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Wall St Journal: FTC cracking down on hospital mergers

March 19, 2012

The Wall Street Journal published a particularly relevant article yesterday about the Federal Trade Commission’s (FTC) campaign against hospital mergers. According to the piece, despite some claims that hospital mergers will save costs and increase efficiencies, the FTC believes hospital chains have the opposite effect.

Federal Trade Commission Chairman Jon Leibowitz says some mergers can lock up local markets, leading to higher prices for patients and insurance companies with few other places to turn.

“If you want to do something about controlling costs in health care, you have to challenge anti-competitive hospital mergers,” he says in an interview.

So what is the FTC doing about it? It’s actually looking at mergers that have already happened and examining the market consequences of those new entities.

 The agency found that some hospital deals had led to significant price increases.

“Some people thought hospitals could merge and there were no antitrust consequences,” Mr. Muris says. “The retrospective showed that wasn’t the case.”

The review led the FTC in 2004 to bring a case against a merger four years earlier of Chicago-area hospitals, accusing the combined entity of significantly raising prices for health insurers. The case ended in 2008 when the agency ordered some restrictions on the hospitals’ activities but didn’t seek to unwind the merger.

Of course, this is very confusing. As the article points out, health care reform encourages doctors and hospitals to take a more collaborative approach to patient care, forming large groups called “Accountable Care Organizations” that share in the cost or the savings of providing holistic health care.  How are hospital mergers so different from that? Don’t hospitals HAVE to band together to provide this kind of service?

The FTC argues that when large hospital chains get a monopoly, they have more bargaining power with health insurance companies and in the end get paid more for the same services than smaller, community hospitals. A study from Rhode Island’s Health Insurance Commissioner revealed that’s true in some cases in the Ocean State.

The data shows that on average Blue Cross Blue Shield and United Health Care pay Lifespan hospitals $5,000 more for the average patient stay than they pay smaller, community hospitals like South County or Landmark Medical Center. That’s one of the many reasons why Landmark says it ended up in receivership.

So what’s a community hospital to do? The logical conclusion is to team up with a stronger group of hospitals (AKA Steward Health Care System). But with that new bargaining power, Landmark will also get higher reimbursement rates, and the cost of health insurance will go up even more.  That’s likely why the FTC is so concerned.

But Landmark shouldn’t freak out too much. The FTC may be focusing its regulatory power on hospital mergers, but according to the WSJ,  the government doesn’t have much of a track record of preventing them.

From 1994 to 2000, the commission, the Justice Department and state regulators litigated seven attempts to block hospital mergers. They lost all seven. The Justice Department hasn’t brought a hospital-merger case since.

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