Here is a summary of Michael Porter's arguments for different kinds of competition in the health care industry. While I did some research on the pharmaceutical industry for a paper in graduate school, I confess that I'm not up to speed on the health industry as a whole. But I found this argument of Porter's compelling.
They start by acknowledging that competition, as it has been introduced to America's health system, has in fact done more harm than good. But they argue that competition has been introduced piecemeal, in incoherent and counter-productive ways that lead to perverse incentives and worse outcomes: "health-care competition is not focused on delivering value for patients," they say.
The authors offer a mix of solutions to fix this mess, and thereby to put the sector on a genuinely competitive footing. First comes the seemingly obvious (but as yet unrealised) goal of data transparency. Second is a redirection of competition from the level of health plans, doctors, clinics and hospitals, to competition "at the level of medical conditions, which is all but absent". The authors argue that the right measure of "value" for the health sector should be how well a patient with a given health condition fares over the entire cycle of treatment, and what the cost is for that entire cycle. That rightly emphasises the role of early detection and preventive care over techno-fixes, pricey pills and the other failings of today's system.
I think that part of the reason for a lack of rational thought in the industry today stems from the strong emotions tied to so many health care events (i.e pregnancy, cancer, etc.). Here in Louisville, health care is a huge industry (Humana's hq is here) and there is lots of investment money available, particularly for I.T. based health care startups. If you have good ideas, this would be an excellent place to start a company to solve some of these issues.