Concentration in health care markets: Chronic problems and better solutions

Article Highlights

  • Health care providers often abuse market power.

    Tweet This

  • Monopolies in health care are compounded by US-style health insurance.

    Tweet This

  • PPACA may make monopolies in health care worse.

    Tweet This

Subscribe to AEI's Health emails.

Executive Summary

Concentration in health care markets: Chronic problems and better solutions

Download PDF
Health care providers with market power enjoy substantially more pricing freedom than monopolists in other markets, for a reason not generally recognized: US-style health insurance. Consequently, monopolies in health care cause undesirable redistribution of wealth and inefficient allocation of resources, both of which burden consumers at levels beyond those of other monopolists.

The unusual costliness of monopoly power in health care markets demands far more policy attention than it has received. For starters, the health sector needs a more aggressive antitrust policy that effectively prevents the creation of new provider market power through mergers, alliances, or government immunity. An immediate need is ensuring that the formation of accountable care organizations under the Patient Protection and Affordable Care Act (PPACA), which in theory might achieve efficiencies through vertical integrations, do not primarily lead to horizontal integrations that give providers additional market power.

However, because antitrust policy has been so inadequate for so long in the health sector, and because it remains unlikely that courts or enforcement agencies will undo past mergers that created these powerful provider monopolies, policymakers should pursue additional strategies for contesting existing monopolies. One approach is to apply antitrust rules against “tying” arrangements so that purchasers can combat providers’ profit-enhancing practice of overcharging for large bundles of services instead of trying to exploit separately any monopolies they possess in various submarkets. Another strategy is to use antitrust or regulatory rules to prohibit anticompetitive provisions, such as “antisteering” or “most-favored-nation” clauses, in provider-insurer contracts. Policymakers could also help restore price competition in monopolized markets by enabling private payers to negotiate prices for specific provider services and encouraging insurers to expand the scope of competition—via medical tourism, for example, or configuring innovative health care delivery that bypasses many of the embedded costs in the current system.

Some commentators have suggested that the provider monopoly problem is severe enough to warrant consideration of a more radical alternative: regulating provider prices. By restricting how insurers can purchase health services, the PPACA might effectuate a regulatory regime that significantly limits price and nonprice competition. However, even under the PPACA room remains for creative regulatory policies that enhance competition in health care markets and encourage better uses of our increasingly scarce health care dollars.

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

Defeating ISIS: AEI experts weigh-in before the president’s address on Wednesday
image Degrading, defeating, and destroying the Islamic State
image Wealth Building Home Loan: Building wealth through homeownership and retirement savings
image The $3 iPhone
AEI on Facebook
Events Calendar
  • 15
    MON
  • 16
    TUE
  • 17
    WED
  • 18
    THU
  • 19
    FRI
Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

Please join us as a panel of distinguished experts explore the implications of the report and the consumer role in shaping the future of Medicare.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.