Competition cannot stem the rise of health care expenditures because it leaves agency diffuse and transferred in part to the institutions of advanced capitalism, which excel in generating demand for their services. The United States should turn to state rate setting to concentrate purchasing power.
A. B.Martinet al., “National Health Spending in 2014: Faster Growth Driven by Coverage Expansion and Prescription Drug Spending,”Health Affairs35, no. 1 (2016): 150-160.
Z. C.Brot-Goldberget al., What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics, No. w21632. National Bureau of Economic Research (2015), available at <http://www.nber.org/papers/w21632> (last visited October 5, 2016).
9.
See, e.g., S.Bhargava, G.Loewenstein, and J.Sydnor, Do Individuals Make Sensible Health Insurance Decisions? Evidence from a Menu with Dominated Options, No. w21160, National Bureau of Economic Research (2015), available at <http://www.nber.org/papers/w21160> (last visited October 5, 2016; G. Loewenstein et al., “Consumers’ Understanding of Health Insurance,” Journal of Health Economics 32, no. 5 (2013): 850-862, available at <http://www.sciencedirect.com/science/article/pii/S0167629613000532> (last visited October 5, 2016).
10.
J.Gabel, “Job-Based Health Insurance, 1977-1998: The Accidental System under Scrutiny,”Health Affairs18, no. 6 (1999): 62-74.
11.
P.Fronstin, “Sources of Health Insurance Coverage: A Look at Changes between 2013 and 2014 from the March 2014 and 2015 Current Population Survey,”EBRI Issue Brief419 (2015), available at <https://www.ebri.org/pdf/briefspdf/EBRI_IB_419.Oct15.Sources.pdf> (last visited October 5, 2016).
12.
See, e.g., P.Fronstin and R.Helman, “Small Employers and Health Benefits: Findings from the 2002 Small Employer Health Benefits Survey,”Employee Benefit Research InstituteIssue Brief No. 253 (January 2003), available at <https://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=171> (last visited October 5, 2016).
13.
See, e.g., T.Buchmueller, C.Carey, and H. G.Levy, “Will Employers Drop Health Insurance Coverage Because of the Affordable Care Act?”Health Affairs32, no. 9 (2013): 1522-1530, available at <http://content.healthaffairs.org/content/32/9/1522.long> (last visited October 5, 2016); J. B. Christianson and S. Trude, “Managing Cost, Managing Benefits: Employer Decisions in Local Health Care Markets,” Health Services Research 33, no. 1p2 (2003): 357-373, available at <http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1360890/> (last visited October 5, 2016); J. R. Moran, M. E. Chernew, and R. A. Hirth, “Preference Diversity and Breadth of Employee Health Insurance Options,” Health Services Research 36, no. 5 (2001): 911-934.
14.
See, e.g., R. D.Cebulet al., “Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance,”American Economic Review101, no. 5 (2011): 1842-1871.
For perhaps the best example of declaring competitive markets victorious, while making the agency problem simply disappear, seeJ.Goldsmith, “Death of a Paradigm: The Challenge of Competition,”Health Affairs3, no. 3 (Fall1984): 5-19, available at <http://content.healthaffairs.org/content/3/3/5.full.pdf+html> (last visited October 5, 2016). In other work, without any analysis, it is simply asserted that employers, insurers and other entities act as agents for consumers, which again amounts to making the agency problem vanish. See, e.g., C. C. Havighurst, “The Changing Locus of Decision Making in the Health Care Sector,” Journal of Health Politics, Policy and Law 11, no. 4 (1986): 697-735. To his credit, Professor Havighurst later recognized that, at least with regard to insurers, there is an agency problem but again did not analyze, particularly with empirical work as cited here, whether consumers are capable of choosing agents or the incentives and capacity of potential candidates to serve in that role. Instead, the sole focus is on the political and legal systems' failure to make insurers accountable to their customers. See C. C. Havighurst, “I've Seen Enough! My Life and Times in Health Care Law and Policy,” Health Matrix 14 (2004): 107-130; see also C. C. Havighurst, “Making Health Plans Accountable for the Quality of Care,” Georgia Law Review 31, no. 2 (1997): 587-647; C. C. Havighurst, “How the Health Care Revolution Fell Short,” Law and Contemporary Problems 65, no. 4 (2002): 55-101.
See, generally, D. M.Frankford, “Creating and Dividing the Fruits of Collective Economic Activity: Referrals among Health Care Providers,”Columbia Law Review89, no. 8 (1989): 1861-1938, at 1910-1938.
19.
See, e.g., L. C.Baker, K. M.Bundorf, and D. P.Kessler, “Vertical Integration: Hospital Ownership of Physician Practices Is Associated with Higher Prices and Spending,”Health Affairs33, no. 5 (2014): 756-763; R. M. Conti, M. B. Landrum, and M. Jacobson, “The Impact of Provider Consolidation on Out-patient Prescription Drug-Based Cancer Spending,” Health Care Cost Institute Issue Brief (2016), available at <http://www.healthcostinstitute.org/files/HCCI-Issue-Brief-Impact-of-Provider-Consolidation.pdf> (last visited October 5, 2016); H. T. Neprash et al., “Association of Financial Integration Between Physicians and Hospitals with Commercial Health Care Prices,” JAMA Internal Medicine 175, no. 12 (2015): 1932-1939; J. C. Robinson and K. Miller, “Total Expenditures per Patient in Hospital-Owned and Physician-Owned Physician Organizations in California,” JAMA 312, no. 12 (2014): 1663-1669. For a recent description of the love-hate relationship between hospitals and employed physicians that nonetheless increases expenditures overall, see J. Goldsmith, N. Kaufman and L. Burns, “The Tangled Hospital-Physician Relationship,” Health Affairs Blog (blog), March 1, 2016, available at <http://healthaffairs.org/blog/2016/05/09/the-tangled-hospital-physician-relationship/> (last visited October 5, 2016).
20.
See generally W. R.Scott and E. V.Backman, “Institutional Theory and the Medical Care Sector,” in S. S.Mick ed., Innovations in Health Care Delivery: Insights for Organizational Theory (San Francisco: Jossey-Bass Publishers1990): at 20-52; J. A. Alexander and T. A. D'Aunno, “Transformation of Institutional Environments: Perspectives on the Corporatization of U.S. Health Care,” in Innovations in Health Care Delivery, supra, at 53-85.
21.
In writing about “diffuse agency,” I do not draw on any notion that individual intentions are somehow collected into a “group mind” or any similar philosophical construct. See generally, A. S.Roth, Stanford Encyclopedia of Philosophy, Metaphysics Research Lab at Stanford University. “Shared Agency,”E.N.Zalta, ed., December 13, 2013, available at <http://plato.stanford.edu/archives/spr2011/entries/shared-agency/> (last visited October 5, 2016). Instead, what seems closest is Foucault's description of power as a normative web that infiltrates every nook and cranny of social life. See generally, D. M. Frankford, “The Normative Constitution of Professional Power,” Journal of Health Politics, Policy and Law 22, no. 1 (1997): 185-221.
22.
See, e.g., American Medical Association, AMA Calls for Ban on Direct to Consumer Advertising of Prescription Drugs and Medical Devices, News Release, November 17, 2015, AMA News Room, available at <http://www.ama-assn.org/ama/pub/news/news/2015/2015-11-17-ban-consumer-prescription-drug-advertising.page> (last visited October 5, 2016); A. Frakt, “Ban Drug Ads on TV? Some Positive Outcomes Would be Lost,” New York Times, March 14, 2016, available at <http://nyti.ms/22fdCqh> (last visited October 5, 2016).
23.
See, e.g., L.Kravitzet al., “Influence of Patients' Requests for Direct-to-Consumer Advertised Antidepressants: A Randomized Controlled Trial,”JAMA393, no. 1 (2005): 1995-2002; M. R. Law et al., “Effect of Illicit Direct to Consumer Advertising on Use of Etanercept, Momestasone, and Tegaserod in Canada: Controlled Longitudinal Study,” BMJ 337 (2008): a1055.
24.
See, e.g., J. S.Yehet al., “Association of Industry Payments to Physicians with the Prescribing of Brand-Name Statins in Massachusetts,”JAMA Internal Medicine176., no. 6 (2016): 763-768.
25.
In 1984, when Goldsmith lauded the competitive forces unleashed by Medicare's DRG-based inpatient prospective payment system (“IPPS”), see Goldsmith, supra note 16, he simply failed to notice that the IPPS is governmental rate setting.
26.
Nasdaq, AAPL Company Financials, available at <http://www.nasdaq.com/symbol/aapl/financials?query=income-statement> (last visited November 30, 2016). “‘Fiscal 2015 was Apple's most successful year ever, with revenue growing 28% to nearly $234 billion. This continued success is the result of our commitment to making the best, most innovative products on earth, and it's a testament to the tremendous execution by our teams,’ said Tim Cook, Apple's CEO. ‘We are heading into the holidays with our strongest product lineup yet, including iPhone 6s and iPhone 6s Plus, Apple Watch with an expanded lineup of cases and bands, the new iPad Pro and the all-new Apple TV which begins shipping this week.’” Apple, Apple Reports Record Fourth Quarter Results, News Release, October 27, 2015, Apple Press Info, available at <http://www.apple.com/pr/library/2015/10/27Apple-Reports-Record-Fourth-Quarter-Results.html> (last visited October 5, 2016).
27.
B. C.Vladeck and T.Rice, “Market Failure and the Failure of Discourse: Facing Up to the Power of Sellers,”Health Affairs28, no. 5 (2009): 1305-1315.
28.
Obviously, due to space limitations, what follows is a thumb-nail sketch.
See, e.g., J.White, “Implementing Health Care Reform with All-Payer Regulation, Private Insurers, and a Voluntary Public Insurance Plan,”Campaign for America's Future (2009), available at <http://www.ourfuture.org/files/JWhiteAllPayer-Implementing.pdf> (last visited October 5, 2016).
33.
See, e.g., U. E.Reinhardt, “Divide et Imperia: Protecting the Growth of Health Care Incomes (Costs),”Health Economics21, no. 1 (2012): 41-54.
34.
Seldenet al., “The Growing Difference Between Public and Private Payment Rates for Inpatient Hospital Care,”Health Affairs34, no. 12 (2015): 2147-2150.
J. E.McDonough, Interests, Ideas, and Deregulation: The Fate of Hospital Rate Setting (Ann Arbor, MI: University of Michigan Press1997): at 76-77; J. E. McDonough, “Tracking the Demise of State Hospital Rate Setting,” Health Affairs 16, no. 1 (1997): 142-149.
J. A.Morone and A. B.Dunham, “Slouching Toward National Health Insurance: The Unanticipated Politics of DRGs,”Yale Journal on Regulation2, no. 2 (1985): 263-291.
41.
R. E.Mechanic, S. H.Altman, and J. E.McDonough, “The New Era of Payment Reform, Spending Targets, and Cost Containment in Massachusetts: Early Lessons for the Nation,”Health Affairs31, no. 10 (2012): 2334-2342. There are signs that Massachusetts’ framework is having a positive effect. In 2013 state-wide spending increased by 2.3 percent, 1.3 points below the target, while in 2014 the target was exceeded by 1.2 percent, but largely due to the full implementation of the ACA. See Zemel and Riley, supra note 39. Likewise, Maryland has reported some early success with the use of global budgets, with expenditures for the first year 2.11% lower than the growth rate agreed upon with the federal government. A. Patel et al., “Maryland's Global Budgets — Preliminary Results from an All-Payer Model,” New England Journal of Medicine 373, no. 20 (2015): 1899-1901, as has Vermont through its process of budget review. See, e.g., National Academy for State Health Policy, supra note 39; 2016; Zemel and Riley, supra note 39.
42.
See, e.g., Patel et al., supra note 41.
43.
See, e.g., National Academy for State Health Policy, supra note 39; Zemel and Riley, supra note 39.
44.
See generally, Murray and Berenson, supra note 29.
45.
McDonough, “Interests, Ideas, and Deregulation,” supra note 37.
46.
With regard to horizontal concentration in hospital markets, Gaynor reports that from 2010-2014 there were 457 hospital mergers, and that as a result, “most urban areas in the US are now dominated by one to three hospital systems….” Gaynor, supra note 17, at 5. With regard to vertical concentration, see text infra at note 19.
47.
For hospital concentration, see, e.g., Z.Cooperet al., The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured, No. w21815. National Bureau of Economic Research (2015), available at <http://www.healthcarepricingproject.org/sites/default/files/pricing_variation_manuscript_0.pdf> (last visited October 5, 2016); M. Gaynor and R. Town, “The Impact of Hospital Consolidation — Update,” Robert Wood Johnson Synthesis Project Policy Brief No. 9 (2012), available at <http://www.rwjf.org/en/library/research/2012/06/the-impact-of-hospital-consolidation.html> (last visited October 5, 2016). One recent study found increased prices even when hospitals in different, within-state local markets merge, a finding that is particularly troubling because antitrust law and officials are usually concerned only with concentration in local markets. See L. Dafny, K. Ho, and Robin S. Lee, The Price Effects of Cross-Market Hospital Mergers 2016, No. w22106, National Bureau of Economic Research (2015), available at <http://www.nber.org/papers/w22106> (last visited October 5, 2016). For physician concentration, see, e.g., D. R. Austin and L. C. Baker, “Less Physician Practice Competition Is Associated with Higher Prices Paid for Common Procedures,” Health Affairs 34, no. 10 (2015): 1753-1760; L. C. Baker et al., “Physician Practice Competition and Prices Paid by Private Insurers for Office Visits,” JAMA 312, no. 16 (2014): 1653-1662; E. Sun and L. C. Baker, “Concentration in Orthopedic Markets Was Associated with a 7 Percent Increase in Physician Fees for Total Knee Replacements,” Health Affairs 34, no. 6 (2015): 916-921. For vertical concentration, see text and note infra at note 19.
48.
Even without the proposed Aetna-Humana and Anthem-Cigna mergers, which threaten to reduce the big five to three, the figures are very troubling. In the commercial market “[i]n 2004, the largest insurers controlled more than half the market in 16 states and at least one-third of the market in 38 states. Between 1998 and 2006, the fraction of health care markets that were concentrated to levels high enough to raise antitrust concerns, according to the U.S. Department of Justice's Horizontal Merger Guidelines, increased from 68 percent to 99 percent.” National Academy of Social Insurance, “Addressing Pricing Power in Health Care Markets: Principles and Policy Options to Strengthen and Shape Markets,” (2015): 11, available at <https://www.nasi.org/sites/default/files/research/Addressing_Pricing_Power_in_Health_Care_Markets.pdf> (last visited October 5, 2016). In more detail, “AMA data show that 64 percent of commercial health insurance markets are already highly concentrated. Twenty percent of these markets [greatly exceed the standard criteria for high concentration]. Fifty-three percent of those markets have two insurers that account for 65 percent or more of the combined market for HMO, PPO, and POS insurance services. Other studies indi-cate that in 74 percent of states, the three largest insurers hold 80 percent or more of the market share in each of the individual, small group, and large group market segments. Nationally, the share of the largest four insurers increased from 74 to 83 percent from 2006 to 2014.” “Antitrust Review of the Aetna-Humana and Anthem-Cigna Mergers,” T. Greaney and D. Moss to William J. Baer, January 11, 2016, at 3-4, Published by the American Antitrust Institute, available at <http://www.anti-trustinstitute.org/sites/default/files/Health%20Insurance%20Ltr_1.11.16.pdf> (last visited October 5, 2016). In the Medicare Advantage market, “97 percent of markets in U.S. counties are highly concentrated and therefore lacking in significant MA plan competition. Competition is considerably lower in rural counties than in urban ones. Even among the 100 counties with the greatest numbers of Medicare beneficiaries, 81 percent do not have competitive MA markets. Market power is concentrated among three nationwide insurance organizations in nearly two-thirds of those 100 counties.” B. Biles, G. Casillas, and S. Guterman, “Competition among Medicare's Private Health Plans: Does It Really Exist?” The Commonwealth Fund (2015): 1, available at <http://www.commonwealthfund.org/publications/issue-briefs/2015/aug/competition-medicare-private-plans-does-it-exist> (last visited October 5, 2016).
49.
See, e.g., L. S.Dafny, “Are Health Insurance Markets Competitive?”American Economic Review100, no. 4 (2010): 1399-1431, available at <https://www.aeaweb.org/articles.php?doi=10.1257/aer.100.4.1399> (last visited October 5, 2016); L. Dafny, M. Duggan, and S. Ramanarayanan, “Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry,” American Economic Review 102, no. 2 (2012): 1161-1185, available at <https://www.aeaweb.org/articles.php?doi=10.1257/aer.102.2.1161> (last visited October 5, 2016).
50.
In local markets where fragmented providers face an insurer with market power, providers' prices either fall or stabilize. However, some evidence shows that these prices are not reflected in lower premiums for plan sponsors. See Dafny, Duggan, and Ramanarayanan, supra note 49. When the situation is reversed — when consolidated providers face fragmented insurers — providers' prices rise. Insurers pass these increases onto payers in the form of higher premiums. See, e.g., R.Townet al., The Welfare Consequences of Hospital Mergers, No. w12244. National Bureau of Economic Research (2006), available at <http://www.nber.org/papers/w12244> (last visited October 5, 2016); E. E. Trish and B. J. Herring, “How Do Health Insurer Market Concentration and Bargaining Power with Hospitals Affect Health Insurance Premiums?” Journal of Health Economics 42 (July 2015): 104-114. Finally, when both sides of the provider-insurer market are consolidated, one can infer from available evidence that concentrated insurers do not pass along any profits they might wrest from consolidated hospitals. See Dafny, Duggan, and Ramanarayanan, supra note 49; R. M. Scheffler et al., “Differing Impacts of Market Concentration on Affordable Care Act Marketplace Premiums,” Health Affairs 35, no. 5 (2016): 880-888. Indeed, some evidence exists that the two sides just shake hands, sharing together the increased premiums imposed on plan sponsors. See T. Greaney, “New Health Care Symposium: Dubious Health Care Merger Justifications — The Sumo Wrestler and ‘Government Made Me Do It' Defenses,” Health Affairs Blog(blog), February 24, 2016, available at <http://healthaf-fairs.org/blog/2016/02/24/dubious-health-care-merger-justifications-the-sumo-wrestler-and-government-made-me-do-it-defenses/> (last visited October 5, 2016); S. Rosenbaum and D. M. Frankford, Law and the American Health Care System, 2nd ed. (New York: Thomson Reuters/Foundation Press, 2012): at 1339-1341. It seems that consolidation at either or both levels results in higher premiums.
