In the introduction to this series, the characteristics of a free market according to classic economic theory under a capitalist economy were summarized briefly.
• A free market has a sufficient number of competitors, such that a single seller (or small group of colluding competitors) is unable to control the market price of the product or service.
• Businesses compete for customers with other providers of similar products using price, quality, product features, convenience or features to differentiate their product and attract buyers.
• Buyers have enough information about the different products available (price, quality, unique features) to make an informed decision about what best suits their needs and are free to not buy at all.
Before we examine the number of competitors in any given healthcare market in the United States, it is important to note that the American healthcare industry is made up of many markets. Prior to the last half of the 20th century, healthcare providers were mostly independent operators that included local hospitals, physicians and other small to medium sized businesses serving the needs of their community and healthcare services were most often paid for directly by patients.
After World War II, American healthcare delivery and payment systems changed significantly. Recall that the Roosevelt administration froze private sector wages for the duration of the conflict. Unable to increase pay, employers had to find other ways to attract and retain workers. This is when employer-provided benefits, including health insurance, became an important component of worker pay. Tax policies were enacted that encouraged this trend and today, no discussion of the healthcare industry is complete without recognizing that our healthcare industry is made up of at least three distinctly different markets.
Healthcare providers still compete for customers/patients. Insurance companies compete to win the insurance contracts that employers use to provide healthcare as an employee benefit. Medical equipment, supplies, pharmaceutical and a host of other for-profit corporations compete for the business of healthcare organizations striving to provide high quality care.
Last year these three huge markets comprised 17% of U.S. Gross Domestic Product and this number is expected to continue to trend upward despite efforts to slow down healthcare cost growth. On a per-capita basis, the United States spends almost twice as much on healthcare compared to other first-world nations with comparable standards of living. At the same, the quality and availability of American healthcare is highly variable.
At the highest level, medical care in the U.S. is state of the art and rivals any other nation in terms of quality, use of technology, advanced therapies and treatment outcomes. On average, however, our country compares poorly to other advanced countries in terms of overall population health, access to care, quality of care and population statistics such as infant mortality and adult life expectancy.
According to a 2007 World Health Organization study comparing the healthcare systems and population health statistics of 190 countries, the U.S. ranked 37th. The US was ranked number one on only one measure used in the composite score ranking and that was on per capita healthcare spending. In a 2014 study commissioned by the Commonwealth Fund, the U.S. ranked last overall in a comparison of the health care systems of 11 advanced economy nations.
The bottom line of this entire line of research is that Americans pay more for healthcare and get less favorable outcomes than the citizens of other industrialized countries. In the next installment of this series, we will consider why this is the case and how market forces in the U.S. influence the health of our population.
David J. Scarborough, Ph.D.
Assistant Professor of Management
School of Business
College of Professional Studies
Western New Mexico University