Antitrust and Health Care

Josh Wright —  30 September 2008

Barak Richman (Duke) and James Blumstein (Vanderbilt) have an interesting exchange at PENNumbra, University of Pennsylvania School of Law’s online forum for debate surrounding scholarship in the U. Penn. L. Rev.  Here’s the abstract from Professor Richman’s article:

Courts reviewing proposed mergers of nonprofit hospitals have too often abandoned the bedrock principles of antitrust law, failing to pay heed to the most elemental hallmarks of socially beneficial competition. This Article suggests that courts’ misapplication of antitrust law in these cases reflects a failure to understand the structural details of the American health care market. After reviewing recent cases in which courts have rejected challenges to proposed mergers between nonprofit hospitals, it documents how courts have engaged in a faulty analysis that ultimately protects nonprofit hospitals from the rigors of standard antitrust scrutiny. It then identifies the core principles of antitrust law—preventing supracompetitive prices, optimizing output, and maximizing allocative efficiency—that have been absent from, if not violated by, the rulings in these merger cases.

And from Professor Blumstein:

The application of the antitrust laws to the health care industry reflects a challenge—a Kulturkampf—to a traditional culture that often has resisted the incorporation of economic considerations into its process of making decisions.

“[H]ow one thinks about an issue and the way an issue is framed shape the way one analyzes it.” In the health care arena, there are two different ways of thinking about the product and the industry—the traditional professional/scientific model and the market-oriented model.

The traditional professional/scientific model “reflects a response to perceived market failure”—an asymmetry of information between professional provider-experts and uninformed (and uninformable) patient-consumers. The response to this perceived market failure is that “professional providers, such as physicians, serve as substitute decision makers, displacing consumers.” In theory, decisions in this paradigm are based on science and are not influenced by economic considerations or financial incentives. Under this model, “economics and trade offs become marginalized in the policy debate,” as “[m]edical care . . . becomes an exclusively technical-scientific enterprise.”

The response of the market-oriented model to the lack of consumer information is not to substitute decision making by experts, but “to provide information and education,” with the “objective of public policy” being to empower consumers by “improv[ing] the flow of comprehensible information to consumers so that they can function better as consumers.” Experts such as physicians become expert-advisers in this paradigm, instead of autonomous substituted decision makers. The recent embrace of so-called consumer-directed health care is a market-based strategy that depends on better-informed consumers with better-aligned financial incentives.

In the battle of the paradigms, the mere use of the term “industry” (above) as opposed to “system” is an empirically and normatively loaded descriptor. “Use of the term ‘system’ suggests a social services delivery model,” which is consistent with the traditional professional/scientific paradigm. In order for the antitrust laws to apply to health care services, those services must constitute “trade or commerce.” The application of the antitrust laws to the health care “industry,” suggests that health care will “be policed through antitrust enforcement against anticompetitive conduct as are other economic sectors”—a position consistent with the market-oriented paradigm.

Enjoy!