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Cross-market health system mergers may drive higher prices: study - Best Business Review Site 2024

Cross-market health system mergers may drive higher prices: study

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Health systems are increasingly looking outside of their markets for merger and acquisition partners, a trend that researchers say deserves more attention given the potential for these transactions to increase prices.

More than half of the 1,500 hospitals targeted by health systems between 2010 and 2019 were located in a different commuting zone than the acquirer, according to an analysis of American Hospital Association data published Monday in Health Affairs. There are 625 commuting zones across the country, ranging from a size of one county to 20 counties.

While the data on the effects of cross-market mergers is limited, early results show that hospitals in separate service areas may be able to negotiate higher rates with insurers due to a common customer base—often large employers demanding insurance coverage for their employees in different regions. Still, the Federal Trade Commission is often hesitant to challenge cross-market mergers because antitrust law focuses on in-state hospital mergers and minimal legal precedent exists for these other transactions..

“Generally speaking, cross-market hospital mergers get a pass by the FTC. But since more than half of the mergers from 2010 to 2019 were located in a different commuting zone than the acquirer, we can’t ignore it,” said Brent Fulton, lead author of the study and an associate research professor of health economics and policy at University of California, Berkeley.

State regulators, employers, unions and whistleblowers have accused some health systems of using anticompetitive contracting provisions with insurers such as tying, where systems leverage their market power to force an insurer to put a high-priced hospital in their network. But legal challenges arising from such concerns, which have had mixed success, require a significant amount of money and resources.

While federal regulators are revamping their merger guidelines, the FTC has mainly challenged hospital mergers within the same or in nearby markets by measuring the concentration of inpatient services. Antitrust law is not designed to analyze cross-state mergers, said Barak Richman, a law and business administration professor at Duke University.

“Even though the hospitals are not in the same local market, once joined they might increase prices and reduce quality,” Richman said at a Massachusetts Health Policy Commission meeting last week. “Also, by definition, this is not something that antitrust law can do because it is designed to look at competition within particular markets.”

The number of systems in urban commuting zones that could potentially use cross-market power increased from 37 systems in 2009 to 57 in 2019, according to the study.

Although it was not named in the study, one recent example involves Advocate Aurora Health proposed merger with Atrium Health, which would combine the 27-hospital system in Illinois and Wisconsin with the 40-hosptial system in North Carolina, South Carolina, Georgia and Alabama. Also, Intermountain Healthcare and SCL Health completed their merger in April, forming a 33-hospital system across seven states.

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