Hospitals have been merging and acquiring physician practices at a breakneck pace over the last several years. Hospital representatives argue they need to join forces in order to better share resources, such as expensive IT systems, and to coordinate care in the manner that the Affordable Care Act has encouraged. But the trend has drawn criticism from insurers, state attorneys general and federal antitrust enforcers, who warn that consolidation can also give hospitals monopoly power to drive up prices and hurt consumers.
Here are five things to know when you report on hospital mergers and efforts by antitrust officials to challenge them:
1. The Federal Trade Commission reviews and challenges provider consolidation at the federal level.
Before big companies can merge, either the FTC or the Department of Justice must review and approve the merger. Those two federal agencies have a tradition of splitting up which industries they oversee: For example, while the DOJ reviews insurance mergers, the FTC handles all pharmaceutical and provider cases.
The FTC is a small, independent commission, led by five Senate-approved presidential appointees. Traditionally, three commissioners, including the chairman, are of the president’s political party. Two are of the opposing party. Right now, Chairwoman Edith Ramirez, Democrats Julie Brill and Terrell McSweeny and Republican Maureen Ohlhausen sit on the panel. The second Republican spot is vacant.
In most cases, state attorneys general also have the ability to review a proposed merger that affects the citizens of their state. And in the case of the giant insurance mergers – they are.
2. The FTC is a law enforcement agency, not a regulatory one.
Unlike the Department of Health and Human Services or the Centers for Medicare and Medicaid Services, the FTC doesn’t write regulations about what hospitals can and can’t do. Instead, like the courts, it makes policy through precedents issued in the legal cases it brings. The commission also can issue guidance that can help companies as they plan mergers.
If the FTC decides a merger is anticompetitive, it will challenge it. In many cases, companies either abandon the deal, find a way to divest some assets or otherwise settle with the agency. In a few rare cases, the agency will pursue a legal challenge to block the proposed merger or acquisition. That legal challenge can unfold in the federal court system or in an administrative tribunal overseen by an independent FTC judge.
While the agency has a great deal of power to challenge mergers, it can’t set the timeline for the kinds or types of cases it takes – it can only react to proposed deals up for review.
3. When it reviews a merger, the FTC considers consumer harm.
When the FTC reviews a merger, it focuses on whether consumers will be better or worse off if the deal takes place. In hospital mergers, that usually means focusing on whether the hospitals will be able to charge higher prices after they merge. The commission’s review doesn’t address benefits to the hospitals or to the community.
FTC officials have said there are some benefits to consumers, such as higher quality care, that could hypothetically outweigh the harms of higher costs. But they have also said they’ve never seen companies successfully prove such outcomes would occur.
The agency of late has been somewhat aggressive in challenging provider consolidation. It has filed three challenges in the last several months – a significant caseload for a small agency.
4. Hospital mergers almost always lead to higher prices.
Private insurers pay 15 percent higher prices to hospitals that don’t have competitors in their markets, according to a December, 2015, National Bureau of Economic Research study. Even when there are two or three hospitals in a market, prices are higher than when there are four or more hospitals, it found.
That follows earlier research from the Robert Wood Johnson Foundation, which in 2012 concluded that hospital consolidation generally results in higher prices, regardless of the geographic market and across different data sources.
5. The ACA encourages consolidation, but enforcers see no tension between the goals of the ACA and antitrust law.
The pace of competition in both provider and insurer markets has accelerated dramatically since the passage of the ACA, as both industries try to amass more leverage in their negotiations with one another. Hospitals are acquiring smaller practices for which complying with new regulations and upgrading IT systems have become too expensive. In addition, doctors are joining larger systems instead of remaining independent.
Hospitals argue that scale and consolidation allows them to better coordinate all of a patient’s care – and in so doing, to improve quality and lower costs, just as Obamacare’s delivery system reforms have pushed them.
But antitrust officials have steadfastly disagreed about the push to consolidate – and its benefits.
“We frequently hear that there is a conflict between the Affordable Care Act (ACA) and antitrust enforcement, (but) the goals of the ACA are in harmony and not in conflict,” Deborah Feinstein, director of the FTC Bureau of Competition, said in December. “There are other practical ways of achieving coordinated care and alternative payment models beyond merging with a close competitor.”
Erin Mershon (@eemershon) is a health care reporter for Politico Pro. Before she joined the team, she covered technology policy for Politico and for Communications Daily. She’s covered nearly every aspect of Congress, from its Eagle Scout members to its wonkiest procedural maneuverings, for National Journal, Roll Call, The Huffington Post and PolitiFact.
