Lundy Insurance Services, Inc.

Who Says Competition is Always Good?

I’ll freely admit that one of my fundamental beliefs is that competition is good and helps keep costs down. I think it’s a rational position to believe, that when companies compete, the natural impact will be to suppress prices.
That being said, I’m very disappointed to admit that my belief is being challenged. I’m also sure that the following information will be challenged  by some in the health care arena.

You see, in some instances, our competitive healthcare model in America actually causes price inflation. And this ultimately causes the cost of insurance premiums to be far greater than they should be.
OK, so what am I talking about?
I’ll outline a few local examples from right here in San Diego. From these examples, you will see that they are replicated throughout the United States.

Example #1:

In March of 2010, one of San Diego’s most recognized medical organizations announced that they would be building a new Proton Radiation Therapy facility in Mira Mesa. Clearly, the technology represented by this new facility is state of the art and the population of San Diego will benefit from it. The real question is, “At what cost?” The cost of building the facility was announced as $186,000,000. The ongoing annual costs associated with operating this unique and highly specialized facility where not released.

What is clear is that the initial $186,000,000, in addition to the annual costs associated with operating the facility will have to be paid by someone. Much of this cost will be passed on to you, the consumer, by increasing medical premiums.

Now, it’s hard to argue against the effectiveness of this new technology. However, it’s also important to know that there are currently 5 of these facilities in the United States. One of these facilities is located here in Southern California in Loma Linda and is available to Southern California residents if needed.

Now here is the punch line…In July of last year, just five months after the initial announcement, one of San Diego’s other major medical organizations announced they would also be building a brand new Proton Radiation Therapy facility in San Diego at an initial cost of $230,000,000. Again, annual operating costs were not disclosed.

OK, now we have two competing organizations spending almost ½ billion dollars on the same highly specialized technology. Make no mistake about it; we will all pay for this in added health insurance premiums.

Example #2:

On September 21, 1994, the California Legislature passed Senate Bill 1953 into law. This legislation is commonly referred to as the “California Earthquake Retrofit Bill”. In basic terms, it requires all general healthcare facilities to upgrade their structures to comply with the new building codes created by the legislation.
The true impact of this legislation is that it has added literally billions of dollars in costs to the healthcare system here in California (Yep, this has also contributed to the huge increases to your health insurance premiums). Medical and healthcare organizations have regularly used this legislation to rationalize the tearing down and re-building of ever-more opulent facilities.

Here are a couple of local examples:

1. One of our largest hospitals recently “re-built” itself using the earthquake retrofit bill as part of the rationale for the effort. Immediately upon opening the new facility, the organization aggressively marketed the fact that all of their new rooms were “Private” rooms. No more sharing rooms on a semi-private basis as has been the historic standard for hospitals. Now you always get a private room.

Make no mistake about it, we are in a building boom throughout the county in which all new facilities will now have to “compete” by offering private rooms in order to “keep up with the Jones’s” to attract patients. Once again, we will all pay for this “new standard” through increased health insurance premiums.

2. If you, or someone you know, has delivered a baby here in San Diego over the past several years, you have undoubtedly experienced the “new” concept in delivery in which the mom is housed in a room with all the amenities of a 5 star hotel room. Of course, we all love this, but once this trend started all of the health care facilities had to  upgrade to “compete” for patients or be left behind. Once again, although very nice, the costs of these upgraded facilities are passed directly onto you through higher health insurance premiums.

Because healthcare organizations need to attract and retain patients in order to produce revenue, many of them compete with one another in ever increasing ways. Much of this competition is creating higher and higher costs for you, the consumer.

Ask yourself, "Why don’t the major healthcare organizations work together to meet the needs of San Diego’s population instead of duplicating so many services?"

In fact, it is important to point out that there are a few examples of healthcare organizations that are working together here in San Diego. For instance, instead of building its own high cost facilities, Kaiser has contracted with Scripps for cardiovascular care, UCSD for renal care, and Palomar Pomerado Health for several services. These are clearly not all of the examples. They are simply a few known by me. Kaiser’s patients receive high quality care, but Kaiser does not incur the huge expenses of building infrastructure that is not truly needed. By doing this, Kaiser is able to offer its health plans at lower costs to local companies and individuals than many of its competitors.

In summary, San Diego’s healthcare organizations should study the approach taken by Kaiser. In this time of soaring costs, it’s time our healthcare providers started working together instead of always wanting to outdo one another by duplicating technologies or building costlier facilities. 

So, do you still believe competition is always good?