Warren Greenberg

The competitive response of Blue Cross and Blue Shield to the health maintenance organization in Northern California and Hawaii.

The health maintenance organization (HMO) can provide an alternative to the predominant form of health care delivery in the United States, fee-for-service. Although market penetration of the HMO is relatively low in most parts of the country, the HMO has achieved a significant market share in a number of states. This paper examines the competitive response of Blue Cross and Blue Shield to the introduction of the HMO in two geographic regions with significant HMO activity, northern California and Hawaii. The evidence obtained from extensive interviews indicates that Blue Cross and Blue Shield plans have responded to HMO competitive pressure by establishing their own HMOs and by altering traditional procedures. HMO competition has stimulated Blue Cross and Blue Shield to make greater cost control efforts and to offer larger benefit packages. These results can have important policy implications for the role that HMOs are to play in cost containment.

Provider Competition and Health Care Quality: Challenges and Opportunities for Research

On May 28, 2003, the Agency for Healthcare Research and Quality and the Federal Trade Commission co-sponsored an invitational conference entitled, “Provider Competition and Quality: Latest Findings and Implications for the Next Generation of Research.” The main objectives of this conference were to share and discuss the latest findings on provider competition and quality, to identify implications for antitrust policy, and to develop an agenda for further research in this area. While it is impossible to completely capture the rich exchange of ideas and perspectives that transpired at the conference, we highlight several key themes that emerged and present a research agenda to guide future investigations.

Antitrust policy in the Dutch health care system and the relevance of EEC competition policy and U.S. antitrust practice

Dutch health care policy is undergoing a radical shift from a planning-oriented towards a market-oriented approach. A fundamental restructuring of the health care financing system should bring about workable competition among providers and among health insurers. As the result of both government regulation and anticompetitive self-regulation strong cartels and dominant positions are deeply rooted in the present Dutch health care system. In order to be successful structural reforms should be supported by an effective antitrust policy. However, present Dutch antitrust policy is too lenient to fulfil this necessary condition. EEC competition policy is far more stringent, but for several reasons its relevance will be limited. For an effective enforcement of national antitrust policy in health care, the so far unique American experience in this field provides some useful lessons.

The response of the dominant firm to competition: the Ocean State case.

The Ocean State antitrust case illustrates the operation of the competitive marketplace in health insurance. Blue Cross, the dominant firm in Rhode Island, responded competitively to the entrance of a new competitor, Ocean State, in three ways: 1) a most-favored-nation clause, 2) creation of a PPO offering similar benefits as Ocean State, and 3) an adverse selection policy. These actions are assessed to be legitimate competitive responses and the decisions of the higher courts overturning the jury verdict against Blue Cross are supported.

The dominant firm in health insurance

Blue Cross, the largest insurer of hospital costs in most parts of the U.S., has a varying market share by area. This paper examines the factors affecting the market share of Blue Cross by state. The regression analysis finds that the Blue Cross discount has an important impact upon market structure and that certain regulatory factors have had an impact while others, such as the premium tax, have not. Hypotheses related to the effects of consumer demand and the structure of the industry on Blue Cross market share are also tested and largely rejected.

Health insurance without provider influence: the limits of cost containment.

In our previous paper, we showed that market forces can play a significant role in controlling health care costs and that a considerable amount of cost containment effort was pursued by third-party insurers in Oregon in the 1930s and 1940s. Although physicians were able to thwart this cost-control effort, a 1986 Supreme Court decision, FTC v. Indiana Federation of Dentists, found that a boycott of insurers by dentists violated Section 5 of the Federal Trade Commission Act. Further investigation of recent developments, including the recent Wickline v. California decision, indicates that the primary barriers to cost containment today are not obstructive tactics by providers or provider-controlled health insurance plans. Rather, the primary barriers are increases in the development and diffusion of new technology and societys apparent preference for paying for new tests and procedures regardless of economic efficiency.

Long-Term Care Industry

The long-term care industry consists of health care services, social services, and residential services provided to disabled or elderly persons over a long period of time. Disabilities may be due to physical disease, severe mental disease, trauma, or mental retardation.

Introduction to the Economics of Health Care

The industrial organization of the health care industry has changed dramatically over the last decade, although the underlying economics of health care has remained the same. The industrial organization of health care is now dominated by the intervention of the health insuring organization or the managed care firm into the health care marketplace. The financing of health care services is increasingly performed by aggressive insuring organizations rather than by health insurers who passively pay the health care bill.

Antitrust in the Health Care Sector

The aim of the nation’s antitrust laws is to promote competition within industries. Economic theory suggests that the greater the number of firms within an industry and the fewer the impediments to firms that would like to enter the industry, the more competitive the industry will be. The behavior of firms within industries may also indicate the extent of competition. For example, price collusion among firms indicates a lack of competition in an industry. Exclusion of new entrants by firms that are already in the industry may also be anticompetitive: it reduces the number of potential competitors.

Employer and Employee as Purchasers of Health Care Services

More than 90 percent of nonelderly individuals who have health insurance in the private sector in the United States receive their coverage from their employer [“Trends in Health Insurance Coverage,” EBRI Issue Brief 185, May 1997, Table 1, p. 5]. Employer-sponsored health insurance, however, is not essential for the distribution of health insurance. Residents of Canada, Israel, and the Netherlands, for example, do not receive health care coverage from their employer (Chapter 11).