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Hospital Mergers & Antitrust Laws in the Age of the ACA

By   /  May 14, 2015  /  1 Comment

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In 2010, President Obama signed the Affordable Care Act into law, changing the landscape of the American healthcare system forever. One of those changes constitutes an increase in hospital mergers and acquisitions by encouraging collaborative care; the ACA offers financial incentives for the creation of Affordable Care Organizations (collaborative networks of doctors and hospitals that share responsibility for providing care to patients). As Michael Martinez at the international law firm K&L Gates points out, in doing so, “the law implicitly encourages consolidation of health care systems and providers.” This provision, however, has come into direct conflict with another landmark statute, the Clayton Antitrust Act.

Passed by Congress in 1914, the Clayton Antitrust Act sought to strengthen the Sherman Antitrust Act by preventing anticompetitive practices in their incipiency. Originally intended to break up monopolies like Standard Oil, the law is now being used by the Federal Trade Commission (FTC) to prevent hospital mergers and acquisitions. According to the FTC, “consumers benefit from lower costs, better care, and more innovation” when healthcare markets are competitive. It claims that healthcare mergers tend to reduce competition, and that “doctors and hospitals can usually achieve the benefits of coordinated care without a full merger.” In an interview with the New York Times, Martin S. Gaynor, the director of the FTC’s bureau of economics, stated that “hospitals that face less competition charge substantially higher prices.”

To that end, the law has prevented the formation of more than four mergers in the past two years, including a high-profile case in Idaho where it prevented a health system from acquiring a physician group. Federal District Judge B. Lynn Winmill struck down the acquisition of Saltzer Medical Group, Idaho’s largest independent group of physicians, by St. Luke’s Health System, the largest healthcare system in the state, in 2012. In his decision, he wrote that “the Clayton Act is in full force, and it must be enforced,” noting that the merger would create a healthcare system with a market share so large that it could charge higher prices for health insurance plans. The decision is currently being appealed.

Doctors and hospitals argue that they must collaborate to survive in the new healthcare environment the ACA has created. But in an interview with the New York Times, Deborah L. Feinstein, the director of the bureau of competition at the FTC, said, “I don’t think there’s a contradiction between the goals of health care reform and the goals of antitrust.” Similarly, in the Idaho case, Judge Winmill stated, “there are other ways to achieve the same effect that do not run afoul of the antitrust laws.”

In Ohio, the FTC blocked a similar merger between ProMedica, an 11-hospital healthcare system, and another hospital in the Toledo area. The decision was also appealed, but in April a federal appeals court ruled that the FTC had been justified in its decision: “The commission’s analysis of this merger was comprehensive, carefully reasoned and supported by substantial evidence.” It also stated that the merger would hurt consumers by forcing them to pay higher rates. In Illinois, the commission blocked another merger between hospitals and primary care physicians in the Rockford area that would allegedly “eliminate vigorous competition.” Again, a federal judge ruled in favor of the FTC, stating that “The FTC has shown that the merger would likely lead to higher prices,” and granted a preliminary injunction against the deal. The hospitals quickly abandoned their plans.

The FTC’s recent crackdown on hospital mergers presents a dilemma for many healthcare providers. On the one hand, the Affordable Care Act encourages collaboration; on the other, the Clayton Antitrust Act prevents mergers that are deemed uncompetitive. However, federal officials have stated that both laws have the “same goals: to lower costs, increase access to care and improve its quality by fostering competition.” Mr. Gaynor told the New York Times that “you can have collaboration, you can have consolidation, you can have cooperation, and we don’t worry if it doesn’t harm competition.” Former FTC Chair Jon Leibowitz told the Wall Street Journal, “If you want to do something about controlling costs in healthcare, you have to challenge anticompetitive hospital mergers.”

The FTC has long argued that these mergers create higher prices for consumers by reducing competition among hospitals—they “get increased leverage” in negotiations with health insurance companies and employers. New research is suggesting that hospitals also “gain bargaining power when they are acquired and become part of a big healthcare system with no presence in the local market.” According to Matthew S. Lewis, an associate professor of economics at Clemson University, “Acquisitions of hospitals by large national chains such as Hospital Corporation of America, Ascension Health or Tenet Healthcare may not increase hospital concentration in the affected local markets, but could nevertheless generate higher prices.” The rise of this previously unsuspected problem suggests that the showdown between the FTC and the healthcare industry may be the first of many of its kind as the full impact of the ACA begins to be realized.

Kevin Huang

Timothy Dwight ’18

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