Competitive Advantage

So, the Affordable Care Act will survive. In case you are coming out from a cave and your first stop is the Drucker Exchange (and if that’s the case, a warm welcome), what we’re talking about is the momentous Supreme Court decision yesterday to uphold the healthcare overhaul passed under President Barack Obama.

While the High Court ruling disappointed opponents of the law, it comes as a relief to many organizations that have restructured themselves in order to adapt to the new healthcare landscape. It also allows other policy questions to be asked, particularly about how, given what we now know is the law of the land, the spiraling costs of healthcare can be contained.

Among liberals, the consensus is that that Obamacare, by putting in place many pilot programs, allows for a multiplicity of approaches in order to gauge what improves effectiveness while reducing costs. Among conservatives, an important argument has been that healthcare must be subject to more market competition. As the website of Republican presidential candidate Mitt Romney notes, “Competition drives improvements in efficiency and effectiveness.”

Peter Drucker often contemplated healthcare policy, and he considered competition essential to improving outcomes. But competition wasn’t simply a matter of market economics.

For instance, the competition could be between models of healthcare delivery. “In healthcare we might try several different approaches in different states,” Drucker suggested in Management: Tasks, Responsibilities, Practices. “For example, managed competition in California, home of the strong and experienced health-care wholesaler Kaiser Permanente; single-payer health care on the Canadian model in New Jersey, where there has been support for it; and in Oregon, rationing on the basis of medical expectations, which is now being tried for the care of indigents.”

Drucker also, when it came to government services, saw benefits in what he called “socialist competition” of the sort promoted by the Polish economist Oskar Lange, under which institutions are regulated, perhaps even owned, by government but sufficiently independent that they can come up with varying approaches to what delivers the best results at the lowest costs.

“For the sake of performance, it is highly desirable that these institutions have managerial autonomy and not be run by government even if they are supervised and regulated by it,” Drucker suggested. “There should also be a fair amount of consumer choice between the different ways of accomplishing the basic mission, between different priorities and different methods. There should be enough competition for these institutions to hold themselves to performance standards.”

With Obamacare in place, how can competition in healthcare best be harnessed to improve outcomes and lower costs?