Monopoly Money

First, let me acknowledge Chuck's comment on the previous Economics 101 post. I'm going to get to public goods, it's extremely important, but I figured I'd push it down the list because it's easier to deal with the rest of the assumptions first. (To put it formally, the ones having to do with public goods are that all good are non-exclusive and non-rivalrous, and also that there are no positive externalities. I will explain anon.)

Today, I'm going to deal with the Many sellers, Many buyers assumption. It's obviously impossible even for Milton Friedman to bamboozle people into thinking that this is somehow a natural property of any economy. Most of the people who think that Adam Smith's The Wealth of Nations is their Bible haven't actually read it, just as is the case with the actual Bible. Smith was well aware that capitalists will enter into what he called a "conspiracy against the public" at every opportunity -- that is, join forces to fix prices. Since he published in 1776, another strong tendency has been for corporations to buy up their rivals or drive them out of business, until one or two huge corporations can set their own prices. This happened with the railroad and petroleum industries in the late 19th Century, which eventually led to the antitrust act and Teddy Roosevelt famously breaking up monopolies.

In other words, the only way to make the world resemble the Free Market™ even approximately is for there to be government regulations and laws that prohibit price fixing and break up monopolies. In other words, the market can't be "free," it has to be regulated. Unfortunately, lately the government has been shirking its duty and we have functional monopolies in everything from meat distribution (ever wonder why it's gotten so expensive?) to word processors. 

In medicine, recent decades have seen one overarching trend: consolidation of the medical industry into fewer and larger entities. Here it is in a nutshell:

•Horizontal consolidation: similar institutions merge into chains. Hospitals, primary care practices, nursing homes, dialysis clinics, ambulatory surgery centers . . .

•Vertical consolidation: various kinds of facilities are brought into the same firm, e.g. hospital chains buying physician practices or nursing homes, or private equity firms buying up medical facilities.

•Large health insurers and private equity firms have been buying physician practices as an investment. Optum Health, a subsidiary of the giant conglomerate UnitedHealth Group, now employs 8.4% of all practicing physicians in the U.S. – 90,000.

•According to an analysis in The Economist, 45% of medical spending in the U.S. goes to just nine firms: insurers, drug distributors and pharmacy benefit managers.

•UnitedHealth had revenues of $324 billion in 2022, second only to Walmart, and is now America’s 12th most valuable company. CVS health has ¼ of all pharmacy sales.

•Two companies, DaVita and Fresenius, control 75% of the market for dialysis.

 

A few days ago, the DOJ announced an antitrust investigation into United, and its share price immediately fell by 15%. In other words, investors are well aware of where its profits come from.