Making Health Care Markets Work: Competition Policy for Health Care

The U.S. health care system does not work as well as it could, or should. Prices are high and vary in seemingly incoherent ways, yet quality of care is uneven, and the system lacks the innovation and dynamism that characterizes much of the rest of our economy. The dearth of competition in our health care markets is a key reason for this dysfunction. There is a growing understanding that comprehensive efforts to control health care costs and improve the quality of care must address the functioning of the markets that undergird the health care system and the prices paid to providers. Ensuring that markets function efficiently is central to an effective health system that provides high quality, accessible, and affordable care. A large body of evidence shows that patients, employers, and private insurers pay more for health care in highly consolidated provider markets — for instance, where only one or two hospital systems exist. Higher health care costs lead to higher premiums, making insurance more expensive and less affordable. Even in public programs, such as Medicare, a lack of competition among providers is associated with lower quality care. The same is true of health insurance — it has been extensively documented that less competition leads to higher premiums. Each of us has been concerned about competition for quite some time. Earlier this fall, we convened a meeting supported by the Robert Wood Johnson Foundation, and co-sponsored by the American Enterprise Institute, the Brookings Institution, and Carnegie Mellon’s Heinz College, to formulate ideas for actionable policies that public and private stakeholders can implement to improve the functioning of health care markets. Approximately 40 academics, industry stakeholders, and federal and state government officials participated in the meeting, which produced focused, practical proposals. This white paper reflects the authors’ recommendations, taking the discussion at the meeting into account, without any attempt either to summarize the meeting or to associate the participants with these views. We propose a new “competition policy” for health care that involves multiple actors at the federal and the state level: the White House and state governors, federal and state executive agencies, and federal and state legislatures, as well as the federal and state antitrust enforcement agencies traditionally focused on competition. Inattention to the impact of policies on consolidation may have unwittingly put the U.S. on a path to less competition in health care markets; addressing it will require broader action and attention beyond antitrust enforcement as well. Pursuing this agenda will allow health care markets to function more efficiently, leading to higher quality, more accessible, and lower-cost care. We focus on policies to enable and support competition by health care organizations. We propose specific, actionable policies to maintain and enhance the competitiveness of health care markets, promote entry by new competitors and remove barriers to entry, and prevent anticompetitive practices. We think these policies can have an immediate and meaningful impact. We note that these are non-partisan policies that can elicit support from across the political spectrum.