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6 - Collusion in Health Care Markets

from Part II - Seller Cartels

Published online by Cambridge University Press:  24 November 2022

Roger D. Blair
Affiliation:
University of Florida
Christine Piette Durrance
Affiliation:
University of Wisconsin
Tirza J. Angerhofer
Affiliation:
Duke University, North Carolina
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Summary

In The Wealth of Nations, Adam Smith observed that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” As we will see, Smith’s warning has stood the test of time. Over 240 years later, we find such conspiracies among physicians, hospitals, pharmaceutical manufacturers, medical device producers, and health insurers. Their contrivances to raise prices add billions of dollars to our expenditures on health care. In this chapter, we introduce an economic model of a price-fixing cartel and discuss the deleterious effects on price, quantity, and social welfare. Using health care examples, we discuss collusion among physicians to deny staff privileges, noncompete agreements among hospitals, and market division schemes in the health insurance sector.

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Publisher: Cambridge University Press
Print publication year: 2022

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References

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Federal Trade Commission. (2003). FTC Settles Price-Fixing Charges Brought against Baton Rouge Physician Groups and Their Agent. FTC. www.ftc.gov/news-events/press-releases/2003/07/ftc-settles-price-fixing-charges-brought-against-baton-rouge.Google Scholar
Frank, Richard G., and McGuire, Thomas G.. (2019). Market Concentration and Potential Competition in Medicare Advantage. Commonwealth Fund. www.commonwealthfund.org/sites/default/files/2019-02/Frank_market_concentration_medicare_advantage_ib_0.pdf.Google Scholar
Reuters. (2016). China Says Fines Medtronic Local Unit $17.2 Million for Price Fixing. Reuters. www.reuters.com/article/us-china-antitrust-medtronic-idUSKBN13W2YN.Google Scholar
Smith, Adam. (1776). The Wealth of Nations. London: W. Strahan and T. Cadell.Google Scholar
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