Notice & Comment

Is antitrust the answer to hospital consolidation?

Ashish Jha has a new post on antitrust problems in the health-care industry:

robust literature on the benefits of competition in the health care marketplace shows that when health care markets are competitive, prices tend to be lower, quality tends to be higher, and people have more choices for care. Competition is a remarkably powerful tool that needs to be wielded more effectively. The good news is that ensuring competition is already the law of the land. The problem is that with the pace of consolidation, monitoring potential anticompetitive effects will be increasingly difficult as the FTC is tasked with examining a rapidly increasing number of mergers. The FTC needs renewed focus from policy makers to ensure that it can do its job effectively.

I’m sympathetic: to my mind, market concentration is the most urgent problem facing the health-care system. For three reasons, though, I’m more skeptical than Ashish is that competition law offers a realistic path forward.

First, it’s not enough for the FTC to review new mergers more diligently. Market concentration is already here. In 2013, David Cutler and Fiona Scott Morton showed that half of all hospital markets are highly concentrated and another third are moderately concentrated. It’s only gotten worse since then. Scrutinizing new mergers is like trying to close the stable door after the horse has bolted.

Second, the impulse to promote integration will complicate efforts to prevent consolidation. To continue the barnyard analogies, how is the FTC supposed to separate the integration sheep from the consolidation goats? The answer isn’t black and white: lots of mergers will promote integration and increase market power. Antitrust law is poorly equipped to strike the balance, which partly explains why the FTC has faced skepticism from the courts in some of its recent enforcement cases.

Third, I don’t see a non-wonk constituency pushing for the intensity of antitrust enforcement that’s needed. There’s no appetite to break up hospital systems—and even if there were, there’s no chance that a Republican-controlled House of Representatives would fund such efforts. It’s not even clear that it’d be a good idea. The ACA pushes for integrated medical systems for a reason, and at least some consolidation is both inevitable and salutary.

But if competition law isn’t the answer, what is? When antitrust falters, the law has other tools at its disposal. As I’ve argued elsewhere, I suspect we’re going to see a rise of public utility regulation—direct, state-level regulation of the economic practices of hospital systems.

If you’re skeptical, consider the “surprise bills” law that California just enacted. Among other things, it limits out-of-network doctors who work at in-network facilities from charging patients more than 125% of Medicare rates. That’s a price control, no question about it. And the California legislature passed it with almost no dissenting votes. Other states, including Florida and New York, have adopted similar laws. (A terrific paper from Brookings, led by Mark Hall, dives into the details of surprise billing and what can be done to address it.)

Is this a move toward all-payer rate-setting? I don’t know, but I think it’s a real possibility. Whether that’d be good or bad is genuinely hard to say. But unless there’s a revolution in antitrust enforcement—and I don’t see that happening—something has to give.


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