Category Archives: market forces

From Monopolies to Monopsony

Axios yesterday reported that the US health care system is made up of mostly monopolies, and that the industry is dominated by a small number of companies, according to an article by Sam Baker. And this, critics say, drives up prices for everyone.

The following chart highlights the combined market share of the two largest companies in the selected health care sectors.

Da

Data: Open Markets Institute; Chart: Axios Visuals

Because the US spends more than any other industrialized nation for health care, because our prices are higher, the monopolies that support those high prices could undermine both the liberal and conservative dreams of a more efficient system, according to Baker.

Here is the big picture, according to Baker:

  • Hospital systems continue to merge with each other and gobble up doctors’ practices, which lets them charge more for the care they provide.
  • Insurers and pharmacy benefit managers are also merging, and are now on track to bring in more revenue than the tech industry;s biggest powerhouses.

The trend towards concentration, Baker wrote, extends throughout the system, even into sectors that most patients never directly interact with, according to the data from the Open Markets Institute and shared with Axios first.

Returning to the chart above, let’s look at the suppliers for hospitals:

  • One company controls 64% of the market for syringes. Just 3 companies control the market for IV solution, and two companies make 47% of the hospital beds.
  • The biggest sector is syringes, with $3.8 billion in annual revenue. In a system that is already not very competitive, OMI found, each step without competition feeds into the next one.

Open Markets policy director, Phil Longman stated that, “America’s health care crisis is brought to you by monopoly.”

A particular example, and one that I am familiar with, is Dialysis:

  • Dialysis clinics bring in about $25 billion per year in revenue, and two companies, Fresenius (my clinic) and DaVita — control 92% of the market.
  • Fresenius is the leader, with almost 50% market share.
  • The manufacture of dialysis supplies is also concentrated around two companies, one of which is Fresenius, as my delivery truck and boxes and other materials can attest to. In this, they control 33% of that market.

What then does this monopolization mean for both sides of the health care debate?

This level of concentration can pose a problem for both liberals and conservatives, argues Longman.

  • Conservatives, for example, wanted to shift dialysis away from VA facilities and let veterans use private care instead.
  • Especially in sparsely populated areas, there’s an argument that such an arrangement would be more efficient, Longman said — but without actual competition in the private market, the VA just ends up paying more.
  • But by the same token, large hospital systems dominate some regions entirely. They’re not only the only source of care for miles, but also the largest employer and thus an important political constituency.
  • And that could make it hard for Democrats to follow through on big payment cuts in an expanded public program or “Medicare for All.”
  • “What are the chances the taxpayers get a good price if we don’t fix the monopoly problem?

Here’s a thought. Let there be more competition, but let the financing and paying be done by one entity — the government. In other words, let the providing of care be carried out by many companies, hospitals, etc., but make the financing of health care and the payments for it the responsibility of the government through an improved Medicare for All.

Medicare already pays out to the existing hospitals and providers, irregardless if they are concentrated, and has for some time, so expanding Medicare to all should be the same.

Yet, until the monopoly problem is solved, nothing will change.

Medical Mystery: Something Happened to the U.S. Health System After 1980 | The Incidental Economist

Good morning all. While perusing my LinkedIn feed, I found this article from May of last year, and thought it would be a perfect addition to the series of articles posted last week about Medicare for All/Single Payer, and why opposition to it is more harmful than the alleged or imagined fear-mongering we are seeing from many quarters.

This is especially significant in light of my post last week, Health Care Is Not a Market, and as the article below suggests, the US health care system diverged exactly at the time of the election of Ronald Reagan in 1980, and the introduction of pro-market forces, supply-side economics.

So it is no coincidence that as Austin Frakt writes, that prices went up, while health outcomes went down, and that socioeconomic status and other social factors exert larger influences on longevity.

Here is the article:

The following originally appeared on The Upshot (copyright 2018, The New York Times Company). Research for this piece was supported by the Laura and John Arnold Foundation.

Source: Medical Mystery: Something Happened to the U.S. Health System After 1980 | The Incidental Economist