Preventing Anticompetitive Contracting Practices in Healthcare Markets

Abstract

As unrelenting consolidation in healthcare provider and insurer markets continues, policymakers need additional options to protect the public from escalating healthcare prices and low-quality care. While restoring and sustaining competition in health care will require a multi-faceted approach, this report analyzes one potential facet of that broader approach – addressing the use of anticompetitive contract terms. This report examines the potential for policymakers, antitrust enforcers, and state officials to increase scrutiny over five contracting practices - most-favored-nations clauses, all-or-nothing provisions, exclusive dealing arrangements, anti-tiering and anti-steering clauses, and gag clauses – that have the potential to be used in anticompetitive ways. Unquestionably, vigorous antitrust enforcement can address anticompetitive contracting practices by dominant firms. Yet, cases can only be brought by antitrust enforcers and private litigants once they become aware of the harmful conduct, which is often challenging because little transparency exists into contracts between providers and payers. As a result, state legislatures have proposed legislation, and in some cases passed laws prohibiting the use of specific terms in contracts between healthcare providers and insurers. To prepare this report, we reviewed the legal and economic literature to determine the theoretical and empirical bases for arguments that these five contract terms can have pro- and anti-competitive effects in certain healthcare markets; analyzed state and federal antitrust enforcement activities challenging the use of these contract terms; and conducted a fifty-state survey of all proposed and enacted legislation restricting the use of these contract terms. This report identifies and describes the potential anticompetitive harms that can result from each of these contract terms. This report concludes with a range of legislative and regulatory recommendations for states seeking to mitigate potential harms arising from the anticompetitive use of these terms. While we make recommendations based on legal analysis and economic theory, more robust economic analysis is required to determine whether state laws to prohibit these contract terms reduce healthcare prices or improve quality.