focus, learning-curve efficiencies, and competition within an otherwise consolidated industry. Yet entrepreneurial entrants are targeting only services and patients whose payment rates exceed treatment costs, thereby undermining the implicit subsidies for underpaid services and underinsured patients.

Specialized niche firms also threaten to create a new form of corporate conglomerate by establishing chains of facilities across geographic regions and the nation. Despite talk of focus, the entrepreneurial drive for more revenue is pushing firms into new markets and new products, with the axis of growth shifting from diversification across services within markets (the integrated physicianhospital organization) to diversification across markets within service lines (chains of ambulatory centers and specialty hospitals).


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Policy Challenges in Modern Health Care


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