Monopolies in America Are A Growing Problem-And the Health Care Industry Is a Perfect Example of This

November 27, 2018

 

Every antitrust expert knows that monopolies are harmful to consumers, and that in recent years concentration has become a major problem in many industries. In a recent short analysis, David Leonhardt lays out just how dominant large corporations have become in most economic sectors, to the point where it is harming the United States.

 

Leonhardt begins with the observation that the Boston Tea Party was not in response to a tax increase, but in response to a government sponsored monopoly. The colonists engaged in civil disobedience because the British Parliament gave the British East Indian Company a monopoly on the sale of tea in the colonies. Ever since then, anti-monopoly feeling has been a strong force in the United States. The Populists attacked large corporations for their huge size, their exploitation of workers, and their abuses of power, muckraking journalists exposed monopoly misdeeds, unions and citizens mobilized and pushed for the passage of antitrust laws, and President Theodore Roosevelt filed lawsuits to break up monopolies and regulate big business. These efforts to curb corporate power and end monopolies were tough, but they resulted in major victories that benefited the American economy, American entrepreneurship, and American consumers.

 

However, over the past generation many of these victories have been eroded. We have witnessed a huge wave of mergers and consolidation across many different industries, and too often the federal government has been asleep at the wheel. It has approved mega mergers that will harm consumers and competition, requiring little or no change, and it has allowed huge technology companies to emerge without real competition, such as Facebook and Google. In health care, consolidation has occurred at all industry levels. Three pharmacy benefit managers (PBMs) control 85% of the PBM market. A handful of health insurance companies dominate insurance markets. And hospital consolidation is proceeding rapidly, to the point where some companies dominate entire geographic areas.

 

And now we have data that shows how serious the problem is. The Open Markets Institute, an anti-monopoly think tank, just released the first part of a data set showing the market share the largest companies have in each industry. And big companies are far more dominant then they were thirty years ago, or even fifteen years ago. Why? Mergers and acquisitions are one reason-large companies have engaged in a feeding frenzy of deals over the past two decades, buying other companies in order to earn greater profits and to get rid of competition. A second reason is network effects-when the growth of a few large companies makes more people want to use them (Facebook and Google are prime examples).

 

These utterly gigantic companies have resulted in profits for CEOs and shareholders. But they have been harmful for everyone else. These corporations have raised prices for consumers, kept wages stagnant because workers have few other companies they can go work for, reduced the quality of their products and services, and used their immense power to pressure the state and federal governments to favor them. Mounting evidence suggests that increased concentration leads to stagnant incomes for most Americans, and if industries are dominated by big corporations, that stifles entrepreneurship since it is far more difficult for new businesses to gain footholds.

 

The consequences in the health care industry have been especially dramatic. Health insurance companies have raised premiums, large drug manufacturers have increased drug prices, and PBMs extract massive rebates that lead to higher costs for everyone. This is also part of a larger trend of rent seeking by large corporations, who do not conduct research and develop new products and services, but instead make money without using their resources to help society or generate more wealth.

 

Fortunately, there is good news. Democrats and Republicans are alarmed at this increased concentration and growing corporate power, and are drafting proposals to reverse this trend. Senator Amy Klobuchar (D-MN) has introduced a bill that would raise the required standards for approval of future mergers. And calls to break up current monopolies are growing louder.

 

This Tuesday, December 4th, the House Judiciary Committee is holding a hearing on antitrust enforcement. We hope that this hearing will be the beginning of a new, strong antitrust movement that will break up monopolies and ensure increased competition and consumer choice.

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