Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, July 22, 2009

Broken Health Insurance Markets

Posted by D. Daniel Sokol

Last thursday David Balto, a Senior Fellow at the Center of American progress testified before the Senate Commerce Committee on "The Effects of Regulatory neglect on Health Care Consumers."

In that testimony he documents the lack of antitrust and consumer protection enforcement in three key areas of health care middlemen:  insurance, Pharmacy Benefit Managers (PBMs) and Group Purchasing Organizations.  In each, there were no antitrust or consumer protection actions in the past Administration with the result, that the markets have become highly concentrated and plagued with anticompetitive and deceptive conduct.   On health insurance in particular, Balto explains that the fundamental elements for a competitive market are transparency and choice and a lack of conflicts of interest.  In all of these respects, "health insurance markets are clearly broken. Few markets are as concentrated, opaque and complex, and subject to rampant anticompetitive and deceptive conduct. As the health care debate progresses, many advocate for limited reform of the health insurance system. Their belief is that it is a fundamentally sound market and with a little dose of additional regulatory oversight, all the ills of the market will be cured. They could not be more mistaken."   The paper calls for the FTC to realign its enforcement priorities with greater enforcement against health insurers, PBMS and GPOs.

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The End of Creativity for Health Insurance. A Story

In the year 2018, the Association of Family Doctors commissioned the creation of an
interactive computer program to assist hemselves and their patients with the diagnosis and
treatment of disease. It was developed as “cloud technology” for use on the Internet. In order to obtain access you had to have the password of the month supplied by your own family
practitioner. Advertising by specialists and drug companies on the program make it possible to
provide free use of the program to members. Dr. Hans Matthew, a recent graduate of medical school, joined the AFD because he hoped to open his own sole practice. At this point in his
career, Dr. Matthew had very few patients. However as a youth he had played hockey in the area. Therefore he went to the Association of Hockey Parents and made them an offer. For $25 per person per month, he would take care of their general health problems. Each parent has signed an agreement that in order to keep costs down, the failure to perform defensive medicine would not constitute medical malpractice. At each visit, Dr. Matthew would not only use the computer program himself, but teach the patient or the parents how to use the program to answer their own questions. The system was so popular among patients that the Association of Tennis Parents and the Association of Dance Parents has also signed up. With the extra money, Dr. Matthew has hired a nurse who also sees patients and uses the computer program with the parents. Once a month, they rent a room at the local library and teach use of the computer program, nutrition,weight control and life style techniques to stay healthy. Dr. Matthew is now thinking of hiring 10 more nurses to open in locations throughout northern Illinois, southern Wisconsin, northern Indiana and southwest Michigan.

Virtually everything described above is illegal. Dr. Matthew was not licensed by the
state. The sale to the Hockey parents constituted the unlawful sale of health insurance. State law makes it illegal to contract away your right to sue for medical malpractice. Our nurse was conducting the unsupervised practice of medicine. State laws limit the number of nurse practitioners that one doctor can supervise. And of course separate licenses would be required in each state as well as authority to conduct health insurance operation in each state. The competitive elimination of excess waste and costs is currently illegal.

Posted by: Daniel K. Robin | Aug 6, 2009 6:28:33 AM

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