The United States spends about twice as much per person on healthcare costs as other high-income countries.
Despite this massive spending, compared to other Organisation for Economic Co-operation and Development (OECD) countries, Americans have the lowest life expectancy, the highest chronic disease burden, the highest rates of hospitalization from certain preventable causes, and the fewest doctor visits.
Meanwhile, the number of Americans who lack health insurance is growing while affordability is falling.
Healthcare is a top policy concern for politicians and voters alike,
prompting the landmark Patient Protection and Affordable Care Act of 2010 (ACA)—as well as more than sixty Congressional attempts to repeal it and five Supreme Court cases seeking to strike it down.
In July 2020, the CEO of the American Medical Association announced that the American healthcare system is failing to serve the public and called for a disruption of the status quo.
In such a troubled yet tremendously important industry, one promising path toward improving the efficiency of healthcare is eliminating the fee-for-service reimbursement model and replacing it with value-based care.
Healthcare is typically operated under a fee-for-service structure, in which providers charge for each service, including visits, exams, and tests.
A fundamental flaw of this model in an industry like healthcare is that it incentivizes high outputs, since profit is directly linked to the provision of discrete services.
It further runs the risk that patients may receive unnecessary or duplicative treatments that they nonetheless have to pay for.
Value-based programs instead prioritize the quality of care that people receive along with the health of the populations around them.
In short, value-based care is concerned with value rather than volume.
This model is expanding in the United States, and hospitals and healthcare providers are pursuing consolidation to accomplish this transition.
There are two major reimbursement models worth noting here: shared risk and shared savings. In both models, assuming a patient receives care over a period of time and from multiple providers with varied specialties, the departments collaborate to determine the most efficient care and reduce cost. Meanwhile, a payor sets a cost-containment goal. Under a shared-risk reimbursement plan, providers are incentivized to monitor spending because they may be required to pay back a portion of any financial overrun or loss they incur above the anticipated budget.
Similarly, a shared-savings system incentivizes providers because they may receive a portion of any savings they generate when the cost of quality care comes out under the goal.
Healthcare entities purport to seek consolidation to offer important benefits to patient care and population health,
yet mergers often risk drawing the scrutiny of market regulators.
Proponents of consolidation in the healthcare industry, including the industry trade group the American Hospital Association, explain that mergers are often designed to integrate the delivery of care, provide new services, lower costs, share technology, and bear the financial risk of value-based care.
But positive outcomes must be balanced against the reality that merged organizations tend toward monopoly in certain markets and risk increasing prices for consumers.
These anticompetitive harms to the market are regulated by federal and state antitrust laws. The federal laws specifically are enforced by the Federal Trade Commission (FTC), the Department of Justice (DOJ), and private parties.
The measurable outcomes of these mergers both in terms of price and quality of care are hotly contested.
Opponents, including the Biden Administration, argue that healthcare mergers are increasingly anticompetitive and result in higher costs for patients.
Industry leaders, however, dispute these conclusions and further argue that mergers are a necessity for survival after the passage of the ACA and its new regulatory burdens.
Healthcare entities continue to refine commercial and legal arguments to persuade regulators to approve proposed mergers, including arguments that increased efficiencies may benefit the public.
These efficiencies are more important than ever in a healthcare landscape that is fundamentally changing.
And the standard metrics for healthcare evaluation are changing as a result. Anticompetitive concerns, especially patient costs and quality outcomes, must now be analyzed differently when considering the long-term horizon of value-based care.
Today, the prevailing policy of antitrust law, as applied to hospital mergers, is to obstruct market concentration that has the potential to result in harm to consumer welfare, measured principally by the elevation of prices charged to customers in the short term.
This Note argues that the focus on short-term price effects is incorrect as a normative matter because the consumption of healthcare is not readily analogous to that of conventional commodities.
Instead, courts and antitrust regulators should factor in a new theory of the healthcare market and efficiencies analysis that focuses on the qualitative value of care provided under longer-term, value-based arrangements rather than the quantitative volume of traditional fee-for-service models.
This analysis is defensible doctrinally. That is, under circuit precedent, courts continue to recognize the efficiencies defense which affirms that consumers can benefit from merger-specific outcomes that sufficiently counteract anticompetitive price effects.
This Note makes several contributions. Part I explains the foundation of American antitrust law at the federal level as well as the normative evolution of antitrust priorities. In particular, it engages with the exceptions within antitrust law that are reserved for the healthcare industry before providing an up-to-date primer on the use of the efficiencies defense in district and circuit courts. Part II describes the challenges the healthcare industry faces, including the structural changes to the field, the complicated nature of health insurance payors as consumers, and the complex economic analysis necessary for understanding the commercial side of medicine. Finally, Part III of this Note identifies three areas where greater antitrust clarity could advance the process of transitioning to value-based care. These proposals include accounting for the distinct payor mix when evaluating impacts on consumers who are insulated from price changes, prioritizing quality as a procompetitive dimension, and clarifying the timeframe for analyzing post-merger cost and quality outcomes.