Why Antitrust Enforcement Can Only Go So Far in Health Care
August 5, 2021
Executive Order on Promoting Competition in the American Economy
The White House
July 9, 2021
Stop Playing Health Care Antitrust Whack-A-Mole
Bill of Health
May 17, 2021
By Jaime S. King
The Sleeper Health Cost Policy
July 22, 2021
By Drew Altman
Comment by: Allison K. Hoffman and Hannah Leibson
In early July, the Biden Administration issued this high-level executive order focused on promoting competition in the American economy. The order urged the FTC and DOJ to significantly ramp up antitrust enforcement to prohibit future mergers and divest existing anti-competitive arrangements.
The order states in part, “whereas decades of industry consolidation have often led to excessive market concentration, this order reaffirms that the United States retains the authority to challenge transactions” in violation of the antitrust laws.
The problem is that it’s likely too little too late for health care. For the past few decades, health care consolidation has been on the rise.
Jaime S. King points out that the rate of consolidation has increased so dramatically that up to 95 percent of metropolitan areas have highly concentrated hospital markets. Private equity investment has driven much of this trend.
As Drew Altman explains, consolidation is negatively impacting quality of care and significantly driving up health care costs for consumers—as much as 50 percent in some hospital systems. When one or two large hospital systems are running the show in a city or region, insurers don’t have any leverage to negotiate lower prices. Consumers have no choice but to pay the higher prices or travel far distances to seek care.
Things like choices of insurance plans or transparency, both mentioned in the Biden Executive Order, will not solve these structural problems on their own. In the months ahead, the impact of COVID-19 will likely accelerate consolidation in many economically disadvantaged regions where hospitals are already deep in the red.
Amped up antitrust enforcement will only go so far in health care, especially considering thin government resources. It could prevent further consolidation. More aggressively, the administration could review merged entities and unravel those that have proven anticompetitive.
All of these measures could be beneficial, but ultimately, comprehensive price regulation is the only way to control the rising health care costs associated with provider consolidation. As Altman highlights, drugs comprise just 10% of health care spending while hospitals represent a whopping 34%. More and more, physician groups are also merging or are affiliating with hospitals and will benefit from their hefty negotiating power to command higher prices.
One option is a federal all-payer system to set price caps or limits on total hospital spending. It could eliminate the large gap between Medicare rates and those commercial insurers are forced to accept in highly consolidated hospital markets. Medicare for All is another means to set rates federally, in one fell swoop, and it would also eliminate the administrative costs associated with having many different payors.
Another option is rate setting at the state level, but this approach would be more difficult to enact and less coordinated. The state of Maryland already has such a model in place, and has seen positive outcomes since it was launched by CMS as a pilot program in 2014. From 2014 to 2019, Medicare spending in Maryland fell 2.8 percent and the state has seen a 4.1 percent decrease in total health care costs. Alongside these cost savings, quality benchmarks across several dimensions have surpassed expectations. This model could inform policy design at the federal level, just as Massachusetts’s reform informed the design of the Affordable Care Act.
Antitrust enforcement is but one piece of the puzzle of controlling health care price inflation, and, unless the FTC and DOJ aggressively unwind the consolidation of the past decades, it is only a very small piece.
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