Managed Competition in Practice: 'Value Purchasing' by Fourteen Employers

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Many large U.S. companies have transformed their procurement of health benefits in the 1990s by combining the principles of managed competition with other business tactics to create a business-savvy hybrid of the private sector's own design, often referred to as "value purchasing." Until recently, few policymakers or health care observers believed that large firms would be a force in health system reform. Yet to implement value purchasing, the large companies in this study created new organizational forms, provided employees with financial incentives to select low-cost health plans, and used business tactics such as competitive bidding to negotiate more favorable rates and to improve quality among health plans. The financial results were impressive for the companies studied. In addition, the companies' demands on the health care delivery system are multiplying as the interface between business firms and health care organizations changes. These demands will only increase as the practices we found become more widespread.

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