The Journal of Things We Like (Lots)
Select Page
Jaime S. King, Alexandra D. Montague, Daniel Arnold & Thomas L. Greaney, Antitrust’s Healthcare Conundrum: Cross-Market Mergers and the Rise of the System of Power, __ Hastings L. J. __ (forthcoming 2023) available at SSRN.

In Antitrust’s Healthcare Conundrum: Cross-Market Mergers and the Rise of the System of Power, Jamie King, Alexandra Montague, Daniel Arnold, and Thomas Greaney highlight a significant gap in federal and state antitrust enforcement policy─the growing market power of healthcare systems than span multiple local geographic markets. Although antitrust enforcers have long assumed that mergers and acquisitions among providers competing in different geographic markets pose little threat to competition, the authors persuasively argue that this assumption is wrong. To support antitrust enforcement in this area, the article proposes an initial framework for cross-market merger analysis that draws upon the insights from antitrust caselaw, guidance documents from American and European Union antitrust agencies, and economic and legal scholarship.

In their review of lessons learned from conglomerate mergers outside of the health care context, the authors identify two key factors suggestive of anticompetitive effects. First, the merger creates linkages between the markets served by the merging entities when their products or services are related or complementary and can be packaged together for sale to a common customer. Second, when significant, those linkages can generate pricing power that allows one or more of the merged entities to raise prices. The article then examines how cross-sector health mergers across geographic markets can create linkages that satisfy these conditions.

As for the first factor, the authors build on a key insight of modern horizontal merger guidelines for health care providers—that bargaining between payors and providers, and not competition for individual patients, largely determines health care prices. They explain that insurers create linkages across provider geographic markets by packaging health care services into provider networks, with these networks then marketed to employers with employees spanning multiple geographic areas. In addition, health systems create linkages between distinct local markets when, in their negotiations with insurers or employers, they tie the sale of services in one provider market to the insurer or employer also purchasing services in other markets.

The second half of the article explores these linkages in greater depth and discusses when they create opportunities for health systems to raise prices. Because antitrust enforcement requires a strong underlying economic theory backed by empirical evidence, Part IV provides an overview of the economic literature on cross-market health care mergers. It begins by highlighting several economic studies that provide credible evidence that cross-market health care mergers can result in higher prices. Part IV then discusses the economic theories that may explain these empirical findings. Of key importance are two factors that give a health system greater leverage in its price negotiations with the insurer. First, the health system can use its market power in one market (the tying market) to increase its bargaining position in a second market (the tied market) by linking its sales in the former with the later. For example, a health system with a “must-have” hospital can engage in all-or-nothing negotiations that require the insurer needing the must-have hospital in its provider network to also contract with all of the system’s facilities, including a newly acquired hospital. Second, when employers with employees across multiple geographic areas desire health plans that can insure an entire workforce, this can give a multimarket health system negotiating leverage if its exclusion from a plan’s provider network creates gaps that would make the plan unattractive to these employers.

Parts V and VI build on Part IV’s economic discussion and describe various legal avenues for challenging prospective cross-market health care mergers under section 7 of the Clayton Act. The authors contend that antitrust enforcers could challenge a cross-market merger where the health system can tie their facilities together and coerce payers into higher prices and/or foreclose lower-priced facilities from payers’ networks. For example, as described above, a large multi-hospital system that pre-merger included one or more “must-have” hospitals can extract price increases for a newly acquired facility in a different market by linking the hospitals together in its negotiations with insurers. The authors also identify several helpful factors relevant to the analysis or whether a cross-market merger would in fact enhance the potential for tying.

Next, the authors suggest that antitrust enforcers consider whether the elimination of competition between the merging parties substantially lessens competition due to the merged entities having greater negotiating leverage with insurers. Specifically, they argue that “in some cases market demand may support defining a cluster market for certain buyers that extends beyond the local boundaries traditionally assumed to delimit horizontal competition among hospitals,” namely when certain customers are willing to pay a premium to purchase health care services in a group. The authors then identify several scenarios where this may occur.

First, within a geographic area, a merger between health systems could lead to higher prices if some insurers or employers are willing pay a premium to have access to the merged system’s complex tertiary and quaternary care services. If so, this could support a broader, multi-regional geographic market for tertiary and quaternary services, as distinct from the narrower geographic markets antitrust enforcers use for secondary care. Alternatively, the cluster of services desired by insurers or employers may include the full spectrum of inpatient care, which would support an all-inclusive market in a broad geographic area that includes secondary, tertiary, and quaternary care.

Second, a cluster market may exist for multimarket health systems. The authors identify two groups of customers who may be willing to pay a premium for a multimarket health system─insurers serving regional and national employers that must build multimarket provider networks, and employers with geographically dispersed employees. The authors identify several reasons why these customer groups may prefer contracting with large cross-market health systems, such as lower transaction costs from negotiating with a single health system (versus multiple hospitals), and avoiding inconsistencies and incompatibilities among network providers (e.g., promoting standardized electronic medical records and patient interface technologies).

Having identified potential cluster markets for highly specialized care, an all-inclusive market, and multimarket health systems, the authors then explain how antitrust enforcers could apply traditional horizontal merger principles to evaluate a cross-sector merger’s anticompetitive effects in a cluster market. The authors note, however, that the modelling tools currently used in horizontal merger analysis would need to be modified to fit the cross-sector health merger context and provide some helpful suggestions for doing so.

The article concludes with instructive suggestions for a research agenda that would increase our collective understanding of cross-sector health mergers and enhance future antitrust enforcement of these mergers when anticompetitive.

In sum, the authors convincingly show that the failure of antitrust enforcers to challenge cross-market consolidation among health care providers has significantly harmed health care markets.  Antitrust enforcers would be wise to heed the authors’ recommendations and expand the scope of antitrust enforcement to include cross-sector health mergers.

Download PDF
Cite as: Jessica Lind Mantel, Challenging Anticompetitive Cross-Market Health Mergers, JOTWELL (January 19, 2023) (reviewing Jaime S. King, Alexandra D. Montague, Daniel Arnold & Thomas L. Greaney, Antitrust’s Healthcare Conundrum: Cross-Market Mergers and the Rise of the System of Power, __ Hastings L. J. __ (forthcoming 2023) available at SSRN), https://health.jotwell.com/challenging-anticompetitive-cross-market-health-mergers/.