UNCERTAINTY AND SCIENTIFIC COMPLEXITY: AN INTRODUCTION TO ECONOMIC FORCES THAT DRIVE CURRENT DEBATES IN HEALTHCARE ANTITRUST
By Paul Wong, Ph.D.1
Healthcare antitrust is a subset of antitrust law and economics that focuses on the healthcare industry. A vast number of lawyers and economists have devoted their careers to this "sub"-field addressing a large and integral part of our nation’s (and California’s) economy. Healthcare accounts for 18 percent of national GDP (over $3 trillion)2 and is, perhaps, one of the most important "goods" that our society consumes, since it is essential to the welfare and wellbeing of each of us. The "antitrust" component of healthcare antitrust is equally important and interesting, as the structure of the American healthcare system is unique globally for its reliance on competition.3 The healthcare system in the United States is also virtually unparalleled due to the presence of nearly every canonical market "friction."4 As I discuss below, there are many topical and complicated questions that practitioners (lawyers, economists, regulators, and courts) continue to grapple with in healthcare antitrust. Greater discussion can help evolve thing surrounding the more complicated issues, and because of all of the economic twists and turns that healthcare presents, there are countless ideas and concepts that can be generalized to inform antitrust law and economics as they are applied in other industries. So, for my colleagues in all areas of law and economics, it is worth following issues in healthcare antitrust closely in the years to come.
There are two economic forces ever present in healthcare that I will focus on in this article. First, many industry actors, including patients, providers,5 and payors,6 face a tremendous amount of uncertainty, and each of those actors faces asymmetry in that uncertainty. This breeds a host of market frictions, such as adverse selection and agency problems, which may complicate the application of the standard paradigm that antitrust law follows. Second, the scientific complexity of medicine necessitates a high level of specialization and intricate technology. This creates strong economies of scale and scope and requires coordination among different industry actors, which may also complicate the application of the standard paradigm. In turn, the healthcare financing and delivery system was built with these forces in mind, but it has evolved in such a way that there is a web of interlinking actions for every episode of care, and government plays a large role as both an industry actor and a regulator.