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Market Forces = Health-Care Reform

CONTRARY to the perceptions of those who concentrate on events in Washington, the health-care system is being reformed. The marketplace is transforming itself and is delivering health care at reduced costs or at slower rates of price increase. While Congress and the Clinton administration have debated inconclusively how to reform health care, the institutions that actually provide medical care have been undergoing an unprecedented but voluntary restructuring.

The changes are taking many forms. A majority of privately insured Americans are now enrolled in managed-care plans that limit choice of doctors and treatments. In California, three-fourths of all privately insured patients are in health-maintenance organizations. Three-fourths of all physicians have signed contracts, covering at least some of their patients, to reduce their fees and to accept oversight of their medical decisions. About 9 out of every 10 doctors who work in group practices have agreed to managed-care arrangements. Moreover, solo practitioners are becoming rare in California.

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Large insurance companies are setting up ''community care'' networks, acquiring hospitals and clinics in order to offer a full spectrum of treatment for a fixed price. In suburban Atlanta, Aetna has opened six primary-care centers. In the same area, another large insurance company, Cigna, has acquired medical practices and is recruiting doctors.

The Michigan health-care network is a good example of the voluntary changes taking place. The network is vertically integrating the Henry Ford Health System, Mercy Health Services, and Michigan Blue Cross/Blue Shield. The network of 13 hospitals offers health care to groups of 100 employees or more.

Three large hospital alliances, created in the last two years, now care for three-fourths of the hospital patients in the St. Louis area. Each alliance is actively buying up the practices of primary-care physicians -- family practitioners, general internists, and pediatricians -- to assure a stream of patient referrals and to increase their bargaining power with insurance companies.

On a national scale, an unprecedented wave of mergers and acquisitions is occurring among major health-care providers. Columbia/HCA Healthcare, the country's largest for-profit hospital chain, has bought out Medical Care America, the largest chain of surgery centers. In contrast, Surgical Care Affiliates, which operates a chain of outpatient surgery centers, is luring patients away from hospitals. These centers provide a lower-cost setting for many less critical operations.

The large pharmaceutical companies -- squeezed by national policy and regional health-care providers -- have been actively diversifying within the health-care sector. Merck has acquired Medco, the managed-care drug distributor. SmithKline Beecham merged with Diversified Pharmaceutical, another managed-care drug marketer.

In the future, perhaps, insurance companies and hospitals will get together. Between them, they have the large organizational skills and record keeping that are necessary. Hospitals have the patients and insurance companies have the market -- the willingness of employers to pay for the health care of employees.

Ultimately, these conglomerates may include, in addition to insurance companies and hospitals, some of the following -- outpatient clinics, doctors' offices, nursing homes, hospices, home health-care services, pharmacies, drug treatment centers, and medical equipment suppliers.

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Clearly, the operation of market forces can proceed more rapidly and more effectively than the more ponderous decisionmaking mechanisms of the public sector.

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