Healthcare

Competition in Healthcare – a prescription for healthy markets

Vigorous competition, both price and non-price, can have important benefits in health care. Price competition generally results in lower prices and, thus, broader access to health care products and services. Non-price competition can promote higher quality and encourage innovation.

More concretely, competition can result in new and improved drugs, cheaper generic alternatives to branded drugs, treatments with less pain and fewer side effects, and treatments offered in a manner and location consumers desire.

Vigorous competition can be unpleasant for competitors, however. Indeed, competition can be ruthless – a circumstance that can be unsettling for providers who prefer to focus on the importance of trust and compassion in the delivery of health care services. Yet, the incentives and pressures of competition can inspire health care providers to do a better job and create better outcomes for consumers. Vigorous competition can promote the delivery of high quality, cost-effective health care and advances in its provision, and vigorous antitrust enforcement helps protect competition.

Price regulation, even if indirect, can distort provider responses to consumer demand and restrict consumer access to health care services. Regulatory rules also can reduce the rewards from innovation and sometimes create perverse incentives, rewarding inefficient conduct and poor results. Restrictions on entry and extensive regulation of other aspects of provider behavior and organizational form can bar new entrants and hinder the development of new forms of competition.}}

 

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The Report addresses two basic questions. First, what is the current role of competition in health care, and how can it be enhanced to increase consumer welfare? Second, how has, and how should, antitrust enforcement work to protect existing and potential competition in health care? Commentators have extensively analyzed the application of competition and antitrust law to health care. In general, these commentators have concluded that increased competition has empowered consumers, lowered prices, increased quality, and made health care more accessible. DOJ & FTC Report at 41 n.200 (2004). The agendas, transcripts, presentations, and written comments from each session of the joint hearings, are available at www.ftc.gov/ogc/healthcarehearings/index.htm.

  • Antitrust enforcement improves health care by preventing or stopping anticompetitive agreements to raise prices, and fostering competition that spurs innovation, improves quality, and expands consumers’ access to care. Chief among the anticompetitive tactics targeted by the FTC are “pay-for-delay” drug patent settlements, in which a branded drug company compensates a generic competitor for not bringing its lower-cost drug to market for a certain period of time. This tactic delays patient access to less-expensive generic drugs, and the FTC has estimated that it costs U.S. consumers $3.5 billion a year.  http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf
  • In February 2013, the Chamber of Deputies in Mexico approved a reform to the General Law of Health, which will require from physicians to include in their prescriptions the generic denomination of drugs, allowing consumers to choose between patented drugs and generics, thus favoring competition; this reform was following the FCC’s previous recommendation and was sent to the Senate for further approval. http://www.oecd.org/daf/competition/45048775.pdf

Antitrust enforcement can improve health care in two ways. First, by preventing or stopping anticompetitive agreements to raise prices, antitrust enforcement saves money that consumers, employers, and governments otherwise would spend on health care.

  • In Mexico, a study done by the FCC in 2006 revealed that the IMSS, the third largest government purchaser of goods and services in Mexico and the largest single public purchaser of pharmaceuticals and other medical supplies, paid between 12 to 36% higher prices than what could have been obtained in a competitive environment.  http://www.oecd.org/mexico/fightingagainstbidriggingoecd-cfc-imssco-operation.htm
  • The adoption of the Guidelines by the IMSS was a key milestone in Mexico’s fight against bid rigging in public procurement, which contributed to allow for increased competition in public procurement processes of IMSS in order to promote efficiency on behalf of its beneficiaries. http://unctad.org/meetings/en/Contribution/ciclp2012_RT_PP_Mexico_en.pdf
  • According to the World Bank, the procurement of medicines has been particularly prone to weak governance, which, in turn contributes to stock-outs, wastage, poor quality, and cost inflation (World Bank 2011). In a similar vein, a medicine pricing study which is cited in the 2010 World Health Report found that, in Africa, European and Western Pacific Regions, governments paid an unnecessary surcharge of, on average, 34-44% for medicines (see Cameron et al. 2009, cited in WHO 2010). Moreover, in many cases, the failures of procurement systems to deliver good results relate specifically to a lack of effective competition, whether due to unnecessarily restrictive approaches to bidder selection and screening or to explicit collusion among suppliers (see Box 2). Such deficiencies in public procurement practices should be acknowledged as a significant failure of public health systems, and of governments' efforts to improve the welfare of citizens. http://www.wto.org/english/res_e/reser_e/ersd201302_e.pdf

Second, competition spurs innovation that improves care and expands access. 

  • The  elimination of barriers to competition, including to international competition, in the health sector clearly has the potential to improve the competitive nature and efficiency of the public health procurement market, as well as the access to a broader range of medical technology by allowing more suppliers to bid on public health procurement contracts. The foregoing is corroborated by a recent study by the Swedish National Board of Trade, which provides an example of how important transnational economic activity can be to public health care services. The study finds that open borders appear as important for quality and efficiency of the health care sector as for any other field in the economy. Borders that are open to competition in government procurement spur competition in markets where few firms are active, improve the quality of health care, and help authorities ensure that taxpayers' money is spent in the most efficient way (Kommerskollegium 2011) http://www.wto.org/english/res_e/reser_e/ersd201302_e.pdf
  • Some have suggested that the antitrust laws act as barriers to health care provider collaborations that could lower costs and improve quality. That is simply wrong. Antitrust standards distinguish between price fixing by health care providers, which is likely to increase health care costs, and effective clinical integration among health care providers that has the potential to achieve cost savings and improve health outcomes. In order to assist in making that distinction clear, the US FTC has provided extensive guidance on how health care providers can collaborate in ways consistent with the antitrust laws, precisely because such collaborations have the potential to reduce costs and improve quality.  http://www.ftc.gov/bc/healthcare/industryguide/index.htm
  • Prepared Statement of The Federal Trade Commission Before the Committee On The Judiciary United States House Of Representatives Subcommittee On Courts And Competition Policy On Antitrust Enforcement in the Health Care Industry December 1, 2010, available at http://www.ftc.gov/os/testimony/101201antitrusthealthcare.pdf