The big cost of big medicine–calculating the rent in private healthcare

Abstract

As a country, the United States spends significantly more on healthcare than other advanced industrialized countries, and Americans have comparably worse health outcomes. Both are developments of the last four decades. In this paper, we look at how change in antitrust and patent law and thus change in market power in the largest four subsectors of healthcare, hospitals, physician groups, prescription drugs, and net medical insurance, have contributed to the increasing cost of medical care in the United States. We show that the annual rent–the degree to which health care is overpriced as a result of market power–was between 2.47 and 4.30 percent of GDP in 2016–truly a big cost for big medicine.