Question

1. Incentive issues present great challenges to operations improvement in healthcare.
   1. What do the following terms mean: under-treatment, over-treatment, and over-charging?
   2. Explain why market competition is likely to be weaker in services in general, and healthcare in particular, as compared to that for consumer products.
   3. What are the conditions, if any, which enable a buyer to get the right treatment and be charged the price corresponding to the treatment received?
   4. What if any are the implications that flow from part c, for healthcare system design?

Answer 1

a. What do the following terms mean: under-treatment, over-treatment, and over-charging?

Under-treatment: It happens when the patients are having better knowledge about treatments or are having suspicion on physicians who are treating them. The physician then gives less than appropriate treatment to such patients and they remain undertreated. It may be also due to discrimination of color when a white doctor treat black patient. In this case they give deaf ear to patient’s problems.

Over-treatment: It happens when the patient can recover from simple treatments but is forced for complicated ones as doctors get more incentive for prescribing surgeries or using hospital facilities like clinical labs and radiology. They inflate the seriousness of disease to patients who is then convinced for it. It can be used when simple diet changes or exercise can do the trick.

Over-charging: It means prescribing very expensive medicines of pharmaceutical companies who give good commissions or other benefits. It also means asking patient to stay in hospital more than required for recovering to make money. It also implies fraud when hospital bills patients for treatment never performed on them. It also means performing surgeries when not required for getting money.

b. Explain why market competition is likely to be weaker in services in general, and healthcare in particular, as compared to that for consumer products.

Market competition is weak as services are intangible and are not same every time. It keeps on changing as compared to consumer products even in same organization like airlines. In service people who provide service, the process involved and the environment or ambience (physical evidence) is relevant. In consumer goods all are important.

Healthcare services are public services, thus market forces are weak. There are hurdles to new entrants, lot of regulations and permissions need to be taken, there are no substitutes of healthcare, buyers who are patients have low bargaining power, industry rivalry is weak relative to consumer goods. In US monopolistic competition is seen in healthcare. There are no standards about the level of quality in healthcare services that leads to differentiation particularly in scenario where medical insurers pay the maximum amount if treatment.

c. What are the conditions, if any, which enable a buyer to get the right treatment and be charged the price corresponding to the treatment received?

Insurer intervention can enable the buyer to get the right treatment and be charged the price corresponding to the treatment received. The policy terms or regulations need to be made that mandate

Prior authorization of treatment from insurer (barring emergencies) for coverage of any treatment: It will help insurer to check whether treatment is necessary or not.

The insurer can have team of specialized medical consultants who can give second opinion: This will also curb the issue.

d. What if any are the implications that flow from part c, for healthcare system design?

It will curb the menace of overcharging and over treating patients.