New evidence on the impacts of cross-market hospital mergers on commercial prices and measures of quality.

OBJECTIVE: To examine the impact of "cross-market" hospital mergers on prices and quality and the extent to which serial acquisitions contribute to any measured effects. DATA SOURCES: 2009-2017 commercial claims from the Health Care Cost Institute (HCCI) and quality measures from Hospital Compare. STUDY DESIGN: Event study models in which the treated group consisted of hospitals that acquired hospitals further than 50 miles, and the control group was hospitals that were not part of any merger activity (as a target or acquirer) during the study period. DATA EXTRACTION METHODS: We extracted data for 214 treated hospitals and 955 control hospitals. PRINCIPAL FINDINGS: Six years after acquisition, cross-market hospital mergers had increased acquirer prices by 12.9% (CI: 0.6%-26.6%) relative to control hospitals, but had no discernible impact on mortality and readmission rates for heart failure, heart attacks and pneumonia. For serial acquirers, the price effect increased to 16.3% (CI: 4.8%-29.1%). For all acquisitions, the price effect was 21.8% (CI: 4.6%-41.7%) when the target's market share was greater than the acquirer's market share versus 9.7% (CI: -0.5% to 20.9%) when the opposite was true. The magnitude of the price effect was similar for out-of-state and in-state cross-market mergers. CONCLUSIONS: Additional evidence on the price and quality effects of cross-market mergers is needed at a time when over half of recent hospital mergers have been cross-market. To date, no hospital mergers have been challenged by the Federal Trade Commission on cross-market grounds. Our study is the third to find a positive price effect associated with cross-market mergers and the first to show no quality effect and how serial acquisitions contribute to the price effect. More research is needed to identify the mechanism behind the price effects we observe and analyze price effect heterogeneity.

The Rise Of Cross-Market Hospital Systems And Their Market Power In The US.

Although hospital consolidation within markets has been well documented, consolidation across markets has not, even though economic theory predicts-and evidence is emerging-that cross-market hospital systems raise prices by exerting market power across markets when negotiating with common customers (primarily insurers). This study analyzes hospital systems using the American Hospital Association Annual Survey Database and defines hospital geographic markets as commuting zones that link workers to places of employment. The share of community hospitals in the US that were part of hospital systems increased from 10 percent in 1970 to 67 percent in 2019, resulting in 3,436 hospitals within 368 systems in 2019. Of these systems, 216 (59 percent) owned hospitals in multiple commuting zones, in part because 55 percent of the 1,500 hospitals targeted for a merger or acquisition between 2010 and 2019 were located in a different commuting zone than the acquirer. Based on market-power differences among hospitals in systems, the number of systems in urban commuting zones that could potentially exert enhanced cross-market power increased from thirty-seven systems in 2009 to fifty-seven systems in 2019, an increase of 54 percent. The increase in cross-market hospital systems warrants concern and scrutiny because of the potential anticompetitive impact of hospital systems exerting market power across markets in negotiations with common customers.

States' Merger Review Authority Is Associated With States Challenging Hospital Mergers, But Prices Continue To Increase.

States can challenge proposed hospital mergers by using antitrust laws to prevent anticompetitive harms. This observational study examined additional state laws-principally charitable trust, nonprofit corporation, health and safety, and certificate-of-need laws-that can serve as complements and substitutes for antitrust laws by empowering states to be notified of, review, and challenge proposed hospital mergers through administrative processes. During the period 2010-19, 862 hospital mergers were proposed, but only forty-two (4.9 percent) were challenged by states, including thirty-five by states without federal involvement, of which twenty-five (71.4 percent) originated in the eight states with the most robust merger review authority. The twenty-five challenges resulted in two mergers being blocked; three being abandoned; and twenty being approved with conditions, including seven with competitive-impact conditions. Hospital market concentration and prices increased at similar rates in these eight states versus other states, potentially because most challenges allowed mergers to proceed with conditions that did not adequately address competitive concerns. Although these findings do not reveal an optimal state framework, elements of advanced state merger review authority may have the potential to improve poorly functioning hospital markets.

Coping With Concentration.

Provider market power is a powerful driver of high health care costs in the United States. Despite decades of antitrust litigation and regulatory interventions, the problem has worsened and threatens to undermine the benefits of market-based policies. A critical but neglected challenge for all health care reform proposals relying on market competition to address costs is finding effective tools to address the extant market power of dominant hospitals, hospital systems, and many specialty physician practices. This article analyzes the principal market-oriented approaches that have been used in the past and proposed for the future. It argues that antitrust law has an important but constrained role to play and has proved to be especially inept in dealing with extant market power. It finds serious deficiencies in the conduct decrees imposed by some courts and in open-ended regulatory regimes such as those established by Certificate of Public Advantage laws. Although not without administrative complications, policies that target providers who possess market power by capping prices may be the most effective means to control costs and retain the benefits of a competitive delivery system.

Antitrust and hospital mergers: does the nonprofit form affect competitive substance?

Following a string of government losses in cases challenging hospital mergers in federal court, the Federal Trade Commission and the Department of Justice issued their report on competition in health care seeking to set the record straight on a number of issues that underlie the judiciary's resolution of these cases. One such issue is the import of nonprofit status for applying antitrust law. This essay describes antitrust's role in addressing the consolidation in the hospital sector and the subtle influence that the social function of the nonprofit hospital has had in merger litigation. Noting that the political and social context in which these institutions operate is never far from the surface, it takes issue with the proposal to cabin merger doctrine so as to deny the significance of nonprofit status in merger analysis. Given the dynamic change in the regulatory climate and heterogeneity of local health care markets, it advises courts not to accept the FTC's preemptive standard regarding the significance of hospitals' nonprofit status and keep open the possibility of fashioning new presumptive rules tailored to more complete economic accounts of nonprofit firm behavior.

The National Resident Matching Program and antitrust law.

In May 2002, a group of physicians filed a class action lawsuit alleging that the National Resident Matching Program (NRMP) violates antitrust laws. The plaintiffs contend that NRMP practices have stabilized lower-than-competitive wages and imposed exhausting working conditions on residents. They also maintain that NRMP procedures virtually force applicants for house officer positions to forfeit their right to negotiate for better wages and conditions. The plaintiffs also allege that the defendants have collectively fostered anticompetitive accreditation standards through the Accreditation Council for Graduate Medical Education. Jung v Association of American Medical Colleges could present antitrust law with some difficult challenges. Although the matching program on its face appears to limit competition in a manner that previous cases have found illegal, it operates in the context of important professional activities (medical education and quality improvement) that may generate some judicial deference. At this early stage, no confident prediction can be made about the outcome of the case if it goes to trial; however, the plaintiffs appear to have a plausible case under existing antitrust doctrine, and lengthy litigation is possible. Given the important questions that the litigation will not address, such as the potential costs of a finding of illegality to the government and other payers, and the impact of such a finding on the health care system as a whole, a legislative solution seems highly desirable.

Whither antitrust? The uncertain future of competition law in health care.

Although instrumental in ushering in competition to the health care industry and later in safeguarding the competitive structure of markets, antitrust law has come under attack. A series of questionable judicial decisions has clouded the standards applicable to analyzing health care markets. Legislative efforts to immunize conduct from antitrust challenge also have gathered support in recent years. This study finds scant economic or policy basis for these developments and concludes that anti-managed care sentiments have diluted enthusiasm for applying competitive principles in health care. This phenomenon has resulted in outcome-driven judicial decisions and legislative activity geared to serving political expediency rather than sound policy tenets. The paper recommends heightened antitrust scrutiny of provider and insurer markets by federal and state enforcers and increased empirical research into the workings of imperfect health care markets and the effects of past antitrust decisions.