Steinhardt: Breaking Down Silos — Why New Jersey should lead the next era of healthcare competition

OPINION

More than a century ago, Americans tackled a problem that, at first, many saw as the inevitable consequence of successful business. Standard Oil had become extraordinarily efficient. Railroads had become indispensable. And later, AT&T connected nearly every American telephone.

But President Teddy Roosevelt and government policymakers saw something more fundamental, more vexing. The issue wasn’t these companies’ success. By all accounts, they were unprecedented in their size and scope. The issue was that they had become so deeply integrated into the national marketplace that competition was disappearing. That realization gave birth to modern American antitrust law.

The Sherman Antitrust Act was never intended to punish success. It was intended to preserve competition. History teaches that consumers benefit from open, transparent and competitive markets. It teaches that government has a legitimate role in ensuring that no single market participant becomes both the gatekeeper and sole beneficiary of the same transaction.

Today, New Jersey faces a remarkably similar policy question. Not in oil. Not in railroads. Not in telecommunications. In healthcare.

Look carefully at the accompanying chart produced by the Drug Channels Institute. It’s more than a collection of corporate logos. It’s a blueprint of how modern healthcare has evolved.

A handful of corporate behemoths now combine insurance companies, pharmacy benefit managers, specialty pharmacies, mail-order pharmacies, physician groups, clinics, care management companies and other healthcare services within the same corporate silo. It didn’t happen overnight, and vertical integration isn’t inherently unlawful or undesirable. In many industries, integration improves efficiency, reduces duplication and simplifies output.

But when integration reaches the point where the same enterprise participates in and controls nearly every element of the same transaction, policymakers should ask an obvious question. Is the market still functioning competitively? It’s not an accusation. It’s a public policy question. And it deserves a public answer.

My first article focused on patient choice. You shouldn’t be unnecessarily or unknowingly steered away from your trusted local pharmacist through benefit designs that are anti-competitive, non-transparent, and financially detrimental to you.

My second article focused on taxpayers. Before New Jersey asks families, school districts and municipalities to absorb higher healthcare costs, government has a duty to ensure that every dollar is being spent as effectively, efficiently and transparently as possible.

This last article asks the broader question: Has healthcare become so vertically integrated that New Jersey should reassess how it purchases healthcare on behalf of millions of New Jerseyans, with billions of taxpayer dollars? Moreover, what do these silos mean for New Jersey consumers as a whole? Where is the health care industry headed? Are you better off? These conversations are overdue.

Recall the Institute chart, and consider who’s missing from it. No honest observer can attribute Rite Aid’s financial collapse to any single cause. The company faced significant debt, litigation and operational challenges. But its absence illustrates an important point. As healthcare became increasingly organized into vertically integrated silos and systems, companies outside those silos and systems faced a significantly different competitive landscape. The effect of that evolution on competition is precisely the type of question antitrust law exists to examine, not because wrongdoing is established, but because preserving competitive markets is itself a compelling public interest.

New Jersey can’t wait for Washington to answer every question. We have the legal authority and fiscal responsibility to scrutinize the market where New Jersey spends billions of taxpayer dollars each year.

Healthcare now takes up an ever-increasing share of state, school, municipal and family budgets. Taxpayers deserve more than government lip-service. They deserve accountability. So, I propose a comprehensive legislative initiative, one that extends beyond just PBMs and addresses healthcare competition globally.

The “Healthcare Competition and Taxpayer Protection Act” should rest on several principles:

First, every PBM serving a New Jersey public health plan should owe a clear fiduciary duty to the taxpayers and beneficiaries it serves. Public dollars deserve the same loyalty that investors expect from the fiduciaries managing their retirement accounts.

Second, New Jersey should require robust audit authority of public healthcare contracts. Independent auditors should have unfettered access to financial information necessary to evaluate pricing, administrative compensation, rebate pass-throughs and other contract terms affecting how taxpayer money is spent.

Third, patients need choice. Public benefit designs can’t be permitted to disadvantage otherwise qualified pharmacies solely because those pharmacies aren’t affiliated with a PBM’s corporate enterprise.

Fourth, the process must encourage competition. Long-term public contracts should be regularly rebid under transparent standards that maximize taxpayer value not corporate profits.

Fifth, the Legislature should conduct recurring public oversight hearings dedicated to healthcare competition, and invite testimony from regulators, economists, employers, organized labor, patient advocates, pharmacists, insurers, PBMs and independent experts. Markets evolve. Oversight must evolve with them.

Sixth, New Jersey needs an independent study of just how concentrated and vertically integrated the State healthcare market is. Are we currently procuring healthcare in a way that protects taxpayers and promotes competition, innovation and consumer choice. If not, we must fix it.

Finally, where we learn that our “business as usual” is stifling competition, state and federal authorities should carefully evaluate those findings under established antitrust rules. It might not solve everything all at once, but it’s a start.

I want to be clear that none of these proposals presume wrongdoing. All of them promote transparency. That’s important.

Good public policy isn’t built on assumptions. It’s built on facts. Some will argue that this conversation is anti-business. It’s not. Competitive markets are the foundation of American capitalism. Transparent procurement is essential to good government. None of these principles should be controversial.

Republicans should welcome stronger competition, greater transparency and lower costs. Democrats should welcome stronger consumer protections, healthier local businesses and increased public accountability. This isn’t a partisan issue. It’s a New Jersey issue.

The goal isn’t to break up successful companies. The goal is to ensure that markets stay competitive to serve patients, employers, taxpayers and healthcare providers alike.

History offers parting lessons. Monopolies rarely appear overnight. They develop slowly, over time. One merger. One acquisition. One exclusive relationship. One more layer of integration. Then, one day, you wake up to find that meaningful competition is gone. The American answer has never been to punish success. It has always been to preserve competition.

New Jersey has an opportunity to lead. Not through slogans or partisan rhetoric, but through thoughtful legislation, transparent procurement, and meaningful oversight.

My first article argued that patients deserve choice. My second piece argued that taxpayers deserve transparency. My last point is larger.

New Jersey has a chance to be the state that shows that healthcare affordability and innovation don’t come by concentrating power in a few influential companies, but rather by promoting and preserving competition. If we succeed, we will do more than improve one program or reform one industry. We will reaffirm a principle that has guided American economic policy for more than a century: When competition drives outcomes, free markets work best.

*(Part-time members of the New Jersey Legislature do not receive State health insurance or prescription drug benefits for holding their elected office.)