Competition and innovation: Evidence from financial services

This paper presents new evidence on the relationship between competition and innovation by extending previous literature from manufacturing to financial services. We introduce a new measure of overall innovation by estimating and enveloping annual minimum cost frontiers to create a global frontier. The distance to the global frontier constitutes each bank’s technology gap, which decreases if the bank manages to innovate. Our innovation measure enables us to derive and estimate the model of Aghion et al. (2005b) at the firm level for the US banking industry. Based on individual bank Call Report data for the period 1984–2004, consistent with theoretical and empirical work by Aghion et al., we find evidence of an inverted-U relationship between competition and innovation that is robust over several different specifications. Further evidence on major structural changes in the US banking industry indicates that banks moved beyond their optimal innovation level and that interstate banking deregulation resulted in lower bank innovation. Policy implications to financial reform and prudential regulation are discussed also.     

Finding a lasting cure for U.S. health care

In "Making Competition in Health Care Work" (July-August 1994), Elizabeth Olmsted Teisberg, Michael E. Porter, and Gregory B. Brown ask a question that has been absent from the national debate on health care reform: How can the United States achieve sustained cost reductions while at the same time maintaining quality of care? The authors argue that innovation driven by rigorous competition is the key to successful reform. A lasting cure for health care in the United States should include four basic elements: corrected incentives to spur productive competition, universal insurance to secure economic efficiency, relevant information to ensure meaningful choice, and innovation to guarantee dynamic improvement. In this issue's Perspectives section, eleven experts examine the current state of the health care system and offer their views on the shape that reform should take. Some excerpts: "On the road to innovation, let us not forget to develop the tools that allow physicians, payers, and patients to make better decisions." I. Steven Udvarhelyi; "Health care is not a product or service that can be standardized, packaged, marketed, or adequately judged by consumers according to quality and price." Arnold S. Relman; "Just as antitrust laws are the wise restraints that make competition free in other sectors of the economy, so the right kind of managed competition can work well in health care." Edward M. Kennedy "Biomedical research should be considered primarily an investment in the national economic well-being with additional humanitarian benefits." Elizabeth Marincola.     

Defining the road ahead: thinking strategically in the new era of health care reform

Understanding the implications of the new health care reform legislation, including those provisions that do not take effect for several years, will be critical in developing a successful strategic plan under the new environment of health care reform and avoiding unintended consequences of decisions made without the benefit of long-term thinking. Although this article is not a comprehensive assessment of the challenges and opportunities that exist under health care reform, nor a layout of all of the issues, it looks at some of the key areas in order to demonstrate why employers need to identify critical pathways and the associated risks and benefits of each decision. Key health care reform areas include insurance market reforms, grandfather rules, provisions that have the potential to influence the underlying cost of health care, the individual mandate, the employer mandate (including the free-choice voucher program) and the excise tax on high-cost plans.     

Redefining competition in health care

The U.S. health care system is in bad shape. Medical services are restricted or rationed, many patients receive poor care, and high rates of preventable medical error persist. There are wide and inexplicable differences in costs and quality among providers and across geographic areas. In well-functioning competitive markets--think computers, mobile communications, and banking--these outcomes would be inconceivable. In health care, these results are intolerable, with life and quality of life at stake. Competition in health care needs to change, say the authors. It currently operates at the wrong level. Payers, health plans, providers, physicians, and others in the system wrangle over the wrong things, in the wrong locations, and at the wrong times. System participants divide value instead of creating it. (And in some instances, they destroy it.) They shift costs onto one another, restrict access to care, stifle innovation, and hoard information--all without truly benefiting patients. This form of zero-sum competition must end, the authors argue, and must be replaced by competition at the level of preventing, diagnosing, and treating individual conditions and diseases. Among the authors' well-researched recommendations for reform: Standardized information about individual diseases and treatments should be collected and disseminated widely so patients can make informed choices about their care. Payers, providers, and health plans should establish transparent billing and pricing mechanisms to reduce cost shifting, confusion, pricing discrimination, and other inefficiencies in the system. And health care providers should be experts in certain conditions and treatments rather than try to be all things to all people. U.S. employers can also play a big role in reform by changing how they manage their health benefits.     

The hospital: how will it survive?

The federal government is under pressure to implement and enforce a program to provide economic and social relief from the rapidly escalating health care costs which now consume 8.5% of the Gross National Product. Glick predicts that within the next twenty years, the character of health care institutions will be reshaped and only the most adaptable hospitals, health maintenance organizations and health-related governmental organizations will survive. He urges hospitals to develop appropriate strategies to deal with the problems of cost-containment, state-operated cost review and control agencies, and the competition for limited health care resources. The author warns the health care industry that if it does not adjust to these changes, it runs the risk of becoming heavily rgulated. It is suggested that health care institutions be integrated into comprehensive health care systems and the article includes a model for assigning patients to medical care facilities on a regional basis. Glick forecasts that hospitals will enter into a competition for survival, resulting in mergers of some and the closing of others. He believes that as the number of health care institutions decreases, the remaining ones will become more specialized and geographically dispersed.     

Performance, Productivity and Innovation in Health Care Organisations: Comparing England and Scotland

The political reforms of the public sector, termed "new public management" (NPM), now have a 20-year history. This paper looks at local differences between England and Scotland over a particular dimension of NPM — performance management in health care. In the context of the dynamic reform agenda in the UK, it is expected that these "local" lessons will have some global relevance. This paper elaborates on these inter-country differences and proposes how the approaches in England and Scotland may affect productivity and innovation in health care delivery. It does this by exploring research into the behaviour of the most powerful of health care providers, the senior clinicians in hospitals.     

How to solve the cost crisis in health care

U.S. health care costs currently exceed 17% of GDP and continue to rise. One fundamental reason that providers are unable to reverse the trend is that they don't understand what it costs to deliver patient care or how those costs compare with outcomes. To put it bluntly, few health care providers measure the actual costs for treating a given patient with a given medical condition over a full cycle of care, or compare the costs they incur with the outcomes they achieve. What isn't measured cannot be managed or improved, and this is all too true in health care, where poor costing systems mean that effective and efficient providers go unrewarded, and inefficient ones have little incentive to improve. But all this can be remedied by exploring the concept of value in health care and carefully measuring costs. This article describes a new way to analyze costs that uses patients and their conditions--not organizational units or narrow diagnostic treatment groups--as the fundamental unit of analysis for measuring costs and outcomes. The new approach, called time-driven activity-cased costing, is currently being implemented in pilots at the Head and Neck Center at MD Anderson, the Cleft Lip and Palate Program at Children's Hospital in Boston, and units performing knee replacements at Sch?n Klinik in Germany and Brigham & Women's Hospital in Boston. As providers and payors better understand costs, they will be positioned to achieve a true "bending of the cost curve" from within the system, not in response to top-down mandates. Accurate costing also unlocks a whole cascade of opportunities, such as process improvement, better organization of care, and new reimbursement approaches that will accelerate the pace of innovation and value creation.     

中国金融创新的政策选择、法律制约与制度突破

创新是中国金融业改革发展的客观要求。虽然金融创新的过程中伴随着各种风险的产生,但这并不能成为抑制金融创新的理由。后金融危机时代的中国金融业应该继续加大创新力度,提高金融市场的竞争能力,在金融创新产品的专利权保护、金融监管、金融业的内部风险管理和外部政策完善等方面寻求制度突破。     

Prospects for account-based health plans under the Patient Protection and Affordable Care Act

Account-based health plans (ABHPs), which combine high-deductible plans with either health reimbursement arrangements (HRAs) or health savings accounts (HSAs), have gained popularity in recent years. Because there is growing evidence these plans are indeed engaging consumers and moderating cost increases, employers will need ABHP design options as they strive to bring costs under control in coming years. Some observers, however, are now concerned that benefits standards introduced by federal health care reform will undermine these plans, and many in the business community anticipate new health benefits mandates will drive up employers' total health care costs. The authors show that although the Patient Protection and Affordable Care Act (PPACA) of 2010 includes numerous provisions that will likely increase costs for employers, the law also accommodates, and may even foster, HSAs and HRAs.     

A new equilibrium in health and rewards strategy--prospering in a post-health care reform world

To prosper in the coming years, companies will need to reassess current strategies and approaches related to talent management, total rewards and health benefits in light of the market-driven equilibrium emerging from U.S. health reform. This new equilibrium will be shaped by demographic and employment dynamics, U.S. tax policy, continued globalization and new challenges and opportunities in the health care system. Each company's assessment of the most beneficial balance will reflect its unique business dynamics, industry challenges, geography and size. While in some ways companies' approaches will build on the lessons learned and successes over the past few decades, they will also leverage the new opportunities presented in a postreform world.     

Utilization management and data acquisition: a case study

The more a company knows about the source and nature of its health care costs, the more likely it is to make good cost-effective decisions. Three different companies, with the help of health care management vendors, were able to make significant health cost savings by organizing their data in creative ways. Combining different sources of cost data enabled them to answer questions they could not have answered through any single source.     

Valuation of Corporate Innovation and the Pricing of Risk in the Biopharmaceutical Industry: The Case of Gilead

Much of a firm's market value derives from expected future growth value rather than from the value of current operations or assets in place. Pharmaceutical companies are good examples of firms where much market value comes from expectations about drugs still in the development “pipeline.” Using a new osteoporosis drug being developed by Gilead Sciences, Inc., the author combines discounted cash flow methods values and real option models to value it. Alone, discounted cash flow (DCF) calculations are vulnerable to the assumptions of growth, cost of capital, and cash flows. But by integrating the real options approach with the DCF technique, one can value a new product in the highly regulated, risky and research‐intensive Biopharmaceutical industry. This article shows how to value a Biopharmaceutical product, tracked from discovery to market launch in a step‐by‐step manner. Improving over early real option models, this framework explicitly captures competition, speed of innovation, risk, financing need, the size of the market potential in valuing corporate innovation using a firm‐specific measure of risk and the industry‐wide value of growth operating cash flows. This framework shows how the risk of corporate innovation, which is not fully captured by the standard valuation models, is priced into the value of a firm's growth opportunity. The DCF approach permits top‐down estimation of the size of the industry‐wide growth opportunity that competing firms must race to capture, while the contingency‐claims technique allows bottom‐up incorporation of the firm's successful R&D investment and the timing of introduction of the new product to market. It also specifically prices the risk of innovation by modeling its two components: the consumer validation of technology and the expert validation of technology. Overall, it estimates the value contribution per share of a new product for the firm.     

Liquidity, Transaction Costs, and Reintermediation in Electronic Markets

Relationships between trading cost, technology, and the nature of intermediation in the trading services industry are discussed. Electronic markets are linked to reductions in trading costs. Lower explicit costs are related to system development and operating costs. Electronic order book information is identified as a means of realizing implicit cost savings. The concept of liquidity management in electronic environments is introduced, and its potential is empirically illustrated. The empirical results suggest new roles for brokerage and exchange operations, and competition between the two. Competitive advantage with respect to the provision of liquidity management services is compared across types of intermediaries.     

医保支付之限额付费方式——基于湖南蓝山、桑植两县的调查

医疗保险支付方式是医疗保险机构对医、患(参保人)的付费方式。支付方式改革是当今世界很多国家医改的核心与难题。湖南蓝山县和桑植县推行了限额付费方式改革,参合农民在乡镇卫生院看病就医,门诊、住院费用付费限额内如实自付,超额部分由新农合基金全额报销,同时,对卫生院实行诊疗人次费用、住院床日费用以及总费用控制,对医生实行绩效工资制。创造了有别于"全民免费医疗"的"全民限费医疗"新模式。推广这种新模式的路径是:明确医疗服务的享受主体、服务主体及范围,科学制定总额预付标准,完善监管机制,建立医疗服务与社会医疗保险二位一体的新体制等。     

Potential “Savings” of Medicare: The Analysis of Medicare Advantage and Accountable Care Organizations

Medicare faces significant financial challenges because of rising health care costs. In response, Medicare reform efforts have been testing various payment and service delivery models, including accountable care organizations (ACOs), aiming to reduce expenditures while preserving or enhancing the coordination of quality care. The idea behind ACOs is to form an organizational network to coordinate all care for Medicare beneficiaries and in so doing, at least theoretically, improve quality of care and hopefully reduce medical costs. The purpose of this research is to apply Data Envelopment Analysis (DEA) to assess the potential savings of Medicare obtainable through optimally efficient implementation of ACOs and Medicare Advantage plans. DEA comparisons across plans achieve this purpose by identifying which Medicare plans operate relatively more efficiently and which are inefficient, and additionally, for inefficient plans, the DEA analysis generates target levels of “inputs” and “outputs” required to bring the plan into efficient operation. Knowing sources of inefficiency can also provide insights into Medicare reform, such as Medicare privatization and innovation models. Our results show that Medicare Advantage plans are more efficient in reducing health expenditures but incur higher administrative costs. Health expenditure savings can also be achievable by promoting government-sponsored managed Medicare such as ACOs. Finally, compared to the profit efficiency of Medicaid managed care plans, Medicare Advantage should have the potential for more Medicare market penetration from the supply (insurer) side.     

The next big thing in health benefits: consumer choice

Consumers are the only ones who can affect all decision points that drive health care cost and quality. As a result, consumers' health and financial security depend on their taking more responsibility for their health care decisions and having the tools and information needed to do so successfully. This article explains the five key decision points that drive health care cost and quality, how technology aids marketplace innovations, and how employers can help advance consumer choice in order to push the health care system to deliver better care and keep inflation in check.     

Why the technology for low-cost saving products will make marketing the most important product differentiator: Lessons from the automotive industry

Low-cost saving products for consumers are widely seen as the future direction of the retail savings market. The question that must be asked, however, is whether this future is realistic given the technical and business issues that need to be overcome to deliver these products. If these issues can be overcome then it is necessary to wonder what the financial services industry will look like when selling lowcost products. This paper first looks at why low-cost products are a current area of focus for the retail savings industry and the forces that are driving this issue. It then provides an overview as to why there are significant process and technical obstacles to creating low-cost products, and how these could be overcome (as they have been in other industries) if cost reduction is to improve more than incrementally. It concludes with a discussion as to why, if these obstacles are overcome, marketing will be the discipline that will determine an organisation's success with these products. This paper will primarily consider the UK market as this is where the issue has the clearest focus.     

Hospital cost control: a bitter pill to swallow.

Americans delude themselves if they think that the rising tide of medical costs can be stemmed for long without sacrificing some beneficial care. Elimination of waste from the medical system can achieve large savings. But these savings cannot offset for more than a few years the cost-increasing effects of new medical technology and an aging population. Comparing the American experience with the rationing of health care in Britain, these authors conclude that though the differences are substantial between the two countries, the United States may well need to apply similar constraints, and that Americans will no longer be willing to support a system of unlimited medical care.     

Outlook for hospitals: systems are the solution. Interview by Jeff C. Goldsmith

Like all industries, the health care industry undergoes change. A fragmented system of isolated, free-standing community hospitals is undergoing rapid consolidation into large multihospital corporations and systems. If the history of other industries is any guide, this consolidation will accelerate as the nation instills greater economic competition in the health marketplace. In the future, say the managers of two very different hospital networks, large multihospital systems will predominate. Two big questions, then, are: Should these systems be proprietary or voluntary? And how should they go about meeting people's changing health care needs? These interviews with the physician founders of two multihospital organizations, Hospital Corporation of America in Nashville and Rush-Presbyterian-St. Luke's Medical Center in Chicago, focus on these organizations' contrasting corporate strategies and on the mechanisms that will enable them to survive a shakeout in the industry. The differences between the two systems are linked to the philosophies of their founders, who disagree about how and where patients will get the best treatment.