Geographic Market Definition in Commercial Health Insurer Matters: A Unified Approach for Merger Review,Monopolization Claims,and Monopsonization Claims

Abstract

We provide a methodology for geographic market definition when the product(s) being purchased or sold has an intrinsic geographic component, such as (1) the sale of commercial health plans and (2) the purchase of health care providers’ services by commercial health plans. In these situations, we show that a straightforward application of the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission (hereafter, Guidelines) that uses the customer or supplier location to define the geographic market is not sufficient and can result in markets that are unintuitively small. This is often addressed by applying an assumption about aggregating based on similar competitive conditions. The practice of relying on the assumption of similar competitive conditions across counties, metropolitan statistical areas, or other geographic areas, without a methodology to support this assumption, could lead to market definitions that are too narrow or too broad and could influence the assessments of the extent of market concentration and the presence or absence of market power. We outline a framework that is consistent with the Guidelines and does not require a reliance on the assumption of aggregation based on similar competitive conditions.

JEL Classification L12, L40, K21, D42, I11