Harris Meyer | July 18, 2022
Fresh off the Federal Trade Commission’s successful challenges to four hospital mergers, the Biden administration’s new majority on the commission is primed to more aggressively combat consolidation in the health care industry than it has in past years.
Although hospital mergers were supposed to improve cost efficiency, experts agree that the creation of huge conglomerates and hospital networks has driven up U.S. medical costs, which are by far the highest in the world. Many enjoy near-monopoly pricing power.
Last year, President Joe Biden ordered the FTC and other federal agencies to promote market competition in health care and other industries. Biden said hospital mergers and acquisitions had left the 10 largest health care systems in control of a quarter of the market and led to the closure of hospitals in rural and other underserved areas.
“We are feeling invigorated and looking to fulfill the executive order’s call to be aggressive on antitrust enforcement,” said Mark Seidman, an assistant director in the FTC’s Bureau of Competition, who chatted with KHN about the agency’s efforts on health care (see accompanying interview). The trade commissioners say this is a key way to slow health care price increases; protect patient access to and the quality of care; and prevent employee layoffs, pay cuts, and unfair labor practices.
But antitrust experts said finding the right cases to test more muscular enforcement theories will take the FTC time. And bringing such cases will almost certainly trigger pushback from Republican commissioners, the health care industry, and the courts. They argue that some mergers continue to make sense, helping lower costs while preserving access for patients, employers, and insurers.
“By overinvestigating, you are putting a tremendous burden on parties seeking to do combinations that are beneficial, potentially deterring pro-competitive behavior,” said Leigh Oliver, a veteran antitrust attorney at law firm Clifford Chance who represents health care companies.
In one of the FTC’s recent victories, RWJBarnabas Health, which operates 12 hospitals, in June scrapped its acquisition of St. Peter’s Healthcare System, which runs one hospital for adults and children in central New Jersey. The FTC had filed a federal lawsuit to block the deal, citing evidence that it would raise prices and hurt patient care.
Also in June, HCA Healthcare, which operates 182 hospitals, halted its acquisition of five Steward Health Care System hospitals in the Wasatch Front region of Utah shortly after the FTC filed a lawsuit to block the transaction, claiming it would raise prices and lower the quality of care.
“This should be a lesson learned to hospital systems all over the country and their counsel: The FTC will not hesitate to take action in enforcing the antitrust laws to protect healthcare consumers,” Holly Vedova, director of the FTC’s Bureau of Competition, said in a statement.
Barry Ostrowsky, CEO of RWJBarnabas Health, disagreed with the FTC’s challenge of his system’s merger, saying in a statement that the proposed acquisition of St. Peter’s “would have transformed quality, increased access, and decreased the overall cost of care for the people of this state.”
In March, a federal appeals court upheld a lower court’s injunction that blocked a merger between Hackensack Meridian Health and Englewood Healthcare Foundation in Bergen County, New Jersey. The FTC said it would have raised prices. That case was initiated by the Trump administration and continued under Biden.
State officials often join forces with the FTC to block mergers.
In February, a proposed merger between Rhode Island’s two largest hospital systems, Lifespan and Care New England Health System, was called off after the FTC and the Rhode Island attorney general filed a lawsuit to stop the deal.
Extensive research has found that prices rise when hospital systems acquire or merge with their competitors or when they buy a significant percentage of physician practices in their market. Highly consolidated markets, such as Northern California (dominated by Sutter Health) and western Pennsylvania (dominated by UPMC) tend to have higher prices.
The FTC has a long history, under both Democratic and Republican administrations, of antitrust enforcement actions to block so-called horizontal mergers between hospitals that could stifle competition in a market.
Under the FTC’s traditional economic theory, high prices in a region should attract new competitors and that competition will bring down prices. But regulatory hurdles and massive costs involved in setting up a health care network — which includes hospitals and doctors, as well other aspects like testing facilities — make such movement unlikely, if not impossible.
So Biden appointees at the FTC and Department of Justice have announced that they want to adopt some legal theories of antitrust enforcement that have been less frequently deployed.
In January, the two agencies launched a joint effort seeking public comment on ways to strengthen enforcement against mergers that could result in societal harm.
Last December, FTC Chair Lina Khan said the agency would scrutinize how proposed mergers might affect not only prices but also workers in the labor market. “Robust antitrust enforcement can help ensure that workers have the freedom to seek higher pay and better working conditions,” she said.
Excessive market power, she added, can allow companies to impose onerous, take-it-or-leave-it contract terms, including noncompete clauses.
Physicians and other health care professionals have said that large health care companies are increasingly pressing them to sign contracts that prevent them from going to work for competitors in the same market or even the same state. At a joint FTC-DOJ public forum in April on the effects of health care mergers, representatives of two emergency physician groups said their members were being given those types of take-it-or-leave it contracts.
In February, Khan and another Democratic commissioner, Rebecca Kelly Slaughter, said they would have liked to include such an allegation about unfair labor practices in the FTC’s challenge to the proposed Lifespan-Care New England merger.
But the two Democratic commissioners did not have a majority at that time, Oliver said, and they may not have wanted to go ahead without a consensus among the commissioners.
The commission had a 3-2 Democratic majority for part of last year after Khan joined the panel, but then another Democratic commissioner, Rohit Chopra, left in October to head a different federal agency. The Democratic commissioners did not regain the majority until the Senate confirmed Alvaro Bedoya in May.
Douglas Ross, a veteran antitrust attorney who has represented hospitals and teaches antitrust law at the University of Washington, said it’s well established that antitrust enforcers can block mergers if they harm labor market competition. “What’s new is this administration is actively looking for cases where they can make that claim,” he said.
The Democratic commissioners also want to take a tougher line in challenging so-called vertical mergers. In these deals, hospitals, insurers, or other types of health care companies seek to merge with or acquire companies that provide needed products, services, or staffing. One example is when hospitals or insurers acquire large physician practices, which studies have found leads to higher prices. Patients will visit a longtime physician only to find prices doubled or more, simply because the practice has been purchased by a hospital, which now sets the rates.
Antitrust enforcers have long viewed such mergers as promoting efficiency because the services and supplies can be obtained at a lower cost, but the FTC’s Democratic majority in September argued that the purported benefits to the public of vertical mergers are not supported by market evidence. The two Republican commissioners sharply dissented, saying the majority’s action “threatens to chill legitimate merger activity and undermine attempts to rebuild our economy in the wake of the pandemic.”
Nevertheless, in a test of more vigorous scrutiny of vertical mergers, the FTC commissioners voted unanimously last year to file an administrative complaint to block Illumina, a top producer of gene-sequencing machines, from acquiring Grail, a promising developer of a blood test for early detection of many kinds of cancer. The agency argued that Illumina could use the acquisition to prevent Grail’s emerging rivals from competing in the market.
Today, “the agencies are very suspicious of vertical acquisitions, and I think they’re willing to be extremely aggressive in investigating them,” Ross said. “But whether the courts go along or not, we’re way too early to know.”
Even so, some experts questioned whether aggressive FTC antitrust enforcement will help patients and employers who are paying high prices in areas dominated by one or two health systems. It may be time for direct regulation of prices, they said.
“There’s not a lot the FTC can do to challenge hospitals’ ability to raise prices once they have acquired market power,” said Thomas Greaney, a research professor at the University of California Hastings College of the Law in San Francisco who studies health care antitrust issues. “So there’s a natural reaction in some states to say, ‘Let’s regulate those prices.’”
KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.