FTC Announces Plan to Study Physician Group Mergers

January 19, 2021 - The Federal Trade Commission (FTC) has announced plans to study the effects physician group mergers and other recent healthcare facility consolidation deals have had on competition.

In the Jan. 14 announcement, the federal agency said it has already called on six health insurance companies to provide patient-level commercial claims data from 2015 through 2020 for the study on physician group mergers. The six companies include Aetna Inc., Anthem, Inc., Florida Blue, Cigna Corporation, Health Care Service Corporation, and United Healthcare.

FTC said it will use the data to assess the impact of physician consolidation during the period, including physician practice mergers and hospital acquisitions of physician practices.

The aim of the study is to evaluate the impact these deals have had on competition in local markets and inform policymakers by “providing important evidence documenting how mergers and acquisitions of physician groups and healthcare facilities affect the proper functioning of healthcare markets.”

Hospital acquisitions of physician practices have risen at a rapid pace over the last decade. Most recently, Avalere Health and the Physicians Advocacy Institute (PAI) reported that acquisitions increased by 128 percent between 2012 and 2019.

Hospitals owned approximately 80,000 by the end of the period versus just 35,500 in six years prior, the groups found.

“The continued trend of hospital-driven consolidation is dramatically reshaping the healthcare system,” Robert Seligson, PAI’s then-President, stated in a press release.

Healthcare facility consolidation has been linked to higher prices for consumers with little to no quality improvement.

“This pattern of consolidation could complicate local and national efforts to regulate provider organizations to ensure that community needs are met,” researchers from the Agency for Healthcare Research and Quality (AHRQ) and Massachusetts-based Mathematica said in a 2020 study on physician consolidation.

The study showed that more than half of physicians and 72 percent of hospitals in the US are affiliated with a health system.

FTC’s study of this vertical integration in healthcare is part of the agency’s revamped Merger Retrospective Program announced in September 2020.

The renovated program aims to expand and formalize the FTC Bureau of Economics’ research on recent mergers and acquisitions, with a close eye on deals occurring in healthcare.

The research looks to uncover how specific deals have impacted competition in one or more markets and whether the FTC’s threshold for bringing enforcement action in a merger case was too permissive.

“Merger retrospectives are a powerful way of engaging in critical self-examination to see if our antitrust enforcement is working correctly,” FTC Chairman Joseph Simons said in September. “The goal of this initiative is to encourage economists both inside and outside the agency to carry out more retrospective studies to test our analytical tools and strengthen our enforcement efforts.”

Retrospective research has supported FTC action against previous healthcare merger challenges, including 13 federal injunctions in hospital cases between 2008 and 2018.

The studies have also contributed to the use of new screening methods, including willingness to pay and upward pricing pressure indices methods, according to Simons.

FTC is currently gathering information to perform retrospective studies of at least two healthcare mergers that were allowed to proceed under state regulatory authority even though there were antitrust concerns.

In both cases, the organizations – Mountain States Health Alliance and Wellmont Health System, which were the two largest hospital systems in the border area of Northeast Tennessee and Southwest Virginia, and Cabell Huntington Hospital and St. Mary’s Medical Center, the only two hospitals in Huntington, West Virginia – were allowed to proceed under Certificates of Public Advantage (COPA).

COPAs give states the power to assess healthcare mergers versus the federal government through the FTC.

While COPA deals in healthcare are relatively rarely, according to William W. Horton, a partner at Jones Walker and co-chair of the law firm’s Healthcare Industry Team, the retrospective studies are another way the FTC can express their dislike of the state regulations.

“It would be reasonable to expect to see the use of retrospective review to essentially provide a second bite at the apple at those kinds of transactions since the FTC didn't, in its view, get its first bite at the apple,” Horton recently told RevCycleIntelligence.

Horton also correctly predicted that the revamped Merger Retrospective Program would target physician group mergers since these transactions are oftentimes not large enough to warrant federal attention despite evidence that shows these smaller deals have resulted in anticompetitive behaviors in certain markets.