The Federal Trade Commission is blocking hospital mergers. How far will the agency go to stop health care prices from increasing?
After the Federal Trade Commission successfully challenged four hospital mergers, the Biden administration’s new majority on the commission is set to further combat consolidation in the health care industry.
Although hospital mergers were supposed to improve efficiency, experts agree the creation of huge conglomerates and hospital networks has driven up U.S. medical costs, which are by far the highest in the world. Near-monopoly pricing power is a consistent problem.
Last year, President Joe Biden ordered the FTC and other federal agencies to promote market competition in health care and other industries. Biden said hospital mergers and acquisitions had left the 10 largest health care systems in control of a quarter of the market and led to the closure of hospitals in rural and other underserved areas.
“We are feeling invigorated and looking to fulfill the executive order’s call to be aggressive on antitrust enforcement,” said Mark Seidman, assistant director of the FTC’s Bureau of Competition, told Kaiser Health News.
Trade commissioners have said avoiding big mergers is a key way to slow health care price increases, protect patient access and the quality of care, along with preventing employee layoffs, pay cuts and unfair labor practices.
But antitrust experts said finding opportunities to test stronger enforcement theories will take the FTC time. And bringing such cases will almost certainly trigger pushback from Republican commissioners, the health care industry and the courts. They have argued that some mergers help lower costs while preserving access for patients, employers, and insurers.
“By over-investigating, you are putting a tremendous burden on parties seeking to do combinations that are beneficial, potentially deterring pro-competitive behavior,” said Leigh Oliver, a veteran antitrust attorney who represents health care companies.
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Consolidations blocked by lawsuits
In June, RWJBarnabas Health, which operates 12 hospitals, scrapped its acquisition of St. Peter’s Healthcare System, which runs one hospital for adults and children in central New Jersey. The FTC had filed a federal lawsuit to block the deal, citing evidence that it would raise prices and hurt patient care.
Also in June, HCA Healthcare, which operates 182 hospitals, halted its acquisition of five Steward Health Care System hospitals in the Wasatch Front region of Utah shortly after the FTC filed a lawsuit to block the transaction, claiming it would raise prices and lower the quality of care.
“This should be a lesson learned to hospital systems all over the country and their counsel: The FTC will not hesitate to take action in enforcing the antitrust laws to protect healthcare consumers,” Holly Vedova, director of the FTC’s Bureau of Competition, said in a statement.
Barry Ostrowsky, CEO of RWJBarnabas Health, disagreed with the FTC’s challenge of his system’s merger, saying in a statement that the proposed acquisition of St. Peter’s “would have transformed quality, increased access, and decreased the overall cost of care for the people of this state.”
In March, a federal appeals court upheld a lower court’s injunction that blocked a merger between Hackensack Meridian Health and Englewood Healthcare Foundation in Bergen County, New Jersey. The FTC said it would have raised prices. That case was initiated by the Trump administration and continued under Biden.
State officials have often joined forces with the FTC to block mergers.
In February, a proposed merger between Rhode Island’s two largest hospital systems, Lifespan and Care New England Health System, was called off after the FTC and the Rhode Island attorney general filed a lawsuit to stop the deal.
Extensive research has found prices rise when hospital systems acquire or merge with their competitors or when they buy a significant percentage of physician practices in their market. Highly consolidated markets, such as Northern California (dominated by Sutter Health) and western Pennsylvania (dominated by UPMC) tend to have higher prices.
The FTC has a long history, under both Democratic and Republican administrations, of antitrust enforcement actions to block so-called horizontal mergers between hospitals.
Based on the FTC’s outlook, high prices in a region should attract new competitors and that competition will bring down prices. But regulatory hurdles and massive costs involved in setting up a health care network — which includes hospitals and doctors, as well other aspects like testing facilities — make such movement unlikely, if not impossible.
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A bold new approach from FTC, DOJ
In January, the FTC and Department of Justice began seeking public comment on ways to strengthen enforcement against mergers that could result in societal harm.
Last December, FTC Chair Lina Khan said the agency would scrutinize how proposed mergers might affect not only prices but also workers in the labor market.
“Robust antitrust enforcement can help ensure that workers have the freedom to seek higher pay and better working conditions,” she said.
Excessive market power, she added, can allow companies to impose onerous, take-it-or-leave-it contract terms, including noncompete clauses.
Physicians and other health care professionals have said large health care companies are increasingly pressing them to sign contracts that prevent them from going to work for competitors in the same market or even the same state.
At a joint FTC-DOJ public forum in April on the effects of health care mergers, representatives of two emergency physician groups said members reported being given take-it-or-leave-it contracts.
Douglas Ross, a veteran antitrust attorney who has represented hospitals and teaches antitrust law at the University of Washington, said it’s well established that antitrust enforcers can block mergers if they harm labor market competition.
“What’s new is this administration is actively looking for cases where they can make that claim,” he said.
The Democratic commissioners also want to take a tougher line in challenging so-called vertical mergers. In these deals, hospitals, insurers, or other types of health care companies seek to merge with or acquire companies that provide needed products, services, or staffing.
Hospitals or insurers acquiring large physician practices, which studies have found leads to higher prices, are examples of vertical mergers. In some cases, patients will visit a longtime physician only to find prices doubled simply because the practice has been purchased by a hospital, which now sets the rates.
Antitrust enforcers have long viewed such mergers as promoting efficiency because the services and supplies can be obtained at a lower cost, but the FTC’s Democratic majority in September argued the purported benefits to the public of vertical mergers are not supported by market evidence.
The two Republican commissioners sharply dissented, saying the majority’s action “threatens to chill legitimate merger activity and undermine attempts to rebuild our economy in the wake of the pandemic.”
Nevertheless, the FTC commissioners voted unanimously last year to file an administrative complaint to block Illumina, a top producer of gene-sequencing machines, from acquiring Grail, a promising developer of a blood test for early detection of many kinds of cancer. The agency argued Illumina could use the acquisition to prevent Grail’s emerging rivals from competing in the market.
"Agencies are very suspicious of vertical acquisitions, and I think they’re willing to be extremely aggressive in investigating them,” Ross said. “But whether the courts go along or not, we’re way too early to know.”
Even so, some experts have questioned whether aggressive FTC antitrust enforcement will help patients and employers who are paying high prices in areas dominated by one or two health systems. It may be time for direct regulation of prices, they said.
“There’s not a lot the FTC can do to challenge hospitals’ ability to raise prices once they have acquired market power,” said Thomas Greaney, a research professor at the University of California Hastings College of the Law in San Francisco. “So there’s a natural reaction in some states to say, ‘Let’s regulate those prices.’”
Kaiser Health News is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.