The country’s largest hospital lobby is urging antitrust regulators to look beyond commercial insurance prices and market-wide concentration when weighing the impact of a proposed hospital merger.
The American Hospital Association (AHA), armed with a new analysis report commissioned from healthcare advisory firm Kaufman Hall, called on Monday for a “more comprehensive analysis” of deals under increasing scrutiny because research ties consolidation to higher healthcare prices.
Regulators, the association and the report said, should place more weight on the types of patients merging hospitals serve, what could happen to care delivery if a deal falls through, and how hospitals within a shared market compete at the service-line level.
“Hospital mergers receive careful antitrust review. But careful review is not the same thing as a narrow review,” AHA General Counsel and Secretary Chad Golder wrote in a blog post highlighting the new report. “The relevant question is not just whether a transaction might affect the prices commercial insurers negotiate. It is what the transaction—or its failure—is likely to mean for patients: whether healthcare services remain available, whether hospitals can invest in their workforce and facilities, and whether local communities retain access to care.”
Kaufman Hall, in the report, wrote that antitrust agencies evaluating proposed deals “primarily focus on the price increases following the transaction,” but note that prices wouldn’t move for Medicare, Medicaid, Medicare Advantage and Medicaid managed care, which the government controls. Nearly 60% of patient days at an acute care hospital are among patients under the Medicare and Medicaid programs, according to the report, which AHA said undercuts the “outsized attention to only one potential effect on one segment of patients—higher negotiated rates paid by commercial insurers.”
What’s more, Kaufman Hall highlighted that the 12 hospital transactions since 2015 that the Federal Trade Commission has sued to block involved, on average, acquirees with higher percentages of governmentally insured patients (64%). Another review of its proprietary data on 88 deals since 2006 showed acquirees typically served communities more vulnerable than the national average.
The patient composition matters when weighing the repercussions of a blocked deal, the report continues. Financial downturns were common among another group of 88 proposed-but-cancelled deals within the past decade, with potential acquirees experiencing a median 50% reduction in operating profit margin, a 38% reduction of days cash on hand and a 10% dip in labor compensation ratio a year after the cancellation.
“While some of these hospitals were already facing financial headwinds, our analysis suggests that a failed partnership may accelerate decline by removing access to capital or operational expertise that could stabilize performance,” the report reads.
“Thus, when a merger is blocked because of potential increases in commercial insurance prices, we cannot ignore what will happen to Medicare and Medicaid patients whose prices won’t change, but their access to care will,” Golder wrote in his blog post commentary on the report. “Kaufman Hall’s important insights prove that a sound antitrust analysis must consider both populations.”
Finally, Kaufman Hall’s report takes a magnifying lens to the Herfindahl-Hirschman Index (HHI), a measure of market concentration often used in regulatory review. Doing so assumes that two or more facilities with overlapping service areas “are in fact close competitors that constrain each other’s ability to raise prices [which] is not always the case, even in communities with only a few hospitals,” the report reads.
Here, the firm reviewed 221 counties with only two acute care hospitals with different owners and analyzed their HHI by service line rather than across the market overall. It found balanced competition was less frequent, and that each facility tended to carve out its own territory.
“Many hospitals have naturally developed distinct service portfolios that reflect differences in scale, capabilities, or community need—resulting in complementary, rather than competitive, dynamics,” Kaufman Hall wrote. “Given that in many of these counties one hospital is in a significantly stronger financial position than the other, a transaction may ensure that a full range of services can continue to be provided in these counties and their communities.”
Such complementary specialization, Golder wrote, “can be a feature of an efficient market, not evidence that competition has failed. Two hospitals can compete vigorously for patients without each trying to be all things to all people. That does not mean competition is irrelevant. It means competition should be measured as it actually exists.”
The AHA faces an uphill battle in its arguments as most academic researchers and policymakers at state and federal levels have identified health system dealmaking as a noteworthy contributor to healthcare affordability while also urging greater regulatory scrutiny. And setting aside the debate of whether the FTC has historically taken sufficient action, the commission has projected a tough stance on anticompetitive dealmaking in healthcare.