If You’re Reading This, It’s Too Late: Hospital Consolidation and Antitrust in the United States

Abstract

Provider consolidation, and particularly hospital consolidation, are major causes of the extraordinarily high cost of healthcare in the United States. Consolidation confers market power on hospitals, which allows them to raise prices. Hospital consolidation in the US has unfolded in two great waves: the first from the late 1990s to the mid 2000s as a reaction to managed care, and the second from the late 2000s through the present as a reaction to the ACA and the decline of revenues from inpatient care. Due to phenomena specific to healthcare markets and broader movements in legal theory, US antitrust institutions failed to present a significant challenge to hospital consolidation during its first great wave. This paper begins to answer the question of how US antitrust institutions are responding to the second wave: its finding is that while antitrust institutions have improved their ability to win legal challenges against merging providers, it is still highly uncertain this improved ability will have any real effect on the trajectory of consolidation. Parts I-II of this paper use secondary sources to describe the cost problem afflicting US healthcare and its relationship to provider consolidation, and to develop a newly comprehensive account of how changes in the healthcare industry and government policy initiated the first and second waves of consolidation. Part III uses secondary sources to describes how and why the US antitrust institutions, particularly the FTC, failed to prevent anticompetitive hospital mergers from occurring during the first wave of consolidation. Outdated understandings of healthcare delivery, misplaced faith in the intentions of merging providers, and difficult healthcare economics all prevented the FTC from bringing cases against hospitals and winning them in court. Another major barrier was the rise of the so-called Chicago school of antitrust theory, which cautioned against interventions in healthcare and erected difficult burdens of proof for the FTC as it tried to demonstrate the anticompetitive nature of deals in court. Parts IV-V use new analysis of three recent FTC court victories to answer the pressing question of how the antitrust agencies are responding to and shaping the course of the second wave of consolidation. Part IV uses close analysis of court documents from FTC v. Phoebe Putney, FTC v. Promedica, and FTC v. St. Luke’s to demonstrate that many of the barriers to successful challenges of hospital mergers from the first wave of consolidation have weakened. Part V explains these findings by charting the decline of the Chicago school as a legal and political doctrine –but it also underscores a serious limitation to the likely impact of the recent wins on the second wave: it is still unclear whether the deals the FTC challenged successfully are representative of others in the second wave and whether the wins will act as a meaningful deterrent against anticompetitive deals. Finally, Part VI concludes that it is unsurprising that the FTC failed during the first wave and that it will be unsurprising if it fails during the second: using a tiny agency like the FTC to maintain vigorous competition in most US healthcare markets is extremely impractical. In healthcare markets where competition is doomed to fail, the government should adopt policies that move away from competition and ultimately toward better healthcare prices for Americans.