Monopsony as an Agency and Regulatory Problem in Health Care

40 Pages Posted: 17 Jun 2004  

Peter J. Hammer

Wayne State University Law School

William M. Sage

University of Texas at Austin School of Law; University of Texas at Austin - Dell Medical School

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 Classification: D42, D60, I11, I18, K21, L44

Suggested Citation

Hammer, Peter J. and Sage, William M., Monopsony as an Agency and Regulatory Problem in Health Care. Antitrust Law Journal, Vol. 71, No. 3, pp. 949-988, 2004. Available at SSRN: https://ssrn.com/abstract=557067

Peter Joseph Hammer

Wayne State University Law School ( email )

471 Palmer
Detroit, MI 48202
United States

William Matthew Sage (Contact Author)

University of Texas at Austin School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

University of Texas at Austin - Dell Medical School ( email )

Austin, TX 78712

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