Monopsony as an Agency and Regulatory Problem in Health Care

Abstract:     
Antitrust courts have shortchanged the economic analysis of buyer-side market power in health care. This failure derives to a surprising degree from a single judicial decision, then-Judge Stephen Breyer's 1984 opinion for the First Circuit Court of Appeals in Kartell v. Blue Shield of Massachusetts. Breyer's opinion, while sound when read in context, has been understood by subsequent courts to excuse health insurers' imposition of price and nonprice terms on contracting providers on the grounds that insurers merely are acting as aggressive purchasing agents, thus implying that their actions are welfare-enhancing for consumers. The Kartell court's failure to delve into agency issues is attributable to the regulatory climate in which the challenged conduct occurred, which constrained Blue Shield's ability to exploit supplier discounts for its own advantage and walled off its rate-related conduct from important public policy considerations of health care quality and access. Because regulatory conditions and industry practices have changed dramatically since the Kartell decision was rendered, it is incumbent on antitrust courts to pay closer attention to agency issues when evaluating buyer-side conduct in health care. More generally, the Kartell experience teaches that regulation has significant implications for antitrust analysis even, perhaps especially, when it falls short of constituting "state action."

Keywords: antitrust, monopsony, agency, health care, health insurance

JEL Classifications: D42, D60, I11, I18, K21, L44

Accepted Paper Series