Antitrust and Nonprofit Hospital Mergers: A Return to Basics

Courts reviewing proposed mergers of nonprofit hospitals have too often abandoned the bedrock principles of antitrust law, failing to pay heed to the most elemental hallmarks of socially beneficial competition. This Article suggests that courts’ misapplication of antitrust law in these cases reflects a failure to understand the structural details of the American health care market. After reviewing recent cases in which courts have rejected challenges to proposed mergers between nonprofit hospitals, it documents how courts have engaged in a faulty analysis that ultimately protects nonprofit hospitals from the rigors of standard antitrust scrutiny. It then identifies the core principles of antitrust law—preventing supracompetitive prices, optimizing output, and maximizing allocative efficiency—that have been absent from, if not violated by, the rulings in these merger cases

How Community Institutions Create Economic Advantage: Jewish Diamond Merchants in New York

This paper argues that Jewish merchants have historically dominated the diamond industry because of their ability to reliably implement diamond credit sales. Success in the industry requires enforcing executory agreements that are beyond the reach of public courts, and Jewish diamond merchants enforce such contracts with a reputation mechanism supported by a distinctive set of industry, family, and community institutions. An industry arbitration system publicizes promises that are not kept. Intergenerational legacies induce merchants to deal honestly through their very last transaction, so that their children may inherit valuable livelihoods. And ultra-Orthodox Jews, for whom participation in their communities is paramount, provide important value-added services to the industry without posing the threat of theft and flight

Community Enforcement of Informal Contracts: Jewish Diamond Merchants in New York

The diamond industry is home to many unusual features: the predominance of an ethnically homogeneous community of merchants, the norm of intergenerational family businesses, and a rejection of public courts in favor of private contract enforcement. This paper explains that the diamond industry\u27s unique attributes arise specifically to meet the particularly rigorous hazards of transacting in diamonds. Since diamonds are portable, easily concealable, and extremely valuable, the risk associated with a credit sale can be especially costly. However, the industry enjoys valuable organizational efficiencies if transactions occur on credit between independent, fully incentivized agents. Thus, an efficient system of exchange will find ways to induce merchants who purchase on credit to fulfill their payment obligations. The very features that give the diamond industry an unusual profile are responsible for providing institutions to support credit sales. A system of private arbitration spreads information regarding merchants\u27 past dealings, so a reputation mechanism to monitor merchants can take hold. Intergenerational legacies, though restricting entry only to those who can inherit good reputations from family members, resolve an end-game problem and induce merchants to deal honestly through their very last transaction. And the participation of Ultra-Orthodox Jews, for whom inclusion and participation in their communities is equally paramount to their material wealth, serve important value-added services as diamond cutters and brokers without posing the threat of theft and flight

Norms and Law: Putting the Horse Before the Cart

Law and society scholars have long been fascinated with the interplay of formal legal and informal extralegal procedures. Unfortunately, the fascination has been accompanied by imprecision, and scholars have conceptually conflated two very different mechanisms that extralegally resolve disputes. One set of mechanisms might be described as the shadow of the law, made famous by seminal works by Professors Stewart Macaulay and Marc Galanter, in which social coercion and custom have force because formal legal rights are credible and reasonably defined. The other set of mechanisms, recently explored by economic historians and legal institutionalists, might be described as order without law, borrowing from Professor Robert Ellickson\u27s famous work.1 In this second mechanism, extralegal mechanisms—whether organized shunning, violence, or social disdain—replace legal coercion to bring social order and are an alternative to, not an extension of, formal legal sanctions. One victim of conflating these mechanisms has been our understanding of industry-wide systems of private law and private adjudication, or private legal systems. Recent examinations of private legal systems have chiefly understood those systems as efforts to economize on litigation and dispute-resolution costs, but private legal systems are better understood as mechanisms that economize on enforcement costs. This is not a small mischaracterization. Instead, it reveals a deep misunderstanding of when and why private enforcement systems arise in a modern economy. This Essay provides a taxonomy for the various mechanisms of private ordering. These assorted mechanisms, despite their important differences, have been conflated in large part because there has been a poor understanding of the particular institutional efficiencies and costs of the alternative systems. Specifically, enforcement costs have often been inadequately distinguished from procedural or disputeresolution costs, and this imprecision has produced theories that inaccurately predict when private ordering will thrive and when the costs of private ordering overwhelm corresponding efficiencies. The implications for institutional theory are significant, as confusion in the literature has led to overappreciation of private ordering, underappreciation of social institutions, and Panglossian attitudes toward both lawlessness and legal development

The Antitrust of Reputation Mechanisms: Institutional Economics and Concerted Refusals to Deal

An agreement among competitors to refuse to deal with another party is traditionally per se illegal under the antitrust laws. But coordinated refusals to deal are often necessary to punish wrongdoers, and thus to deter undesirable behavior that state-sponsored courts cannot reach. When viewed as a mechanism to govern transactions and induce socially desirable cooperative behavior, coordinated refusals to deal can sustain valuable reputation mechanisms. This paper employs institutional economics to understand the role of coordinated refusals to deal in merchant circles and to evaluate the economic desirability of permitting such coordinated actions among competitors. It concludes that if the objective of antitrust law is to promote economic efficiency, then per se treatment-or any heightened presumption of illegality-of reputation mechanisms with coordinated punishments is misplaced

Changing the Tax Code to Create Consumer-Driven Health Insurance Competition

Because current tax laws exclude employer-paid health insurance premiums from employees’ taxable wages and income, employer-sponsored insurance remains the primary source of health insurance for most employed Americans. Economists have long blamed the employer-based insurance tax exclusion for inflating health care costs, and, more recently, for constraining income growth and exacerbating income inequality. We execute a simulation to test the effect of permitting employees to receive their employers’ premium contribution directly and then purchase health insurance themselves, using tax-free funds. Employees could deduct for income tax purposes the amount used for insurance and, if they spend less than the amount transferred, take the remainder as taxed income. Our simulation indicates that in this consumer-driven system many workers would trade some insurance dollars for higher income, even if the latter is taxed. Our alternative tax treatment causes annual after-tax household income to grow by more than $160 billion and federal tax revenues by more than$46 billion. Along the way, take-home pay inequality is reduced, and the greater take-up of slimmed down policies could lead to greater cost control. We conclude that a simple change in the tax treatment of employer-sponsored health insurance can give workers the flexibility to economize on health insurance purchases. With this flexibility, many workers will select health plans that are less expensive than those now chosen for them. This will inject much-needed price competition in health insurance markets. It will also allow workers to enjoy more take-home pay, thereby counteracting the negative and regressive effects of escalating health care inflation. These results cannot be achieved from granting tax credits for the purchase of health insurance because such credits do not permit workers to trade insurance dollars for wages

N.C. Medicaid Reform: A Bipartisan Path Forward

The North Carolina Medicaid program currently constitutes 32% of the state budget and provides insurance coverage to 18% of the state’s population. At the same time, 13% of North Carolinians remain uninsured, and even among the insured, significant health disparities persist across income, geography, education, and race. The Duke University Bass Connections Medicaid Reform project gathered to consider how North Carolina could use its limited Medicaid dollars more effectively to reduce the incidence of poor health, improve access to healthcare, and reduce budgetary pressures on the state’s taxpayers. This report is submitted to North Carolina’s policymakers and citizens. It assesses the current Medicaid landscape in North Carolina, and it offers recommendations to North Carolina policymakers concerning: (1) the construction of Medicaid Managed Care markets, (2) the potential and dangers of instituting consumer-driven financial incentives in Medicaid benefits, (3) special hotspotting strategies to address the needs and escalating costs of Medicaid\u27s high-utilizers and dual-eligibles, (4) the emerging benefits of pursuing telemedicine and associated reforms to reimbursement, regulation, and Graduate Medical Education programs that could fuel telemedicine solutions to improve access and delivery. The NC Medicaid Reform Advisory Team includes: Deanna Befus, Duke School of Nursing, PhD ‘17Madhulika Vulimiri, Duke Sanford School of Public Policy, MPP ‘18Patrick O’Shea, UNC School of Medicine/Fuqua School of Business, MD/MBA \u2717Shanna Rifkin, Duke Law School, JD ‘17Trey Sinyard, Duke School of Medicine/Fuqua School of Business, MD/MBA \u2717Brandon Yan, Duke Public Policy, BA \u2718Brooke Bekoff, UNC Political Science, BA \u2719Graeme Peterson, Duke Public Policy, BA ‘17Haley Hedrick, Duke Psychology, BS ‘19Jackie Lin, Duke Biology, BS \u2718Kushal Kadakia, Duke Biology and Public Policy, BS ‘19Leah Yao, Duke Psychology, BS ‘19Shivani Shah, Duke Biology and Public Policy, BS ‘18Sonia Hernandez, Duke Economics, BS \u2719Riley Herrmann, Duke Public Policy, BA \u271

When Money Grew on Trees: Lucy v. Zehmer and Contracting in a Boom Market

This Article revisits Lucy v. Zehmer, a 1950s Virginia Supreme Court ruling that has become a staple in most contracts courses in American law schools. The colorful facts are well known to nearly all law students: Lucy and Zehmer met one evening in December 1952 at a restaurant in Dinwiddie, Virginia, and, following several drinks and much verbal banter, Zehmer wrote a contract on a restaurant bill, in which he agreed to sell his farm to Lucy for $50,000. Zehmer later insisted that he had been intoxicated and had thought the entire matter was a joke. He testified that he had been high as a Georgia pine and merely bluffing to try to get Lucy to admit that he did not actually have$50,000. Upholding the contract, the court ruled that regardless of Zehmer’s intent, his outward behavior could reasonably be construed to suggest that he had been serious. The court thus invoked what is known as the objective theory of contract formation. Our findings suggest that the court misinterpreted the contractual setting surrounding that December evening in 1952. Our research uncovers several discoveries: (1) Lucy, acting as a middleman for southern Virginia’s burgeoning pulp-and-paper industry, sought the Ferguson farm for its rich timber reserves; (2) Lucy was one of scores of aggressive timber middlemen in the region who eagerly sought valuable timberland and prompted a chaotic landgrab, leaving a wake of shady transactions and colorful litigation; and (3) within eight years of winning injunctive relief from the Virginia Supreme Court and purchasing the Ferguson farm from Zehmer for $50,000, Lucy earned approximately$142,000 from selling the land and its natural resources. These findings call into question the court’s assertion that $50,000 was a fair price, its conclusion that Zehmer’s actions indicated contractual intent, and its confidence that the objective method captured the relevant background in which Lucy’s and Zehmer\u27s exchange took place. More generally, these findings suggest that conclusions reached by the objective method are highly dependent on both the facts that are retold and the context in which those facts occurred, and that historical analysis can meaningfully illustrate the limits of legal doctrines

Who Pays? Who Benefits? Unfairness in American Health Care

American-style health insurance greatly amplifies price-gouging opportunities for health care providers, who inflate prices both to enrich themselves and to subsidize and expand the nation’s health care enterprise. To the extent that lower- and middle-income Americans with private health coverage pay premiums that go to support and expand the system, they are subject to an unfair (regressive) “head tax” levied by unaccountable entities for ostensibly public but also private purposes. Lower-income premium payers also often pay for costly health coverage designed to suit the economic interests and values of professional and other elites rather than their own. They also appear to get less as a group out of their employers’ health plans than their higher-income coworkers. How the cost burdens and benefits of Americans’ health care are distributed has not been sufficiently recognized as the fundamental issue of social justice that it is - even after the major reform legislation of 2010

The Challenge of Co-Religionist Commerce

This Article addresses the rise of co-religionist commerce in the United States—that is, the explosion of commercial dealings that take place between co-religionists who intend their transactions to achieve both commercial and religious objectives. To remain viable, coreligionist commerce requires all the legal support necessary to sustain all other commercial relationships. Contracts must be enforced, parties must be protected against torts, and disputes must be reliably adjudicated. Under current constitutional doctrine, co-religionist commercial agreements must be translated into secular terminology if they are to be judicially enforced. But many religious goods and services cannot be accurately translated without religious terms and structures. To address this translation problem, courts could make use of contextual tools of contract interpretation, thereby providing the necessary evidence to give meaning to co-religionist commercial agreements. However, contextual approaches to co-religionist commerce have been undermined by two current legal trends—one in constitutional law, the other in commercial law. The first is New Formalism, which discourages courts from looking to customary norms and relational principles to interpret commercial instruments. The second is what we call Establishment Clause Creep, which describes a growing judicial reticence to adjudicate disputes situated within a religious context. Together, these two legal developments prevent courts from using context to interpret and enforce co-religionist commercial agreements. This Article proposes that courts preserve co-religionist commerce with a limited embrace of contextualism. A thorough inquiry into context, which is discouraged by both New Formalist and many Establishment Clause doctrines, would allow courts to surmise parties\u27 intents and distinguish commercial from religious substance. Empowering the intent of co-religionist parties and limiting the doctrinal developments that threaten to undermine co-religionist commerce can secure marketplace dealings without intruding upon personal faith