A recent roundtable of policymakers and researchers in Washington D.C. exposed differing viewpoints about the competitive aspects of hospital consolidations. Because the impact of consolidation on competition and prices in a market continues to excite discussion and controversy, the participants called for regulators to approach their antitrust scrutiny from a different perspective.
Some roundtable participants noted contradictory findings about the impact of consolidation in a market. For example, an executive from the Commonwealth Fund called the full effect of mergers “somewhat of a black box.” Both positive and negative effects from consolidation have been found in various research studies. On the negative side, consolidation may make it easier for providers to pass along higher prices to patients and payers. But the benefits include increased collaboration and clinical integration to improve care coordination and clinical outcomes.
The Federal Trade Commission (FTC) is one of the primary regulatory agencies to assess the anti-trust implications of hospital consolidation. The FTC’s representative at the roundtable explained the agency’s key goal is to allow new market entrants. He noted that once competition is suppressed in a market, it is extremely difficult to get it back.
He was questioned about why the FTC appears to oppose some mergers but not others. He noted that the FTC “generally allows mergers to go forward if there is no identified harm to competition or identified benefits, or no evidence either way.” (“Hospital Consolidation Trend to Continue,” HFMA Weekly News, June 20, 2014)
Roundtable participants urged regulators, including the FTC, to focus their efforts differently. The suggestions included:
- Less focus on hospital-to-hospital consolidation and more on hospital acquisition of or affiliation with physician practices. They noted these arrangements have the greatest potential for anticompetitive impacts
- Regulatory restraint toward the hospital consolidation movement
- Ceilings on permissible negotiated rates
- Targeting particular institutions for oversight
- Implementing a range of pro-competition regulatory provisions—for example, prohibiting anti-competitive terms and conditions in insurer-provider contracts
Merger/acquisition activity continues to trend upward, according to recent analyses by researchers and consultants. The findings include:
- Hospital mergers and acquisitions increased 10 percent in the first quarter of 2014 compared with the same time frame last year (Kaufman Hall)
- Consolidations increased 3 percent in 2013 to 98 transactions (Kaufman Hall)
- The number of hospitals and hospital beds involved in hospital deals in 2013 hit a five-year high, despite a nearly 22 percent decline in the number of transactions—the discrepancy was due to the acquisition of Health Management Associates by Community Health Systems and the sale of Vanguard Health Systems to Tenet Healthcare (Irving Levin Associates)
Analyses have been undertaken to show how/whether consolidation affects competition and prices in markets, and we have reported on some of those studies in the past. The Center for Healthcare Economics and Policy reviewed and assessed 75 studies and 36 primary sources spanning the past 15 years and found the vast majority of mergers did not impede market competition, but rather created more competitive healthcare markets. Researchers also found no statistical correlation between realignment and pricing.
In a recent article in Health Affairs, the author wrote, “. . . there appears to be a contradiction between efforts to contain health care prices and the fact that aggressive policies aimed at reducing provider concentration might be ineffective and could even have the unintended effect of stunting positive developments.” (“Paradigm Lost: Provider Concentration and the Failure Of Market Theory,” Health Affairs, May 2014).
Even with the significant trend in consolidation, hospital prices, which had been rising for many years far faster than inflation, have been fairly flat over about the past 24 months, the author wrote.
(Sources: “Hospital Consolidation Trend to Continue,” HFMA Weekly News, June 20, 2014; “Paradigm Lost: Provider Concentration and the Failure Of Market Theory,” Health Affairs, May 2014)
iProtean subscribers, Part Two of the advanced Finance course, Strategic Responses to the Competitive Environment, will be published in your library by the end of June. Michael Irwin and Dan Grauman present their experience with and opinions about the competitive impact of consolidation/M & A activity, and also discuss the next phase of mergers and acquisitions, the impact on bond ratings and taxable vs. tax-exempt bonds.
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