Competition matters on both sides of the Atlantic

There is often a lot to learn by comparing the US and UK health care systems, but as often as not we revert to Shaw’s “two nations separated by a common language” when looking for lessons. Let me give one example.

Although the UK has had a single payer, nationalized system for over six decades, there also exits a small but vibrant private sector system. In this sector, private insurance companies—supported by premiums paid by individuals or corporations (on behalf of employees)—contract for services from private hospitals and consultants (i.e., doctors.) The system operates in a similar fashion to the US private care system. Insurance companies negotiate with the provider groups as to the rates that will be paid for the various clinical services.

As in the US, there are some private provider groups that have sought to obtain geographic dominance in certain markets. One purpose of that dominance is to have monopoly-like leverage over the insurance companies to obtain super-normal profits.

In the US, when this kind of dominance occurs, it is—for the most part—ignored by public policy makers and regulatory officials. Indeed, it is explained away by assertion that such ACOs (as we now call them) are better able to coordinate care for their patients and thereby achieve efficiencies that will lead to lower costs. As best I can tell, no one with training in economics believes that such an offset is likely to be the result.

Recent rulings by the Competition Commission in the UK have given the lie to those kinds of hopes.  The CC found that dominant private health care networks, particularly by not exclusively those in major metropolitan areas, were able to extract monopoly rents from the insurance companies. The regulatory response: Requiring the divestiture of a sufficient number of hospitals to enable competition to emerge.  The specifics remain to be decided, and portions of the ruling are likely to be contested or appealed, but the logic of the CC will remain intact: Too much market concentration is bad for consumers.

I am struck by how this differs from the situation in the US.  Even Don Berwick, one of the most informed candidates for public office when it comes to health care, avoids the market power issue in his recent platform statement—notwithstanding how many times it has been documented that the dominance of one health care provider network in Massachusetts single-handedly accounts for a substantial portions of the state’s high health care costs.

The CC’s report should be required reading for US health care policy-makers. The UK has a lot to teach us if we can learn to understand our common language.