What drives health care costs ever higher? Consolidation may be playing a key role. In this context, Professor Jaime King’s contribution to the St. Louis University Annual Health Law Symposium, “The Anti-Competitive Potential of Cross-Market Mergers in Health Care” (coauthored with Erin C. Fuse Brown), is a clarion call for antitrust authorities to consider seriously how cross-market hospital mergers may be affecting competition. The work is a cogent and compelling call to action for an industry that is sorely in need of a competition infusion.
Between 2000 and 2010, an estimated one-third of hospital mergers were cross-market transactions—that is, combining two entities not directly competing in the same product or geographic market. Traditionally, antitrust authorities assumed that these transactions were not anti-competitive, given that the entities theoretically did not compete directly against each other. Looking at emerging theoretical and empirical research, however, Professor King and her coauthor highlight evidence that geographic cross-market mergers in the health care field might have anti-competitive effects. They outline a path forward for economic researchers, lawyers, and antitrust enforcers to address this.
The authors explain how cross-market mergers might harm consumers and competition through anticompetitive tying, which occurs when a seller of multiple goods or services conditions the sale of one product on the purchase of another product. Specifically, a hospital system negotiating with insurance companies can mandate that the insurer include all of the hospital system’s providers in its network. As the hospital system increases its network across markets, it also increases its bargaining power against insurers who have patients in multiple markets, which strengthens the hospitals’ ability to block competitors in each of the markets. For example, research suggests that when hospital systems acquire providers in different geographic markets, they increase prices at rates higher than hospitals not part of a merger and higher than hospitals merging within the same market.
Looking forward, Professor King and her coauthor consider how these findings might shape antitrust law, noting how developments in economic modeling and empirical research have generated support for horizontal and vertical merger challenges in the past. As a potential legal mechanism for this, the authors point to Section 7 of the Clayton Act, which justifies merger challenges by allowing courts to predict the competitive impact of mergers and acquisitions based on considerations such as economic modeling (no proof of anti-competitive behavior is required).
The authors close with interesting suggestions for cross-market merger analysis: (1) merger analysis should holistically consider bundles of services rather than just those relevant to a particular product or geographic market, (2) economic analysts should model insurers’ willingness-to-pay in cross-market mergers, and (3) and antitrust authorities should identify limiting principles (some of which are suggested in the literature) that can predict when cross-market mergers would likely have anti-competitive effects.