Assembled Products: The Key to More Effective Competition and Antitrust Oversight in Health Care

Cornell Law Review Volume 101 Issue 3 Issue 3 - 2016 Article 2 Assembled Products: The Key to More Effective Competition and Antitrust Oversight in Health Care William M. Sage Follow this and additional works at: http://scholarship.law.cornell.edu/clr Part of the Law Commons Recommended Citation William M. Sage, Assembled Products: The Key to More Effective Competition and Antitrust Oversight in Health Care, 101 Cornell L. Rev. 609 () Available at: http://scholarship.law.cornell.edu/clr/vol101/iss3/2 This Article is brought to you for free and open access by the Journals at Scholarship@Cornell Law: A Digital Repository. It has been accepted for inclusion in Cornell Law Review by an authorized administrator of Scholarship@Cornell Law: A Digital Repository. For more information, please contact . \\jciprod01\productn\C\CRN\101-3\CRN302.txt unknown Seq: 1 16-MAR-16 15:47 ASSEMBLED PRODUCTS: THE KEY TO MORE EFFECTIVE COMPETITION AND ANTITRUST OVERSIGHT IN HEALTH CARE William M. Sage† This Article argues that recent calls for antitrust enforcement to protect health insurers from hospital and physician consolidation are incomplete. The principal obstacle to effective competition in health care is not that one or the other party has too much bargaining power, but that they have been buying and selling the wrong things. Vigorous antitrust enforcement will benefit health care consumers only if it accounts for the competitive distortions caused by the sector’s long history of government regulation. Because of regulation, what pass for products in health care are typically small process steps and isolated components that can be assigned a billing code, even if they do little to help patients. Instead of further entrenching weakly competitive parties engaged in artificial commerce, antitrust enforcers and regulators should work together to promote the sale of fully assembled products and services that can be warranted to consumers for performance and safety. As better products emerge through innovation and market entry, competition may finally succeed at lowering medical costs, increasing access to treatment, and improving quality of care. INTRODUCTION: THE CHALLENGE OF COMPETITION IN HEALTH CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611 I. THE HIDDEN PROBLEM: UNASSEMBLED PRODUCTS . . . . . 617 A. Unassembled Products and the Hegemony of U.S. Physicians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617 B. Regulatory Determinants of Faux Products . . . . 621 1. Physician Services . . . . . . . . . . . . . . . . . . . . . . . . 623 2. Hospital-Based Services . . . . . . . . . . . . . . . . . . . 625 † James R. Dougherty Chair for Faculty Excellence, School of Law, and Professor (Department of Surgery and Perioperative Care), Dell Medical School, The University of Texas at Austin. AB, Harvard College; MD, JD, Stanford University. This Article was supported by a grant from The Commonwealth Fund. The author thanks workshop participants at Harvard, Yale, Columbia, Texas, and Emory for helpful comments on earlier drafts, and Yale Law School for additional research support. Molly Colvard, Kelley McIlhattan, and Julian Polaris provided excellent student research assistance. 609 R R R R R R \\jciprod01\productn\C\CRN\101-3\CRN302.txt 610 unknown Seq: 2 CORNELL LAW REVIEW 16-MAR-16 15:47 [Vol. 101:609 3. Insurance Assemblages . . . . . . . . . . . . . . . . . . . 630 C. Advantages of Assembled Products . . . . . . . . . . . . 633 1. Price and Convenience . . . . . . . . . . . . . . . . . . . . 634 2. Performance and Safety . . . . . . . . . . . . . . . . . . . 636 II. THE ANTITRUST LEGACY OF FAUX PRODUCTS . . . . . . . . . . 638 A. Managed Care and Insurer-Provider Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641 B. Managed Care and Hospital Mergers . . . . . . . . . . 645 C. Preparing to Fight the Last War: Merger Policy and the ACA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649 III. TOWARDS BETTER PRODUCTS: ALIGNING ANTITRUST WITH REGULATORY CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657 A. Product-Enhancing Antitrust Analysis . . . . . . . . 660 1. Product Market Definition . . . . . . . . . . . . . . . . . . 660 2. Payer Submarkets . . . . . . . . . . . . . . . . . . . . . . . . 663 3. Characterizing the Parties . . . . . . . . . . . . . . . . . 664 4. Unilateral Effects and Status Quo Bias . . . . . 666 B. Antitrust Enforcement Actions and Product Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668 1. Exclusionary Conduct Cases . . . . . . . . . . . . . . . 669 a. Professional Boards and Purported State Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 669 b. Excluding Rival Professions . . . . . . . . . . . . 671 c. Excluding Specialty Hospitals and Their Physician-Owners . . . . . . . . . . . . . . . . . . . . . 672 d. Contractual Entrenchment . . . . . . . . . . . . 674 2. Joint Production or Pricing Cases . . . . . . . . . . 678 a. “Clinical Integration” and New Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678 b. Product Bundling . . . . . . . . . . . . . . . . . . . . . 680 c. ACOs and Provider Bottlenecks . . . . . . . . 680 d. Price Information . . . . . . . . . . . . . . . . . . . . . . 682 C. Coordinated Strategies for Improving Health Care Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684 1. Stop Paying for Random Inputs . . . . . . . . . . . . 687 2. Publish Prices and Results . . . . . . . . . . . . . . . . . 689 3. Distinguish Warranty Risk from Insurance Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691 4. Try New Products and Producers . . . . . . . . . . 693 5. Empower True Consumers . . . . . . . . . . . . . . . . . 694 6. Assure Interoperability . . . . . . . . . . . . . . . . . . . . 695 7. Clarify the Role of Health Insurers . . . . . . . . . 696 8. Promote “Upstream” Health Care . . . . . . . . . . . 698 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699 R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R \\jciprod01\productn\C\CRN\101-3\CRN302.txt 2016] unknown Seq: 3 ASSEMBLED PRODUCTS 16-MAR-16 15:47 611 INTRODUCTION: THE CHALLENGE OF COMPETITION IN HEALTH CARE Six years after the passage of the Patient Protection and Affordable Care Act of 2010 (ACA), what has been mainly ideological opposition to “Obamacare” is acquiring a more operational character. Critics are being forced to define more specifically the reasons for their discontent and to formulate modifications short of repeal.1 Thus far, the health reform debate has focused primarily on coverage mandates and associated subsidies for the poor and uninsurable.2 As will become apparent, however, the big issue in American health care is n (...truncated)