Abstract

http://ssrn.com/abstract=2163749
 


 



Concentration in Health Care Markets: Chronic Problems and Better Solutions


Barak D. Richman


Duke University - School of Law

June 1, 2012

American Enterprise Institute, June 2012

Abstract:     
Health care providers with market power enjoy substantially more pricing freedom than monopolists in other markets, for a reason not generally recognized: US-style health insurance. Consequently, monopolies in health care cause undesirable redistribution of wealth and inefficient allocation of resources, both of which burden consumers at levels beyond those of other monopolists. The unusual costliness of monopoly power in health care markets demands far more policy attention than it has received. For starters, the health sector needs a more aggressive antitrust policy that effectively prevents the creation of new provider market power through mergers, alliances, or government immunity. An immediate need is ensuring that the formation of accountable care organizations under the Patient Protection and Affordable Care Act (PPACA), which in theory might achieve efficiencies through vertical integrations, do not primarily lead to horizontal integrations that give providers additional market power.

Because antitrust policy has been so inadequate for so long in the health sector, and because it remains unlikely that courts or enforcement agencies will undo past mergers that created these powerful provider monopolies, policymakers should pursue additional strategies for contesting existing monopolies. One approach is to apply antitrust rules against “tying” arrangements so that purchasers can combat providers’ profit-enhancing practice of overcharging for large bundles of services instead of trying to exploit separately any monopolies they possess in various submarkets. Another strategy is to use antitrust or regulatory rules to prohibit anticompetitive provisions, such as “antisteering” or “most-favored-nation” clauses, in provider-insurer contracts. Policymakers could also help restore price competition in monopolized markets by enabling private payers to negotiate prices for specific provider services and encouraging insurers to expand the scope of competition — via medical tourism, for example, or configuring innovative health care delivery that bypasses many of the embedded costs in the current system. Some commentators have suggested that the provider monopoly problem is severe enough to warrant consideration of a more radical alternative: regulating provider prices. By restricting how insurers can purchase health services, the PPACA might effectuate a regulatory regime that significantly limits price and nonprice competition. However, even under the PPACA room remains for creative regulatory policies that enhance competition in health care markets and encourage better uses of our increasingly scarce health care dollars.

Number of Pages in PDF File: 31

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Date posted: October 19, 2012 ; Last revised: December 6, 2012

Suggested Citation

Richman, Barak D., Concentration in Health Care Markets: Chronic Problems and Better Solutions (June 1, 2012). American Enterprise Institute, June 2012. Available at SSRN: http://ssrn.com/abstract=2163749

Contact Information

Barak D. Richman (Contact Author)
Duke University - School of Law ( email )
Box 90360
Duke School of Law
Durham, NC 27708
United States
919-613-7244 (Phone)
919-613-7231 (Fax)
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