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Antitrust and Competition in Health Care Markets

The U.S. health care system is organized around markets. There has, however, been ongoing concern about the functioning of these markets, so much so that some have despaired of these markets working at all. The policy response to this concern has been disjointed. Health care markets are subject to many regulations and interventions. Some of these policies have attempted to substitute regulation for competition, regulating entry and investment (certificate of need laws, health planning) or price (all-payer regulation). At the same time, health care markets have been subject to antitrust enforcement. Recent years have seen a shift away from regulatory policies and toward competition. Antitrust policy towards health care markets has become much more vigorous since the early 1970s. Antitrust is intended to ensure the efficient functioning of these markets. As a consequence, competition and antitrust policy have become prominent issues in health policy. Economic research is vital to addressing issues in competition and antitrust in health care. This includes issues of market definition and detecting anticompetitive conduct. In rule of reason cases, where benefits are weighed against costs, it includes measuring the loss of welfare resulting from a particular practice against any gains resulting from it. In this chapter we consider research issues in the analysis of competition and the application of antitrust to health care markets. We outline our views on the analytical issues and review the relevant literatures both from health economics and industrial organization and antitrust generally. Our focus is mainly on hospitals and interactions between hospitals and insurers. This is due, in part, to where there has been antitrust activity. Physician markets are for the most part very unconcentrated, and as such they do not lend themselves to the kinds of anticompetitive conduct the antitrust laws prohibit. Although issues of competition and antitrust in pharmaceutical markets are fascinating and important, they differ in some fundamental ways from markets for health care services, and as such, we exclude them from this chapter. In what follows we first discuss the optimality of antitrust in health care markets, then horizontal issues in health care markets. This is followed by a discussion of vertical issues, and finally, by a conclusion and a set of recommendations for future research.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 1999-E29.

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