F.T.C. Wary of Mergers by Hospitals

By Robert Pear
The New York Times, September 17, 2014

As hospitals merge and buy up physician practices, creating new behemoths, one federal agency is raising a lonely but powerful voice, suggesting that consumers may be victimized by the trend toward consolidation.

Hospitals often say they acquire other hospitals and physician groups so they can coordinate care, in keeping with the goals of the Affordable Care Act. But the agency, the Federal Trade Commission, says that mergers tend to reduce competition, and that doctors and hospitals can usually achieve the benefits of coordinated care without a full merger.

The commission is using a 100-year-old law, the Clayton Antitrust Act of 1914, to challenge some of the mergers and acquisitions, and it has had remarkable success in recent cases.

“Hospitals that face less competition charge substantially higher prices,” said Martin S. Gaynor, director of the F.T.C.’s bureau of economics, adding that the price increases could be “as high as 40 percent to 50 percent.”

Doctors and hospitals say they must collaborate to survive and thrive under the Affordable Care Act.

But Deborah L. Feinstein, director of the bureau of competition at the Federal Trade Commission, said the health care law did not repeal the antitrust laws.

Often, Ms. Feinstein said, when hospitals and doctors join forces, their goal is not just to control costs or improve care, but to “get increased leverage” in negotiations with health insurance companies and employers.

“They say they need better rates so they will have more money to invest in their facilities,” Ms. Feinstein said. “When you strip that down, it’s basically just saying, ‘We want a price increase.’ Even if the price increase is motivated by a desire to invest more in the business, that’s problematic. That incentive to invest may not be there if you don’t have competition as a spur to innovation — if you’re not worried about losing business to the hospital down the street.”

The F.T.C. has long argued that mergers can cause higher prices by reducing competition among hospitals in the same market. New research suggests that another dynamic, rarely considered by antitrust officials, can also lead to significant price increases.

The research shows that hospitals gain bargaining power when they are acquired and become part of a big hospital system that has no other presence in the local market.

“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,” said Matthew S. Lewis, an associate professor of economics at Clemson University.

http://www.nytimes.com/2014/09/18/business/ftc-wary-of-mergers-by-hospit…

Integrating health care delivery services with the goal of improving the quality and price efficiency of health care services for the community at large is an admirable goal of the Affordable Care Act (ACA). The merger mania taking place is being marketed as a means of achieving that integration. Yet the monkey wrench in the model is the supposed dependency on market competition instead of government oversight as a means of providing higher quality at a lower cost.

Yet merging health care services with the claim that quality improves as costs go down is proving to be a fraud. For the last century we have had to enforce antitrust laws and regulations simply because market consolidation results in oligopolistic control and higher prices instead. We are now seeing this throughout our health care system as providers recognize the business opportunities of greater clout in rate negotiations made possible by anti-competitive consolidation. The FTC has challenged less than one percent of these deals, indicating the conflict within our government of supporting implementation of ACA as opposed to protecting the public from unfair antitrust activities.

The flaw is to be found in the ACA model of reform. Excessive power has been granted to private insurance intermediaries that negotiate in the private sector with the providers. The tool they cite repeatedly is competition. Yet not only do we have the seminal work of Nobel laureate Kenneth Arrow, we also have decades of experience that confirms that this fiction of a market has brought us an outrageously expensive system with only mediocre outcomes on average.

All other wealthy nations cover everyone at an average cost of half of what we spend per person. Their success is based on the role of relatively rigorous government regulation or direct management. Even if the FTC stepped up its antitrust functions, our private insurers would continue to use a wide variety of business practices that advance their own interests at our cost. The vested interests in the privately owned sectors of the health care delivery system would also continue to position themselves favorably.

If we had a single payer national health program with a not-for-profit health care delivery system, our stewards would be left with the task of trying to get the system to work best for the benefit of patients – all patients. Would that be so terrible?