Making Health Care Markets Work: Competition Policy For Health Care

April 14, 2017 - By Martin Gaynor, Carnegie Mellon University, Farzad Mostashari, MD Aledade, Inc. & Paul B. Ginsburg, The Brookings Institution

Executive Summary

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. The specific proposals are as follows.


a) Reform Medicare policies that encourage consolidation, such as making payments site-neutral and reforming the 340b program.

b) Simplify administrative and regulatory requirements.
i) The U.S. Department of Health and Human Services (HHS) should convene an advisory group of practicing clinicians and practice administrators to generate specific recommendations on ways that the federal government can simplify administrative requirements.
ii) Minimize the administrative burden associated with value-based payments by creating a roadmap for electronic quality reporting and creating a parsimonious set of outcome measures, standardized across payers and designed for an electronic environment.
iii) Enable the use of virtual groups by finalizing regulations governing their recognition and making these groups eligible for quality reporting and practice support.
iv) Regulators should restrict the practice of information and data blocking by hospitals and electronic health record (EHR) vendors.

c) Support risk contracts for independent provider networks.
i) Revise the Medicare Shared Savings Program (MSSP) regulations to limit “Accountable Care Organization (ACO) squatting” (Accountable Care Organizations) by large hospital and health systems.
ii) HHS convene payers and providers to develop standardized gain-share contracts.
iii) Include affordable reinsurance or stop-loss protection.
iv) Improve capital access for small practice ACOs through programs like the federal loan-guarantee program or advances on shared savings. v) The Centers for Medicare and Medicaid Services (CMS) should move ahead with its announced plans to provide quality and cost data at the practice level that can enable tiering and facilitate network formation.

d) Provide transparency on quality and cost to providers and consumers.
i) Create and publicly disseminate a parsimonious set of quality measures.
ii) Create and publicly disseminate measures of cost, both total spending and the total amounts paid to providers for various procedures, potentially through all-payer claims databases or the creation of a national claims data repository that utilizes common (core) data elements and a common format.
iii) Insurers should disclose out of pocket costs for health services consumers are considering obtaining based on their benefits and network status of providers.
iv) States should also consider creating entities to engage in monitoring and public reporting on price quality, and other measures of health care performance.
v) CMS and commercial payers provide quality and cost data at the practice level that can enable tiering and facilitate network formation by risk-taking ACOs.


a) States should eliminate certificate-of-need regulations.

b) States should eliminate any willing provider laws. Neither the states nor the federal government should adopt new any willing provider laws or regulations.

c) Require insurers to clearly and accurately identify all in-network providers to consumers, and consider requiring that all contracts with network providers be for a specified period.

d) States should amend their criteria for scope of practice decisions so that the only justification for restricting scope of practice is the safety of the public.

e) State licensing boards should seek to facilitate practices, such as telehealth, that may promote competition and innovation, and in crafting regulations should choose approaches that place the fewest possible restrictions on competition and innovation, while still satisfying legitimate and substantiated public health and safety goals.

f) States should adopt provider licensure reciprocity across states.

g) Medicare should adopt policies to promote entry into Medicare Advantage markets.


a) Federal antitrust agencies and state attorneys general should continue scrutinizing horizontal mergers that pose risks of higher prices and lower quality.

b) Federal and state antitrust enforcers should apply increased scrutiny of vertical mergers, particularly hospital acquisitions of physician practices.

c) States should discontinue the use of certificates of public advantage to shield anticompetitive collaborations from antitrust scrutiny.

d) Federal and state antitrust enforcers should actively monitor and pursue the use of anticompetitive practices by health care and health insurance firms, including (but not limited to) anti-tiering, anti-steering, and gag clauses, and most favored nations contracts.

e) Congress should pass legislation to allow the Federal Trade Commission (FTC) to:
i) Enforce the antitrust laws in the health insurance industry;
ii) Study the health insurance industry; and
iii) Enforce all of the antitrust laws with respect to nonprofit health care firms.

f) State legislatures should consider legislation to ban the use of anti-tiering, anti-steering, and most favored nation clauses in contracts between providers and insurers.

g) State insurance commissioners should utilize their, often, broad powers to review insurers’ contracts with providers.
i) If they detect problematic features in a contract, such as anti-tiering, anti-steering, gag, or most favored nation clauses, they should take action.
ii) If the commissioner has the power to reject problematic contract features, they should do so.
iii) If they do not have such powers, then they should draw problematic contracts to the attention of their attorney general’s office.

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