Understanding Mergers Between Hospitals and Health Systems in Different Markets

There is a growing body of evidence that the consolidation of the healthcare provider market is leading to higher prices without clear evidence of improved quality. Policy makers and regulators have historically focused on consolidation within the same geographic area, but between hospitals and healthcare systems operating in different regions (hereinafter referred to as “mergers”) , has undergone a number of mergers and acquisitions (referred to in this overview as “mergers”). This includes several multi-billion dollar deals over the last few years.Several Expert Mergers between markets have raised concerns that hospitals and the healthcare system could raise prices. It is also possible that some of the hospitals acquired through cross-market mergers will eliminate service lines and reduce access to care.

This issue brief discusses the role and implications of cross-market mergers in the hospital and health systems market and describes the approach taken by government antitrust authorities in reviewing these types of transactions.

What is an intermarket merger?

A “cross-market merger” involves a merger between two healthcare providers operating in different geographic markets for patient care.^, For example, this term could apply to the following scenarios:

• Two healthcare systems operating in different geographic markets will be merged. For example, in April 2023 Kaiser Permanente and Geisinger announced their plans merge. These systems operate in various parts of the United States, with Kaiser Permanente operating in five western states including California, Georgia, Maryland, Virginia and Washington DC, and Geisinger operating in Pennsylvania. In 2022, Kaiser Permanente and Geisinger will have operating revenues of $95 billion and $7 billion, respectively.
• The healthcare system acquires independent hospitals in geographic markets in which it does not operate. One example is Christus Health’s acquisition Christus Health is a large Texas-based healthcare system that includes 28 hospitals, while Gerald Champion Regional Medical Center is an independent hospital in Alamogordo, New Mexico, located in the nearest hospital. Christus Hospital is over 320 miles away. health facility.

Cross-market mergers can involve companies hundreds or even thousands of miles away, as well as hospitals and healthcare systems in adjacent markets. An example of the former is the recent merger of Michigan Health College, based in Ann Arbor, Michigan, with the Sparrow Health System, based in Lansing, Michigan, about 105 miles away. An example of the latter is the recently proposed merger of UnityPoint Health, which operates in the Midwest (Iowa, Illinois, Wisconsin), and Presbyterian Healthcare Services, which operates in New Mexico.

How common are mergers between markets?

Mergers between hospitals and healthcare systems are common, and many of these mergers involve healthcare providers from different geographic markets.For example: one study, covered approximately 1,500 hospitals as part of mergers or acquisitions completed between 2010 and 2019, with most (55%) of these transactions involving hospitals or healthcare systems in different commuting areas.according to another studyBetween 2010 and 2018, about 1 in 8 rural hospitals merged with an off-market hospital or health system. A series of large cross-market mergers in recent years have further increased the focus on this topic. Table 1 below shows examples of his nine large cross-market merger deals announced since June 2021. Each transaction involved a healthcare system with combined annual operating revenues of at least $5 billion.

Cross-market mergers may be attractive to expanding healthcare systems for at least some reason. First, intermarket mergers have met little resistance from government antitrust authorities compared to mergers between healthcare providers operating in the same market. Second, many healthcare markets already highly concentratedthere is less opportunity for the health system to expand within a given region.

What are the potential implications of cross-market mergers?

Cross-market mergers can potentially benefit patients if hospitals and healthcare systems can operate more efficiently as an integrated entity. Mutual knowledge, such as collaborating to develop better clinical practice guidelines and sharing effective strategies and tools for managing patient care, even when hospitals and health systems are in different markets. and share best practices. Larger scale operations may also encourage providers to participate in complex value-based payment programs that some health plans offer to reduce costs and improve quality of care. Hospitals and healthcare systems that consolidate within and across markets may achieve efficiencies by purchasing larger volumes of goods and supplies.

Depending on the scenario, a small, struggling hospital may seek to merge with a larger healthcare system to: improve finances or offer Higher quality service. For example, a large, well-funded healthcare system could provide smaller hospitals with the resources to purchase new equipment and invest in quality improvements, or access to financial backstops and capital. and potentially enable struggling rural hospitals to keep their doors open. Large, financially successful systems can also share business strategies with loss-making hospitals to help them operate more efficiently.

However, mergers between markets may increase prices. In fact, researchers estimate that this type of transaction resulted in a price increase of only 6-17 percent. small number of the study We have focused on consolidation between markets.

at least for some reason Why cross-market mergers can lead to higher prices, even though they involve hospitals and healthcare systems that do not compete with each other in the same region. First, for example, health systems that work with health care providers in different parts of the state have a dominant position in one market when signing up to a particular health plan (e.g., a state employee plan with subscribers). could be used to negotiate a higher price in another market. exist in multiple markets). Second, complex health systems may compete with other health systems operating in the same market. In that case, multi-medical systems may be reluctant to offer lower prices in one market out of fear that competitors will retaliate by lowering prices in other markets. Finally, large systems that buy small hospitals, for example, may have more expertise in negotiating with insurers, which could be used to negotiate higher prices. there is.

Another concern that has been raised regarding certain types of mergers is that they may also apply to some cross-market mergers, resulting in reduced access to care. For example, a large health system that acquires a small rural hospital may become less responsive to community needs and more aggressive in providing health services. lose service line, obstetric care, etc. In this regard, hospitals reduce spending On community benefits after being acquired by the health care system.

How do government antitrust agencies approach mergers between markets?

By scrutinizing potential mergers and other anticompetitive conduct, federal and state antitrust authorities seek to promote competitive markets that often benefit consumers. Antitrust authorities have so far focused on mergers between hospitals and health systems operating in the same geographic market, but there are signs that they are starting to look more closely at cross-market mergers. On the other hand, the Federal Antitrust Authority not yet formally challenged Because they are cross-market mergers, the Federal Trade Commission (FTC) has identified this type of transaction as an area of ​​interest and has approved at least two specific cross-market mergers (between Advocate Aurora Health and Atrium Health and Spectrum between Health and Beaumont Health). ).

At the state level, the California Attorney General exercises its legal authority to impose conditions upon merger Identified as a cross-market transaction. These conditions include, for example, limiting price increases and requiring the combined company to maintain certain services, such as minimizing the number of emergency rooms, intensive care units and maternity beds. is included. In Minnesota, the proposed merger of Fairview Health Service (based in Minnesota) and Sanford Health (based in South Dakota) will be challenged before both systems abandon plans in July 2023 The state attorney general has launched an investigation.

Mergers between markets never been fully sued Regulated by federal or state antitrust authorities, it may be difficult in the short term. First, only a handful of analyzes have focused on intermarket mergers, limiting the ability of regulators to cite potential outcomes based on empirical evidence. Second, the antitrust authorities have not yet issued detailed guidelines for evaluating cross-market mergers, nor have they examined legal strategies for challenging cross-market mergers in court. By contrast, when antitrust authorities challenge in-market mergers, they can rely on longstanding judicial precedents and court-approved economic frameworks. Finally, antitrust litigation can be complex and costly. Without sufficient funding, it may not be practical to challenge the business practices of numerous healthcare providers that raise anti-competitive concerns, such as cross-market mergers. Considering these challenges, we believe that inter-market consolidation will continue unabated for the foreseeable future.

discussion

Mergers between hospitals and healthcare systems are common, and these mergers often involve providers from different geographic markets. Cross-market mergers can be beneficial in some scenarios, for example when the healthcare providers involved share effective clinical strategies to improve patient care. However, a small number of studies show that mergers between markets can lead to problems such as: rising medical costs. It is also possible that some hospitals will be less responsive to local needs after mergers between markets. Antitrust authorities have begun to scrutinize mergers of hospitals and healthcare systems across various geographic regions, which could impact affordability and access to healthcare in many parts of the country. , has not yet fully filed a mutual lawsuit. market merger.

Several policy and regulatory options have emerged that could address some of the concerns about cross-market mergers. For example, government regulators may use their existing powers to scrutinize cross-market mergers initiated by antitrust authorities. States may enact legislation authorizing government agencies to seek pre-approval from the government for some or all types of providers before they merge. California State attorneys general use this power to impose conditions on market-to-market mergers to limit price spikes and require the merging companies to maintain certain services.Additionally, regulators may ban Certain types of clauses in contracts This could allow the merged entities to leverage their market power to negotiate a higher price in one market based on a strong position in another.

Each of these policy and regulatory options comes with trade-offs. For example, to decide whether to contest a particular cross-market merger, consider the potential benefits of the merger, such as allowing smaller hospitals to keep their doors open, and the potential harms, such as rising healthcare costs. may need to be weighed against Reduced patient access to care in certain markets. As the number of cross-market mergers increases, these concerns and trade-offs are likely to come to the attention of policymakers and regulators.