Report: Failing to regulate hospital mergers means consumers pay more

It's well past time to dispense with the idea that hospital mergers reduce costs. Hospital administrators and their public relations' teams promote this idea every time they announce plans to buy or merge with another hospital or health system.

But that idea is untrue, according to a recent report from health economists who show that from 2002 to 2020, U.S. hospitals were involved in more than 1,000 mergers. In that time, the Federal Trade Commission (FTC) took enforcement actions against only 13 (1%) of those transactions.

For the report, "Is There Too Little Antitrust Enforcement in the U.S. Hospital Sector?," the authors used the FTC's standard screening tools to find that 20% of those mergers were likely to reduce competition in a meaningful way. Also, from 2010 to 2015, mergers that were predictably anticompetitive drove up what consumers paid for hospital care by more than 5%, the authors wrote in an article for the journal American Economic Review: Insights.

Why this report matters

One reason this report on hospital mergers is important is that the cost of hospital care accounted for 30% of the nation's health care spending in 2022 (the most recent data), the highest among all categories of spending, according to a report in December from Medicare's Office of the Actuary. Spending for hospital care was higher than spending for physicians' and other clinical services (20% of all spending) and more than retail prescription drugs (at 9% of spending), the Medicare report showed.

The economic effect of mergers is also important because while the report has a national focus, hospital and health system acquisitions are a vitally important local, regional and statewide story. Hospitals and health systems are among the biggest employers in many cities and towns, and mergers can result in fewer beds or closed facilities and higher costs for consumers.

What's more, this economic analysis of mergers published in June showed that hospital mergers lead to rising hospital prices and raise the cost of labor by increasing employer's health insurance costs.

"A 1% increase in health care prices lowers both payroll and employment at firms outside the health sector by approximately 0.4%, according to the report, "Who Pays for Rising Health Care Prices? Evidence from Hospital Mergers."

Covering the local angle

For a great example of how a national trend can inform local reporting, see this April article from Michelle Crouch, "The rise of mega-hospitals," for the Charlotte Ledger and North Carolina Health News. In the top of her story, she included three North Carolina examples.

1. In 2022, Atrium Health merged with Advocate Aurora Health to form the nation's third-largest public health care system. "The system's $28 billion footprint now stretches south to Georgia and across the country to Illinois and Wisconsin," she wrote.
2. HCA Healthcare's controversial 2019 purchase of Mission Health in Asheville brought the nation's largest for-profit hospital system into North Carolina.
3. Novant Health of Winston Salem opened a new hospital in Charlotte, purchased a medical center in Pender County, spent $320 million to acquire two hospitals near Charlotte, and acquired three hospitals in coastal South Carolina. Since Crouch wrote that article in April, the Federal Trade Commission (and North Carolina consumers) earned a win when Novant Health ended its plan to acquire the two hospitals near Charlotte after federal regulators and others said it would have given Novant near-monopoly power in the region, as Bob Herman reported for STAT News in June.

While getting bigger through mergers and acquisitions may help hospitals save money, patients may not benefit from those cost savings, Crouch reported. In fact, research shows that hospital mergers led to higher prices for patients, ranging from 6% to 30% in concentrated markets, she wrote.

"Despite hospital promises about benefits, most research indicates that mergers and acquisitions drive up prices and do little to improve the quality of care," she added.

One reason prices rise is that health insurers lose bargaining power when they negotiate with large hospitals, she reported, quoting Zarek Brot-Goldberg, an assistant professor at the University of Chicago's Harris School of Public Policy and one of the authors of the American Economic Review: Insights report.

When seeking the lowest prices for health care services, an insurer will threaten to drop a hospital from its network, forcing patients to go elsewhere, Brot-Goldberg told Crouch. But if no competing hospital exists nearby, hospitals can raise prices and health insurers' members will be out of network, Brot-Goldberg told her. "And when that happens, premium rates on insurance policies rise," she added.

In her reporting, Crouch cited a report, "Addressing Hospital Concentration and Rising Consolidation in the United States," from the 1% Steps for Health Care Reform, a project of health economists and researchers seeking evidence-based solutions to the nation's health system problems.

Angles to consider

For additional coverage of the American Economic Review: Insights report, see the work of Melanie Evans at The Wall Street Journal, Bob Herman at STAT, and Maya Goldman at Axios.

"Prices for surgery, intensive care and emergency-room visits rise after hospital mergers. The increases come out of your pay," wrote Evans. "Hospitals have struck deals in recent years to form local and regional health systems that use their reach to bargain for higher prices from insurers. Employers have often passed the higher rates onto employees."

Evans interviewed Zack Cooper, an associate professor of health policy and economics at Yale University, one of the study's co-authors and a director of the 1% Steps for Health Care Reform.

When hospital prices rise, health insurance premiums go up as well, forcing workers and employers to pay more, Cooper noted. In turn, employers cover those higher costs by cutting wages and jobs, he added.

"The harm from these mergers really falls squarely on Main Street," Evans wrote, quoting Cooper.

Insufficient funding for the FTC

At STAT, Herman explained that inadequate funding for the FTC led to a lack of enforcement, which, in turn, reduced competition, allowing hospitals and health systems to charge consumers more.

The study's authors and other researchers contend that the FTC doesn't have enough funding or staff to probe all anticompetitive hospital deals, Herman wrote. The result was that hundreds of hospital mergers escaped antitrust scrutiny over the past two decades. Another reason: Some state laws shield hospital mergers from federal review, he added.

Like Evans, Herman quoted Cooper. "This isn't a story of the FTC not knowing what to do," Cooper told him. "I actually think they really know, very clearly, what to do. It's a lack of resources, person power, and potentially willingness to do it."

Reporting on underfunding for the FTC, Goldman found the agency agreed. "The issue is resources," she wrote, quoting an email from FTC spokesperson Victoria Graham. "If the FTC had more staff, it would do more enforcement," Graham added.

Goldman also reported that the FTC approved new guidelines last year regarding private equity ownership of health care providers that could make it easier to challenge such mergers. What's more, the Biden administration has made increased competition in health care a priority, Goldman noted.In December, the FTC and the U.S. Department of Justice published stricter guidelines for mergers and acquisitions that could make it more difficult for health care deals to close, according to Rebecca Pifer's reporting in Healthcare Dive.