The 2012 Reiter Prize winner talks about her research on the spiraling costs of healthcare and her upcoming role at the Federal Trade Commission
6/12/2012 - As a consultant with McKinsey & Co., Leemore Dafny focused primarily on the healthcare sector.
Now an associate professor of management and strategy at the Kellogg School, Dafny saw then that the business interests of companies are not always aligned with social interests. That discrepancy has inspired her increasingly influential research as an applied microeconomist.
The fruits of her labor have earned Dafny the 2012 Stanley Reiter Best Paper Award for her article “Are Health Insurance Markets Competitive?” The annual award recognizes the paper judged best among all those published by Kellogg faculty over the past four years.
An emerging expert on competition in healthcare markets, Dafny has been asked to consult with government officials on the topic, and in August will assume a role with the Federal Trade Commission. Here, she discusses the research that has established her as a rising star in her field.
What sparked your interest in the economics of healthcare?
My father is a faculty member at the University of Texas Medical School, so I grew up steeped in the conversation of healthcare. When I went to college I planned to be pre-med, but within the first semester I realized economics was much more interesting to me than biology. I switched gears, but never really lost that fascination with healthcare.
Your article questions the competitiveness of health insurance markets. What prompted you to focus on insurers?
It was a coincidence of opportunity and need. We as researchers and policy makers knew very little at the time about private health insurance markets, because there was no publicly available data source with sufficient richness or detail to carefully study them. And then a family friend told me about an amazing data source [on private insurance plans] maintained by his company, a large benefits consultancy. He assured the company that my research was in the public interest, and they generously shared the data with me.
And what did you find?
My research confirmed that the health insurance industry is not the leading contributor to rising healthcare costs. The increase in spending is primarily due to the development of new technologies and therapies, as well as an insurance system where the patient doesn’t bear the cost of additional spending. However, I did find evidence that this industry is not particularly competitive. What they do tack onto healthcare spending is pretty high relative to their operating margins.
You’ve shared your insights with administration officials and congressional committee members, including Secretary of the Treasury Timothy Geithner. What has been the result those conversations?
Beginning Aug. 1, I’m taking a leave of absence from Kellogg to serve as a deputy director at the Federal Trade Commission’s Bureau of Economics. In reaction to the Affordable Care Act, there has been a lot of discussion about the integration of companies both within markets and across different markets, such as cardiologists and hospitals or dialysis clinics and primary care physicians. The antitrust enforcement agencies want to ensure that competition is preserved and that integration will “bend the cost curve” for healthcare and/or improve quality.
Further reading
An unhealthy market for competition
Games hospitals play: How hospitals cope with competition
Tort reform no miracle cure: Professor Leemore Dafny’s new research finds little courtroom drama in potential healthcare fixes
