Hospital M&A studies highlight higher prices, tepid antitrust intervention

A pair of academic studies published this week painted an unflattering picture of hospital dealmaking's impact on healthcare prices and regulators' track record of stepping in to protect market competition.

The first, published Tuesday in Health Services Research, speaks to so-called cross-market hospital mergers in which health systems expand their reach by combining with hospitals outside their geographic market.

These types of deals, which have yet to ever be challenged by the Federal Trade Commission (FTC), appeared to raise prices by about 13% on average compared to control hospitals six years after the deal, researchers wrote in the study.

“More antitrust scrutiny of cross-market mergers—particularly those of serial acquirers—appears prudent given the current state of highly concentrated hospital markets in the United States,” the University of California, Berkeley-led researcher group wrote in the study.  

The second paper, released Wednesday in American Economic Review: Insights, took a broader view of nearly two decades of hospital dealmaking. It found that about a fifth of hospital merger and acquisition deals met the regulator’s stated market concentration threshold but that only 1% of the deals were actually challenged.

Paired with findings that a subset of the deals, those occurring between 2010 and 2015, that would have been flagged led to a roughly 5% overall healthcare price increase, the researchers called into question whether the FTC is taking a strong enough antitrust enforcement stance within the hospital industry.

“We posit that much of the underenforcement is likely a function of a lack of funding for the antitrust enforcement agencies,” Zarek Brot-Goldberg, an assistant professor at the Harris School at the University of Chicago who authored the study along with others from Yale, Harvard and the University of Wisconsin-Madison, said in a release. “Mergers in the hospital sector are generating short-run harms that roughly approximate the FTC’s entire budget, which suggests the agency might lack sufficient resources to take necessary enforcement action and preserve competition.”

Both studies were refuted by the hospital lobby, which criticized the analyses’ methodology and the “anti-hospital” bias of their funding sources.

Cross-market mergers raise prices with no benefit to care quality

Academics have previously flagged cross-market hospital deals as an under-explored area of hospital consolidation policy and noted that the lack of clear evidence likely prevents regulators from intervening. Industry consultants note that health systems’ interest in diversifying their geographic market presence has fueled M&A, and likely will continue to fuel more of these deals, which can involve multi-billion-dollar entities.

The authors of the Health Services Research analysis noted that their piece is the third looking at the deals’ impacts, and the first to explore quality effects and “serial cross-market acquirers.” To do so, they reviewed 2009 to 2017 Health Care Cost Institute commercial claims and Medicare’s Hospital Compare quality data for over 1,000 hospitals—214 hospitals that had acquired another hospital at least 50 miles away, and 955 control hospitals with no merger and acquisition activity.

They found that while the acquiring hospital had prices raised by 12.9% six years after their deal, there was “no discernible impact” on the reviewed quality measures like mortality and readmission rates. That combination suggests “that the price effects do not arise from post-transaction improvements in quality of care,” though the researchers said they can’t pinpoint what specific mechanism is driving the increase.

The researchers also found that the size of the price increase among cross-market acquirers grew for hospitals that acquired four or more deals from 2011 and 2017 and had prices 16.3% higher than controls. Deals in which the acquired hospital had greater market share led to higher subsequent price increases, while the inverse led to more muted increases.

“This finding makes intuitive sense, as acquirers with lower market share have more to gain from acquiring an entity with market power,” they wrote.

The researchers noted that their analysis is limited to claims from UnitedHealth, Aetna and Humana, which comprised about a third of the employer-sponsored insurance market.

The American Hospital Association (AHA) had a few more critiques. In a statement, AHA Vice President of Research Strategy and Policy Communications Aaron Wesolowski said that the work “is so deeply flawed that its conclusions cannot be taken seriously.”

He took issue with the researchers’ “giant assumption that prices at acquired hospitals will automatically be set at the prices of the acquiring hospitals,” as well as the “arbitrary threshold” of 50 miles and no adjustment for different types of hospitals “that appear to be over-represented in the control group.”

Wesolowski also noted that the work was funded in part by Arnold Ventures, a philanthropic group that’s historically backed research scrutinizing hospital consolidation—or in his words, “anti-hospital hit jobs under the guise of independent research.”

Antitrust under-enforcement "plainly clear"

The second study primarily sought to understand what portion of hospital mergers have, and should have, been challenged by the FTC.

To do so, it reviewed hospital deals from 2002 to 2020 that resulted in major changes in the Herfindahl-Hirschman index (HHI), a market concentration metric used by the agency. The regulator generally considers an HHI above 2,500 to represent a highly concentrated market—a threshold currently exceeded by 90% of hospital markets, the authors noted.

Specifically, among the study’s 1,164 mergers, 238, or 20%, involved at least one party that saw a 200-point or more HHI increase that resulted in a post-merger HHI of at least 2,500 points. Only 13 of the mergers were challenged at the time.

“This implies that the agency challenged approximately 1% of all transactions and, at most, 5% of transactions that likely ran afoul of the thresholds set in the Horizontal Merger Guidelines,” the study’s authors wrote.

Within a smaller set of mergers occurring between 2010 and 2015, a period researchers said would allow them to accurately measure two years before and after a merger, those flagged as exceeding the guidelines’ HHI cutoff increased merging parties’ prices by 5.2% between inpatient (5.4%) and outpatient (4.5%) settings. Mergers in rural or poorer regions also led to greater increases in average prices, particularly on the outpatient side.

Researchers said that their study shows that the FTC’s pre-merger screening tools can spot a merger that lead to price increases, and that about half of these mergers were sizable enough to require the merging parties to alert the regulator with pre-merger filings. The agency’s history, however, shows that most of these were left unchallenged.

“It is plainly clear that there has been under-enforcement of antitrust laws in the hospital sector,” coauthor Zack Cooper, an associate professor at Yale, said in a statement.

The AHA again disagreed. In a statement, the lobby’s general counsel, Chad Golder, said that the study’s negative findings were a foregone conclusion “given the track record of these authors, the biased organization that funded their work [Arnold Ventures] and the limited insurance-company data they relied on.”

Golder’s statement went on to highlight a portion of the study data that found an overall price increase of “only a little more than 1%” among all merged hospitals between 2010 and 2015.

“The FTC has not been shy about exercising its authority to block mergers, and the idea that the FTC should do that even more cannot hold water,” he said.

The agency has taken a more aggressive stance in recent years under a White House directive to crack down on hospital consolidation. It’s currently petitioning the courts to ax a hospital transfer between Community Health Systems and Novant Health in North Carolina, and recently counted wins in California, New Jersey, Rhode Island and Utah.