The Provider-Monopoly Problem in Health Care
38 Pages Posted: 27 May 2009 Last revised: 25 Dec 2014
Date Written: March 31, 2011
For a reason not generally recognized – U.S.-style health insurance – health care providers with market power enjoy substantially more pricing freedom than comparable monopolists in other markets. Monopoly in health care markets therefore has redistributive effects that are especially burdensome for consumers. Significant allocative inefficiencies – albeit not the kind usually associated with monopoly – also result, particularly when the monopolist is a nonprofit hospital. We first note the need for a more aggressive antitrust policy for the health sector, one that effectively prevents the creation of new provider market power through mergers and other alliances. An immediate need is to prevent the formation of “accountable care organizations” that integrate providers horizontally to achieve market power, not just vertically to achieve efficiency. Because it is unlikely that courts or agencies could undo past mergers that bestowed providers with monopoly power, we also suggest some strategies for contesting existing monopolies. One is to apply antitrust rules against “tying” arrangements so that purchasers can contest providers’ profit-enhancing practice of overcharging for large bundles of services instead of trying to exploit separately such monopolies as they possess in various submarkets. Another is to use antitrust or regulatory rules to prohibit anticompetitive provisions, such as “anti-steering” or “most-favored-nation” clauses, in provider-insurer contracts. The provider-monopoly problem is severe enough that we cannot exclude the more radical alternative of regulating provider prices.
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