The Mises Economics Blog recently published an interesting post about a couple of recent antitrust rulings against a group of orthopedic surgeons in Boise, Idaho. It seems that these doctors made the cardinal error of talking to one another about the low rates of unilaterally mandated compensation that they were getting from the Idaho Industrial Commission and Blue Cross/Blue Shield of Idaho. After concluding that they were all taking an economic bath at the hands of the government and one of the few health insurers in Idaho, the doctors decided to stop seeing patients covered by these plans. At this, the United States Department of Justice took things into its own hands and prosecuted the doctors for “price fixing”. In the words of the attorney general of the state of Idaho:
“The free marketplace works best when there is fair competition. Anticompetitive activity harms the marketplace, businesses and consumers,” Wasden said. “Enforcement of the antitrust laws restores competition to the marketplace to the benefit of businesses and consumers and the marketplace as a whole.”
In response, the blog’s author asked the million dollar question:
But what “competition” do they refer to? The IIC fee schedule is set by government fiat. There’s no “competition” among orthopedists — or any other physicians for that matter. Everyone gets paid exactly the same “acceptable charges” based on the schedule. Even in the case of the Blue Cross contract, the physicians weren’t “competing” on price; they were simply told to accept the reimbursement levels proposed by the insurer.
And as much as the government would tout the “conspiracy” among physicians, as I said yesterday, we’re basically talking about people having conversations with one another. The truth is the antitrust regulators don’t need much to establish a Sherman Act “conspiracy.” Even if there’s no evidence of direct communication between physicians, if a large number of physicians in a given market individually reject a government price control scheme or insurance company contract, the Antitrust Division can simply “infer” the existence of a conspiracy.
This is a darned good point. Just as a “monopoly” is a single seller of a good or service, who can then manipulate the price to the detriment of consumers (an “oligopoly” is just a few dominant sellers exercising the same power), a monopsony or oligopsony is a single or small group of buyers who fix prices seen by producers. (One good example is the United Fruit Company, which once controlled 90% of the banana market in Central America and dictated the price of bananas to producers throughout the western hemisphere.) How can you possibly invoke “free market principles” in a setting in which a government monopsony or insurance company oligopsony can fix prices, and then prosecute healthcare providers for declining to accept them?
With tortured logic, that’s how.
“But hey,” you ask, “this is good for patients, isn’t it? Why should anyone cry over a little lost income for a bunch of rich orthopedic surgeons?”
I guess that depends on whether you want to be able to see an orthopedic surgeon in Idaho a few years from now, and what sort of treatment you want to have access to when you see one.
As much as the government and insurance companies (and by extension the patients who rely on them for insurance) might like to think that they are immune to the real world of supply and demand, the reality is a bit different. Your friendly local doctor is no machine. She’s also an economic entity (usually a small business) who has to decide whether to stay in practice or toss in the towel. She has to weigh moving to someplace else where she can better support her family and repay her student loans. She has to decide whether and how much to work; is it really worth putting in that extra time to see patients for the amount of money brought in? And most importantly, will she even bother getting 15 years of higher education and going into medicine when it pays a hell of a lot better being a twenty-something banker who creates credit default swaps?
The administrative headaches have gotten so bad that medicine is no longer fun. Do you really want your doctor going to work every day and thinking “to hell with this!” every time they walk into your exam room?
None of us can escape the impact of market forces, no matter how much they may be manipulated. Not you. Not me. Not the Department of Justice. The economic chickens always come home to roost.