Regulators have largely overlooked merger proposals that involve health systems operating in different markets, but new research shows those that acquired out-of-market hospitals tended to increase prices.
Larger health systems that purchased hospitals at least 50 miles away increased prices by 12.9% after six years relative to a peer group of hospitals not involved in mergers or acquisitions, according to a study published Tuesday in Health Services Research. Hospitals that acquired out-of-market facilities through multiple transactions over an eight-year period hiked prices at an even faster rate of 16.3%, researchers from University of California, Berkeley, University of California College of Law and University of Auckland found.
Related: Proposed merger guidelines may limit cross-market hospital deals
“The law is pretty far behind the economics in this area. Calling it a ‘cross-market’ merger, by definition, removes the transaction from the scope of the antitrust laws,” said Barak Richman, a law and business administration professor at Duke University who studies antitrust issues and is not affiliated with the study. “We’ll need to redefine what market we’re addressing and why a particular merger increases market power within that market.”
For the study, researchers looked at 2009-2017 commercial claims data across 214 hospitals involved in cross-market mergers.
The deals did not have any impact on mortality and readmission rates for patients who experienced heart failure, heat attacks and pneumonia, according to the study. While it builds on several cross-market hospital merger studies that found both larger and smaller systems involved in those deals were associated with higher prices, the study published Tuesday is the first of its kind to analyze quality outcomes.
Cross-market hospital mergers include Charlotte, North Carolina-based Advocate Health, which was formed in 2022 when Advocate Aurora Health and Atrium Health combined, as well as Salt Lake City-based Intermountain Health, which merged in 2022 with Broomfield, Colorado-based SCL Health, and Chicago-based CommonSpirit Health, which was created in 2019 after Dignity Health and Catholic Health Initiatives combined.
Those health systems declined to comment on the study, but the American Hospital Association called it “flawed.” The organization questioned the study's methodology and one of its funding sources, Arnold Ventures, a philanthropic organization focused on health policy.
Cross-market mergers helped keep hospitals open, particularly in rural areas, improved quality and lowered costs, Aaron Wesolowski, AHA vice president of research strategy and policy communications, said in a statement.
“The authors state that their principal finding is that cross-market hospital mergers increase prices by more than 12%. Do not believe those numbers. The authors do not actually compare the prices at acquired hospitals before and after the merger,” Wesolowski said in the statement.
As local acute-care markets become more concentrated, health systems have increasingly looked across state lines for merger partners. In doing so, they have often avoided legal challenges from the Federal Trade Commission, which has focused on hospital mergers in overlapping areas.
The Federal Trade Commission and Justice Department updated their merger guidelines in December. Some of the guidelines mention serial acquirers that have pursued multiple mergers or acquisitions and bundling the sale of two products to bolster monopolies.
The guidelines could potentially be used to analyze cross-market hospital mergers, but the FTC would need to intervene on a proposal or completed merger, antitrust experts said. Court interpretations may also affect how the guidelines are used, they added.
“Regulatory authorities have been looking at cross-market transactions more closely than they have in years before. They are waiting for a case they can think they can win, I just hope they don’t wait too long,” said Leemore Dafny, a health economist and professor of business administration at Harvard Business School who is not affiliated with the study. Dafny studies cross-market hospital mergers and worked at the Federal Trade Commission. “The heat is on.”
The FTC hasn’t scrutinized cross-market hospital mergers as closely as in-market transactions because patients typically don’t view far-flung hospitals as substitutes, minimizing potential anticompetitive effects, said Daniel Arnold, lead author of the study and a health economist at University of California, Berkeley. But from the perspective of large employers like Walmart, cross-market hospitals may be substitutes, he said.
“If most hospital mergers are going to be [cross-market], this is something antitrust enforcers should think about,” Arnold said. “Our study essentially rules out quality improvements as a reason for price increases.”
As federal antitrust policy shifts, many states are boosting oversight of healthcare transactions. Providers considering mergers or acquisitions are expecting their transactions to take longer to finalize as state attorneys general ask for more information about the deals, M&A advisers said.
A lot of oversight happens at the state level, and studies like this will capture the attention of state regulators, said Cheryl Damberg, senior principal researcher at RAND, a nonprofit research firm.
“This study shows that cross-market hospital mergers have very negative consequences for employers, consumers and those who pay for care. Regulators are going to pay attention to this,” she said. “These sprawling health systems are hard to manage in a consistent way, and the evidence shows [cross-market] mergers are not benefiting consumers from a quality of care standpoint. Instead, consumers are feeling it in the form of higher copayments, insurance premiums and suppressed wages.”
