Federal regulators have a long way to go in evaluating hospital mergers, according to a recent study to be published by the American Economic Association.
Academic researchers from universities including Harvard and Yale compiled a study on regulators' antitrust enforcement actions against hospital mergers throughout the last two decades and concluded the number of actions is not proportional to the number of mergers.
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The study, completed in April, defines enforcement actions as matters that resulted in a consent order with required divestitures, parties abandoning or restructuring a deal, or litigation to block or undo a merger. It analyzed data from Aetna, Humana and UnitedHealthcare insurance claims representing 28% of people in the U.S. with employer-sponsored insurance. Independent research group Health Care Cost Institute provided the data.
Here are five takeaways from the study.
1. Antitrust enforcement of hospital mergers is low
The FTC took enforcement action against 13 of 1,164, or 1% of hospital mergers from 2002 to 2020.
Recently, federal regulators have ramped up enforcement actions, requesting that regulators prioritize hospital and insurance consolidation. In December, Walnut Creek, California-based John Muir Health abandoned plans to acquire Dallas-based Tenet Healthcare's San Ramon Regional Medical Center in California after the state and the FTC sued to block the transaction. The FTC has put up a fight in recent weeks to stop Winston-Salem, North Carolina-based Novant Health's acquisition of two North Carolina hospitals from Franklin, Tennessee-based Community Health Systems.
2. Mergers are driving up costs of care
The research found merging hospitals raised prices by an average of 1.6% in the two years after a transaction, based on data from 322 hospital mergers between 2010 and 2015, the time frame studied for price increases.
Market power can play a big role in pricing. Providers often attribute rising prices to inflation and low reimbursement rates, but payers argue hospital consolidation gives many providers the clout to strong-arm above-market rates.
3. Outpatient prices are rising faster than inpatient
Inpatient prices rose 1.1% and outpatient prices increased 1.8% among the 322 mergers between 2010 and 2015.
Providers looking to increase prices would be more likely to do so in outpatient care if that's where most of the patient volume is, said Stuart Craig, assistant professor at the University of Wisconsin-Madison's Wisconsin School of Business and one of the study's authors.
Outpatient prices also tend to rise faster in rural areas where there is less competition, he added.
4. Many proposed mergers skirt past regulators
More than 200, or 20%, of completed mergers from 2002 to 2020 were anticompetitive based on the Herfindahl–Hirschman Index, a commonly used measure of market concentration, but the FTC only challenged 13 deals during that time period.
About 60% of the transactions from 2002 to 2020 were not required to report to regulators under the Hart-Scott-Rodino Act, which sets reporting thresholds, because of the relatively small size of the system created.
"The issue with the hospital industry is that the firms are smaller in some sense, but they still impact local communities in a big way," Craig said.
5. Low FTC funding is a big barrier
A lack of funding has likely prevented the FTC from undertaking more enforcement actions. The agency's average annual overall budget was $315 million between 2010 and 2015, and its average antitrust enforcement budget was $136 million, according to the study, which cited data from the FTC's annual Congressional budget justifications.
"I think the big constraint isn't a lack of desire," said Zack Cooper, associate professor of public health and economics at Yale University and an author of the study. "We have the power to know which mergers are bad. ... It's going to take more resource for the FTC, or states for that matter, to stop them."
