Make Health Care Markets Work Better by Promoting Competition

In the United States, we rely largely on private organizations – each facing a unique set of financial constraints and incentives – to deliver health care and manage disease. Our use of markets, in partnership with governments, to finance and distribute medical care has many advantages. American citizens are often the first to receive the most advanced medical innovations, a vaccine for Covid-19 as the latest example. But our market-based approach also has well-documented disadvantages, including inequitable access, tremendous variation in quality, and unsustainable spending. For decades, policymakers have worked diligently to mitigate these disadvantages by directly regulating health care markets wherever private sector incentives might conflict with the public interest (e.g. capping insurance company profits, mandating essential health benefits, enforcing quality standards, etc.). 

While the Biden-Harris administration must continue these important efforts, it should also consider how it can help health care markets work better. Properly functioning markets can be powerful tools for allocating resources and serving customer needs. In particular, competition between private players is among the most effective mechanisms we have to generate value for consumers. While many health care services should not be allocated using markets (e.g. emergency care), many can be. Unfortunately, rapid consolidation among provider systems throughout the country has eroded competition and led to the formation of local monopolies, in which dominant hospital systems use their market power to seek rents. Governments, employers, insurers, taxpayers, and worst of all patients share the toll of high and growing hospital prices, the major driver of increasing nationwide spending on health care, without any commensurate return in the form of better quality or outcomes. While most tools to combat concentration in provider markets reside with the states, the federal government has several levers at its disposal, some of which do not require legislative action. 

The Biden-Harris administration should make greater federal enforcement of anti-trust law to restore competition in health care markets a top priority. The Federal Trade Commission and the Department of Justice should monitor health care consolidation, both vertical and horizontal, carefully review any mergers with potential anticompetitive effects, and block those that would hurt the public. They need more funding to accomplish this; both the FTC and the anti-trust division at the DoJ have had flat budgets even as the number and size of mergers and acquisitions has accelerated. The administration should also push Congress to fix key limitations the FTC faces in the health care sector. For instance, the FTC cannot enforce anti-trust rules against non-profits, though most hospitals in the US are nonprofit. Relatedly, the administration can review whether nonprofit tax exemptions for large hospitals serve the public interest, and whether their contributions to their communities justify billions of dollars in tax benefits for well-capitalized entities. By further padding the financial position of dominant hospital systems, tax exemptions help cement market power and undermine competition in many metropolitan areas. The requirements for hospitals to earn nonprofit status should therefore be revisited. 

Collectively, these efforts would promote competition in health care markets, restoring incentives to compete on cost, quality, and patient experience while eliminating abuses of market power.