Can You Compete on the New Basis?

By Merit Smith
Vice President
Director, Health Care Practice

As I’m writing, C-SPAN is in the background with a discussion about the bewildering set of potential laws that we are arguing over as part of health care reform.

Nolan has a cross-functional team working on health care reform. One of the key questions we are considering is “What will be different post-reform?” Of course, this is a highly speculative exercise; no one really knows if or when or how health care reform will emerge. One of our approaches is to take the worst case—perhaps something like Mr. Waxman’s H. R. 3200 bill—and use it as the basis for thinking about the future.

The post-reform environment that we begin to see is quite different from today. There are dozens of important differences in the potential law, some explicit, others implicit. Perhaps the most important one is that the competitive factors may be wildly different. Think of “competitive factors” as the product-related, economic, and operational features that a competitor uses to compete. For example, Southwest Airlines uses a different set of competitive factors than American Airlines. One airline stresses price, a user-friendly Web site, and a simplified service model that doesn’t include traditional reservations. The other airline competes in a traditional model, with an emphasis on schedule. It’s the same basic product—air transportation—but with different business models deployed via different competitive factors.

In some post-reform scenarios, we will compete on a starkly reduced set of competitive factors. Products and health benefits will be standardized, sales and marketing will occur via a government-organized exchange, and product pricing will be community rated, with no variance for age, gender, health status, or claims history. We should expect that provider networks and contracting will not vary much, if at all. In this environment, the set of competitive factors might be reduced to internal cost structure and service.