Antitrust has not too long ago moved to middle stage, with requires extra aggressive and expansive antitrust enforcement coming from progressives, and even some conservatives. A lot of the eye has been round Large Tech; nonetheless, not too long ago appointed Federal Commerce Fee (FTC) Chair Lina Khan, in addition to her rapid predecessor, Performing FTC Chair Rebecca Slaughter, have additionally known as out well being care as notably in want of aggressive antitrust enforcement. On the similar time, the pandemic has highlighted well being disparities and elevated consideration on the impression that the legacy of structural racism has on well being outcomes.
This backdrop prompts the query: What position, if any, ought to well being fairness play in hospital merger opinions? Well being fairness is used right here to check with entry to high-quality well being care providers by sufferers who traditionally have been underserved. Slaughter, nonetheless an FTC commissioner, has publicly contributed her views to this debate, asserting that antitrust enforcement ought to play an lively position in addressing racial inequity.
The reply to this query will not be easy. Hospital mergers can drastically have an effect on the standard and availability of well being care to underserved communities. However consideration of such points can be a departure for courts which have restricted antitrust scrutiny to a transaction’s impression on competitors. Investigating the probably impression of a transaction on well being fairness can be a very difficult activity for the FTC, which takes the lead in hospital merger investigations, given its restricted sources and experience with respect to such points. Furthermore, each the FTC and courts are disinclined to oversee post-merger obligations to guarantee well being fairness. Then again, reviewing solely the impression of hospital mergers on charges charged to business well being plans (as is mostly the company’s apply right now) dangers lacking what could also be a merger’s most necessary implications.
The response, then, should be nuanced. As can be defined under, antitrust merger legislation, with its deal with the aggressive impression of adjustments in market construction, is mostly ill-suited to think about well being fairness. These issues are higher addressed by way of extra focused insurance policies, together with cost reform, subsidies, and laws.
Nonetheless, even underneath present legislation, courts can provide larger consideration to the impact of a merger on hospital competitors with respect to high quality and entry. Furthermore, the FTC can extra explicitly take high quality and entry into consideration when exercising its discretion in deciding whether or not to problem a hospital merger. Lastly, to the extent that states imagine that antitrust is not going to adequately handle well being fairness, they’ll enact laws to instantly handle such issues, together with offering for post-merger regulatory oversight.
This Forefront article discusses the present authorized customary governing federal antitrust assessment of hospital mergers and the way this customary has been utilized by the FTC and the courts. It argues that larger consideration must be given to the impression on high quality and entry competitors, particularly for sufferers not lined by business insurance coverage. The article then explains how even the place merger-related results on well being fairness should not tied to competitors, they however must be thought-about in shut calls when the FTC workout routines its discretion relating to which mergers it should problem.
This text additionally describes how in sure markets, corresponding to rural areas the place it’s uncertain that competing well being techniques can function effectively, states might oversee hospital mergers to guarantee not solely affordable costs, but additionally high quality and entry. The article concludes by arguing that present antitrust legislation shouldn’t be modified to deal with well being fairness points that don’t come up from a change in market construction.
Table of Contents
The Present Authorized Customary For Hospital Merger Opinions
The FTC by itself can not block a hospital merger. Relatively, its problem should be thought-about in federal court docket, the place the company has the burden of proving that the transaction would considerably reduce competitors in a related product and geographic market in violation of the Clayton Act. Over the previous few many years, courts have held that the consequences of a merger, good or unhealthy, should be thought-about solely by way of the lens of its impression on competitors. For instance, courts have been reluctant to credit score any alleged advantages from a merger (corresponding to value reductions) until they are often seen as enabling the merged agency to compete extra successfully by offering decrease costs (or larger high quality or extra innovation).
Hospital Merger Opinions Have Centered On Solely A Slim Slice Of Attainable Aggressive Results
Whereas merger opinions underneath present antitrust legislation should deal with the impression of a transaction on competitors, the FTC and courts have centered virtually completely on a really slender vary of doable aggressive results: particularly, whether or not a merger would probably lead to larger costs for inpatient basic acute care hospital providers bought to business well being plans.
There are a number of explanation why the FTC focuses on business inpatient costs. First, such providers stand to bear the brunt of any post-merger value will increase; different providers are largely paid for pursuant to government-regulated costs or contain a much wider set of opponents (as is the case with physicians or outpatient services). Second, there are wealthy knowledge for business inpatient providers that usually permit economists to outline slender geographic markets, which typically signifies that the merging hospitals could have excessive market shares. Such knowledge additionally allow economists to mannequin a predicted value impact. Below company pointers and antitrust precedent, if a merger ends in a considerable enhance in focus in a extremely concentrated market, the merger is presumed to be illegal, and that presumption is tough to beat. Given the FTC’s favorable monitor document utilizing this method, the company has little incentive to vary its litigation technique.
To show {that a} merger would adversely have an effect on high quality or entry requires experience the FTC typically lacks; it additionally requires knowledge and different proof which might be a lot much less wealthy and extra qualitative than knowledge on business inpatient costs, and thus much less amenable to financial modeling. As well as, the FTC would wish to persuade a federal choose to determine a case on new grounds, which might be a dangerous litigation technique. For related causes, when hospitals defend a merger, they typically imagine their greatest protection is to assault the FTC’s geographic market (a technique that has sometimes been profitable) as an alternative of counting on what may be considered as a novel protection primarily based on high quality or entry advantages which might be laborious to quantify.
High quality And Entry Considerations Ought to Obtain Larger Consideration In Hospital Merger Litigation
However just because the litigation path primarily based on a business value impression is well-trodden and high quality and entry knowledge are extra restricted doesn’t justify ignoring the potential impression of hospital mergers on these issues. Though value is definitely a key issue, high quality and entry play a task for hospitals in competing to be in-network in so-called “Stage One” hospital competitors. And hospitals compete with one another as soon as they’re in-network, in “Stage Two” competitors, virtually completely on the idea of high quality and entry. In addition they compete for sufferers on the idea of high quality and entry underneath conventional Medicare and Medicaid plans, which have government-regulated costs.
It may be affordable to not individually handle a hospital merger’s impression on high quality or entry for commercially insured sufferers if the merger’s impression on costs had been proxy for its impression on high quality or entry. In different phrases, if a merger had been anticompetitive as a result of it could trigger a hospital to lose an in depth competitor and due to this fact allow it to boost its costs, that loss in competitors may additionally be anticipated to lower the hospital’s incentive to compete on the idea of high quality or entry. However it isn’t clear that the impression on business well being plan charges is an efficient proxy for what would possibly occur with respect to high quality and entry for sufferers who lack business medical insurance. First, the variety of research which have examined the impression of hospital consolidation on high quality are restricted and inconclusive. Second, in keeping with an American Hospital Affiliation (AHA) survey, 63 % and 58 % of hospitals report dropping cash on Medicare and Medicaid, respectively; thus, hospitals’ incentive to draw such sufferers could also be completely different than their incentive to draw commercially insured sufferers, who usually account for the most important share of their earnings. And it’s sufferers missing business insurance coverage who’re most affected by well being fairness issues.
The FTC lately has not completely ignored the impression of hospital mergers on high quality and entry, and current challenges typically do allege such results. However these allegations are confined to such impacts on commercially insured sufferers and are sometimes given little or no consideration at trial. Broadening the evaluation to focus extra on doable non-price results, particularly with respect to government-insured sufferers, would have a number of advantages.
First, it could guarantee a extra complete and balanced assessment of a proposed merger’s impression. In response to an AHA survey, private-pay sufferers make up solely 33 % of the standard hospital’s quantity; thus, focusing strictly on business sufferers ignores a big majority of sufferers.
A second cause for the FTC to deal with a merger’s impression on nearly all of sufferers who should not lined by business medical insurance is that, assuming such proof helps a problem, this may enhance the company’s probabilities for fulfillment at trial. In some instances, courts have rejected an FTC hospital merger problem a minimum of partially as a result of they’ve been skeptical in regards to the general dangerous impression on shoppers, even when a merger elevated charges to be charged to well being plans. The clearest instance of that is the FTC’s 1996 problem to the merger of Butterworth and Blodgett hospitals in Grand Rapids, Michigan; in that case, the court docket, regardless of discovering that the FTC had met its burden of proving that the merged entity would have market energy and was presumptively illegal, dominated that the presumption was overcome as a result of any detrimental impression on managed care plans paled compared to the useful impression on shoppers typically.
In contemplating the impression of a merger on high quality and entry, the potential advantages must be thought-about together with doable adversarial results. Many hospitals that concentrate on the underserved are financially challenged as a consequence of their unfavorable payer-mix (that’s, a low proportion of sufferers are lined underneath extra extremely paid business insurance coverage). They typically assert {that a} merger would allow them to decrease prices and proceed to offer entry to high quality care. Antitrust enforcers and the courts are skeptical of arguments {that a} merger would cut back prices and thereby improve competitors, and they’re inclined to deal with predictions of improved high quality and entry with related skepticism. Whereas such claims definitely shouldn’t be accepted at face worth, the bar shouldn’t be set so excessive as to be insurmountable.
This advice is made with full recognition that it’ll not be simple to implement. High quality and entry are rather more tough to measure than value, and informative knowledge relating to the previous variables are additionally much less obtainable. Predicting the impression of a merger on high quality and entry is inherently speculative. However there are also actual limitations to financial fashions that predict business well being plan costs for inpatient providers. Except we now have a lot larger confidence within the reliability of these fashions—and that their outcomes relating to costs are informative about high quality and entry as effectively—hospital merger opinions that ignore non-price points can be incomplete. The answer will not be for the FTC to disregard such questions however moderately to commit the sources and develop the experience to raised perceive and discover them.
Considerably, the FTC and Division of Justice Antitrust Division introduced in January 2022 that they had been embarking on an intensive assessment of the Horizontal Merger Tips. These pointers set forth the framework the businesses use for evaluating mergers and are closely relied upon by the courts in assessing mergers. Amongst numerous points on which the businesses are looking for enter is whether or not extra weight must be given to the consideration of the non-price results of mergers.
The FTC Can Contemplate Well being Fairness In Deciding What Circumstances To Deliver
In deciding whether or not to convey a case, the FTC is free, in fact, to think about the doable impression of a merger on well being fairness, even when such an impression can not simply be tied to a change in competitors.
For instance, take into account the acquisition of a financially struggling hospital that, due to its location and historic mission, serves a excessive share of sufferers who’re both uninsured or poorly reimbursed. The hospital asserts that whereas it isn’t dealing with rapid failure, its solely choices are to both considerably scale back the scope of its providers (particularly to the underinsured) or mix with one other hospital that may present wanted monetary and different sources. After cautious consideration, it has determined to affix the one hospital that has pledged to take a position considerably within the facility to permit it to proceed or broaden its providers to probably the most susceptible sufferers.
Suppose underneath this state of affairs that there’s sufficient of an overlap between the 2 hospitals that, primarily based on prevailing financial fashions, the FTC might plausibly allege that the transaction would enhance charges to business well being plans. However the likelihood that the FTC could reach court docket, the company must also assess the doable impression of a profitable problem on well being fairness. As traditional, it ought to take into account the robustness of its financial fashions and the magnitude of the expected value enhance in calculating the probably hurt to shoppers. However it additionally ought to totally probe the danger that the goal hospital would in any other case in the reduction of its providers, whether or not actually there aren’t any different patrons or different strategic options for the hospital, and the way a lot confidence must be positioned within the buying hospital’s dedication to keep up or broaden providers. In some conditions, the company would possibly conclude that, on steadiness, the general public curiosity is greatest served by letting the transaction proceed.
The state of affairs described within the previous paragraphs mirrors the circumstances prompting the current acquisition of Einstein Well being by Jefferson Well being in Philadelphia, Pennsylvania. Einstein’s principal campus in north Philadelphia is a “security web” hospital the place greater than 87 % of the sufferers are lined by authorities insurance coverage. Einstein had skilled poor monetary well being for an prolonged interval, and it believed the one method it might proceed to offer take care of the underserved inhabitants in north Philadelphia was to mix with Jefferson Well being. The FTC, nonetheless, was unpersuaded, and in 2019 challenged the transaction in federal court docket.
In early 2020, Choose Gerald J. Pappert handed the FTC its first hospital merger defeat in twenty years. In step with the standard “playbook” for hospital merger challenges, the litigation centered on geographic market definition, with the court docket concluding that the FTC had drawn its geographic market boundaries too narrowly. The court docket’s opinion doesn’t explicitly handle the hospitals’ argument relating to the impression of the transaction on Einstein’s mission of caring for the underserved. However it could not be stunning if this contributed to the court docket’s willingness to present much less weight to the views of a number of well being plans that the merger must be blocked as a result of it could enhance managed care charges.
However the FTC’s problem within the Einstein–Jefferson merger, the FTC has declined to pursue challenges in shut calls wherein events have made compelling arguments {that a} transaction would enhance high quality or entry, even supposing it could additionally probably lead to some lack of competitors. However extra transparency must be supplied relating to what proof on high quality and entry enforcers discover persuasive. Such transparency might assist information hospitals in contemplating their strategic options and the way they could greatest handle probably FTC questions throughout a assessment.
For instance, a key concern would be the weight that must be given to assurances by the buying hospital that it’ll proceed or broaden the historic high quality and entry supplied by the goal hospital. Are there ways in which such assurances might be given—whether or not explicitly enumerated within the merger settlement or by way of oversight underneath a consent decree—that the FTC would discover notably persuasive? Larger transparency relating to the extent to which the FTC is prepared to think about problems with well being fairness in assessing hospital mergers additionally might guarantee the general public and suppliers that the FTC understands the complicated points dealing with our well being care system. This might result in extra public confidence in a merger assessment course of that considers extra than simply the impression on costs to business well being plans.
Conversely, issues in regards to the potential adversarial results {that a} hospital merger might need on well being fairness might immediate the businesses to scrutinize the merger notably intently and will weigh in a choice whether or not to problem the transaction (assuming there are conventional grounds for a problem).
COPAs And State Consent Decrees
Whereas underneath present federal antitrust legislation the FTC should use solely a aggressive lens in reviewing hospital mergers, the states should not essentially so restricted. States could agree to not problem a merger if the hospitals comply with a consent decree that assures entry to sure providers. The place transactions contain nonprofit entities, state laws could give the lawyer basic the authority to guarantee that the charitable mission is sustained post-merger. States additionally could enact particular legal guidelines governing hospital consolidation which have a broader focus than simply competitors.
As well as, states can enact laws that exempts hospital mergers from antitrust challenges so long as the state legislature clearly articulates its intention to take action and implements ongoing and lively state supervision of the merged entity. This method, involving the grant of a so-called Certificates of Public Benefit (COPA), usually includes oversight over hospital charges however may also be used to require the merged hospitals to keep entry and high quality to underserved populations.
COPAs, in addition to regulatory consent decrees, have been criticized as depending on regulatory oversight that may by no means be an ample substitute for market forces and competitors to guarantee decrease costs, larger high quality, and innovation. Then again, COPA advocates assert that in some conditions a restricted inhabitants—corresponding to in rural areas—can not assist a number of aggressive techniques, and solely a merger can facilitate the size, scope, and monetary stability wanted to serve susceptible populations. Proponents of COPAs argue {that a} correctly applied COPA can present the required oversight to deal with aggressive issues whereas additionally addressing different neighborhood well being wants.
The FTC has persistently opposed COPAs, which isn’t stunning given the FTC’s singular deal with assuring competitors and its basic skepticism of regulation. However some tempering of the FTC’s opposition is warranted. The company ought to acknowledge the constraints of a market-based method in sure conditions, and {that a} wider vary of issues—together with well being fairness—may be greatest served by way of sensible, focused regulatory oversight. The FTC is at present enterprise an prolonged assessment of states’ experiences with COPAs; hopefully, this can shed mild not solely on the impression of COPAs on prices and high quality, but additionally on entry and well being fairness.
Ought to The Authorized Customary Be Modified To Permit For Hospital Merger Opinions To Embody Broader Affect On Well being Fairness?
As mentioned above, present antitrust legislation can assist a problem to a hospital merger that causes a discount in high quality or entry that’s rooted in a discount in competitors. However what a couple of merger that threatens well being fairness as a result of the acquirer has a distinct enterprise mannequin or a weaker dedication to caring for the underserved than does the goal hospital? Ought to the legislation be modified to make well being fairness an impartial foundation for an antitrust problem to a hospital merger, even when such issues should not tied to lowered competitors?
The reply isn’t any as a result of these issues are basically not rooted in a change in market construction, which supplies an analytic framework for contemplating the impression on financial incentives that drive future conduct. Considerations about an impression on well being fairness that aren’t associated to competitors, however moderately from a change in possession, would require antitrust enforcers, and the courts, to develop wholly new analytical approaches. These would should be utilized to not solely the small minority of hospital mergers that contain vital aggressive overlaps which might be investigated right now however to all hospital acquisitions, no matter whether or not the merging events compete with one another. It might additionally create the anomalous outcome {that a} change in possession would topic the merging events to a assessment relating to well being fairness, however a change in composition of the governing board or administration not linked to new possession—which might have related implications—wouldn’t.
This isn’t to counsel that there isn’t any want for regulatory oversight when hospital possession adjustments or when a hospital considerably adjustments the character or scope of its providers. However such oversight is best supplied by state businesses or the state lawyer basic’s workplace (in exercising jurisdiction over nonprofits) or a state well being division, assuming such native entities develop the requisite sources and experience to conduct such opinions.
Summing Up
Whereas competitors is the tenet for the way we manage the economic system, there are limits to what competitors can accomplish in well being care markets, notably the place there are underlying inequities within the sources and alternatives obtainable to sure populations. Accordingly, it shouldn’t be stunning that there are limits to what antitrust, which is laser-focused on competitors, can do to deal with well being fairness. Such issues are higher met extra instantly, for instance, by way of coverage applications to redistribute wealth, subsidize care, or regulate hospitals.
However when the FTC or a court docket is confronted with a hospital merger, there’s some room for contemplating well being fairness issues. Along with contemplating a merger’s impression on costs to business well being plans, consideration additionally must be given to the doable impression—good or unhealthy—on high quality and entry to care, together with for these not lined by business insurance coverage who would be the most susceptible. Even when knowledge availability and prior precedent proceed to make business costs the main target of their litigation technique, enforcers would current extra strong and complete litigation challenges in the event that they addressed non-price points as effectively. In fact, this may be very difficult and require the FTC to develop extra experience and sources.
Conversely, it is crucial for the FTC to maintain a broader image in thoughts when exercising its discretion. There could also be conditions the place, although financial fashions would possibly predict {that a} merger is prone to have a modest value impact, the “however for” world wherein the merger is blocked is prone to adversely have an effect on the underserved. Such conditions could also be uncommon, and enforcers must be rigorous in how they consider such claims (which can be simple to say but laborious to substantiate). However offering transparency and steerage relating to how the company approaches such conditions ought to enhance determination making and promote confidence that the FTC is contemplating all the complexities of the well being care markets of their hospital merger opinions.
Lastly, there could also be conditions—corresponding to in rural areas which might be unable to assist a number of hospital techniques—for which antitrust, with its singular deal with competitors, could not have the ability to guarantee value, high quality, or entry. In such instances, ongoing, lively and knowledgeable regulatory oversight over the merged hospital could also be the popular different.
Creator’s Notice
In his apply, the creator represents hospitals, well being plans, and different entities within the well being care sector, and his legislation agency equally represents a variety of well being care entities. Amongst his purchasers is Einstein Well being, which he refers to on this article and which his agency represented within the merger litigation with the FTC. The article additionally refers back to the 1996 FTC case towards Butterworth Hospital and Blodgett Hospital—the creator supervised the FTC division that introduced that litigation. All views expressed on this article are the creator’s personal and shouldn’t be attributed to Hogan Lovells or any of its purchasers. The creator appreciates the useful feedback from Greg Vistnes and Cory Capps on an earlier model of this text, in addition to the enhancing and analysis help of Jill Ottenberg.