Arizona v. Maricopa County Medical Society: Maximum-Price Agreements in Markets with Insured Buyers

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Abstract
In Arizona v. Maricopa County Medical Society, the Supreme Court ruled that maximum-insured-price agreements among physicians to private insurers were per se violations of section 1 of the Sherman Act. This essay develops an economic theory of these agreements and their effects. The theory shows that agreements of competitors to limit prices to insured purchasers will increase providers' incomes by increasing demand. The demand increase occurs, because of an increased use of insurance, which results in a larger number of visits to physicians. As a consequence of maximum prices to insured patients, uninsured patients will face higher prices. The cost of competing health-care systems, such as HMO's, will also rise. The potential for such adverse effects supports the Court's per se prohibition of the maximum-insured-price agreements in health-care markets.

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