Tina Simpson, JD, MSPH
Principal
As any of my students from my US Health Policy and Structure course will tell you, if there is one note I hit or drum I beat, in every class (after and alongside the theme of “it’s complicated”)– it is that the US health market failures are a reflection of a lack of competition.
This is reflected in the fact that the biggest differentiation in health care expenditures between the United States and other OECD countries remains that of price. We pay more for fewer services (and that is even after controlling for the additional US administrative costs).
This is because, here in the United States, we rely upon free market principles of competition, supply, and demand to provide efficient pricing as it relates to health care services.
That reliance has its limitations (for many reasons) in principle. Health care is not an interchangeable “widget” that consumers can easily compare prices (or quality or value) on and select the best-priced option for them. This is at its most basic level because, generally, there is a fundamental imbalance between the provider and consumers. There is an asymmetry of information between the provider (supply side) and the patient (consumer). Many consumers do not have (much, or any) choice when it comes to when and where they purchase health care. In an emergency, it is unlikely you will Google a hospital’s (now purportedly public) charge sheet to determine which ER you will go to. Many consumers, particularly those in rural communities, do not have a choice based on the lack of facilities and providers in their area.
Health, as many (most?) health economists will argue, “is different” – it lacks the conditions of a competitive free market. Where the market cannot provide efficient outcomes, there is a role, indeed an imperative, for government mediation. This was the proposition outlined by Nixon health economist and advisor, Alain Enthoven in 1973 – and reflects a position not inconsistent with Adam Smith’s own “laissez-faire” and invisible hand proposition. To quote Enthoven:
A market made up of health care financing and delivery plans and individual consumers, without a carefully drawn set of rules to mitigate market failures, and without mediation by collective action on the demand side, cannot produce efficiency and equity.
SO WHAT IS THIS ALL LEADING UP TO?
Last year, President Biden issued an executive order citing concern for “excessive market concentration” (i.e.: monopolies) across industries and their impact on the competitiveness of markets and impact on “democratic accountability and the welfare of workers…small businesses…and consumers.” This market concentration is particularly notable as it relates to healthcare:
- 10 Health systems control 25% of the US health market
- The two largest health insurance companies (United Healthcare and Anthem) have a combined national market share of 25%.
Consolidation of market share among pharmaceutical companies is similarly stark (even if the data is less transparent), ten years ago, eight manufacturing firms controlled more than 50% (53% to be precise) of the US market. Consequently, only “a handful” of manufacturers “are responsible for sourcing the vast majority of prescription drugs.” That includes only four companies who market over 50% of generic drugs in the US. Consequently, the largest pharmaceutical manufacturers generally yield annual profits of 15-20% (per 2017 Government Accountability Office Analysis Report).
All this to say that across sectors, health care is big business. And when any business gets too big (talking monopolies or monopsonies) – that translates to increased price capture. No bueno.
In response to this shifting (or shifted) market landscape, the FTC has launched an aggressive effort to counteract this market consolidation. This includes abandoning its prior, more passive, position as it relates to challenging mergers and acquisitions across the industry.
In the past year, this has included successfully blocking four hospital mergers (in Utah, New Jersey, Georgia and Tennessee) – with a handful of other contested acquisitions remaining pending.
Of course, it is not only “horizontal mergers” (acquisition of entities providing the same or similar services) that present a challenge to markets, as demonstrated last week by Amazon’s acquisition of One Medical. Greater integration across industries and within corporations requires new tools. Earlier this year the FTC and the Justice Department announced collaboration to revisit and update Merger Guidelines to better reflect current practices and impact. In the meantime, both agencies have flagged their willingness to integrate and deploy alternative legal theories to challenge consolidation across and between (insert any other preposition of choice here) sectors and industries. And we are starting to see actions match those words, as reflected by (for example) the Justice Department’s continuing efforts to block UnitedHealth’s acquisition of data informatics company, Change Healthcare, and (unsuccessful) litigation against former DaVita CEO as it relates to the company’s labor practices.
This progress and commitment is encouraging and urgently needed, but it also raises questions of too little, too late, and if it is a case of shutting barn doors after the horse has already escaped.
Regardless, for such an initiative to have an impact – we also have to be aware of the importance of putting our money where our mouth is. This can’t just be resolved by an Executive Order. Agencies like the DOJ and FTC will need resources to consistently institute such initiatives; the Biden administration has sought an increase of $88 million (DOJ) and $139 million (FTC) over their 2021 budgets, quantifying the aphorism that an ounce of prevention is worth a pound of cure.
In closing, for the last fifty (plus) years, as Americans, we have resolutely resisted proactive regulation to correct health care market failure. As a result, we have experienced increased consolidation, leading to….more market failures. Hopefully, now that we have called a spade a spade and are turning to a more aggressive and nuanced examination of actual impact by regulators enforcing anticompetition statutes and rules, we can capture some course correction. I am hopeful, but I am also reminded of the (probably apocryphal, but no less apt) observation of the American way of politics and business: “You can depend upon the Americans to do the right thing, but only after they have exhausted every other possibility.”
We are out of other possibilities – the day has come.