The Problem:
Hospitals large and small often pursue mergers or acquisitions. These merging hospitals often argue that these mergers are needed to save the failing finances of one of the hospitals, putting them on better footing in a merged system, or they claim that a larger, integrated hospital system will improve the quality of care.
Hospital mergers have been shown to increase prices by eliminating competition between the two hospitals.[1] Hospital mergers often also reduce access to care, as merging hospitals are likely to close non-profitable or ostensibly “redundant” care units.[2] Without the pressures of competition for patients, hospital consolidation contributes to worse health outcomes, including higher mortality rates.[3] Finally, by reducing the number of healthcare employers in a region, consolidation gives hospitals greater bargaining power over their employees and reduces pay for healthcare workers.[4] Furthermore, many hospital mergers are not just between hospitals that directly compete with one another, but are rather “cross-market” mergers, in which the hospitals are looking to gain bargaining power against insurance companies to be able to increase prices.[5]
The problem has only gotten worse in recent years, with a hospital merger frenzy beginning during the Obama administration. With the belief that hospitals or large physician groups would be more efficient under universal healthcare coverage, the government pushed for “integration across the continuum of care” by offering financial incentives in the 2010 Affordable Care Act (ACA). While the annual number of announced buyouts peaked at 60 in the few years before the ACA was signed into law, they rose to 74 in 2010, 86 in 2011, and hit 115 in 2017.
Mergers, including hospital mergers, are illegal under federal law where the “effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”[6] However, when merging or acquiring, hospitals only need to report the transaction to the Federal Trade Commission if it is valued over a certain amount, $111.4 million as of 2023,[7] and the Federal Trade Commission is not allowed to share the information from those notifications with state attorneys general. As a result, stretched federal antitrust regulators are often unaware of potentially harmful hospital mergers and acquisitions. And even when they are notified, federal antitrust agencies are not allowed to share merger notifications with state and local enforcers.[8]
The Solution:
State legislatures can pass laws with a clear authority for the attorney general to solicit input, review healthcare mergers, and block any consolidations based on a comprehensive examination of the health and equity effects of the healthcare merger.
Such legislation should accomplish two things:
- First, state hospital and healthcare merger legislation should require notification to the attorney general of any merger or acquisition between healthcare providers, regardless of their size. This would ensure both that the attorney general has the necessary information, and it would prevent hospital consolidation through a series of small acquisitions of, for example, physicians’ practices.
- Second, the legislation should allow the attorney general to block a hospital merger not just if it harms competition itself, but also if an investigation deems the merger likely to negatively affect the standard of care in the community. This would be particularly important to block the harms stemming from cross-market mergers, for example.
Model Legislation:
The proposed Keep Our Care Act (Senate Bill 5241) in Washington State requires both (a) notification to the attorney general for any healthcare merger or acquisition within the state, and (b) a review of the merger’s effects on the quality and equity of care.[9]
Notes
[1] Zack Cooper, Stuart Craig, et al., “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured,” The Quarterly Journal of Economics, February 2019, https://pubmed.ncbi.nlm.nih.gov/32981974/.
[2] Rachel Mosher Henke, Kathryn Fingar, et al., “Access to Obstetric, Behavioral Health, and Surgical Inpatient Services After Hospital Mergers in Rural Areas,” Health Affairs, October 2021, https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2021.00160.
[3] Martin Gaynor, Rodrigo Moreno-Serra, and Carol Propper, “Death by Market Power: Reform, Competition, and Patient Outcomes in the National Health Service,” American Economic Journal: Economic Policy, 2013, https://pubs.aeaweb.org/doi/pdfplus/10.1257/pol.5.4.134.
[4] Elena Prager and Matt Schmitt, “Employer consolidation and wages: Evidence from hospitals,” Washington Center for Equitable Growth, February 2019, https://equitablegrowth.org/working-papers/employer-consolidation-and-wages-evidence-from-hospitals/.
[5] Brent Fulton, Daniel Arnold, et al., “The Rise of Cross-Market Hospital Systems and Their Market Power in the U.S.,” Health Affairs, November 2022, https://pubmed.ncbi.nlm.nih.gov/36343312/.
[6] 15 U.S. Code § 18 – Acquisition by one corporation of stock of another, Cornell Law School Legal Information Institute, accessed March 13, 2023, https://www.law.cornell.edu/uscode/text/15/18.
[7] “HSR threshold adjustments and reportability for 2023,” Federal Trade Commission, February 16, 2023, https://www.ftc.gov/enforcement/competition-matters/2023/02/hsr-threshold-adjustments-reportability-202.
[8] See Mattox v. FTC, 752 F.2d 116 (5th Cir. 1985) and Lieberman v. FTC, 771 F.2d 32 (2d Cir. 1985).
[9] “Keep Our Care Act Resource Center,” ACLU Washington, accessed March 13, 2023, https://www.aclu-wa.org/KOCA; House Bill 1809, Washington State Legislature, 2021-2022, https://app.leg.wa.gov/billsummary?BillNumber=1809&Chamber=House&Year=2021; Senate Bill 5241, https://lawfilesext.leg.wa.gov/biennium/2023-24/Pdf/Bills/Senate%20Bills/5241.pdf?q=20230404070323.