ON THE IDEAL MARKET-STRUCTURE FOR 3RD-PARTY PURCHASING OF HEALTH-CARE

The ideal market structure would give each medical care organization e ffective incentives to produce maximum value for money for enrolled su bscribers. It should be based on integrated financing and delivery sys tems-partnerships that link doctors, hospitals and insurers-with per c apita prepayment, with providers at risk for cost of care and cost of poor quality, publicly accountable for quality and per capita costs. T he ideal market structure must be managed by active intelligent collec tive purchasing agents, called sponsors, that contract with health car e systems and set the rules of competition. Sponsors structure and man age the enrollment process; they create price-elastic demand; they man age risk selection; and they create and administer equitable rules of coverage. Microeconomic theory tells us what sponsors should do to get the market incentives right. There is no comparable political theory to tell us how their boards of directors should be constituted. The pa per offers a list of undesirable political arrangements to be avoided and some desirable features of sponsor constitutions.