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FTC: Hospital Mergers and Acquisitions May Create Monopolies

When hospital mergers and acquisitions cause monopoly markets, healthcare prices tend to be 15 percent higher compared to markets with four or more competitors.

By Catherine Sampson

- Antitrust laws that prevent the formation of healthcare monopolies due to large-scale hospital mergers and acquisitions must be enforced in order to prevent skyrocketing healthcare costs, said Federal Trade Commission Chair Edith Ramirez at a recent conference.

Hospital mergers and acquisitions can lead to monopolies, which cause healthcare costs to rise, according to the FTC.

“Vigorous enforcement of the antitrust laws is more important than ever,” Ramirez said, speaking to attendees of the American Health Lawyers Association’s Antitrust in Healthcare Conference. “Most provider mergers are not anticompetitive, but the few that are could cause significant competitive harm.”

Hospital prices in monopoly markets were more than 15 percent higher than those in areas that had four or more competitors, Ramirez explained. When hospitals faced just one competitor, prices were more than 6 percent higher. When a hospital had two competitors, prices were only five percent higher, Ramirez said.

“The cost of an average inpatient stay at a hospital that faces no competition is almost $1,900 higher than those where there are at least four competitors, which results in higher premiums that get passed on to consumers,” Ramirez said.

Competition also plays a vital role in regards to quality, as hospitals compete to attract patients.

“The latest empirical research continues to consistently find that provider competition results in the greatest price and quality benefits for consumers, justifying the FTC’s continued vigilance in healthcare provider markets,” Ramirez said.

In 2015, the FTC sued to block three proposed hospital mergers that would allegedly cause an increase in market power for the merging entities in their local communities. All three of these cases are still ongoing.

The FTC challenged a proposed merger between Cabell Huntington Hospital and St. Mary’s Medical Center because it alleged the merger deal would “combine the only two providers of inpatient hospital services and two of three providers of outpatient surgery services in the Huntington, West Virginia area,” Ramirez said. The new entity would have at least 75 percent market share of inpatient admissions, which may lead to higher prices and reduced services.

The FTC and the Illinois Attorney General also sued to block a proposed $2.2 billion merger between Advocate Health Care Network, which is the largest healthcare system in Illinois, and Northshore University Health System because they thought the combined entity would operate a majority of the hospitals and control more than half of the market for general acute care inpatient hospital services in the North Shore area.

In December 2015, the FTC challenged the proposed merger between Penn State Hershey Hospital and Pinnacle Health System because the FTC argued that it would combine the two largest health systems in the Harrisburg area “to create a dominant provider for hospital services with a 64 percent market share.” The federal district court in Harrisburg denied the FTC’s motion to block the Penn State Hershey Hospital/Pinnacle Health System merger.

In 2015, the number of hospital mergers increased 18 percent over 2014. Also, there were 70 percent more mergers in 2015 than in 2010. This trend is likely to continue.

In the second half of 2015, the number of deals increased significantly. “Transactions involving physician practices –both mergers between independent physicians as well as hospital acquisitions of physician groups–also continued to increase,” Ramirez said.

Providers are also pursuing alternatives to traditional mergers such as affiliation arrangements, joint ventures and partnerships, Ramirez pointed out. All of these could have “significant implications for competition”.

The rate of hospital consolidation is likely to accelerate, she said. Providers merging with close rivals are likely to be scrutinized by the FTC.

“We will continue to use all of the tools at our disposal to promote the robust competition that underpins healthcare reform, benefiting consumers through lower costs, better outcomes and greater access to care and innovation,” Ramirez said.

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