Competition Policy and Organizational Fragmentation in Health Care

Abstract:     
A central challenge for all health care reform proposals currently being discussed is finding the means to effectively channel market forces given many deeply embedded features of our system and the peculiar economics of health care delivery and financing. This essay traces the path of competition law in health care and explains its chicken-and-egg relationship with provider organizational arrangements. It explores a central puzzle for future health care policy: why have market forces failed to counteract organizational fragmentation? Answering this question requires an understanding of why competition policy is inexorably linked to the organizational structures of health care providers and payers and how that the fragmentation that bedevils those arrangements has undermined its success. The article concludes with a negative assessment of recent “consumer directed” approaches, finding them likely to increase fragmentation and incapable of delivering the benefits of competition.

Keywords: Health reform, antitrust, hospital mergers, FTC, managed care, health economics, consumer directed health care, fragmentation, HMO, market failure

Accepted Paper Series