Does the FTC understand the hospital sector?

The Federal Trade Commission just doesn't get healthcare mergers.

That's the opinion of Michael D. Shaw, a healthcare equipment executive, writing for He believes that the FTC is not taking into account factors that rarely occur in other regulated businesses: The government often sets terms for the prices paid for the services rendered, and patients rarely pay for such services directly.

Add the shift to value-based payments into the mix, and Shaw argued that "to maximize the value of care, hospitals must implement deep cost reductions that require greater economies of scale," as opposed to the series of price hikes that are usually synonymous with antitrust activity. He also suggested that the issues some hospitals have in accessing capital have also driven them to seek consolidation, instead of the desire to monopolize markets. After analyzing an array of data, Shaw also concluded that there is no direct link between hospital consolidation and an increase in the prices they charge.

Although Shaw has indicated that the FTC is taking on the healthcare industry for frivolous reasons, his own statistics suggest that the agency has not exactly been aggressive. Shaw noted that there were 333 hospital-related mergers between 2007 and 2011, of which one-third were reported to the FTC. Of those, four were challenged in court.

In recent cases, the FTC has been using a century-old federal law to challenge mergers and acquisitions, the Clayton Antitrust Act. On the face of it, the law allows the FTC to pursue action if it believes a deal would concentrate too many services with one party, allowing it to raise prices as a result of a lack of competition.

One prominent case involves St. Luke's Medical Center in Boise, Idaho. It was sued by the FTC over its pending acquisition of Salzer Medical Group in Nampa, Indiana.

"FTC enforcement is based on a curiously uninformed and outdated model of healthcare, in which neither hospitals nor doctors work together, to improve the situation," Shaw wrote. By living in the past, the FTC is impeding progress toward a more efficient and effective healthcare system."

In another case in Toledo, Ohio, involving hospital operator Promedica, the company has sought guidance from the U.S. Supreme Court regarding how such deals should be structured, according to J.D. Supra.

To learn more:
- read the article 
- check out the J.D. Supra article