an unanticipated consequence of
Jack M. Balkin
Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Mark Graber mgraber at law.umaryland.edu
Stephen Griffin sgriffin at tulane.edu
Bernard Harcourt harcourt at uchicago.edu
Scott Horton shorto at law.columbia.edu
Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman marty.lederman at comcast.net
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at princeton.edu
Rick Pildes rick.pildes at nyu.edu
Alice Ristroph alice.ristroph at shu.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
Antitrust enforcement has been in decline for some time, particularly during the second Bush administration. What have been the consequences for health care? Tim Greaney and David Balto have recently addressed the issue for Congress. Both indicate just how far health care is from a well-functioning, competitive market.
Few markets are as concentrated, opaque and complex, and subject to rampant anticompetitive and deceptive conduct. As the health care debate progresses, many advocate for limited reform of the health insurance system. Their belief is that it is a fundamentally sound market and with a little dose of additional regulatory oversight, all the ills of the market will be cured. They could not be more mistaken.
As a former antitrust enforcement official, I strongly believe the mission of the Federal Trade Commission and Antitrust Division of the Department of Justice is vital to protecting consumers and competition. However, in the past administration, the priorities of those enforcement agencies were not effectively aligned with the critical priorities in the health care market, with the result that there is substantial anticompetitive and fraudulent activity that raises prices and costs for consumers and the American taxpayer, especially conduct by certain health care intermediaries—Health Insurers, Pharmacy Benefit Managers, or PBMs, and Group Purchasing Organizations, or GPOs.
The full testimony appears here. Balto argues that "the Bush administration did not bring a single case challenging anticompetitive conduct by insurance companies," while it "spent a hugely disproportionate amount of time, money and effort prosecuting relatively small groups of doctors." By the end of the testimony, it almost appears that Balto has made his case too well, given the limited resources of current antitrust enforcers. It is hard for me to imagine them investigating even a fraction of the schemes and situations he describes, though perhaps some high profile cases (and partnerships with state attorneys general) would have an in terrorem effect.
Tim Greaney's testimony before the Senate Commerce Committee paints a similarly grim picture. Greaney notes that, "by 2003, ninety-three percent of the nation’s population lived in concentrated hospital markets." He quickly identifies the core problem in an increasingly sickly health care antitrust jurisprudence: courts' short-sighted failure to understand the unconventional economics of medicine:
Legal decisions approving mergers of competing acute care hospitals have been roundly criticized. The judicial missteps can be traced to the courts’ tendency to oversimplify antitrust analysis by adopting plain vanilla, Chicago School assumptions about markets while failing to incorporate the effects of market imperfections in their analyses. Most of these decisions found extraordinarily large geographic markets for basic acute care hospital services as they ignored the heterogeneity of demand for care and the fact that consumers exhibit different preferences for [and ability to] travel.
Other cases refused to recognize supply side heterogeneity, failing to appreciate that mergers of “must have” hospitals may give rise to anticompetitive effects. To right the ship, the FTC has brought two recent hospital merger cases and undertaken retrospective reviews of the outcomes of several hospital mergers. Unfortunately, developing legal precedent takes time and effort and mergers may be attractive to the hospital industry during a period of legal uncertainty and regulatory change. An important priority for the FTC therefore should be to undertake close scrutiny of all horizontal consolidations by hospitals-- including joint ventures involving physician-controlled specialty hospitals and outpatient facilities, none of which have been challenged to date.
Greaney also notes substantial failures in antitrust enforcement against physicians, health insurers, and PBM's.
While Balto and Greaney focus on improving competition policy, I'm left wondering: can this market be saved? Greaney argues that "the nation’s competitive infrastructure -- provider and payor markets -- is not well designed to produce cost savings if reform proposals simply turn over the job to the private market. . . . [and] this quandary lends strong support to the idea of having a public plan option to nudge private insurers toward more vigorous competition and to serve as a backstop where markets fail." A highly concentrated health care marketplace has neither the means nor the motive to discipline costs--external competition has to prod it in that direction. Well-designed health insurance exchanges will be key to success here.