Scholars explore potential antitrust responses to growing consolidation among health care providers.
How big is too big?
This question has plagued health care regulators for decades. Over the past twenty years, the U.S. health care system has seen rapid consolidation in hospital, physician, and insurance markets. With mergers and acquisitions expected to increase, it may be time to reimagine antitrust in the health care context.
Since 2010, more than a thousand U.S. hospital mergers have been executed, causing the vast majority of hospital markets to become highly concentrated. In some cities, such as Boston and Pittsburgh, only one or two hospital systems dominate the entire market. At the same time, hospitals have also increasingly acquired physician practices, with over a third of all physicians now employed by hospitals. In 2018, the percentage of physicians employed by another entity surpassed the percentage of physicians who own their own practice.
These consolidations can have a sizable impact on patients. Although some proponents argue that hospital acquisitions can reduce costs and improve care coordination, many studies have shown that hospital and physician consolidations have led to higher prices, increased insurance premiums, and lower quality of care. As health care systems develop larger market shares, they can demand higher rates when negotiating with insurers.
In recent years, the Federal Trade Commission (FTC) has attempted to rein in the number and impact of hospital-physician mergers. Between 2000 and 2018, almost half of all FTC merger enforcement actions were in the health care sector.
Some experts, however, argue that current federal enforcement tools are inadequate to address rampant consolidation. For example, the majority of physician practice mergers are not reported to the FTC because they fall below the $92 million reporting threshold. Moreover, current antitrust enforcement guidelines make it difficult to regulate cross-market mergers—an increasingly common practice involving the merger of health care entities that do not compete in the same geographic or product markets.
Consolidation among providers may accelerate following the financial distress caused by the pandemic. With the Biden Administration poised to heighten enforcement efforts, mergers and acquisitions in the health care industry could be set for a shake-up.
In this week’s Saturday Seminar, experts discuss how different antitrust approaches can increase competition in health care markets.
- In a report with the Hamilton Project, Martin Gaynor of Carnegie Mellon University’s Heinz College of Information Systems and Public Policy describes three policies to improve competition in health care markets. First, Gaynor recommends eliminating regulations that unintentionally encourage consolidation. For example, Medicare currently pays more for the same physician service if it is owned by a hospital. Second, Gaynor calls for increased funding for antitrust enforcement and revised guidelines that shield small transactions from regulatory oversight. Finally, Gaynor advocates the creation of a new federal agency that can both monitor prices, costs, and quality in health care markets and notify the FTC when a potential antitrust violation occurs.
- In an article published in the Saint Louis University Journal of Health Law & Policy, Jaime S. King of New Zealand’s University of Auckland and Erin C. Fuse Brown of Georgia State University College of Law argue that modern health care mergers complicate traditional antitrust analysis because they often involve horizontal, vertical, and cross-market provider integrations. Furthermore, they warn that cross-market mergers could lead to increased market power and higher health care prices. King and Brown recommend that antitrust regulators and policy analysts begin analyzing the legal and economic implications of cross-market acquisitions in light of their anticompetitive potential.
- State antitrust enforcement can play an important role in preventing consolidation in the health care industry, argue Alexandra D. Montague and Katherine L. Gudiksen of The Source on Healthcare Price and Competition and Jamie S. King in an issue brief for the Milbank Memorial Fund. By comparing merger review practices in all 50 states, Montague, Gudiksen, and King identify key elements for a successful antitrust framework. They argue that notice requirements, pre-transaction review, the ability to conditionally approve and block transactions, and oversight of conditionally-approved transactions can help state legislatures address more nuanced forms of consolidation.
- In an article in UCLA Law Review, Allison Hoffman of the University of Pennsylvania Law School challenges the assumption underlying modern antitrust analysis that competition will improve health care options. Hoffman explains that the unique structure of health care—in which insurers and employers act as intermediaries between the patient and the provider—makes it difficult to identify the “hypothetical end consumer” in antitrust analysis. Hoffman argues that the repeated “technocratic tinkering” that seeks to fix health care antitrust analysis has created an expensive “market bureaucracy,” which diverts resources from alternative policies that could actually address systemic problems.
- Nonprofit hospitals should be granted an exemption from antitrust laws, attorney Chad Nelson argues in an article in Health Matrix: Journal of Law-Medicine at Case Western Reserve University School of Law. Nelson posits that the tenets of the McCarran-Ferguson Act, which provide a limited antitrust exception to health insurance companies, would be better applied to nonprofit hospitals. Analogizing nonprofit hospitals to public utility companies, Nelson argues that nonprofit hospitals are already heavily regulated to protect patients from deceptive business practices. This existing regulatory regime addresses the consumer-protection policy objectives that typically underlie antitrust regulations. Nelson explains that an antitrust exception would grant nonprofit hospitals greater freedom to make decisions and ease the budgetary issues that these institutions face.
- In an article published in the Loyola University Chicago Law Journal, Spencer Weber Waller of Loyola University Chicago School of Law argues that the legal system should either return to a traditional health care antitrust approach or create a more “sector-specific, health care antitrust policy with a deliberate blend of regulation and competition.” Waller suggests that the latter approach would entail adopting legislation that relies on industry-specific guidelines and deliberately subordinates competition. Doing so, says Waller, would cement “health law antitrust” as a defined field and diminish reliance on U.S. Supreme Court precedents that apply to other industries.
The Saturday Seminar is a weekly feature that aims to put into written form the kind of content that would be conveyed in a live seminar involving regulatory experts. Each week, The Regulatory Review publishes a brief overview of a selected regulatory topic and then distills recent research and scholarly writing on that topic.