Hospital mergers and antitrust: an economic analysis

The hospital industry has recently experienced substantial merger activity. This paper examines several actual and proposed hospital mergers to determine the extent of competition in the affected markets and the effect these mergers may have on competition. Our focus is on mergers between hospitals in the same market. We define the relevant product and geographic market for hospitals, then develop criteria for evaluating hospital mergers and analyze several merger cases using these criteria. We conclude that these mergers threaten the competition that exists in most of the markets discussed, and that the claimed efficiency justification for mergers is not convincing.     

Applying antitrust law to nonprofit healthcare entities: arguments for a greater attention to detail

This Article begins with an antitrust primer, then analyzes the appropriate application of antitrust principles to nonprofit healthcare providers. In light of the inherent charitable character of nonprofit healthcare providers, the author contends that the government and the courts should accord some deference to nonprofit hospitals when they are seeking approval of mergers. To date, this has not generally been the case, although a few recent court decisions have rested their approval of mergers, in part, upon the nonprofit character of the merging entities. The author, in particular, believes the paradigmatic local nonprofit hospital with a community board is less likely than a for-profit hospital to abuse any market power that it may obtain through a merger; consequently, any such merger should not be analyzed solely under the traditional presumptions of antitrust jurisprudence. Rather, the premerger analysis should involve meaningful consideration of the hospital's charitable character.     

Failed hospital mergers

The spate of hospital mergers in recent years has yielded both substantial increases in market power and many divestitures. These seemingly contradictory results stem from the pressures imposed by stakeholders of merging hospitals and the inability of those stakeholders to exert control over nonprofit institutions prior to the effectuation of a merger. This Article examines several recent mergers, analyses their failures, and recommends that the judiciary and state attorneys general look carefully at merging nonprofits so as to fill the void left by the lack of market control mechanisms.     

Community control and pricing patterns of nonprofit hospitals: An antitrust analysis

Traditional control of nonprofit hospitals by the communities they serve has been offered as justification for restraining antitrust enforcement of mergers that involve nonprofit hospitals. The community is arguably a constraint on a nonprofit's inclination to exercise market power in the form of higher prices; however, community control is likely to be attenuated for hospitals that through merger or acquisition become members of hospital systems--particularly those that operate on a regional or multiregional basis. We report findings from a study in which we examined empirically the relationship between market concentration and pricing patterns for three types of nonprofit hospitals that are distinguishable based on degree of community control: an independent hospital, a member of a local hospital system, and a member of a nonlocal hospital system. Study results indicated that when conditions existed to create a more concentrated market, (1) all three types of nonprofit hospitals exercised market power in the form of higher prices, and (2) hospitals that were members of nonlocal systems were more aggressive in exercising market power than were either independent or local system hospitals. The results have important implications for antitrust enforcement policy.     

Hospital mergers: the shift from federal antitrust enforcement to state regulation

The authors examine and analyze the burgeoning merger activity in the hospital arena, as well as the nonfederal attempts made to regulate that activity. They conclude that the present, ad hoc, system of state regulation is sorely wanting and that it would be preferable if stronger antitrust enforcement and judical decisions prevented competition reducing mergers. If a merger results in a true monopoly (and nonetheless passes antitrust scrutiny), its regulation should be the responsibility of the pertinent state public utility board which, unlike the courts and state attorneys general, has sufficient expertise to adequately regulate the merged entities. Otherwise, the faults of the present system, which is easily manipulated by hospitals seeking political and legal cover for their activities, are likely to be perpetuated.     

Applying antitrust concepts to the acute care hospital industry: defining the relevant market for hospital services

In considering the possible antitrust implications of a merger of two or more competing hospitals, the courts have generally found that hospitals provide a cluster of services which have significant peculiar characteristics that allow them to be considered a single product market. Spurred by changes in their environments, hospitals during the last decade have become markedly less homogeneous in their range of products and geographic markets. As a result, the impact of hospital mergers in the future may need to be assessed in multiple, more narrowly defined relevant markets, for which several possible definitional bases are suggested in this paper. The increased precision associated with such multidimensional antitrust analysis should permit a more effective consideration of the trade-offs between increases in hospitals' market power and advances in their relative operating efficiency and/or quality of services.     

Corporate reorganization: the last gasp or last clear chance for the tax-exempt, nonprofit hospital?

The current revolution in health care organization and financing, increased competition, and a retrenching of industry from its commitments to expansion of health care benefits challenge the nonprofit hospital's existence as a viable entity. Hospital governing boards and administrators have turned to corporate reorganization in order to maintain their financial position and to continue to serve their communities. This Article examines the not-for-profit concept and the problems facing nonprofit hospitals. It reviews the pros and cons of reorganization and the for-profit/nonprofit controversy. It questions whether the hybridization of the hospital results in a stronger or weaker species and discusses the possible effects of the newly structured entity on the quality and delivery of health care. Finally, the Article suggests that the nonprofit hospital may survive only by a continued commitment to societal and communal values, to service rather than to profit; that this commitment is adequate justificaton for the preservation of the nonprofit system, and its preservation will reinforce and strengthen the concept.     

Defending hospital mergers after the FTC's unorthodox challenge to the Evanston Northwestern--Highland Park transaction

Examining the Federal Trade Commission's retrospective challenge of a hospital merger in Illinois, the author provides an insightful analysis of one of the agency's major antitrust enforcement initiatives in health care in the last several years. Because the case produced several departures from antitrust orthodoxy, these departures may affect the trials of future hospital mergers that are challenged. The author reviews the methodology and evidence of the case, and he identifies theories and best practices that are important for administrators and legal practitioners to implement in future mergers.     

Incomplete antitrust laws and private actions for damages

Our purpose in this paper is to identify some of the implications that derive from the incompleteness of antitrust laws. Since with regard to certain anticompetitive conduct, the law remains substantially incomplete up to the first relevant court judgment, in terms of policy it is worth concentrating on stand-alone claimants who, not relying on earlier judgments, face very high evidentiary requirements, while generating large positive (information) externalities for potential follow-on claimants. The paper is structured as follows. In Sect. 2, we introduce the notion of incompleteness of the laws and address the process of production of evidence in antitrust lawsuits. Sect. 3 provides a survey of EU national case law and our summary of the results puts emphasis on incomplete laws, evidentiary requirements and stand-alone lawsuits. Sect. 4 presents a framework model to distinguish the decision-making processes for stand-alone and follow-on claimants in the presence of incomplete antitrust laws. In Sect. 5 we introduce a vector autoregressive model that we test with reference to the US antitrust law enforcement regime. Sect. 6 discusses some policy options and concludes the paper.