competition revolution" in health care - Health Affairs

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Cite this article as: V R Fuchs The "competition revolution" in health care Health Affairs 7, no.3 (1988):5-24 doi: 10.1377/hlthaff.7.3.5

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At the Intersection of Health, Health Care and Policy

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Health Affairs is published monthly by Project HOPE at 7500 Old Georgetown Road, Suite 600, Bethesda, MD 20814-6133. Copyright © by Project HOPE - The People-to-People Health Foundation. As provided by United States copyright law (Title 17, U.S. Code), no part of may be reproduced, displayed, or transmitted in any form or by any means, electronic or mechanical, including photocopying or by information storage or retrieval systems, without prior written permission from the Publisher. All rights reserved.

by Victor R. Fuchs Prologue Medical care is widely regarded as a vital ingredient of a decent social minimum that any civilized society should provide rr make available to its citizens. As a rule, western industrialized nations incorporate this element in their social contracts, in all cases doing so in ways that uniquely reflect the individual country’s culture and economic status. The United State-s has moved partially down the road of providing equal acceSS to medical care, but it has fallen well short of universal coverage. During the 1980s, the government in power sounded the rhetorical call to change not by broadening access, but through a belief that America’s health sphere could position itself best for the future by employing market principles to allocate scarce resources. In this opening essay, Victor Fuchs, professor of economics at Stanford University, examines the role these principles have played in medical care during the 1980s. Fuchs is best known as the author of a short book that still is must reading for anybody who is striving to understand the economics of medical care. Fuchs concluded in his 1974 tract entitled Who Shall Live? that America cannot have all the health and all the medical care it would like to have, but must make tough choices. Fuchs’ recommended design of a system that provides “universal comprehensive insurance,” and features decentralized delivery systems that are remunerated by capitation payments, “competition (wherever possible),” “elimination of many of the restrictions on use of health manpower,” “rational physician supply,” and “rational hospital utilization.” Fuchs asserted “Implementation of these recommendations should have a significant impact on the problems of cost and access. They should not be expected, however, to produce a dramatic improvement in the overall health of the population . . . the greatest potential for improving health lies in what we do and don’t do for and to ourselves. The choice is ours.”

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THE “COMPETITION REVOLUTION” IN HEALTH CARE

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HEALTH AFFAIRS | Summer 1988

Health Care Competition In Context Health care is, in many respects, similar to other goods and services. It is produced with resources that are scarce relative to human wants. Thus every society must have control mechanisms for determining how much health care to produce, how to produce it, and how to distribute it among the population. In principle, only t