Impact on Competition in Healthcare” Subcommittee on ... · Impact on Competition in...
Transcript of Impact on Competition in Healthcare” Subcommittee on ... · Impact on Competition in...
“ThePatientProtectionandAffordableCareAct,Consolidation,andtheConsequentImpactonCompetitioninHealthcare”
SubcommitteeonRegulatoryReform,CommercialandAntitrustLaw
CommitteeontheJudiciaryUnitedStatesHouseofRepresentatives
BarakD.Richman*BartlettProfessorofLawandBusinessAdministration
DukeUniversity
I. Introduction.......................................................................................................................................1
II. ExplainingPastFailuresinAntitrustPolicy........................................................................4
A.DispellingtheMyththatNonprofitHospitalsDoNotExercisePricingPower....6
B.DispellingtheMyththatNonprofitHospitalsUseProfitsforCharitablePurposes...........................................................................................................................................10
III. TheParticularCostlinessofHealthcareProviderMonopolies:MarketPower+Insurance.........................................................................................................................................15
A.Supra‐MonopolyPricing...........................................................................................................16
B.MisallocativeConsequences....................................................................................................19
IV. ANewAntitrustAgenda............................................................................................................22
A.TheSpecialProblemofAccountableCareOrganizations..........................................24
B.RequiringUnbundlingofMonopolizedServices............................................................29
C.ChallengingAnticompetitiveTermsinInsurer‐ProviderContracts......................32
V. Conclusion.......................................................................................................................................35
*ManyoftheideasexpressedhereinarederivedfromscholarshipcoauthoredwithClarkC.Havighurst.
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I. Introduction
ThankyouMr.Chairmanandmembersofthecommittee.Itisanhonortotestify
beforeyouonatopicthatisextraordinarilyimportanttoournation’slong‐term
fiscalhealth.
LateststatisticsrevealthattheUnitedStatesspendsnearly18%ofitsGross
DomesticProductonhealthcareservices.ThisisnearlytwicetheaverageforOECD
nationsandfarmorethan#2,whichspendslessthan12%.Viewedanotherway,
theUnitedStatesinpurchase‐adjusteddollarsspendsmorethantwo‐and‐a‐half
timestheOECDaveragepercapitaonhealthcareandmorethanone‐and‐a‐half
timesthesecondlargestspender.Yetinspiteofourleadershipinhealthcare
spending,wearesafelyinthebottomhalfofOECDnationsonmostmeasuresof
healthcareoutcomes.
Wearespendingtoomuchandgettingtoolittleinreturn,andthenationsimply
isonanunsustainabletrajectory.Alldiscussionsabouthealthcarepolicyshould
beginwiththerecognitionthatcurbinghealthcarespendingneedstobeamongour
highestnationalpriorities.Thecostofprivatehealthinsuranceisbankrupting
companiesandfamiliesalike,andthecostofpublichealthcareprogramsareputting
unmanageableburdensonthefederalandstatebudgets.
Manystudiessuggestthatthecostofhealthcareisunsustainablenotbecausewe
consumetoomuchhealthcare,butbecausewepaytoomuchforthehealthcarethat
wedoconsume.Inotherwords,asonestudyputitfamously,“It’sthePrices,
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Stupid.”1Andoneofthemostseverecontributorstotheriseofhealthcareprices
hasbeenthealarmingriseinmarketpowerbyhealthcareproviders.
Thepastseveraldecadeshavewitnessedextraordinaryconsolidationinlocal
hospitalmarkets,withaparticularlyaggressivemergerwaveoccurringinthe
1990s.By1995,mergerandacquisitionactivitywasninetimesitslevelatthestart
ofthedecade,andby2003,almostninetypercentofAmericanslivinginthenation’s
largerMSAsfacedhighlyconcentratedmarkets.2Thiswaveofhospital
consolidationalonewasresponsibleforsharppriceincreases,includingprice
increasesof40%whenmerginghospitalswerecloselylocated.3Evenafterthis
mergerwaveinthe1990spromptedalarm,asecondmergerwavefrom2006to
2009significantlyincreasedthehospitalconcentrationin30MSAs,andthevast
majorityofAmericansarenowsubjecttomonopolypowerintheirlocalhospital
markets.4
1GerardF.Andersonetal.,It’sthePrices,Stupid:WhytheUnitedStatesIsSoDifferentfromOtherCountries,HEALTHAFFS.,May‐June2003,at89.2WilliamB.Vogt&RobertTown,HowHasHospitalConsolidationAffectedthePriceandQualityofHospitalCare?RobertWoodJohnson(2006);ClaudiaH.Williams,et.al.,HowHasHospitalConsolidationAffectedthePriceandQualityofHospitalCare?ROBERTWOODJOHNSONFOUND.,(2006),availableatwww.rwjf.org/files/research/no9policybrief.pdf3Id.Forsurveysofhowhospitalconsolidationshaveincreasedhospitalprices,seeGloriaJ.Bazzolietal.,HospitalReorganizationandRestructuringAchievedThroughMerger,27HEALTHCAREMGMT.REV.7(2002);MartinGaynor,CompetitionandQualityinHealthCareMarkets,2FOUNDATIONS&TRENDSINMICROECONOMICS441(2006);seealsoWilliamB.Vogt,HospitalMarketConsolidation:TrendsandConsequences(2006),NAT’LINST.FORHEALTHCAREMGMT.,availableathttp://nihcm.org/pdf/EV‐Vogt_FINAL.pdf(documentingtheextentofprovidermarketconcentrationamonghospitals&otherproviders).4CoryCapps&DavidDranove,MarketConcentrationofHospitals(June2011),availableat:http://www.ahipcoverage.com/wp‐content/uploads/2011/10/ACOs‐Cory‐Capps‐Hospital‐Market‐Consolidation‐Final.pdf
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Hospitalsandhospitalnetworksdidnotachievethismarketdominancethrough
“superiorskill,foresight,andindustry,”5whichwouldbeunobjectionableunderthe
antitrustlaws.Tothecontrary,thisconsolidationoccurredbecauseofmergersand
acquisitions,andpermittinghospitalmarketstoachievesuchremarkablelevelsof
consolidationrepresentsamajorfailureofourantitrustpolicy.Thereisplentyof
blametoshare—bothDemocraticandRepublicanAdministrations;Congress,the
Executive,andtheCourts—butwearenowinapositionwherewemustcopewith
hospitalmonopolists.Inotherwords,wenotonlymustresistanyadditional
consolidationthatcreatesgreatermarketpower,butwemustdeveloppolicytools
thatstemtheharmthatcurrenthospitalmonopolistsareinapositiontoinflict.
Mytestimonyisdividedintothreeparts.Thefirstbrieflyreviewssomeofthe
failuresofantitrustpolicythatpermittedhospitalconsolidations,withafocuson
courtdecisionsinthe1990s.Thesecondpartexplainswhyhospitalandhealthcare
providermonopolypowerisespeciallycostly,evenmorecostlytoAmerican
consumersthanwhatonemightcalla“typical”monopolist.Thethirdpart,
discussesavailablepolicyinstrumentstoprotecthealthcareconsumersagainst
currentandgrowinghospitalmonopolists.Ofparticularinterestismonitoringthe
unfurlingofAccountableCareOrganizations(“ACOs”),whichareencouragedbythe
PatientProtectionandAffordableCareAct(“ACA”)and,thoughaimingtoaddress
importantfailuresincoordinatingcare,poseaseriousdangertocreatingadditional
providermarketpower.
5UnitedStatesv.AluminumCo.ofAmerica,148F.2d416,430(2dCir.1945)(Hand,J.)(“Thesuccessfulcompetitor,havingbeenurgedtocompete,mustnotbeturneduponwhenhewins.”)
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II. ExplainingPastFailuresinAntitrustPolicy
Eversincetheantitrustlawswerefirstappliedsystematicallyinthehealthcare
sectorinthemid‐1970s,somejudgesandcommentatorshaveresistedgivingthe
statutorypolicyoffosteringcompetitionitsdueeffectinhealthcaresettings.6
Between1995and2000,forexample,antitrustenforcersencounteredjudicial
resistancewhenchallengingmergersofnonprofithospitals,sufferingasix‐case
losingstreakinsuchcasesinthefederalcourts.7Althoughmostofthosepro‐
mergerdecisionsostensiblyturnedonfindingsoffact(mostlyinidentifyinga
geographicmarketinwhichtoestimatethemerger’sprobableeffectson
6ForcasesinwhichtheSupremeCourtfounditnecessarytooverrulelowercourts’attemptstoinferspecialantitrustexemptionsorcraftsofterantitrustrulesforhealthcareproviders,seeNationalGerimedicalHospitalandGerontologyCenterv.BlueCrossofKansasCity,452U.S.378(1981)(rejectingimpliedexemptionformarket‐allocationagreementsbrokeredbyhealthplanningagenciescreatedunderfederalstatute);Patrickv.Burget,486U.S.94(1988)(rejectingstatelegislature’sencouragementofphysicianpeerreviewinhospitalsasabasisforexemptingabusesfromfederalantitrustremedies);SummitHealthv.Pinhas,500U.S.322(1991)(easingstandardforestablishingpotentialeffectofhospitalmedicalstaffdecisionsoninterstatecommerce);Arizonav.MaricopaCountyMedicalSoc’y,457U.S.332(1982)(treatingphysicians’collectiveagreementsonmaximumpricesasunlawfulbecauseclaimofprocompetitiveeffectswasfaciallyunconvincing);FTCv.IndianaFederationofDentists,476U.S.447(1986)(upholdingadequacyofevidencetosupportFTCfindingthatdentists’agreementtodenyinsurersaccesstopatients’x‐rayswasanticompetitive,notprocompetitive).ButseeCaliforniaDentalAss'nv.FTC,526U.S.756(1999)(raisingFTC’sburdenofproofinfindinganticompetitivecollectiveactionbyhealthprofessionals).ThelatterdecisioniscriticallyexaminedinClarkC.Havighurst,HealthCareasa(Big)Business:TheAntitrustResponse,26J.HEALTHPOL.POL’Y&L.939,949‐53(2001).TheantitrustmovementinhealthcarewastriggeredinpartbytheSupremeCourt’srejectionin1975ofgeneralantitrustimmunityfortheso‐called“learnedprofessions.”Goldfarbv.VirginiaStateBar,421U.S.773(1975).SeegenerallyCARLF.AMERINGER,THEHEALTHCAREREVOLUTION:FROMMEDICALMONOPOLYTOMARKETCOMPETITION(2008).7U.S.FED.TRADECOMM’NANDU.S.DEPT.OFJUSTICE,IMPROVINGHEALTHCARE:ADOSEOFCOMPETITIONch.4,at1‐2n.7(2004),availableathttp://www.usdoj.gov/atr/public/health_care/204694.htm(accessed13May2009)[hereinafterDOSEOFCOMPETITION].
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competition),thosefindingswereoftensoarbitraryastosignifyjudicialskepticism
aboutthewisdomofapplyingantitrustlawrigorouslyinhospitalmarkets.8Evenas
nonprofithospitalsbecametheprimaryproviderofthenation’shospitalcare—
responsiblefor73%ofadmissions,76%ofoutpatientvisits,and75%ofhospital
expenditures—theytendedtoenjoyselectivescrutinyundertheantitrustlaws.
Implicitly,andoftenexplicitly,thejudgesseemedtoharborabeliefthatnonprofit
hospitalseitherwouldnotexerciseorwouldputtogooduseanymarketpowerthey
mightpossess.9
Thecourts’inabilityovertimetoapplyantitrustlawrigorouslytothebig
businessofhealthcare—andtheFTC’sfailureinconvincingthemtodoso,and
8Fordiscussionsofthesecasesandofthegeneralambivalencetowardscompetitioninhealthcaremarkets,seeBarakD.Richman,AntitrustandNonprofitHospitalMergers:AReturntoBasics,156U.PA.L.REV.121(2007);MartinGaynor,WhyDon’tCourtsTreatHospitalsLikeTanksforLiquefiedGasses?SomeReflectionsonHealthCareAntitrustEnforcement,31J.HEALTHPOL.POL’Y&L.497(2006);ThomasL.Greaney,NightLandingsonanAircraftCarrier:HospitalMergersandAntitrustLaw,23AM.J.L.&MED.191(1997).9ThedistrictjudgeinFTCv.ButterworthHealthCorp.,946F.Supp.1285(W.D.Mich.1996),wasespeciallyunambiguousinchampioningnonprofithospitalsasbenignmonopolists:
Permittingdefendanthospitalstoachievetheefficienciesofscalethatwould clearly result from the proposed merger would enable theboard of directors of the combined entity to continue the quest forestablishment of world‐class health facilities in West Michigan, acoursetheCourtfindsclearlyandunequivocallywouldultimatelybeinthebestinterestsoftheconsumingpublicasawhole.
Id.at1302.Likewise,thejudgerevealedahostilitytopricecompetitionbetweenhospitals,remarkingthat“[i]ntherealworld,hospitalsareinthebusinessofsavinglives,andmanagedcareorganizationsareinthebusinessofsavingdollars.”Id.TheButterworthcourtwasnotaloneinitspredilections.AMissourijudge,reviewingahospitalmergerchallengedbytheFTC,remarkedtothefederalagency,“Idon’tthinkyou’vegotanybusinessbeinginhere....ItlookstomelikeWashington,D.C.onceagainthinkstheyknowbetterwhat’sgoingoninsouthwestMissouri.IthinktheyoughttostayinD.C.”FTCv.FreemanHosp.,69F.3d260,263(8thCir.1995)(quotingdistrictcourtoralhearing).
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Congress’failureininstructingthemtodoso—isoneimportantreasonwhymany
healthcaremarketsarenowdominatedbyfirmswithalarmingpricing
power.10Fortunately,thegovernmenthasmorerecentlywonbacksomeofthelegal
grounditlost.
A.DispellingtheMyththatNonprofitHospitalsDoNotExercisePricingPower
In2007,theFederalTradeCommission(FTC),inacasechallengingamergerof
nonprofithospitalsonChicago’sNorthShore,foundconvincingproofthat,following
themerger,thenewentityhadsubstantiallyraisedpricestomanaged‐care
organizations.11Thecasewasunusualbecause,ratherthaninterveningtostopthe
acquisitionwhenitwasfirstproposed,theCommissioninitiateditschallengefour
yearsafterthemergerwasconsummated.Bringingthecaseatthatstage
accomplishedtwothings:First,itmadeitunnecessaryfortheCommissiontoseeka
preliminaryinjunctionagainstthemergerinfederalcourt–whereantitrust
enforcershadlostthesixpreviouscases.Second,challengingacompletedmerger
gavetheCommission’sstaffanopportunitytodemonstrateinfact,andnotjustin
theory,thatnonprofithospitalsgainingnewmarketpowerwilluseittoincrease
10Forsurveysofhowhospitalconsolidationshaveincreasedhospitalprices,seeG.B.Bazzoli,etal.,“HospitalReorganizationandRestructuringAchievedthroughMerger,”27HEALTHCAREMANAGEMENTREV.7(2002);MartinGaynor,CompetitionandQualityinHealthCareMarkets,2FOUNDATIONSANDTRENDSINMICROECONOMICS441(2006);WilliamB.Vogt,HowHasHospitalConsolidationAffectedthePriceandQualityofHospitalCare?,THESYNTHESISPROJECT,at9(2006).SeealsoSeeWilliamB.Vogt,HospitalMarketConsolidation:TrendsandConsequences,EXPERTVOICES,NIHCMFoundation,availableat:http://nihcm.org/pdf/EV‐Vogt_FINAL.pdf(documentingtheextentofprovidermarketconcentrationamonghospitals&otherproviders).11InreEvanstonNorthwesternHealthcareCorp.,2007WL2286195(F.T.C.2007).
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prices.ThedirectproofobtainedintheEvanstonNorthwesterncasemakesit
unlikelythatfuturefederalcourtswillallowtheconsummationofmergersof
nonprofithospitalsundertheillusionthatsuchmergersdonothavetheusualanti‐
competitiveeffects.
TheFTC’sfindingsinEvanstonNorthwesternalsodiscreditedexpert
economictestimonythatonecourthadcitedprominentlyinapprovingahospital
mergerinGrandRapids,Michigan.Thattestimonyrestedonempiricalresearch
purportingtoshowthatinconcentratedmarketsnonprofithospitalsgenerallyhad
lowerpricesthancorrespondingfor‐profits.12Althoughthatresearchhadbeen
effectivelydiscreditedinlatereconomicstudies,13thefactsfoundinEvanston
Northwesternshouldputfinallytorestthenotionthatnonprofithospitalsare
immunefromthetemptationtoraisepriceswhentheyareinapositiontodoso.
EvanstonNorthwestern’sfindingsalsoundercutthecommonbeliefthat
communityleadersonanonprofithospital’sgoverningboardarevigilantabout
healthcarecosts.ThejudgeintheGrandRapidscasepermittedthemergerinpart
becausethechairmenofthetwohospitals’boardseachrepresentedalargelocal12FTCv.ButterworthHealthCorp.,946F.Supp.1285,1297(W.D.Mich.1996)(citingexpert’sfindingssuggesting“thatasubstantialincreaseinmarketconcentrationamongnonprofithospitalsisnotlikelytoresultinpriceincreases”).Theexpertcitedbythecourt,WilliamJ.Lynk,reachedthesameconclusioninscholarlyarticles.WilliamJ.Lynk,NonprofitHospitalMergersandtheExerciseofMarketPower,38J.L.&ECON.437(1995);WilliamJ.Lynk,PropertyRightsandthePresumptionsofMergerAnalysis,39ANTITRUSTBULL.363,377(1994).13SeeDOSEOFCOMPETITION,supranote7,ch.4,at33(concluding“thebestavailableevidenceindicatesthatnonprofitsexploitmarketpowerwhengiventheopportunitytodoso”);DavidDranove&RichardLudwick,CompetitionandPricingbyNonprofitHospitals:AReassessmentofLynk’sAnalysis,18J.HEALTHECON.87(1999);EmmettB.Keeler,GlennMelnick,&JackZwanziger,TheChangingEffectsofCompetitiononNon‐ProfitandFor‐ProfitHospitalPricingBehavior,18J.HEALTHECON.69(1999).
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employerand“testifiedconvincinglythattheproposedmerger[was]motivatedbya
commondesiretolowerhealthcarecosts....”14Inthissamevein,aproponentof
anotherhospitalmergernotlongagogaveassurancethatallowingitwouldnot
causehealthinsurancepremiumstoincreasebecauseseveralhospital“board
members...areemployerswhoworryaboutthecostofhealth‐care.”15Economists
generallyagree,however,thatemployeesthemselves,notemployers,ultimately
bearthecostoftheirownhealthcoverageinreducedwagesorotherfringe
benefits.16Tobesure,employersareneverhappytopayhigherinsurance
premiumsandwouldprefertoincreasetheiremployees’compensationinmore
visibleways.Buttheyareultimatelycommittingtheirworkers’money,nottheir
own(ortheirshareholders’),inhospitalboardrooms.Moreover,nonprofithospitals
havefewlegalorinstitutionalreasonstoengageinonlyprogressive
redistribution.17Ingeneral,communityleadersonnonprofithospitalboardshave
littleincentivetoresistanyhospitalprojectthatseemsgoodforthecommunityifit
canbefinancedfromthehospital’sreservesandfuturesurpluses.
14946F.Supp.at1297.15FeliceJ.Freyer,HospitalMergerReactionCautious,PROVIDENCEJOURNAL‐BULLETIN,July29,2007,atB1(describingproposedmergerofRhodeIsland’stwolargesthospitalsystems).SeealsoFTCv.FreemanHospital,911F.Supp.1213,1222(W.D.Mo.1995)(“ifanonprofitorganizationiscontrolledbytheverypeoplewhodependonitforservice,thereisnorationaleconomicincentiveforsuchanorganizationtoraiseitspricestothemonopolylevel,evenifithasthepowertodoso”)16SeegenerallyJonathanGruber,HealthInsuranceandtheLaborMarket(Nat’lBureauofEcon.Research,WorkingPaperNo.6762,1998)(reviewingtheempiricalliteratureandfinding“afairlyuniformresult:thecostsofhealthinsurancearefullyshiftedtowages”).17SeeTimothyGreaney&KathleenBoozang,Mission,MarketandTrustintheNonprofitHealthcareEnterprise,5YALEJ.HEALTHLAW&POL.1(2005);ClarkC.Havighurst&BarakD.Richman,DistributiveInjustice(s)inAmericanHealthCare,LAW&CONTEMP.PROBS.,Autumn2006,at22‐24.
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ArecentreportbytheMassachusettsAttorneyGeneraldocumentshow
nonprofithospitalsinthatstatehaveaggressivelyexploitedtheirmarketpower,
evenwhenhealthcarecostswerestranglingpublicandprivatebudgets.18
FollowingMassachusetts’spassageofthenation’sfirstlegislativeefforttoachieve
universalhealthcoverage,thestatelegislaturedirectedtheAttorneyGeneralto
analyzethecausesofrisinghealthcarecosts.Theresultingreportconcludedthat
pricesforhealthservicesareuncorrelatedwitheitherqualityorcostsofcarebut
insteadarepositivelycorrelatedwithprovidermarketpower.19Thereportfurther
observedthatprominentnonprofitacademicmedicalcenters—specifically,the
MassachusettsGeneralHospitalandBrighamandWomen’sHospital,whichhad
mergedin1993tocreatePartnersHealthCare—weremostresponsiblefor
leveragingtheirmarketandreputationalpowertoextracthighpricesfrom
insurers.20ReportingbytheBostonGlobehadpreviouslyshownthesurprising
extenttowhichPartnerswasabletoextractextraordinarypricesinagreements
withpresumablycost‐consciousinsurers.21Forexample,whensomeinsurers,such
astheTuftsHealthPlan,resistedPartners’demandsforpriceincreasesandtriedto
assemblenetworkswithBoston’sotherhospitals,Partnerslaunchedanaggressive18MassachusettsAttorneyGeneral,ExaminationofHealthCareCostTrendsandCostDriversPursuanttoG.L.c.118G,§6½(b)(March16,2010),availableat:http://www.mass.gov/Cago/docs/healthcare/final_report_w_cover_appendices_glossary.pdf[hereinafter“HealthCareCostTrends”]19Id.at16‐33.20Id.;seeespecially29‐30.21SpecialReport:UnhealthySystem,availableat:http://www.boston.com/news/specials/healthcare_spotlight/(detailingspecialreportingonPartnersHealthCare,culminatinginathree‐partseries);“AHealthcareSystemBadlyOutofBalance,”BostonGlobe,Nov.16,2008;“FueledbyProfits,aHealthcareGiantTakesAimatSuburbs,”BostonGlobe,Dec.21,2008;“AHandshakeThatMadeHealthcareHistory,”BostonGlobe,Dec.28,2008.
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marketingcampaignthattriggeredthreatsbymanyofTufts’corporatecustomersto
switchinsurers.22
Theforegoingobservationsshouldfinallydispelanyimpressionthat
nonprofithospitals,ascommunityinstitutions,cansafelybeallowedtopossess
marketpoweronthetheorythat,asnonprofits,theycanbetrustednottoexercise
it.
B.DispellingtheMyththatNonprofitHospitalsUseProfitsforCharitablePurposes
Federaljudgesmayhavetoleratedmergersconferringnewmarketpoweron
nonprofithospitalslessbecausetheythoughtthehospitalswouldnotexercisethat
powerthanbecausesuchhospitalsseemedtodifferfromconventionalmonopolists
inwaysthatshouldlessensocialconcernabouttheirenrichment.Specifically,
nonprofit,tax‐exempthospitalsarerequiredbytheirchartersandthefederaltax
codetoretaintheirprofitsandusethemonlyfor“charitable”purposes.Thus,ifone
couldassumethattheredistributionsofwealthresultingfromtheexerciseof
marketpowerbynonprofithospitalsrungenerallyfromrichertopoorerrather
thanintheoppositedirection,therewouldbeatleastanargumentforviewing
nonprofithospitalmonopoliesasbenignforantitrustpurposes.Althoughsuchan
argumentwouldbebasedonaquestionablereadingoftheantitruststatutes,one
22“AHandshakeThatMadeHealthcareHistory,”id.,(describingthe“humiliation”experiencedbytheTuftsHealthPlan’sCEOashecavedtoPartners’pricedemandsand“becameanobjectlessonforotherinsurers,alessontheywouldnotsoonforget[asthe]thebalanceofpowerhadshifted”toPartners).InOrlando,insurerUnitedHealthcareexperiencedsimilarthreatsasitresistedarequestfora63percentpriceincreasebytheregion’sleadingnonprofithospitalchain.LindaShrieves,400,000FearThey’llHavetoSwitchDoctors,ORLANDOSENTINEL,Aug.7,2010.
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widelynotedcaseallowedprestigiousuniversitiestoactanti‐competitivelyinorder
todirecttheirlimitedscholarshipfundstowardlower‐incomestudents.23One
easilysensesinhospitalmergercasesasimilarjudicialdispensationinfavorof
nonprofitenterprisesthatcombineforseeminglyprogressivepurposes.24
Buthoweverantitrustdoctrineviews(orshouldview)monopoliesdedicated
toprogressivepursuits,itisfarfromclearthatnonprofithospitalsreliablyusetheir
dominantmarketpositionstoredistributewealthonlyinprogressivedirections.
TheInternalRevenueCode’scharitable‐purposesrequirementhasbeeninterpreted
verybroadly,allowingsuchhospitalstospendtheiruntaxedsurplusesonanything
thatarguably“promoteshealth.”25Thisincludesmuchmorethanjustcaringforthe
indigent.Indeed,manyexempthospitalsarelocatedinareasthatneedrelatively
littleinthewayoftrulycharitablecare,eitherbecausethecommunityisrelatively
affluentanditspopulationwell‐insuredorbecauseapublichospitalassumesmost
ofthecharityburden.Moreover,althoughallhospitalsinevitablysubsidizethe
treatmentofsomeuninsuredpatients,manyoftoday’suninsuredaremembersof
themiddleclassandnotobviouscandidatesforsubsidiesfromtheinsured
23UnitedStatesv.BrownUniv.,5F.3d658(3dCir.1993).Readingthisrulingasanendorsementoftheuniversities’redirectionofscholarshipfundstoneedierstudentswouldatleastlimitsubstantially(andprudently)thekindofworthypurposeacartelofnonprofitentitiesmayofferasanantitrustdefense.24See,e.g.,supranote9.25Rev.Rul.69‐545,1969‐2C.B.117(1969).Ironically,thiscontroversialruling,relaxinganearlierrequirementthatanexempthospital“mustbeoperatedtotheextentofitsfinancialabilityforthosenotabletopayfortheservicesrendered,”Rev.Rul.56‐185,1956‐1C.B.202,cameatatimewhentheMedicareandMedicaidprogramswererelativelynewandprivatehealthinsurancewasexpanding,allseeminglyreducingtheneedfornonprofithospitalstobecharitableintheoriginalsense.
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population.26Finally,federal,state,andlocalgovernmentsseparatelyand
substantiallysubsidizenonprofithospitals’mostclearlycharitableactivities,both
throughspecialtaxexemptionsandreliefandbydirectsubventions;suchactivities
thereforeshouldnotcountsignificantlyinestimatingthenetdirectionof
redistributionseffectedbyhospitalsthroughtheexerciseofnewlyacquiredmarket
power.
Thus,truecharityhasinrecentyearsaccountedforonlyarelativelysmall
fractionofwhatnonprofithospitalsdoinreturnfortheirfederaltaxexemptions.
Indeed,suchhospitalscanusuallyqualifyforexemptionmerelybyspendingtheir
surplusesonmedicalresearch,ontrainingvarioustypesofhealthcarepersonnel,
and,mostimportantly,onacquiringstate‐of‐the‐artfacilitiesandequipment,which
(ironically)canalsosecureandenhancetheirmarketdominance.27Manyofthese
26Supplementalcensusdatafrom2007showedthatnearly38%ofAmerica’suninsuredcomefromhouseholdswithover$50,000inannualincomeandnearly20%fromhouseholdswithover$75,000.SeeU.S.CENSUSBUREAU,INCOME,POVERTY,ANDHEALTHINSURANCECOVERAGEINTHEUNITEDSTATES21table6(August2007),http://www.census.gov/prod/2007pubs/p60‐233.pdf.ImplementationofthePPACAwillgreatlyreducehospitals’charityburdens,leavingillegalaliensastheprincipalcategoryoftheuninsured.27OnPartnersHealthCare’suseofitssurplusestobuildnewandbetterfacilitiesandexpandintonewmarkets,therebysecuringadditionalmarketpower,see“FueledbyProfits,aHealthcareGiantTakesAimatSuburbs,”BOS.GLOBE,Dec.21,2008.
Notonlydoestaxexemptioncreateopportunitiesfordominantfirmstoincreasetheirdominance,butanonprofitfirmlackingsuchdominancemaybeineligibleforexemption–andthusataseverecompetitivedisadvantage–preciselybecauseitfacescompetitionandthereforelacksthediscretionaryfundsnecessarytodemonstratehowit“benefitsthecommunity.”Taxpolicythusrewards,fosters,andprotectsprovidermonopoly,onlyensuringthatmonopolyprofits,howeverlarge,arenotputtoobjectionable,non‐health‐relateduses.Cf.GeisingerHealthPlanv.Commissioner,985F.2d1210(3dCir.1993)(denyingtaxexemptiontononprofithealthplaninpartbecauseitwasnotaprovider,butonlyarrangedfortheprovision,ofhealthservicesandalsobecause,althoughitplannedtosubsidize
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activitiesconfersignificantbenefitsoninterestsandindividualsrelativelyhighon
theincomescale.28Tobesure,mostoftheactivitiesandprojectsfinancedfrom
hospitalsurplusesarehardtocriticizeintheabstract.Butmanyofthemarenotso
obviouslyprogressiveintheirredistributiveeffects(orotherwisesoobviously
worthyofpublicsupport)thatantitrustprohibitionsshouldberelaxedsothat
hospitalscanfinancemoreofthem.
Inanycase,financinghospitalactivitiesandprojectsofanykindfrom
hospitals’monopolyprofitscausestheircoststofallultimatelyandmoreorless
equallyonindividualsbearingthecostofhealthinsurancepremiums.The
incidenceofthisfinancialburdenthuscloselyresemblesthatofa“headtax”–that
is,oneleviedequallyonindividualsregardlessoftheirincomeorabilitytopay.Few
methodsofpublicfinancearemoreunfair(regressive)thanthis.Thosewhotakea
benignviewoftheseeminglygoodworksofhealthcareprovidersshouldfocus
moreattentiononwho(ultimately)paysforandwhobenefitsfromthosenominally
charitableactivities.29
premiumsforsomelow‐incomesubscribers,ithadbeen“unabletosupporttheprogramwithoperatingfundsbecauseitoperatedatalossfromitsinception”).28Manyphysicians,forexample,benefithandsomelyfirstfromthevaluabletraininghospitalsprovideandlaterfromusingexpensivehospitalfacilitiesandequipmentatnodirectcosttothemselves.Thetaxauthoritiesregardsuch“privatebenefits”asmerely“incidental”tothehospitals’largerpurposeofpromotingthehealthofthecommunity.SeeI.R.S.Gen.Couns.Mem.39,862(Dec.2,1991):“Inourview,someprivatebenefitispresentinalltypicalhospital‐physicianrelationships....Thoughtheprivatebenefitiscompoundedinthecaseofcertainspecialists,suchashearttransplantsurgeons,whodependheavilyonhighlyspecializedhospitalfacilities,thatfactalonewillnotmaketheprivatebenefitmorethanincidental.”29SeegenerallySymposium,WhoPays?WhoBenefits?DistributionalIssuesinHealthCare,LAW&CONTEMP.PROBS.,Autumn2006.
14
Theregressiveredistributiveeffectsofnonprofithospitals’monopolies
appearnevertohavebeengivendueweightinantitrustappraisalsofhospital
mergers.30Tobesure,pureeconomictheorywithholdsjudgmentontherightness
orwrongnessofredistributingincomebecauseeconomistshavenoobjectivebasis
forpreferringonedistributionofwealthoveranother.Buttheantitrustlawsenjoy
generalpoliticalsupportprincipallybecausetheconsumingpublicresentstheidea
ofillegitimatemonopolistsenrichingthemselvesattheirexpense.31Thisiswhy
mergersofallkindsaresuspectintheeyesofantitrustenforcers:theymaybean
easyandunjustifiedshortcuttogainingmarketpower.Althoughproponentsof
consolidationsincreasingconcentrationinprovidermarketsusuallytout
efficienciestheyexpecttoachievebycombiningandrationalizingoperations,the
opportunitytoincreasetheirbargainingpowervis‐à‐visprivatepayersisthe
likelierexplanationforallsuchmergersinconcentratedmarkets.32
30Underreasonableassumptions,ahospitalmergercreatingnewmarketpowerwouldraiseinsurancepremiumsbyroughly3percent,increasingthe“headtax”onthemedianinsuredfamilybyroughly$400peryear,hardlyatrivialamount.Inaddition,accordingtooneestimate,hospitalmergersinthe1990scausednearly700,000Americanstolosetheirprivatehealthinsurance.RobertTownetal.,TheWelfareConsequencesofHospitalMergers(Nat’lBureauofEcon.Research,WorkingPaperNo.12244,2006).31HERBERTHOVENKAMP,FEDERALANTITRUSTPOLICY:THELAWOFCOMPETITIONANDITSPRACTICE50(3ded.2005)(“[T]heprimaryintentoftheShermanActframers[was]thedistributivegoalofpreventingmonopolistsfromtransferringwealthawayfromconsumers.”)32SeeDAVIDDRANOVE,THEECONOMICEVOLUTIONOFAMERICANHEALTHCARE:FROMMARCUS
WELBYTOMANAGEDCARE122(2000):“Ihaveaskedmanyproviderswhytheywantedtomerge.Althoughpubliclytheyallinvokedthesynergiesmantra,virtuallyeveryonestatedprivatelythatthemainreasonformergingwastoavoidcompetitionand/orobtainmarketpower.”SeealsoRobertA.Berensonetal.,UncheckedProviderCloutinCaliforniaForeshadowsChallengestoHealthReform,29HEALTHAFF.699,699(2010).,at6(quotingalocalphysicianassaying,“Whyarethosehospitalsandphysicians[integrating]?Itwasn’tforincreasedcoordinationof
15
Insum,atragicfailureofantitrustenforcement—fueledinnosmallpartby
certainsanguineattitudestowardnonprofitmonopolies—contributedtowhatis
nowacrisisinprovidermarkets.Asaresult,therearefewmarketsinwhichprice
competitionkeepspricesforspecifichospitalandotherhealthcareservicesand
goodsneartheirmarginalcost.Theubiquityofnonprofithospitalswithmarket
powernowconstitutesasignificantsourceoftheprovider‐monopolyproblemin
healthcare.
III. TheParticularCostlinessofHealthcareProviderMonopolies:MarketPower+Insurance
Ineconomictheory,monopolyisobjectionablebecauseitenablesasellerto
chargehigherpricesthatthencausesomeconsumers,whowouldhappilypaythe
competitiveprice,toforgoenjoymentofthemonopolizedgoodorservice.
Monopoliststhusdivertscarceresourcestoless‐valuedusesandreduceaggregate
welfare.Fortunately,suchoutput‐andwelfare‐reducing(misallocative)effectsare
greatlylessenedinhealthcaremarketsbecausethelargenumberofpatientswith
healthinsurancecaneasilypayprovidermonopolists’askingpricesfordesirable
goodsorservicesratherthanbeinginducedtoforgotheirconsumption.
Unfortunately,however,healthinsurancehasother,possiblymoresevere
consequencesbecauseitbothamplifiestheredistributiveeffectsofproviderand
suppliermonopoliesandcontributestoallocativeinefficiencyofadifferentand
arguablymoreseriouskind.
care,diseasemanagement,blah,blah,blah–thatwasnottheprimaryreason.Thewantedmoremoneyandmarketshare.”)
16
A.Supra‐MonopolyPricing
Inthetextbookmodel,monopolyredistributeswealthfromconsumersto
powerfulfirms.Themonopolist’shigherpriceenablesittocaptureforitselfmuchof
thewelfaregain,or“surplus,”thatconsumerswouldhaveenjoyediftheyhadbeen
abletopurchasethevaluedgoodorserviceatalow,competitiveprice.Inhealth
care,insuranceputsthemonopolistinanevenstrongerpositionbygreatly
weakeningtheconstraintonitspricingfreedomordinarilyimposedbythelimitsof
consumers’willingnessorabilitytopay.Thiseffectappearsintheoryasa
steepeningofthedemandcurveforthemonopolizedgoodorservice.Whereas
mostmonopolistsencounterareductionindemandwitheachpriceincrease,health
insurancemutesthemarginalconsequencesofrisingprices.
Ifhealthinsurersweredutifulagentsoftheirsubscribersandperfectly
reflectedsubscribers’preferences,theywouldreflectconsumers’demandcurveand
payonlyforservicesthatwerevaluedbyindividualinsuredsatlevelshigherthan
themonopolyprice.Deficienciesinthedesignandadministrationofreal‐world
healthinsurance,however,preventinsurersfromreproducingtheirinsureds’
preferencesandheavilymagnifymonopolypower.Forlegal,regulatory,andother
reasons,healthinsurersintheUnitedStatesareinnoposition(asconsumers
themselveswouldbe)torefusetopayaprovider’shighpricewheneveritappears
toexceedtheservice’slikelyvaluetothepatient.Instead,insurersareboundby
bothdeep‐rootedconventionandtheircontractswithsubscriberstopayforany
servicethatisdeemedadvantageous(andtermed“medicallynecessary”under
17
rathergenerouslegalstandards)forthepatient’shealth,whateverthatservicemay
cost.33
Consequently,closesubstitutesforaprovider’sservicesdonotcheckits
marketpowerastheyordinarilywouldforothergoodsandservices.Indeed,
puttingasidethemodesteffectsofcostsharingonpatients’choices,theonly
substitutetreatmentsorservicesthatinsuredpatientsarelikelytoacceptarethose
theyregardasthebestonesavailable.Unlikethesituationwhenanordinary
monopolistsellsdirectlytocost‐consciousconsumers,therewardstoamonopolist
sellinggoodsorservicespurchasedthroughhealthinsurancemayeasilyand
substantiallyexceedtheaggregateconsumersurplusthatpatientswouldderiveat
competitiveprices.
Thus,healthinsuranceenablesamonopolistofacoveredservicetocharge
substantiallymorethanthetextbook“monopolyprice,”therebyearningevenmore
thantheusual“monopolyprofit.”Themagnitudeofthemonopoly‐plus‐insurance
distortionhassometimesevensurpriseditsbeneficiaries.34Ofcourse,sincethird‐
partypayors(andnotpatients)arecoveringtheinterimbill,theseextraordinary
profitsmadepossiblebyhealthinsuranceareearnedattheexpenseofthose33SeegenerallyTimothyP.Blanchard,“MedicalNecessity”Determinations—AContinuingHealthcarePolicyProblem,”JournalofHealthLaw37,no.4(2003):599–627;WilliamSage,“ManagedCare’sCrimea:MedicalNecessity,TherapeuticBenefit,andtheGoalsofAdministrativeProcessinHealthInsurance,”DukeLawJournal53(2003):597;EinerElhauge,“TheLimitedRegulatoryPotentialofMedicalTechnologyAssessment,”VirginiaLawReview82(1996):1525–1617.34Fortrulystunningexamplesoftheprice‐increasingandprofit‐generatingeffectsofcombiningUS‐stylehealthinsuranceandmonopoly,seeGeetaAnand,“TheMostExpensiveDrugs,”Parts1–4,WallStreetJournal,November15–16,December1,28,2005;inthisseries,seeespecially“HowDrugsforRareDiseasesBecameLifelineforCompanies,”November15,2005,A1(inwhichonedrugcompanyexecutiveisquotedassaying,“Ineverdreamedwecouldchargethatmuch.”)
18
bearingthecostofinsurance.Insureds,evenwhentheiremployersarethedirect
purchasersofhealthinsurance,areultimatelytheonesseeingtheirtake‐home
shrinkfromhikesininsurancepremiumscausedbyprovidermonopolies.
Discussionsofantitrustissuesinthehealthcaresectorrarely,ifever,
explicitlyobservehowhealthinsuranceingeneralorU.S.‐styleinsurancein
particularenhancestheabilityofdominantsellerstoexploitconsumers.Although
scholarshavepreviouslyobservedthatpricesforhealthservicesaremuchhigherin
theUnitedStatescomparedtootherOECDnations(withoutobservabledifferences
inquality),35andalthoughmanyhaveobservedthatprovidermarketpowerhas
beenasignificantfactorininflatingthoseprices,36fewhaveobservedthe
synergisticeffectsofmonopolyandhealthinsurance.
Perhapsmorenotably,despitethehugeimplicationsforconsumersandthe
generalwelfare,thespecialredistributiveeffectsofmonopolyinhealthcare
marketsarenotmentionedintheantitrustagencies’definitivestatementsof
enforcementpolicyinthehealthcaresector.37Antitrustanalysisofhospital
mergers—aswellasofotheractionsandpracticesthatenhanceprovideror
suppliermarketpower—mustthereforeexplicitlyrecognizetheimpactofinsurance
onhealthcaremarkets.Thenationwillfinditfarharder,perhapsliterally
impossible,toaffordPPACA’simpendingextensionofgeneroushealthcoverageto
additionalmillionsofconsumersifmonopolistsofhealthcareservicesandproducts
cancontinuetochargenotwhat“themarket”butwhatinsurerswillbear.35See,e.g.,DianaFarrelletal.,AccountingfortheCostofU.S.HealthCare:ANewLookatWhyAmericansSpendMore,(McKinseyGlobalInstitute,2008).36Seesupra,notes2‐3.37Seesupra,note7.
19
B.MisallocativeConsequences
Allowingproviderstogainmarketpowerbymergernotonlycauses
extraordinaryredistributionsofwealthbutalsocontributestoinefficiencyinthe
allocationofresources.Inironiccontrasttotheoutputrestrictionsassociatedwith
monopolyineconomictheory,themisallocativeeffectscitedheremostlyinvolvethe
productionandconsumptionoftoomuch—ratherthantoolittle—ofagenerally
goodthing.Thesemisallocationsareboththeoreticallyandpracticallyimportant.
Theyprovidestillanothernewreasonforspecialantitrustandothervigilance
againstproviders’monopolisticpractices,particularlyscrutinizinganticompetitive
mergersandpowerfuljointventures.
Evenintheabsenceofmonopoly,conventionalhealthinsuranceenables
consumersandproviderstooverspendonoverlycostlyhealthcare.Thisis,of
course,thefamiliareffectofmoralhazard—economists’termforthetendencyof
patientsandproviderstospendinsurers’moneymorefreelythantheywouldspend
thepatient’sown.Tobesure,somemoral‐hazardcostsarejustifiedasan
unavoidablepricetoprotectindividualsagainstunpredictable,high‐costevents.
ButAmericanhealthinsurersaresignificantlyconstrainedinintroducing
contractual,administrative,andothermeasurestocontainsuchcosts.U.S.‐style
healthinsuranceisthereforemoredestructiveofallocativeefficiencythanhealth
insurancehastobe.Althoughuncontrolledmoralhazardisaproblemthroughout
thehealthsector,combininginefficientlydesignedinsurancewithprovider
monopoliescompoundstheeconomicharm.
20
Theextraordinaryprofitabilityofhealth‐sectormonopoliesalsointroducesa
dynamicsourceofresourcemisallocationbygreatlystrengtheningtheusual
inducementforfirmstoseekmarketdominance.Theintroductionsofnew
technologieshavebeenamajorsource—perhapsprimary,responsibleforasmuch
as40‐50percent—ofhealthcarecostincreasesoverthepastseveraldecades.38And
eventhoughmanyinnovationsofferonlymarginalvalue,theirmonopolypower
underintellectualpropertylawssecurelucrativepaymentsfrominsurerswhose
handsaretied.Althoughmanyhaverecognizedthatnewtechnologiesarea
principalsourceofunsustainableincreasesinhealthcarecosts,andseveralothers
haverecognizedhowthemoralhazardofinsurancehasbothfueledtechnology‐
drivencostincreasesanddistortedinnovationincentives(towardcost‐increasing
innovationsattheexpenseofcost‐reducinginnovations),39fewhaveappreciated
thecontributingroleofinsuranceinexacerbatingthemonopolies’effects.
38DanielCallahan,“HealthCareCostsandMedicalTechnology,”inFromBirthtoDeathandBenchtoClinic:TheHastingsCenterBioethicsBriefingBookforJournalists,Policymakers,andCampaigns,ed.MaryCrowley(Garrison,NY:TheHastingsCenter,2008),79–82.SeealsoPaulGinsburg,“ControllingHealthCareCosts,”NewEnglandJournalofMedicine351(2004):1591–93;HenryAaron,Serious&UnstableCondition(Washington,DC:BrookingsInstitutionPress,1991).39SeeAlanM.Garber,CharlesI.Jones,andPaulM.Romer,“InsuranceandIncentivesforMedicalInnovation”(workingpaper12080,NationalBureauofEconomicResearch,2006);BurtonWeisbrod,“TheHealthCareQuadrilemma:AnEssayonTechnologicalChange,Insurance,QualityofCare,andCostContainment,”JournalofEconomicLiterature29,no.2(June1991):523–52;SheilahSmith,JosephP.Newhouse,&MarkFreeland,“Income,Insurance,andTechnology:WhyDoesHealthSpendingOutpaceEconomicGrowth?”HealthAffairs28,no.5(2009):1276–84.SeealsoDanaGoldmanandDariusLakdawalla,“UnderstandingHealthDisparitiesacrossEducationGroups”(workingpaper8328,NationalBureauofEconomicResearch,2001)(suggestingthatpopulation‐wideincreasesineducationhaveencouragedpursuitofpatient‐intensiveinnovationsthatincreasecosts,ratherthansimplertechnologiesthatreducethem).
21
Providermonopoliesalsoinflicteconomicharmbyspendingheavilyto
sustaincurrentmonopolybarriers.Indeed,RichardPosnerhastheorizedthat
monopoly’smostseriousmisallocativeeffectisnottheoutputreductionrecognized
intheoreticalmodelsbutinsteadisthemonopolist'sstrenuouseffortstoobtain,
defend,andextendmarketpower.40Amonopolistiswillingtoinvestuptothe
privatevalueofitsmonopolyinmaintainingit(andkeepingoutcompetitors),and
themorelucrativethemonopoly,themoreafirmwillbeinducedtoinvestheavily
insustainingmonopolybarriers.Sincesomanymonopoliesaremaintainedwith
legalandregulatorybarriers—certificate‐of‐needlaws,accreditation,andcontracts
restrictingprovidernetworks,forexample—muchofthiseffortisspentonlegaland
politicalresourcesthatfritterawaytheprivatevalueofthemonopoly,ratherthan
reinvestinginactivitiesthatcreateadditionalsocialvalue.Evenmanagersof
nonprofitfirms,thoughtheyhavenointerestinprofitsassuch,haveincentivesto
maintainmonopoliestofundtheconstructionandexpansionofempiresthat
enhancetheirself‐esteemandprofessionalinfluence.Suchempirebuildingismost
easilyaccomplishedbyobtainingmarketpowerandusingittogeneratesurpluses
withwhichtofurtherentrenchandextendthefirm’sdominance.
Inlightofthedisproportionatelylargeshareofnationalresourcesalready
beingspentonhealthcareintheUnitedStatescomparedtoeveryothernationin
theworld,andespeciallyonceonerecognizestheextraordinarypricingfreedom
thatU.S.‐stylehealthinsuranceconfersonmonopolistprovidersandsuppliers,the
enormousburdenofdistortivehealth‐sectormonopoliesprovidecompelling,even40RichardA.Posner,AntitrustLaw:AnEconomicPerspective,2nded.(UniversityofChicagoPress,2001),13–18.
22
alarming,reasonstoapplytheantitrustlawswithparticularforce.Antitrust
policymakers,Ibelieve,areuptothetaskofrestoringcompetitioninhealthcare
marketswhereitislacking,butitwillrequiretargetingprovidersandsuppliersof
healthservicesseekingtoachieve,entrench,andenhancemarketpower.
IV. ANewAntitrustAgenda
Cangovernment,throughantitrustenforcementorotherwise,doanythingabout
theproblemofproviderandsuppliermarketpowerinhealthcaremarkets?
Althoughtheenforcementagenciesandcourtsshouldcertainlyscrutinizenew
hospitalmergersandsimilarconsolidationswithgreaterskepticism,preventing
newmergerscannotcorrectpastfailurestomaintaincompetitioninhospitaland
othermarkets.Enforcersmaychallengethelegalityofpreviouslyconsummated
mergers,astheFTCdidintheEvanstonNorthwesterncase,buttherearepractical
andjudicialdifficultiesinfashioningaremedythatmightrestorethecompetition
thattheoriginalmergerdestroyed.TheFTCwasunwilling,forexample,todemand
thedissolutionofEvanstonNorthwesternHealthcareCorp.andinsteadmerely
ordereditsjointlyoperatedhospitalstonegotiateseparatecontractswithhealth
plans—aremedy,incidentally,thatgavethenegotiatingteamofneitherhospitalany
reasontoattractbusinessfromtheother.41AlthoughtheFTCmightseekmore
substantialreliefinothersuchcases,thegeneralruleseemstobethatold,unlawful
41Despitelosingthoroughlyonthemerits,therespondentdeclareditself“thrilled”withtheFTC’sremedy.SeeNorthShoreUniversityHealthSystems“FTCRulingKeepsEvanstonNorthwesternHealthcareIntact,”pressrelease,August6,2007,www.northshore.org/about‐us/press/pressreleases/ftc‐ruling‐keeps‐evanston‐northwestern‐healthcareintact/(accessedMay3,2012).
23
mergersareamenabletolaterbreakuponlyintheunusualcasewherethe
componentpartshavenotbeensignificantlyintegrated.42Inanycase,giventheir
pastskepticismaboutantitrustenforcementinhealthcaremarkets,andespecially
theirhandinblessingmanymergersthatoughtnowbeunwound,courtswouldbe
hardtoenlistinanantitrustcampaigntorollbackearlierconsolidations.43
Thus,apolicyagendacapableofredressingtheprovidermonopolyproblemin
healthcarewillneedtoemployotherlegalandregulatoryinstruments.Afirstorder
ofbusinesswouldbetofastidiouslypreventtheformationofnewprovider
monopolies.Becausehealthcareproviderscontinuetoseekopportunitiesto
consolidate—eitherthroughtherecentwaveofformingAccountableCare
Organizations(“ACOs”)orthoughalternativemeans—thereremainseveralfronts
availableforpolicymakerstowageantitrustbattle.Inaddition,anarrayofother
enforcementpoliciescantargetmonopolistsbehavingbadly—thosetryingeitherto
expandtheirmonopolypowerintocurrentlycompetitivemarketsortoforeclose
theirmarkettopossibleentrants.Thus,severalfrontsremainavailablefor
policymakersseekingtorestorecompetitiontohealthcaremarkets.Anewantitrust
agendabeginswithrecognizingtheextraordinarycoststohealthcareprovider
monopoliesandcontinueswithaggressiveandcreativeantimonopolyinterventions.
42See,forexample,UnitedStatesv.E.I.duPontdeNemours&Co.,353U.S.586(1957);seealsoPhillipAreedaandHerbertHovenkamp,AntitrustLaw2nded.(NewYork:AspenPublishers,2003):1205b.43Forachroniclingofgovernmentchallengestomergersthatlostinfederalcourt,seeDoseofCompetition,supranote7.Foranexplorationofjudicialresistancetoenforcingtheantitrustlawsagainsthospitals,seeRichman,supranote8.
24
A.TheSpecialProblemofAccountableCareOrganizations
AprimarytargetforarevivedantitrustagendaistheemergingAccountable
CareOrganizations,whosedevelopmenttheAffordableCareActisdesignedto
stimulate.TheACAencouragesproviderstointegratethemselvesinACOsforthe
purposeofimplementing“bestpractices”andtherebyprovidingcoordinatedcareof
goodqualityatlowcost.Asaninducementforproviderstoformandpractice
withinthesepresumptivelymoreefficiententities,theACAinstructstheMedicare
programtosharewithanACOanycostsavingsitcandemonstrate,permitting
proposedACOseithertokeepanysavingsbeyondaminimumsavingsrate(“MSR”)
ofupto3.9%whilebeinginsuredagainstlossesifsavingsarenotobtainedorto
keepsavingsbeyondanMSRof2%whilebeingexposedtotheriskoflosses.44
ACOsarebeinghailedasameaningfulopportunitytoreformourdeeplyinefficient
deliverysystem,buttheunintendedconsequencesofpromisinghealthpolicy
initiativesofteninvestprematurelyinprojectsthatultimatelydisappoint.The
formationofACOsrunthespecificriskofcreatingevenmoreaggregationofpricing
powerinthehandsofproviders.
ACOs,intheory,couldofferanattractivesolutiontoproblemsstemming
fromthecomplexityandfragmentationofthehealthcaredeliverysystem.45
Togetherwithgoodinformationsystemsandcompensationarrangements,vertical
integrationofcomplementaryhealthcareentitiescanachieveimportantefficiencies
44SeeDepartmentofHealthandHumanServices,MedicareProgram;MedicareSharedSavingsProgram:AccountableCareOrganizations,42CFRPart425,FederalRegister76,no.212(November2,2011):67802,67985–88.45EinerElhauge,ed.,TheFragmentationofUSHealthCare(Oxford,UK:OxfordUniversityPress,2010).
25
byreducingmedicalerrors,obviatingduplicativeservicesandfacilities,and
coordinatingelementsneededtodeliverhighquality,patient‐centeredcare.46
Skeptics,whoincludeformerFTCCommissionerThomasRosch,notethat
“availableevidencesuggeststhatthecostsavings[fromACOs]willbeverysmallto
nonexistent”andwarnthatanypurportedreductionsinexpenditures“willsimply
beshiftedtopayorsinthecommercialsector.”47Othershavewarnedthateffortsto
replicateearlysuccessesinintegrateddeliverysystems—whichserveasmodelsfor
reformers’aspirations—haveoftenfailed,inpartbecausemanyphysiciansare
reluctanttoforgothelucrativepossibilitiesofunconstrainedfee‐for‐servicepractice
andinpartbecausephysicianswhodointegratewithhospitalsystemspredictably
resistadheringtoefficiency‐enhancingmanagement.Moreover,manyACOsare
reportedlybeingsponsoredbyhospitals,whichanyefficientdeliverysystemwould
usesparingly.HospitalinvestmentsmightbedesignedtopreemptcontrolofACOs,
ratherthanharnesstheirpotentialefficiencies,soanycostsavingswillcomeatthe
expenseofothersandnotthemselves.
IncontrasttothevaryingviewsonthepotentialbenefitsofACOs,thereis
widespreadagreementthattheycouldengineerandleveragegreatermonopoly
powerinanalready‐concentratedhealthcaremarket.48OrganizersofACOsare
46AlainC.EnthovenandLauraA.Tollen,“CompetitioninHealthCare:ItTakesSystemstoPursueQualityandEfficiency,”HealthAffairs(September7,2005),doi:10.1377/hlthaff.w5.420.47RemarksofJ.ThomasRoschbeforetheABASectionofAntitrustLaw,November17,2011.48SeeAmerica’sHealthInsurancePlans,AccountableCareOrganizationsandMarketPowerIssues(October2010),www.ahip.org/Workarea/linkit.aspx?ItemID=9222(accessedMay25,2012);Berenson,Ginsburg,andKemper,“UncheckedProviderClout”(whichnotesACOs’
26
forgingcollaborationsamongentiremarketsofphysiciansandhospitals,entities
thatwouldotherwisecompetewitheachother.TheNewYorkTimeshasreported
“agrowingfrenzyofmergersinvolvinghospitals,clinicsanddoctorgroupseagerto
sharecostsandsavings,andcashinonthe[ACOprogram’s]incentives.”49Infact,
providers’mainpurposeinformingACOsmaynotbetoachievecostsavingstobe
sharedwithMedicarebuttostrengthentheirmarketpoweroverpurchasersinthe
privatesector.ACOs“maybethelatestchapterinthesteadyaccumulationof
marketpowerbyhospitals,healthcaresystems,andphysiciangroups,asequelto
thewavesofmergersinthe1990swhenhealthcareentitiessoughttocounter
marketpressurefrommanagedcareorganizations.”50
Antitrustpolicymakersthereforeshouldcarefullyscrutinizetheformationof
ACOs.Conventionalantitrustreasoningappropriatelypermitspurportedefficiency
claimstotrumpconcernsaboutconcentrationonthesellersideofthemarket,and
anyreviewofaproposedACOwouldcertainlyconsiderthepotentialbenefitsof
verticalintegration.Butanyantitrustanalysisshouldalsorecognizethathealth
insurancegreatlyexacerbatesthepriceandmisallocativeeffectsofmonopoly.
NotwithstandingthespecialefficiencyclaimsthatcanbemadeonbehalfofACOs,“potentialnotonlytoproducehigherqualityatlowercostbutalsotoexacerbatethetrendtowardgreaterprovidermarketpower”);andJeffGoldsmith,“AnalyzingShiftsinEconomicRiskstoProvidersinProposedPaymentandDeliverySystemReforms,”HealthAffairs29,no.7(2010):1299,1304.(“WhetherthesavingsfrombettercarecoordinationforMedicarepatientswillbeoffsetbymuchhighercoststoprivateinsurersofaseeminglyinevitable...waveofproviderconsolidationremainstobeseen.”).49RobertPear,“ConsumerRisksFearedasHealthLawSpursMergers,”NewYorkTimes,November20,2010.50BarakRichmanandKevinSchulman,“ACautiousPathForwardonAccountableCareOrganizations,”JournaloftheAmericanMedicalAssociation305,no.6(February9,2011):602–03.
27
thepotencyofhealthcaremonopoliesprovidesastrongwarrantforanespecially
stringentanti‐concentration,antimergerpolicyinthehealthcaresector.These
heighteneddangersshouldbeweighedheavilyinappraisinganACO’slikelymarket
impact.
Antitrustpolicymakersthereforeshouldcarefullyscrutinizetheformationof
ACOs.Conventionalantitrustreasoningappropriatelypermitsefficiencyclaimsto
overcomeconcernsaboutconcentrationonthesellersideofthemarket,andany
reviewofaproposedACOwouldcertainlyconsiderthepotentialbenefitsofvertical
integration.Butanyantitrustanalysisshouldalsorecognizethathealthinsurance
greatlyexacerbatesthepriceandmisallocativeeffectsofmonopoly.
NotwithstandingthespecialefficiencyclaimsthatcanbemadeonbehalfofACOs,
thepotencyofhealthcaremonopoliesstronglywarrantsespeciallystringentanti‐
concentration,anti‐mergerpolicyinthehealthcaresector.Theseheightened
dangersshouldbeweighedheavilyinappraisinganACO’slikelymarketimpact.
ItremainsunclearwhatroletheFTCandDOJhaveinapplyingthisnecessary
levelofscrutinytonewACOproposals.Buttheantitrustagenciessurelyenjoya
gooddealofdiscretioninensuringthatACOcomplieswiththeprinciplesof
competition.Theagenciescoulddemandaheightenedshowingthataproposed
consolidationwillgenerateidentifiableefficiencies,andtheysimilarlymight
demandthatanACO'sproponentsassumetheburdenofshowinganabsenceof
significanthorizontaleffectsinlocalsubmarket.Theagenciessimilarlycould
imposedemandingcurestoillegalconcentrations,perhapsencouragingthevertical
integrationenvisionedbyPPACA'sproponentswhilereducingthehorizontal
28
collaborationthatproviderssoroutinelypursue.Finally,theagenciescouldalso
imposeconduct(i.e.non‐structural)remediestopotentiallyharmfulACOs,suchas
requiringnonexclusivecontractualarrangementswithpayorsandwithregional
hospitals,orpledgingtoundocertainintegrationsifpricesproceedtoriseabovea
certainthreshold.HowtheFTCandDOJmonitortheformationofACOscould
determinewhethertheACAmeaningfullyadvancesa(desperatelyneeded)
reorganizationofhealthcaredeliveryormerelyoffersaloopholetopermitgreater
consolidation.
TheCMSmightalsoserveameaningfulroleinpreventingACOsfrom
furtheringanticompetitiveharminhealthcaremarketplaces.Thefinalrulespermit
CMStosharesavingswithACOsonlyafterashowingofqualitybenchmarks,which
CMSadministratorsoughttotakeseriously.Therulesalsorequirecostandquality
reporting,andCMSmightrequireademonstrationofmeaningfulquality
improvementsandcostsavingsinordertoreceiveacontinuedshareofMedicare
savings.CMSmightevenconditionanACO'spermissiontomarkettoprivatepayers
onademonstrationthatitspricestoprivatepayersdidnotincreasesignificantly
followingitsformation.
Onemightwonder,ofcourse,whetheragovernmentalsinglepayerlike
Medicarehasthemission,theimpulse,ortherequisitecreativitytobehelpfulin
makingprivatemarketsforhealthserviceseffectivelycompetitive.PerhapsCMS's
newCenterforMedicareandMedicaidInnovationcouldshapetheinstitution's
capacitytoaffectreform.Itmightbeequallylikely,unfortunately,thatMedicare
willaimtopreserveitsownsolvencybyencouragingtheshiftingofcoststothe
29
privatesector—andmayevenrewardACOs’costshiftingascostsavings.Thisis
thedangerwithusingalargeandunavoidablyinflexiblebureaucracytoengineeran
efforttoinduceinnovation.Nonetheless,yougotowarwiththebureaucracyyou
have,andCMSoughttoconcentrateondevelopingcompetition‐orientedregulations
andcautiouslymonitorthemarketimpactofemergingACOs.
B.RequiringUnbundlingofMonopolizedServices
Anyefforttorestorepricecompetitioninhealthcaremarketsmustincludea
strategythattargetsalready‐concentratedmarkets.Antitrustenforcerstherefore
needtodeveloppolicyinstrumentsthattargetcurrentmonopolists,bothtolimitthe
economicharmtheyinflictandtothwarttheireffortstoexpandtheirmonopoly
power.
Onepromisinginitiativecouldbetorequirehospitalsandotherprovider
entitiestounbundle,atapurchaser’srequest,certainservicesforthepurposesof
negotiatingprices.Providersroutinelybundleservicesforunifiedpayments,and
manysuchbundlesserveefficiencypurposes.Someservicesaresointertwinedthat
separatingthemprovescostly,andsimilarly,manyclinicallyrelatedservicesoffer
efficiencieswhensoldtogether.However,whenprovidersbundleservicesin
marketstheyhavemonopolizedwithservicesinwhichthereiscompetition,amenu
ofanticompetitiveconsequencescanresult:themonopolistcansqueezeoutrivals
inthecompetitivemarket,creatingforitselfanothermonopoly;andbysquelching
rivalsinthecompetitivemarket,themonopolistlimitstheabilityofentrantsto
challengeitsholdonthemonopolizedmarket.Themagnifiedconsequencesof
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healthcaremonopoliesshouldheightenconcernoverpracticesthatcanexpandor
enshrineprovidermonopolists.
Thegeneralantitrustruleontyingisthatafirmwithmarketpowermaynot
useittoforcecustomerstopurchaseunwantedgoodsorservices.51Ifthisprinciple
isinvokedtofrustratehospitals’practiceofnegotiatingcomprehensivepricesfor
largebundlesofservices,purchaserscouldthenbargaindownthepricesofservices
withgoodsubstitutes.52Ifahospitalstillwishedtofullyexploititsvarious
monopolies,itwouldhavetodosoindiscretenegotiations,makingitshighest
pricesvisible.Healthplanscouldthenhopetorealizesignificantsavingsby
challengingsuchmonopolies,eitherbyinducingenrolleestoseekcareinalternative
venues(effectivelyexpandingthegeographicmarket)orbyencouragingnewentry.
Oftenthemerethreatofnewentryissufficienttomodifyamonopolist’sdemands,
butentryismorecredibleifthemonopolizedserviceisdiscreteandassociatedwith
adistinctpricethatentrantscantarget.
Todate,therehavebeenonlylimitedenforcementeffortstoprevent
hospitalsfromtyingtheirservicestogetherinbargainingwithprivatepayers.53
Althoughhospitalswouldpredictablyarguethatbundlinggenerallymakesfor
51SeeJeffersonParishHosp.Dist.No.2.v.Hyde,466U.S.2(1984).52Theabilitytoleveragemarketpowerinonesub‐marketintopriceincreasesinacompetitivemarkethelpsexplainwidepricevariationforlikeservicesincommongeographicmarkets.SeePaulB.Ginsburg,“WideVariationinHospitalandPhysicianPaymentRatesEvidenceofProviderMarketPower,”HSCResearchBriefno.16(November2010),www.hschange.com/CONTENT/1162/(accessedMay25,2012).53Inaprivatesuit,adominanthospitalchainwassuedbyitslonerivalfor,amongotherthings,bundlingprimaryandsecondaryserviceswithtertiarycareinsellingtothearea’sinsurers.SeeCascadeHealthSolutionsv.PeaceHealth,515F.3d883,890–91(9thCir.2008).Thedistrictcourtpermittedcertainclaimstoproceedtotrial,includingaclaimofillegalbundleddiscounts,butdismissedthetyingclaim.
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efficientnegotiatingandstreamlineddeliveryofcare,theaddedcostsofbargaining
servicebyservicecouldbeeasilyoffsetbythelowerpricesresultingfromgreater
competition.Recentscholarshipontyingandbundlingconfirmsthatpermittinga
hospitalmonopolisttotieunrelatedservicesexpandsthemonopoly’sreach,
profitability,andlongevityandharmsconsumerwelfare.54Theextremeharmfrom
healthcaremonopoliesmakeshospitals’tyingpracticesparticularlyvulnerableto
antitrustattack.
Aworkablerulewouldpermitantitrustlawtoempowerapurchaserto
demandseparatepricesfordivisibleservicesthatarenormallybundled.55
Althoughonehopesthatantitrustcourtsandacrediblethreatoftrebledamages
woulddiscourageaprovidermonopolistfromretaliatingagainstanypurchaserthat
aggressivelychallengesitsanticompetitivepractices,thecostsanddelayfromsuch
complexantitrustactionssuggestthatpublicenforcementshouldsupplement
privatesuits.Properlyauthorizedregulatorscouldeitherenableindividualpayers
todemandunbundlingtofacilitatetheireffortstogetbetterprices,orregulators
coulddemanditthemselves.Effectiveunbundlingrequestscouldtriggermore
competitionandgreaterefficiencybothinthetiedsubmarketswheremonopolyis
notaproblemandalsointhetyingmarketswhereitis.
54SeeEinerElhauge,“Tying,BundledDiscounts,andtheDeathoftheSingleMonopolyProfitTheory,”HarvardLawReview123,no.2(2009):397–481.55ThisproposalisinlinewithrecommendationsfromtheAntitrustModernizationCommission,ReportandRecommendations(April2007):96,http://permanent.access.gpo.gov/lps81352/amc_final_report.pdf(accessedMay9,2012).Whatis“divisible”inhealthcareisofcoursesubjecttodebate,justasmostservicesaccusedofbeingbundledareoftendefendedasasingleproduct.See,forexample,JeffersonParishHosp.,466U.S.,19–22.
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C.ChallengingAnticompetitiveTermsinInsurer‐ProviderContracts
Restrictivetermsincontractsbetweenprovidersandinsurersareanother
potentiallyfruitfulareaforantitrustandregulatoryattentionindealingwiththe
providermonopolyproblem.Acommonpractice,forexample,isforaprovider‐
sellertopromisetogiveaninsurer‐buyerthesamediscountfromitshighpricesas
anyitmightgivetoacompetinghealthplan.Suchprice‐protection,payment‐parity,
or“most‐favored‐nation”(MFN)clausesarecommonincommercialcontractsand
servetoobviatefrequentandcostlyrenegotiationofprices.Theirefficiency
benefitsmaysometimesbeoutweighedbyanticompetitiveeffects,however.Thus,a
providermonopolistmayfindthatalargeandimportantpayeriswillingtopayits
veryhighpricesonlyiftheproviderpromisestochargenolowerpricestoits
competitors.SuchasituationapparentlyaroseinMassachusetts,wherethe
Commonwealth’slargestinsurer,aBlueCrossplan,reportedlyaccededtoPartners
HealthCare’sdemandforaverysubstantialpriceincreaseonlyafterPartnersagreed
to“protectBlueCrossfrom[its]biggestfear:thatPartnerswouldallowother
insurerstopayless.”56
Antitrustlawcanofferreliefagainstaprovidermonopolistagreeingtoan
MFNclausetoinduceapowerfulinsurertopayitshighprices.Becausesuchclauses
protectinsurersagainsttheircompetitors’gettingbetterdeals,manyarelikelyto
56“AHandshakeThatMadeHealthcareHistory,”BostonGlobe,Dec.28,2008.TheMassachusettsattorneygeneralhasnotedthatsuchpayment‐parityagreementshavebecome“pervasive”inprovider‐insurercontractsinthecommonwealthandhasexpressedconcernthat“suchagreementsmaylockinpaymentlevelsandpreventinnovationandcompetitionbasedonpricing.”OfficeofAttorneyGeneralMarthaCoakley,ExaminationofHealthCareCostTrendsandCostDrivers(March16,2010),40–41.
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giveintooquicklytoevenextortionatemonopolistpricedemands.Butthe
availabilityofanantitrustremedy(whichwouldprobablybeonlyaprospective
cease‐and‐desistorderratherthananawardoftrebledamagesforidentifiable
harms)mightnotbesufficienttodeterapowerfulproviderfromgrantingMFN
statustoadominantinsurer.Alternatively,regulatoryauthoritiescouldpresumably
prohibitdominantprovidersfromconferringsuchstatus.Regulatorspresumably
wouldbeinasgoodapositionasanypartytodistinguishbetweenrestrictive
agreementsthatachievetransactionalefficienciesfromagreementsthatrestrict
insurers’freedomtocutpricedealswithcompetitorsandreducepressureon,and
opportunitiesfor,allinsurerstoseeknewandinnovativeservicearrangements.
AmorepotentantitrustattackonanticompetitiveMFNclauseswouldaimat
thedominantinsurerdemandingthem,ratherthanatthecooperatingprovider.
TheDepartmentofJustice(DOJ)suedBlueCrossBlueShieldofMichigan,a
dominantinsurer,toenjoinitfromusingMFNclausesinitscontractswithMichigan
hospitals.TheDOJallegedthatsuchrestrictionsonproviderpricecompetition
reducedcompetitionintheinsurancemarketbypreventingotherinsurersfrom
negotiatingfavorablehospitalcontracts.57Inthewakeofthegovernment’s
initiativeinMichigan,whichresultedinasettlement,Michigan(andsubsequently
severalotherstates)haveprohibitedtheuseofMFNagreementsbetweenhealth
insurersandproviders.EvenwithoutstateregulationsprohibitingMFNclauses,the
DOJtheorymetsufficientsupportthatinMassachusetts,forexample,theBlueCross
57SeeComplaintat1‐2,UnitedStatesv.BlueCrossBlueShieldofMich.(E.D.Mich.2010)(No.2:10‐CV‐14155);seealsoDavidS.Hilzenrath,“U.S.FilesAntitrustSuitAgainstMichiganBlueCrossBlueShield,”WashingtonPost,October18,2010.
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planshouldnowthinklongandhardbeforerenewing(orenforcing)theMFNclause
initscontractwithPartnersHealthCare.
Othercontractprovisionsthatthreatenpricecompetitionarealsoinusein
provider‐insurercontractsinMassachusetts,accordingtotheCommonwealth’s
AttorneyGeneral.Inparticular,so‐called“anti‐steering”provisionsprohibitan
insurerfromcreatinginsuranceproductsinwhichpatientsareinducedtopatronize
lower‐pricedproviders.Undersuchacontractualconstraint,ahealthplancouldnot
offermoregenerouscoverage—suchasreducedcost‐sharing—forcareobtained
fromanewmarketentrantorfromamoredistant,perhapsevenanout‐of‐stateor
out‐of‐country,provider.OthercontractualtermsinuseinMassachusetts(and
presumablyinotherjurisdictionsaswell)guaranteeadominantproviderthatitwill
notbeexcludedfromanyprovidernetworkthatthehealthplanmightofferits
subscribers.
Thecontractualtermsnotedhereallhavethepotentialtoenshrinethe
cooperativesupremacyofdominantprovidersanddominantinsurers.The
resultingcompetitivehardextendsbeyondthesustenanceofhighprices.These
partnershipsalsoforecloseopportunitiesforconsumerstobenefit,bothdirectlyas
patientsandindirectlyaspremiumpayers,frominnovativeinsuranceproductsthat
competinghealthplansmightotherwiseintroduce.Antitrustlawcanprohibitthe
useofsuchanticompetitivecontracttermsthatprotectprovidermonopoliesand
curbinsurerinnovation,andinsuranceregulatorsmightbarsuchprovisions
wherevertheythreatentoprecludeeffectivepricecompetition.Theseactions
remainavailableeveninthecontinuedpresenceofaprovidermonopoly.
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V. Conclusion
Thereisanurgentneedtorecognizetheunusuallyseriousconsequences,for
bothconsumersandthegeneralwelfare,ofleavinginsuredhealthcareconsumers
exposedtomonopolizedhealthcaremarkets.Becausehealthinsurance,especiallyas
itisdesignedandadministeredintheUnitedStates,hugelyexpandsamonopolist’s
pricingfreedom,providerswithmarketpowerinflictwealth‐redistributingand
misallocativeeffectssubstantiallymoreseriousthanconventionalmonopolypower.
Vigorous—nottentativeorcircumspect—enforcementoftheantitrustlawscan
mitigatetheharmsfromprovidermarketpower.Retrospectivescrutinyonearlier
horizontalmergersofhospitalsorotherproviderscouldhelpcorrectdecadesof
ineffectualenforcement,butiflookingbackwardsremainsunlikely,renewedrigor
movingforwardisall‐the‐moreessential.Partiesproposingnewmergersand
alliances,whethertraditionalassociationsornewACOs,mustconvincinglyshow
thattheirreorganizationeitherleadstoonlyaminimalincreaseinmarketpoweror
createsspecificefficiencies.Traditionalmarketdefinitionsshouldalsobeexpanded,
recognizingthatinterregionalcollaborationscanalsoreducecompetitionin
growinghealthcaremarketsandcangenerateadditionalpricingpower.Other
measuresshouldtargetcurrentmonopolists,soastopreventtheenshrinementor
expansionoftheirmarketdominance.Anantitrustorregulatoryinitiativetocurb
hospitals’tyingpracticesandtoprohibitanticompetitivecontractsbetweenpayers
andproviders—perhapsasremediesforearliermergersfoundunlawfulafterthe
36
fact—mightalsoreduceandcontaintheharmfromproviderpricingfreedom.Such
policiesmightcurtailmonopolisthospitals’abilitytoenshrinetheirmarketposition
andforecloseentry,tospreadtheirpricingpowerintoadjacentmarkets,orto
extractgreaterrentsfrombuyerswithfewalternatives.
Enthusiastsformarket‐orientedsolutionswouldalsoseektorestrainprovider
marketpowerbyencouragingcreativityamongthird‐partypurchasers.Health
plansthatbypass,orfosternewcompetitorsfor,localmonopolistspromoteprice
andqualitycompetitionwhereitiscurrentlylackingandcouldunderminethe
potencyofinsurance‐plus‐monopolies.Apro‐competitionregulatoryagendamight
seekwaystofacilitateinter‐regionalcompetitionandempowerthird‐partypayors
toseekflexibleandcreativestrategiestostimulateprovidercompetition.
Additionalhopeliesinthepossibilitythathealthinsurersandthird‐party
purchaserswillpurchase(andthatACAregulationswillletthempurchase)proven
non‐medicalinterventionsthatimprovehealthandreducehealthcarecosts.The
exorbitantpricesformonopolizedmedicalservicesshouldencouragehealth
insurerstodevelopcreativealternatives,bothseekingeffective(andless‐costly)
substitutesandreorganizingwhathasbecomeafragmented,error‐prone,and
inefficientdeliveryofcare.
Unfortunately,fewhealthinsurershaveshownaneagernesseithertocontest
providermarketpowerortopursuemeaningfulinnovationstoprovidingcarefor
theirsubscribers.AsinvestigationsinMichiganandMassachusettsreveal,insurers
all‐too‐oftenbecomeco‐conspiratorswithprovidermonopolists,agreeingto
exclusiveagreementsthatprotectboththemselvesandmonopolistsbut
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unforgivinglygougeconsumers.Insurer’failuretoactasaggressivepurchasing
agentsofconsumersispartlyduetothehidingofthetruecostofinsuranceand
partlyduetoconsumers’unduereluctancetoacceptanythinglessthanthevery
best—evenclosesubstitutes.Ifconsumerswerebothawareofthetruecostoftheir
healthcoverageandconsciousthatthey,ratherthansomeoneelse,arepayingforit,
theysurelywoulddemandmorevaluefromtheirinsurers.DominantU.S.health
plansappearinadequatelyincentivizedtoreducecostsandoverlyhesitanttoadopt
innovativestrategieswithassociatedlegalorpoliticalrisks.Anyhopefulnessforthe
futureofU.S.healthcareistemperedbydoubtsabouttheabilityandwillingnessof
U.S.healthinsurers—aswellasinsuranceregulatorsandelectedofficialsthat
purchaseinsuranceforpublicemployees—totaketheaggressiveactionsneededto
procureappropriate,affordablecare.
TheACA,byprovidingconventionallygeneroushealthinsurancetomany
millionmoreAmericans,hasthepotentialtoaggravateandextendthesignificant
shortcomingsofsuchinsurance.Notonlydoesthenewlawseemtohaveno
effectiveanswertotheproblemofproviderandsuppliermonopolies,butitsbroad
extensionofcoverageislikelytofurtheramplifytheuniquelyharmfuleffectsof
theirmarketpower.Moreover,itsnewregulatoryrequirements—theimpositions
ofmedicallossratiosandessentialhealthbenefits,forexample—mightconstrain
innovationsamongpayorstocreateinter‐regionalprovidercompetitionand
reconfigureadeeplyinefficienthealthcaredeliverysystem.
However,theACAalsohasthecapacitytoopenuptheinsurancemarket.Many
consumerswill,forthefirsttime,realizethefullcostofhealthinsurance,which
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perhaps—viastickershock—inducethemtodemandlower‐costalternatives.
Moreover,theinsuranceexchangesmightofferaplatformfornewentryinthe
insurancemarket,thusinjectingsomedynamismintoanindustrydesperatelyin
needofcreativeideas.Andregardlessofhowthenewinsurancemarketstake
shape,antitrustpolicymakersandotherregulatorsstillhavethecapacitytofoster
value‐enhancinginnovation—bothbypreventingtacticsthatmightenshrinethe
currentmonopolistregimeandalsobypromotingthedevelopmentofnew
insuranceproducts.Althoughcurrenttaxpoliciesandregulationshavedulledmany
insurersintobeingagentsforprovidersratherthanfortheirsubscribers,there
remainsapotentopportunityforthird‐partypayorstoinjectthehealthcaresector
withvalue‐creatinginnovationsthatredesignboththeofferingsandthedeliveryof
care.
WhateverthePPACAmayachieve,itslegacyandcosttothenationwilldepend
largelyonwhethermarketactors,regulators,andantitrustenforcerscaneffectively
addresstheprovidermonopolyproblemandtoinstilldesperatelyneeded
competitionamongproviders.Aggressiveantitrustenforcementcanprevent
furthereconomicharmandperhapscanundocostlydamagefromprovidersthatin
errorwerepermittedtobecomemonopolists.Butultimately,creativemarketand
regulatoryinitiativeswillbeneededtounleashthecompetitiveforcesthat
consumersneed.Wherethereisdanger,thereisopportunity,andcompetition‐
orientedpoliciescanandshouldyieldsubstantialbenefitsbothtopremiumpayers
andtoaneconomythatbadlyneedstofindthemostefficientusesforresourcesthat
appeartobecomeincreasinglylimited.