Antitrust Enforcement Matters, Hospital Edition
More mergers, higher prices, rinse and repeat.
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Last year, hospital executives announced 65 proposed mergers and acquisitions, up from 53 the year before. Industry analysts are expecting that number to climb even higher this year.
That’s bad news for patients, workers, and communities, as studies consistently show that hospital mergers drive up costs, lower quality of care, degrade working conditions, and ultimately leave communities with a health care system worse than the one they had pre-merger.
Today, I want to highlight two new studies providing even more evidence that hospital mergers cause a range of harms. One of them also attempts to explain why rampant health care consolidation was allowed to occur in the face of such evidence, but misses some key aspects of the story that I’ll fill in.
But the most important takeaway across all the evidence, new and old, remains the same: Hospital consolidation harms health across a community, and we need antitrust enforcers to do their job and rein it in.
The first study, appearing in Health Services Research, is a very straightforward explanation of how mergers raise health care costs. The researchers found that cross-market mergers — or mergers in which the acquiring hospital is not in the same market as the hospital its buying, and is often in a different state entirely — raise prices by more than 12 percent, and by more than 16 percent when the hospital doing the purchasing is a “serial acquirer,” or one that buys up a lot of different health care facilities.
Those price increases come with no corresponding change in the quality of care; they’re just monopoly profits of the sort you’d expect to see wherever there is rampant consolidation. “More antitrust scrutiny of cross-market mergers — particularly those of serial acquirers — appears prudent given the current state of highly concentrated hospital markets in the United States,” the researchers wrote.
That’s a good segue to the second study, which appeared in the American Economic Review. The researchers there found that anticompetitive hospital mergers raise prices by 5 percent. More importantly, they note that while there were more than 1,000 hospital mergers consummated between 2002 and 2020, during that time the Federal Trade Commission (one of the entities charged with enforcing antitrust law) took enforcement action against just 13 proposed mergers. “We're getting death by 1,000 cuts in communities from these sorts of mergers," said one of the study’s co-authors.
The authors blame this disparity between the obvious harms of hospital mergers and minimal enforcement action on insufficient resources at the FTC, asserting that if the commission had a bigger budget it would have done more to stop hospital consolidation. And there’s certainly some truth to that: Federal government spending on antitrust enforcement is much lower today than it has been historically, which of course hamstrings all sorts of operations, antitrust or otherwise.
But during the period the researchers looked at, there was also a vibe amongst health policy folks that consolidation was something to be encouraged, that bigger was better, that larger health care facilities would more efficiently aid patients, and on and on. The Affordable Care Act passed in 2009 explicitly incentivized large health care systems to consolidate, and was a symptom of that dominant way of thinking.
So it’s unclear if a larger budget would have definitively translated into more enforcement actions against health care entities generally or hospitals in particular, because even with more resources enforcers would have needed to be interested in stopping consolidation at a time when many of them simply weren’t. Pinning the blame on the FTC also lets state-level antitrust enforcers off the hook, but they have just as much power to stop hospital consolidation as do the feds, whether by enforcing the federal antitrust laws or their own state antitrust statutes. That they didn’t either bolsters the case that at least a healthy chunk of the problem was mindset, not monies.
Finally, the study notes that only about half of the hospital mergers that were obviously anticompetitive had to be reported to the FTC, meaning that half of them never had to be flagged for the commission at all because they didn’t involve large enough entities. Clearly, the reporting thresholds for notifying the FTC about an intent to merge, which are established in a federal law called the Hart-Scott-Rodino Act, are too low to accurately capture problematic acquisitions in the health care industry. Most states also take their cues from the same law, so the problem is magnified right down the chain of responsibility.
Anecdotally amongst folks I’ve talked to, high reporting thresholds is especially a problem when it comes to private equity firms rolling up health care practices; the individual acquisitions are so small that enforcers don’t realize a roll-up is underway until it’s too late.
So a lot of things went wrong to get us to the current point. Antitrust enforcement matters, and for a long while there just wasn’t enough of it as far as hospitals (or, to be fair, most other industries) were concerned.
That’s the bad news. The good news is the tide may be turning. Both the current iteration of the FTC, as well as state antitrust enforcers across the country, are taking a harder line against anticompetitive hospital mergers by suing to block deals and pushing state legislatures to stop giving hospitals a free pass. And indeed, state legislatures have implemented many new reporting requirements that will let antitrust enforcers know about and potentially block the sort of acquisitions that flew under the radar previously, and are also repealing state laws that shield hospital from federal antitrust scrutiny.
As I’ve noted before, there’s a lot of interest in taking on hospital monopolies at the moment both on substantive grounds and because doing so is good politics: Very few people like their local mega-monopoly hospital system, especially when its gobbling up and oftentimes shutting down other nearby facilities.
Anything bolstering that case — and the spines of the elected officials who ultimately have to take action — is useful, so I’m going to pocket the numbers in these two studies and run with them, and encourage you all to do the same.
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— Pat Garofalo
Excellent post. Thank you.