The emergence of market competition in the U.S. health care system. Its causes, likely structure, and implications.

This paper addresses three issues. First, why did market competition emerge in the U.S. health care system? Second, once free of regulatory constraints, how is the structure of the medical care system likely to evolve? Three, what are the implications of market competition for the public as well as for providers? The medical system in the U.S. was highly regulated and conventional wisdom assumed a continuation of these trends. Further, the economic motivation of existing providers was to maintain the status quo; market competition threatens their economic well being. Market competition was primarily a result of private sector forces. Several actions by the government, both intentional and unintentional, aided these private forces. Second, economies of scale and consumer preferences for different delivery systems appear to be important determinants of the new market structure. Lastly, market competition is forcing a redistribution of incomes, both between providers as well as between providers and taxpayers. There is also increasing concern over the plight of the medically indigent, as inadequate government payments become more obvious in a price competitive system.