Excerpts from “Health reform and market competition,” by Leibenluft and Luft

The 2010 paper by Leibenluft and Luft titled “Health reform and market competition: Opportunities and challenges” is worth a full read by anyone interested in antitrust issues in health care. For those without enough interest to warrant that, the following are a few excerpts of relevance to themes of this blog, provided without commentary.

On the antitrust laws in general:

The U.S. antitrust laws do not prohibit entities from simply possessing a high market share — or even from profiting from monopoly power — provided that the power was gained and maintained through natural growth and ‘‘business acumen,’’ as opposed to exclusionary or predatory conduct. Dominant firms, except in very unusual circumstances, are not required to enter into contracts with particular suppliers or customers, or deal with their rivals. Thus, unless dominance can be attacked because it is the product of a recent merger or acquisition, antitrust enforcers1 are limited to challenging unlawful agreements or unilateral conduct. […]

Competition may be limited in some markets, but unless entities are involved in hard-core collusion (relatively rare), they generally are subject to challenge under the antitrust laws only if their dominance is a result of a recent merger, or if the matters involve joint conduct with demonstrable anticompetitive effects, or unilateral conduct involving predatory or exclusionary conduct. Thus, where hospitals or health plans have achieved large market shares over a long period due to natural growth, simple use of their market power to obtain favorable rates will not be subject to antitrust scrutiny. […]

As a result, antitrust enforcers have faced a challenging environment. Much of their activity has been directed at the hard-core, but much easier to prosecute, cases involving joint physician negotiations or boycotts. The agencies have met with, at best, mixed success in challenging hospital mergers and so far have given little scrutiny to large physician practice mergers. While health plan mergers are closely reviewed, few of them have involved significant overlaps raising serious antitrust issues.

The limit as to what antitrust enforcers can do explains to some extent why health care markets — on both the provider and plan side — may exhibit less than optimal competition. This is compounded, however, by other aspects of our health care delivery system.

On the balance of power between insurers and providers:

The standardization of packages and access via the Internet (in some versions), rather than brokers, may markedly increase price competition among plans. For ‘‘plain vanilla’’ plans, i.e., those offering broad networks of providers and financial incentives focused largely on enrollees, market entry may be easier, perhaps even by out-of-state carriers.

Such ‘‘plain vanilla’’ plans may be effective players in markets with dispersed and independent providers, but not in markets having more integrated and complex provider groups with significant pricing power. Some markets already are dominated by such groups. Because integration promises benefits in terms of improved efficiency and quality, it may be further encouraged by policy changes — even if market power is thereby created or enhanced. Antitrust enforcement, however, has been less effective when addressing various provider arrangements that may increase efficiency but also may create significant market power.

On bundled pricing and ACOs:

There has been some private litigation brought by competing hospitals or freestanding facilities, alleging that a dominant hospital has used exclusivity or bundled pricing terms to exclude competitors from the market. These cases have met with mixed results, in large part because they involve very difficult and complex factual and legal issues. They require not only proof that the defendant hospital has market power in a properly-defined market, but also that the alleged conduct harms competition, not simply the competitor bringing the lawsuit. Defendant hospitals have argued that exclusives are designed, at least in part, to protect themselves against ‘‘cream-skimming’’ from providers who can refer the uninsured and sicker patients to the hospital, while keeping profitable referrals for their own facilities. Bundled pricing schemes, which provide for greater discounts in return for volume, are common in many contracts and often provide lower prices to consumers. The enforcement agencies seem reluctant to tackle these difficult issues and have largely left it to the competing entities to bring antitrust challenges. […]

The ACO needs a way to reallocate its ‘‘bonus’’ to reward such improved coordination. The meetings at which the reallocation of those funds occurs may also be the types of meetings in which price collusion can take place. Deciding how ACO revenues should be divided among the ACO participants typically would not raise antitrust concerns, but serious issues would arise if such discussions spill over into how independent providers will contract outside the ACO context.

The new arrangements also may make it easier for physicians to exclude potential competitors from entry into the local market. Moreover, the consolidation that may make sense in terms of reorganizing the delivery system also may create much stronger market players able to reap higher prices in their negotiations with health plans. […]

Bundled pricing and other initiatives also may enable patients and plans to make more informed decisions about health care costs and quality, thereby facilitating greater competition.

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