Cost conscious choices

May 1, 2011

Alain Enthoven believes the best method for healthcare delivery is the managed competition model.

Most industry leaders have heard of his managed competition model. Simplified, it amounts to a controlled market in which groups-health plans in concert with their provider counterparts-must compete for consumers. It's not a completely free market, but one in which consumer choice drives competition and those facilitating the market act as honest brokers. It's a huge concept with a lot of intricate details, but in the end, it's the low premium price that attracts the highest market share.

Under managed competition, a payer that actively controls costs gains more members. A provider that has proven value gains more patients. A consumer who chooses low-cost coverage saves money.

"Health plans should team up with providers to create quality, cost-effective delivery systems in which incentives are aligned with the needs and wants of the people," Enthoven says. "That's the important thing about the successful systems is that incentives are aligned. The doctors prosper if patients are kept well. They prosper if they introduce cost savings and quality-improving innovations."

Open-ended fee for service imposes no budget limit on consumers or providers, and neither see any reason to spend wisely. In fact, the lack of true cost control is his biggest criticism of PPACA.

"The best thing I can say about PPACA or Obamacare is that it had good intentions with respect to getting people insured, but I fear that there will be a lot of damage," he says.

What's ironic is that some of his original concepts introduced 30 years ago in the managed competition model are at least in part incorporated into PPACA provisions. Accountable care organizations and global payment arrangements shift some risk to providers and foster a team-based approach to care, for example.

"He pioneered some of these concepts and people like me benefitted from his insight years later and built on his ideas," says J.D. Kleinke, author, economist and MHE editorial advisor. "Risk bearing by doctors and hospitals, just like what we see with an ACO, is something he invented."

Enthoven, 80, maintains a faculty position in the graduate school of business at Stanford University, and his small office is generously decorated with framed awards and photos of himself shaking hands with well known political figures. Just a few weeks ago, he reconvened with the Jackson Hole Group, a think tank of diverse stakeholders that recommended policies during the Clinton administration and is examining today's healthcare environment.

"The PPACA legislation went badly from my point of view," he says. "But I take comfort in my favorite quotation from Winston Churchill which was, 'you can always count on the Americans to do the right thing-after they've tried everything else.'"