Kenneth Kaufman: Protectionism is not a strategy

Ultimately, a strategy designed to thwart change and innovation is futile. In our economic society, consumer preference will prevail.

A new analysis shows the incredible speed and intensity of Uber's encroachment on the traditional taxi industry. In just 15 months, between January 2014 and March 2015, Uber's share of business ground transportation increased from 14 percent to 47 percent, while the traditional taxi share fell from 86 percent to 52 percent, based on expense reports submitted through Certify software.[1]

At an unprecedented pace, consumers are voting with their feet for the overall experience and frequently lower prices of Uber. This is not just a shift in carriers; it is also a shift in dollars from one set of providers to another. Like most industries faced with a drastic loss of income, the taxi industry is not taking this change lying down.

Some taxi companies are following Uber's lead and offering apps for riders to schedule pick-ups. However, the taxi industry appears to be focused less on reinventing itself to better serve consumers and more on using regulation to protect their existing business.

Despite heavy protests from the taxi industry, Uber has made significant inroads across the country. The last major battleground appears to be airports. In New York, a new Taxi and Limousine Commission proposal would prevent Uber vehicles from meeting riders within established pickup areas at LaGuardia Airport. According to the Commission, the rules are designed to protect consumers "while leveling the market playing field."[2] In Chicago, the Mayor's office recently announced it is not planning to allow Uber to serve the city's airports, alluding to Uber's efforts to "game the system," an apparent reference to widely reported tactics that Uber drivers use to escape detection while picking up passengers at major airports.[3]

One attraction of Uber for air travelers is the ability to bypass long airport taxi lines. A representative of Chicago taxi drivers commented, "Even though the waits are very long, O'Hare is the place where we know we can make money… We've already had plenty of money taken from us on the streets of Chicago. We can't allow it at the airports."[4]

Similar stories are pervasive in healthcare. One example involves independent freestanding emergency departments (IFEDs). Like hospital-affiliated EDs, IFEDs are staffed by physicians and are open 24 hours a day. Unlike hospital EDs, IFEDs limit their services to minor emergencies. Although IFED prices are similar to those of traditional EDs, IFEDs tap the desire of consumers to have emergency care closer to home and to avoid the long waits of traditional EDs.

The number of IFEDs is growing dramatically. Nationwide, the number has increased from about 145 in 2009 to more than 400 in 2014.[5] Since 2010, 145 IFEDs opened in Texas, which was the first state to license freestanding EDs not operated by hospitals.[6] First Choice Emergency Room, the nation's largest freestanding ED company, increased its locations from 14 in 2012 to 67 in 2015.[7] An industry analyst said that First Choice works at "the sub-ZIP code" level to identify locations that provide desired demographics, traffic, and visibility.[8]

Legacy forces have opposed regulatory changes that would relax restrictions on non-hospital-owned EDs. In California, where a proposed bill would allow distressed hospitals to be replaced with IFEDs, a California Nurses Association representative called IFEDs "a fraud on the public" because they do not provide the same level of emergency care as hospital EDs.[9] A similar bill in Illinois designed to permit an IFED to replace a closed hospital met with opposition that pointed out there are 10 hospitals within 10 minutes of the proposed IFED site.

A similar example involves nurse practitioners, who play a key role in efforts to enhance access and lower costs. Between 2003 and 2014, the pipeline of new nurse practitioner graduates increased 180 percent—from 6,611 to 18,484. Between 2013 and 2014, growth was 15.3 percent.[10] However, the growth of the profession has been accompanied by struggles to achieve legislative authority for fully independent practice.

Currently, 29 states limit the scope of practice for nurse practitioners and require that they have either on-site physician supervision or a contractual relationship with a physician,[11] which generally involves a fee. Pennsylvania is one state requiring a contractual agreement between nurse practitioners and physicians. Bills recently introduced in the Pennsylvania House and Senate call for an end to that requirement with the intent to "provide more accessibility and more affordable healthcare" in rural communities, according to State Representative Jesse Topper. The president of the Pennsylvania Medical Society, however, expressed concern about the lack of oversight of nurse practitioners, saying that "the physician should be the leader of the team because of the education, knowledge, and clinical experience that they have."[12]

Ultimately, a strategy designed to thwart change and innovation is futile. In our economic society, consumer preference will prevail. Consumers will not choose to wait in a long line to ride in a bumpy taxi when, with the touch of a button on an app, they can be met promptly by a nicer car—often at a lower price. Similarly, people with a minor emergency in the middle of the night will not choose to travel to a hospital emergency department when they can receive treatment faster in a more congenial environment closer to home. Nor will consumers choose to visit a physician's office for a routine matter that can be handled by a nurse practitioner in a retail clinic or through an app. Consumers are rarely moved by exhortations to protect the income stream of legacy providers whose services they find inconvenient or that they no longer desire.

In addition, the regulatory tide inevitably will turn toward accommodating innovation. After a period of operating outside the existing regulatory framework, Uber's regulatory battles have been fierce, but they have achieved notable success. Uber currently operates in 163 cities and metropolitan areas throughout the U.S., and in 57 other countries.[13] As of January 2015, 17 U.S. cities and four states have passed ordinances that favor Uber.[14] A similar momentum exists in healthcare. Proposed regulations related to IFEDs are designed to relax restrictions rather than heighten them. In the past four years, seven states have adopted full-practice authority for nurse practitioners. Today, 21 states and the District of Columbia have that model of regulation. Also within the past few years, a growing number of patient advocacy groups, employers, hospitals, and others have endorsed legislation providing full-practice authority for nurse practitioners.[15]

The core rationale for resisting innovation is less about consumer benefit than economic protectionism. Efforts to use regulation as a weapon to fight healthcare innovations usually are presented as protecting the quality of patient care. However, when innovations support quality, have the potential to reduce healthcare spending, and represent enhanced consumer access and convenience, efforts to resist them are more likely rooted in protecting existing income.

It comes down to this: Here is what Uwe Reinhardt, one of the smartest economists in the country, says about efforts of legacy providers to resist change and innovation. His comment pertains to doctors and nurse practitioners, but applies far more broadly. It can't be said any better:

"The doctors are fighting a losing battle. The nurses are like insurgents. They are occasionally beaten back, but they'll win in the long run. They have economics and common sense on their side."[i]
The unsustainability of healthcare spending in the U.S. at almost 18 percent of total GDP means that healthcare must change. The unprecedented advances of the Internet economy suggest the potential for that change. Although the healthcare system is much larger and more complex than the taxi industry, the rise of Uber at the expense of legacy taxi companies shows how rapidly change can occur when a new business model creates significantly increased value for the consumer.

In such an environment, protecting the status quo is futile. Legacy entities would better serve their communities' interests and their own economic interests by dedicating their available energy, talent, and capital to being part of healthcare's reinvention. Protectionism is not a long-term strategy.

Your comments are welcome. I can be reached atkkaufman@kaufmanhall.com.

The following column was republished with permission from Kaufman Hall. It was originally featured on Kaufman Hall's blog, found here.

[1] Certify: "Sharing the Road: Business Travelers Increasingly Choose Uber." April 7, 2015. https://www.certify.com/2015-04-07-Sharing-the-Road-Business-Travelers-Increasingly-Choose-Uber
[2] Rivoli, D.: "Uber Cars Getting Pushed Out of LaGuardia? New TLC Proposal Would Place Uber Outside the Airport's Passenger Pickup Areas." AM New York, April 29, 2015. http://www.amny.com/news/uber-cars-getting-pushed-out-of-laguardia-new-tlc-proposal-would-place-uber-outside-the-airport-s-p-1.10344638
[3] Spielman, F.: "Emanuel Nixes Uber Attempt to Make Airport Pickups." Chicago Sun Times, June 2, 2015. http://chicago.suntimes.com/news/7/71/655756/emanuel-nixes-uber-airport-pickups
[4] Spielman (June 2, 2015).
[5] Draper, E.: "Freestanding ERs Draw Patients, Critics and Legislation." The Denver Post, March, 6, 2014. http://www.denverpost.com/news/ci_25349086/free-standing-ers-draw-patients-critics-and-legislation; Herman, B.: "When the Tiny Hospital Can't Survive: Free-Standing EDs with Primary Care Seen as New Rural Model." Modern Healthcare, Sept. 27, 2014. http://www.modernhealthcare.com/article/20140927/MAGAZINE/309279952
[6] Etter, L.: "The Texas Approach to Emergency Treatment." Bloomberg, May 15, 2015. http://www.bloomberg.com/politics/articlesss/2015-05-15/the-texas-approach-to-emergency-treatment
[7] Adeptus Health Inc.: U.S. Securities and Exchange Commission filing, June 20, 2014. http://www.sec.gov/Archives/edgar/data/1602367/000104746914005759/a2220427zs-1a.htm; First Choice Emergency Room website: Locations. http://www.fcer.com
[8] Ghose, C.: "What Makes First Choice ER Tick?" Columbus Business First, Aug. 29, 2014. http://www.bizjournals.com/columbus/print-edition/2014/08/29/what-makes-first-choice-er-tick.html
[9] Etter, L. (May 15, 2015).
[10] Salsberg, E.: "The Nurse Practitioner, Physician Assistant, and Pharmacist Pipelines: Continued Growth." Health Affairs Blog, May 26, 2015. http://healthaffairs.org/blog/2015/05/26/the-nurse-practitioner-physician-assistant-and-pharmacist-pipelines-continued-growth/
[11] American Association of Nurse Practitioners website: "State Practice Environment." http://www.aanp.org/legislation-regulation/state-legislation/state-practice-environment/66-legislation-regulation/state-practice-environment/1380-state-practice-by-type
[12] Gordon, E.: "Pa. Bill Would Allow Nurse Practitioners to Work Independent from Doctors." Newsworks," March 23, 2015. http://www.newsworks.org/index.php/local/healthscience/79826-pa-bill-would-allow-nurse-practitioners-to-work-independent-from-doctors
[13] Uber website: Our cities. https://www.uber.com/cities
[14] MacMillan, D.: "Uber Laws: A Primer on Ridesharing Regulations." The Wall Street Journal, Jan. 29, 2015. http://blogs.wsj.com/digits/2015/01/29/uber-laws-a-primer-on-ridesharing-regulations/
[15] Taynin Kopanos, DNP, NP, Vice President, State Government Affairs, American Association of Nurse Practitioners, personal communication, June 4, 2015.
[16] Tavernise S. "Doctoring, Without the Doctor." The New York Times, May 25, 2015. http://www.nytimes.com/2015/05/26/health/rural-nebraska-offers-stark-view-of-nursing-autonomy-debate.html

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