More About Managed Care Markets

Plan for Today Market power Market evolution Last in-class team meeting –Final peer evaluation form –Your feedback on team project

Large Market Share --> Market Power Market power --> “Excess profits” –Charge too much for product –Pay suppliers too little –Restrict supply “Excess profits” defined as –More than required to attract plans into market But potential competitors blocked from entering market

Antitrust policy Enforced by Federal Trade Commission, state’s attorney general Sherman Antitrust Act –No contracts in restraint of trade –No monopolies Clayton Act –Prohibits anti-competitive practices, such as Price fixing Tying buyers to sellers

Is integration good for society? Increased efficiency (lower costs) vs. Increased market power (higher prices)

Empirical evidence Hospital mergers –Reduce costs –Raise prices (even if non-profit) Concentration of hospital market --> –Increased mortality from heart attacks –More re-admissions? Multiple options for Medicare or employee plans -->lower premiums ??Increased price competition --> poorer quality?? Source: Gaynor and Haas-Wilson, Journal of Economic Perspectives

Market Evolution Different markets seem to be going through same sequence of changes Four stages on a continuum (1) Unstructured (2) Loose framework (3) Consolidation (4) Intense competition

Table with stages

Cleveland, c. 1997