Thank you Chairman Goodlatte, Subcommittee Chairman Bachus, Committee Ranking Member Conyers, Subcommittee Ranking Member Cohen, and Members of the Subcommittee for the opportunity to testify today on health care consolidation and competition under the Affordable Care Act (ACA).
I am testifying today as a health policy researcher and a resident fellow at the
All types of monopoly are not created equal in the U.S. economy. Health care providers with market power enjoy substantially more pricing freedom than monopolists in other markets. n1 Traditional antitrust enforcement tools have done little to halt extraordinary consolidation in local hospital markets over the last two decades, which drove higher price increases for inpatient services. Comprehensive, U.S.-style health insurance further enhances the pricing freedom of health care firms with market power. The Affordable Care Act of 2010 (ACA) does little to address the monopoly problem and may even worsen it.
Problems of excessive concentration and insufficient competition in health care markets are not new, although their industry sector source has varied over time. For example, insurers were more dominant price-setters during the heyday of managed care in the 1990s. But more recently, markets for hospital services have presented the most serious competition policy issues. Havighurst and Richman observe that whereas monopolies in other parts of the economy enable sellers to charge higher prices while reducing output, comprehensive third-party health insurance coverage enables many cost-insensitive patients to pay monopolist providers' asking prices rather than being induced to give up desirable health care goods and services. Hence, it amplifies the redistributive effects of health care monopolies (lower-income premium payers subsidize upper-income providers and insurance consumers) and inflicts allocation inefficiencies as well. n2
In other words, "too much of a good thing," at excessive prices. The combination of market concentration and generous insurance means consumers and providers end up overspending even more on costly health care. The combination of market concentration and generous insurance means consumers and providers end up overspending even more on costly health care.
Competition policy in health care has been further hampered by judicial resistance to antitrust challenges to mergers involving nonprofit hospitals (which account for roughly three-quarters of hospital admissions, outpatient visits, and expenditures). Past cases have turned on skepticism by judges that local nonprofit hospitals would take advantage of their pricing power, and their belief that hospital monopolists would put to good use any market power they might possess. (As if nonprofit empire building never occurs!)
Effects of the ACA on
A less-noted future problem in health care policy involves the increased "competition" among dominant market players to obtain, maintain, or extend their market power advantages. The highly regulated and heavily subsidized regime ahead under the ACA already has triggered a feverish scramble among health industry firms (insurers, pharmaceutical manufacturers, physician practice groups, and device makers, as well as hospitals) to get bigger market share and also become better "connected" politically to ensure that they will be among the politically dependent survivor incumbents in the years ahead. With most of the key decisions in health care financing, coverage, and even treatment likely to be made in
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