And when an overlap did occur in an MSA with five or fewer competitors—as it did in 20 cases—the majority of those deals involved a small hospital in a small community. Sixteen of the 20 MSAs had fewer than 200,000 residents and 75% of transactions involved a hospital with less than 150 beds.
In those transactions, where hospitals were likely to be in serious financial straits, “there were clearly tangible benefits that accrued to the community,” said Rick Pollack, executive VP at the AHA. He added that often these hospitals—without size, scale or access to capital—were at risk for closure.
Meg Guerin-Calvert, who leads FTI Consulting's Center for Healthcare Economics and Policy, which did the study for the AHA, said that the findings suggest that the goal of most acquirers is to expand into new markets. And for acquisition targets, which averaged just 1.7 hospitals each, the drivers are economies of scale and expanding services as pressures grow under healthcare reform.
Guerin-Calvert noted that the report focused on hospital-to-hospital transactions and excluded abandoned deals and those that were being litigated.
The AHA report comes as the health insurance industry has linked premium increases to rising hospital prices, particularly for inpatient procedures. Insurers filed an amicus brief in the ProMedica case blaming provider system consolidation for those higher prices.
But in response to questions during a news conference, Pollack disputed this argument, contending that price growth has reached a historic low. Moreover, he noted that hospitals only have so much control over prices, when much of the insurance industry has also consolidated and a single payer may control the lion's share of the commercial market in certain regions.
The AHA also noted that nearly all hospital mergers undergo antitrust review and the vast majority are approved.
Yet Ken Field, a former FTC lawyer who now focuses on antitrust at Jones Day, noted that even when there are multiple players in the market, regulators will focus on the extent of direct competition between the two merging parties. The FTC, he said, is especially interested in how much leverage the merging parties will have with payers.
The study comes about a year after the FTC and the Justice Department's antitrust division released an annual report showing that they intend to take a hard look at mergers in the healthcare industry.
In the ProMedica case, the FTC seized upon comments St. Luke's CEO made to his board of directors in 2009, when he said a tie-up would have “the greatest potential for higher hospital rates.”
The ProMedica case is awaiting a final ruling from the 6th U.S. Circuit Court of Appeals in Cincinnati. Although the deal reduces from four to three the number of hospitals in Lucas County, Ohio, federal regulators say the acquisition will rapidly drive up prices if allowed to stand, because ProMedica already has among the highest rates in the state.
In an amicus brief filed in September, lawyers for the AHA argued that the court needs to consider the “actual market realities” facing standalone hospitals—which will struggle to remain competitive unless they can find a partner that allows them to access capital and achieve greater economies of scale.
Oral arguments took place in March, and the court has no deadline for releasing its decision.
Follow Beth Kutscher on Twitter: @MHbkutscher
