By Anne M. Burton
Marty Gaynor is the 2025 recipient of the Victor R. Fuchs Award for Lifetime Contributions to the Field of Health Economics. I spoke with him about his varied and very successful career.
Competition in Health-Care Markets
Anne: Over the years your research has focused on competition in health-care markets. What drew you to this agenda? I don’t mean this in a dismissive way, but why is this topic something people should care about? Who should care about this topic—not just economists, but policymakers, health-care providers, consumers, any other stakeholders? Who does competitiveness in health-care markets, or the lack thereof, affect, and how does it affect them?
Marty: The “who cares” question is great. This is something I tell all my students when they’re preparing a presentation is that right off the bat, one of the very first things you have to do after you tell people what it is you’re doing, is answer the “who cares” question.
Let me start with a couple other things. I actually didn’t work on competition in health-care markets initially; I’ve always considered myself an industrial organization economist, but my initial work was really about incentives in organizations. That’s an area you could call industrial organization, you could call it labor economics, it touches on public economics, but I came at that from an industrial organization perspective.
When I was an undergrad at University of California San Diego, I took an upper-division class in industrial organization with Dick Schmalensee (now at MIT). We went through IO theory and methods and all that, but we also went through a bunch of antitrust cases, which for some reason captured my imagination. I thought this stuff was really interesting because you could bring theory and econometric analysis to bear on these very applied, real-world, practical questions.
I remember one case he covered was the ReaLemon case. ReaLemon is reconstituted lemon juice that comes in a plastic container shaped like a lemon. One of the questions in the case was, “what is the extent of the product market?” Does it include other reconstituted lemon juices in plastic lemon-shaped containers, in glass bottles, actual lemons, all of those plus limes and lime juice…? It turns out that kind of stuff really matters. More often than not, an antitrust case turns on market definition – which products or firms are in the market, and thus are competitors, and which are not. In health care, market definition issues aren’t usually so much about the product market, but about the geographic market. For example, for hospitals, the question is how big is the market geographically. These economic issues around antitrust really captured my imagination.
I then went to grad school at Northwestern. At the time Mike Scherer was teaching the Ph.D. IO sequence there, and he had been the Director of the Bureau of Economics at the Federal Trade Commission. He touched on a lot of antitrust stuff, and I thought it was really interesting and exciting, even though I didn’t work on competition and antitrust issues for quite some time. I did work on incentives, and some stuff on mental health, which was also quite interesting.
They don’t have them anymore, but there used to be Investigator Awards from the Robert Wood Johnson (RWJ) Foundation, which provided support to work on “big think” projects. Deborah Haas-Wilson at Smith and I submitted a proposal together and got the award to work on antitrust issues in health care. I think it’s kind of unusual to be able to point to a particular grant or funding source and say “hey, this really permitted me to go off in a very different direction in my career,” but the Investigator Award from RWJ definitely did. There is very little federal funding for this kind of work; it’s quite difficult to get funding from NIH for something about competition unless it’s very directly tied into one of the Institute’s missions or objectives.
Anyway, I got the Investigator Award while I was still at Hopkins, and then I moved to Carnegie Mellon, and a couple years after I moved there, we hired Bill Vogt. He and I started working together on a whole bunch of stuff and that also led me in this direction (competition in health-care markets), and then I just kept working on it. I got interested in the policy angle and started doing some antitrust work. People in the antitrust enforcement world keep tabs on research, they pay a lot of attention to what the evidence is saying. Health care was particularly very big at the Federal Trade Commission (FTC); they had some real setbacks with regards to policing hospital mergers and then made a concerted effort to try to come back from that.
One day in 2013 my phone rings and it’s Edith Ramirez, who was the Chairwoman of the FTC at that time. She said something like, “we’re looking for somebody to serve as Director of the Bureau of Economics at the Federal Trade Commission”. [The Director is] the Chief Economist but you’re also in charge of 80-ish Ph.D. economists and a number of other folks who are at the Bureau. It never occurred to me that I would have the opportunity to do this. The faculty member I took graduate IO from at Northwestern, Mike Scherer, this was the job he had, and he’s a giant in the field. This is a really important job – famous people get asked to do – so I was floored. It wasn’t even a dream come true because I had never even aspired to it. So I went down to D.C., interviewed, got the offer, and took it. And it was an absolutely incredible experience.
That’s how I got into this line of research: it was something I was interested in for a long time, I got really lucky with the Investigator Award from RWJ, and then the opportunity to work with Deborah, who’s terrific. And then when Bill came to Carnegie Mellon, and he and I worked together, he’s an absolutely fantastic economist. And then it just kept going from there.
So back to who cares. The U.S. has a market-based health-care system. We may like it, we may not like it, we may think some other way of organizing the delivery and the financing of health care would be better, but the fact is that we do. The delivery and provision of care is almost all market-based; there are some exceptions with the VA and military health, but that’s a very small fraction of U.S. health care. Even Medicare and Medicaid beneficiaries are receiving care from private doctors and hospitals.
I’ll call that (health-care markets) the foundation of the house. Here is a very basic point that I think is woefully underappreciated in policy circles and even in health economics: the health-care system is only going to work as well as the markets that underpin it. If those markets are working poorly, then the health-care system is going to work poorly. If you have a house, and you build it on a foundation that’s uneven, or if that foundation cracks, then you’ve got all kinds of problems. You could have beautiful appliances and great plumbing, but if you have a problem with the foundation, you’re going to have a problem with that the entire house. What we do in large part with our health-care system, is we come along and say, “oh, there are leaks in the walls here, here, and here, so we’re going to fix this pipe, then that pipe, …” instead of fixing the underlying problem, which is the markets that constitute the foundation don’t work well. So that’s really the issue: the health-care system is only going to work as well as the markets that underpin it.
This clearly points to the necessity that as economists it’s critical for us to understand these markets and how they work, and then help policy people understand this, what makes things better vs. worse, and where matters can be addressed most effectively. I want to be very clear, I am not saying that health-care markets can ever be like markets for a gallon of milk or a gallon of retail gasoline – that is simply not the case. There are a whole bunch of reasons why health-care markets are never going to work like markets for paperclips, pencils, or milk. But, and here’s where the research evidence is very important, we do have lots of evidence that shows these markets work better, and do a better job for patients in particular, when they are more, rather than less, competitive.
Anne: Can you say a little more about the level of competition, who that affects, and how?
Marty: We have all this evidence that shows things have changed over a long period of time: lots of consolidation in the hospital sector, in the physician services sector, in health insurance, among dialysis facilities – you name it. Most markets in the U.S., particularly hospital markets, are dominated by a single large health system. In most of our country, the hospitals in these places face little to no competition. We’ve had a great deal of consolidation across these sectors as well. This includes hospitals acquiring doctor practices. Around one-third or less of doctors own their own practices now, and that proportion has been declining for some time. Most are now owned by hospitals or health insurers, so we’ve experienced a great deal of consolidation that’s not just horizontal integration but vertical integration as well. Another important trend is insurers acquiring all kinds of other health-care firms – doctor practices, pharmacy benefit management companies, pharmacies, home health agencies, long-term care, health-care data holding and analytics firms, etc. United is a good example, but other insurers are doing this as well – they are acquiring firms in every part of the health-care sector (except for hospitals).
This raises very big questions: is this good, bad, or indifferent? If we don’t understand how these markets work, we’re not going to be able to answer these questions, and that’s directly relevant for antitrust enforcement. Do we want the Antitrust Division at the Department of Justice to stop a big health insurance company from acquiring a very large home health agency, or do we think that’s fine or maybe even a wonderful thing to do? Do we want state oversight or regulation of these markets? We are heading towards markets increasingly dominated by a single firm, particularly on the payer side. Do we want a single-payer system in which the single payer is an unregulated, unmonitored monopolist? I don’t think so, but my point is that we need to understand how health-care markets work in order to answer questions like this and devise effective policies.
There is a large body of evidence showing that consolidation raises prices, in some cases very substantially, that it doesn’t improve quality, and in some cases, it harms quality. We don’t have a lot of evidence on patient access to care, but we don’t have evidence that shows improved access and there is some evidence that shows decreased access for patients. Moreover, we don’t see improved efficiencies or costs going down; and we don’t see evidence that consolidation results in more integrated or coordinated care.
What we see, particularly with hospital markets and mergers, is that merged hospitals charge higher prices and see fewer patients, which is an access issue. Spending goes up, they also pay their workers less, they employ fewer people, and that ripples out to the employment sector at large. Non-hospital workers in the area are also affected. Health insurers’ expenses go up, they raise premiums and pass those higher expenses on to employers almost dollar-for-dollar, and employers then pass those on to the people that work for them dollar-for-dollar. That means reduced pay or pay that doesn’t grow as fast, and reduced employment, and unemployed people have worse health. A very important fact is that the harms aren’t limited to only the direct effects, but that there are very substantial ripple effects throughout the entire economy. Our health-care system is a drag on the U.S. economy: we’d be better off as a country if we spent less on health care and allocated those resources to other (higher valued) uses.
An important area for future research is to analyze how these effects are distributed across the population. The harms from malfunctioning health-care markets are not going to be evenly distributed. Folks who are likely hit the hardest are people over 65, people on Medicaid, people with no insurance at all, vulnerable groups in the population in general. So, who cares? Everybody should care.
Giving Back Through Government Service
Anne: Tell me a little bit about your tenure as the Director of the Bureau of Economics at the Federal Trade Commission (FTC). What were the big health-care cases at the time?
Marty: One case was a merger between two health systems in Idaho. That was a big deal because the issue was about the physician practices that were owned by both health systems coming together, not so much the hospitals, and that was a relatively new area for antitrust enforcement. Another case involved the Phoebe Putney Hospital in Albany, Georgia, which didn’t conclude so successfully for us. The issues there were legal; the economics of it was pretty simple: you had a monopolist. Of course, the defendants always claim, “we’re a good monopolist”. We were limited by the fact that there was a public entity that nominally said it was overseeing this public hospital. Those are two health-care cases specifically that I remembered.
When I was recently at the Antitrust Division at DOJ, we were looking very carefully at a large number of acquisitions by very large health insurance companies. One example is a case involving a home health and hospice services company (Amedisys), which was going to be acquired by United (which already owned a large company providing these services). What we had to think about there was the entire health-care ecosystem, not only health insurance, but all the other components as well, and analyze how they interacted and affected not only markets for specific services, but the health-care system as a whole. That was a big thing that I was working on while I was there.
I was very fortunate to have the opportunity to serve the country and give something back, not just once, but twice. It was my privilege to work with the people at these agencies who are terrific, dedicated public servants, and to do things that make the U.S. a better place for everybody who lives here. I and my family have benefitted tremendously from the generosity of people of this country in so many ways, and having the opportunity to give something back is very meaningful to me. I certainly hope that both times, when I was at the FTC and DOJ, that I was able to make a contribution.
The Origins of the Health Care Cost Institute
Anne: Related to our earlier discussion on why competition in health-care markets matters: to do this type of research well, you need good data. Can you tell me about the Health Care Cost Institute (HCCI), which you cofounded a little over a decade ago?
Marty: This is another one of those things that just kind of happened. Like many other people, I had been frustrated by lack of access to data; prior to HCCI, it was very rare that one had access to data that had actual, real transaction prices. You could get charges if you looked at the health-care cost reports from Medicare, for example, and then people did a variety of things to try to convert charges to something that looked like a price. Leemore Dafny had a method to convert charges in Medicare data to something that looked like a price, and Bill Vogt and I did some work using the California state hospital data for the same purpose. Nonetheless, these are not actual transaction prices and the absence of data on prices made it hard to analyze the functioning of these markets.
Back to the HCCI origin story – I was sitting in my office one day when the phone rings. I pick it up, and this guy with a really cool British accent is on the other end of the line. It’s Simon Stevens at United. He said something like, “I was thinking it would be good to get the data out there, maybe create a research center. Would you be interested?”. I replied, “are you talking to me? Is this real?”.
The initial thought was to use United data and create some kind of research center at Carnegie Mellon, but obviously that’s not what ended up happening. We ended up getting a number of other health insurers to participate and then created the Health Care Cost Institute as an independent, freestanding entity. We had never done anything like this before (no one had), but we knew we couldn’t just say “here are the data”. We had to have a Board, so I was the first chair of the governing board, we had to hire somebody to be an Executive Director, and we had to make sure we appropriately addressed privacy and security concerns because those are very important. The idea was always that once HCCI had some people that it would put out annual reports and some special reports on topics, and make the data available to researchers, and it certainly has done that.
We also had to establish agreements with universities and figure out the role of the health insurers who were contributing the data. They had to understand that they had the right to be assured of the privacy and security of the data, and that they could review work to make sure researchers weren’t doing something that could violate somebody’s privacy. The insurers didn’t want individual providers to be identified, which is fair. But they had to understand that they couldn’t look at a research paper and say, “we don’t like this; you can’t put it out”. And then we had to figure out how to provide as much data as possible without compromising things; for example, ensuring HIPAA compliance.
I haven’t been directly involved with HCCI for a while now but it is still going strong and I think it has been a very useful resource. People in Congress, various federal agencies, and the White House use that information a lot, and a lot of researchers have and continue to use the data, so that’s something I’m very pleased about.
Anne: Definitely! I don’t work on anything related to competition in health-care markets and I have heard of the Health Care Cost Institute, so I think that goes to show how big the reach is.
Defining Success, and the Importance of Persistence
Anne: This conversation has been great. Is there anything else you would like to add before we wrap up?
Marty: Success is multidimensional. Being President of ASHEcon or publishing in a top-5 econ journal, those are some aspects of success, but they’re not the only things that are important in my view. Family, being a part of your community, and contributing to your community, those are number one. The professional things, they’re important obviously, they’re important to me, I’ve worked very hard, but those are not number one. You can be extremely successful professionally, and not necessarily be a household name, because professional success doesn’t necessarily equate to high visibility academic publications.
There are lots of different places and ways to be successful. I had the good fortune to be in the federal government twice, and I worked with just absolutely fantastic people, and I could have had a very successful and productive career being at the FTC, at the Antitrust Division, or a number of other places, and I could have made very important contributions that I think I would be very proud of.
Then the other thing is, before I was at Carnegie Mellon, before I was a Johns Hopkins, I was at places that are not as well known or as prestigious – UT-Arlington, Rutgers-Newark. I want to be clear I am not denigrating either of these places at all but in terms of professional status and the professional pecking order, these are places that are not very high up in the economics profession. I think we know there is [a status chain] in economics, health economics, and health policy. There are good people in every place, both very good colleagues and very good students, but one doesn’t have the same resources at lower status places (I certainly did not). The higher up you are in the pecking order the more doors open for you. It’s not fair, it’s not right, but that’s the way it is. It has been a lot easier for me being at Johns Hopkins and Carnegie Mellon than being at Rutgers-Newark and UT-Arlington; that’s just a fact. But, I had good colleagues and was happy at those places.
An important message is that priorities matter, and publishing is not the most important thing you’re going to do in your life. Of course this is easy for me to say now at the end of my career. There are some very prominent people for whom their career was a straight path: they went to undergrad at [an elite school], grad school at one of those places, got a faculty job at one of those places, and they’ve been successful, and that’s great. It’s important nonetheless to realize everybody faces challenges in their life, and even people with paths like that, I’m sure if you sat down and talked with them, you’d find out there were some non-trivial challenges that they had to face and overcome.
If you start looking around, there are a lot of people like me who did not take a straight path professionally by any means. I got off to a very slow start. However, I was very lucky to be able to overcome that, and a lot of that was just pure luck: being in the right places at the right times. Some of that I take credit for via perseverance and persistence, but I could have been very persistent and not ended up in the position I ended up in, and that would have been okay too. I don’t know if that’s helpful.
Anne: No that’s great, I think that’s a really good message, especially in this current climate. The importance of persistence, perseverance, yes luck matters. And there are also great people doing great work all over, and the big difference is the access to resources and opportunities.
Marty: Yes, and again it’s easy for me to say at this point in my career, but it’s very important for people to feel like they have a purpose above and beyond what they’re doing professionally. Particularly when you’re getting started in your career and you’re trying to establish yourself, it can be very hard, especially when you’re getting rejected left and right, nobody knows who you are, so on and so forth, so I think it’s very important to have a part of you that has purpose and fulfillment that is separate from what you do as a professional economist. I think it’s important for people both personally and as a members of a broader community.