We all know the Washington game: Find a group that is easy to attack and blame them for the tough problems that have no silver-bullet solution. In the health care arena, these scapegoats are frequently hospitals. According to some, the cause of out-of-control health care costs is hospital mergers, and reform won't work unless these mergers are stopped.
They could not be more wrong. Let's look at the simple facts.
1 | Benefits of Hospital Mergers. In the past several years, there have been numerous hospital mergers. This consolidation simply is a response to the dire need for greater efficiency in health care delivery systems.
Consolidation helps hospitals manage costs and keep their doors open by allowing hospitals to share specialized skill centers (such as integration with a teaching hospital), spread fixed costs over a larger patient base and expand patient access to services. Some of the largest hospital systems are the most innovative and most effective at cost control. Patients clearly benefit when hospitals combine and strive to improve patient care. And, often mergers are necessary to save failing or deteriorating hospitals.
2 | Current Merger Enforcement does not Suggest a Competitive Armageddon. If there were a severe competitive problem, you would expect the antitrust cops to try to stop it. After all, the Federal Trade Commission spends 30 percent of its resources on health care and has a special litigation shop devoted to hospital mergers. They review about 20 hospital mergers a year. But what is the record? In the Obama administration — not a group of timid antitrust cops — only three hospital mergers have been challenged. That's not surprising. With some fanfare in 2002, the FTC tried to "reinvigorate" the hospital merger enforcement with a comprehensive review of several consummated hospital mergers. The result: a challenge to one merger that did not unwind the merger but, instead, kept the status quo with separate negotiation teams for the two hospitals.
There is a real difference between amorphous complaints about a merger and having the hard facts necessary to block a merger in court.
3 | Putting Hospital Consolidation in Perspective. Hospitals do not exist in a vacuum. Instead, they are part of a health care system that includes intermediaries — such as health insurers — who separate the patients from the health care providers. Hospital markets are typically far less concentrated than health insurance markets. And, there have been far fewer competition and consumer protection violations among hospitals than health insurers.
Moreover, unlike the empirical evidence showing that consolidation in health insurance markets leads to higher prices for consumers, evidence that consolidation in hospital markets actually leads to higher prices is mixed. Many of the studies on which critics rely appear to confuse patient preference for market power. In fact, the Altarum Institute, a nonprofit health care research organization, recently reported that private rate inflation among private health care providers shows little evidence of pricing power.
Unwarranted opposition to hospital consolidation will be a disservice to patients and our nation during this critical period of health care reform.
David Balto is an antitrust lawyer and former policy director of the Federal Trade Commission. You can contact him at email@example.com.
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