Scholar calls for courts and enforcers to subject health care’s opaque pricing scheme to antitrust scrutiny.
About one in four adults admit to having skipped or postponed getting necessary health care because of costs this past year.
In a recent article, Gregory Day, an associate professor of Legal Studies at the Terry College of Business, argues that the problem of high costs could be attributed to health care’s practice of having no set prices—which he refers to as “opaque pricing.”
Most businesses in other industries use prices to compete for customers, Day explains. Without knowing comparable prices, however, consumers cannot seek cheaper alternatives, Day asserts.
In the health care context, patients must agree to pay a hospital’s “regular rates” without knowing exact costs until they receive a bill, Day explains. This practice, Day claims, seems to allow hospitals to set supracompetitive rates that patients cannot predict or control.
Day observes that although there have been some efforts to increase pricing transparency, courts and regulators have largely left the practice alone. Day, however, argues that opaque pricing is anticompetitive—it restricts competition. He suggests that regulators should use the antitrust laws to scrutinize opaque pricing practices in the health care industry.
To warrant the application of antitrust scrutiny, a practice must be considered “exclusionary,” Day explains. One type of exclusionary practice is price fixing—express agreements between competitors to sell products at supracompetitive levels. Price fixing violates antitrust laws, Day says, since it impedes competition and almost always harms consumers.
Opaque pricing, Day contends, is exclusionary because it can create similar harms and concerns as price fixing. Hospitals or providers that collude, or secretly agree, to conceal pricing information could set health care rates at monopoly levels, he asserts, because consumers would be unable to compare prices between different hospitals or providers.
Day argues that if courts find opaque pricing exclusionary, they could at least review a supposed opaque pricing practice under a rule of reason standard. This type of scrutiny is deferential, he notes, since in most rule of reason cases the courts allow the challenged practices to stand.
But a heightened level of scrutiny could also apply, Day suggests, since opaque pricing in the context of health care can be “especially problematic.” He explains that health care is unlikely to self-correct—eventually lower in prices—since patients are willing to pay for life-saving treatment, even at higher costs. Opaque pricing in the context of this “inelasticity,” Day comments, encourages insured patients to accept unknown costs for treatments instead of searching for cheaper alternatives.
Day also claims that opaque pricing might lead to other harms, such as disproportionately harming low-income populations—who sometime forgo critical treatment because of high prices—and raising barriers for market entry for potential health care competitors—who might find it difficult to use their prices to attract new customers who cannot compare prices.
In addition, Day argues that there is a lack of justification as to why opaque pricing should be used in the health care market. Hospitals and providers contend that opaque pricing is beneficial to competition because it can help prevent price fixing. Hospitals previously lacking each other’s pricing information, it is thought, could more easily work together to fix prices if prices were transparent.
But Day points out that courts refuse to allow threats of a future anticompetitive act as a reason to justify a practice. In addition, he argues that such potential price fixing concerns do not mean that opaque pricing should be protected from antitrust scrutiny, but rather should be addressed through antitrust laws in the future.
Day urges courts to use a quick-look standard—an abbreviated form of the rule-of-reason—as the form of heightened antitrust scrutiny on opaque pricing in health care. He explains that courts sometimes apply this standard when a practice would “significantly raise the chance of anticompetitive effects.”
But applying the quick-look standard—and even the rule of reason standard—requires explicit agreements to collude and restrain competition, Day notes. Without an explicit agreement, hospitals and providers could potentially avoid antitrust scrutiny for opaque pricing by claiming that the practice is only an industry norm.
But even without an explicit agreement to collude, Day contends that the characteristics and structure of health care might lead to the conclusion of an implied agreement. Courts reviewing an alleged act without an explicit agreement search for factors in the relevant market that support an inference of a tacit agreement to collude, he explains.
Day claims that certain qualities of health care, such as its inelasticity, makes it easier to collude. He argues that courts should sometimes infer an illegal agreement in the health care context since opaque pricing seems only plausible in contexts that are conducive to collusion.
Day insists that treating opaque pricing as anticompetitive and applying antitrust liability to health care could lower health care prices. He suggests that it could increase pricing transparency, leading to price competition and encouraging more hospitals and providers to enter the market. Lower prices and increased hospitals in lower-income areas, he argues, could also help “democratize” health care and lead to greater access to care.
