Insufficient antitrust enforcement by FTC is raising hospital prices, study finds
by Lauren Dubinsky, Senior Reporter | May 01, 2024
Business Affairs
The Federal Trade Commission (FTC) isn't challenging enough hospital mergers and the cost of care is rising as a result, according to a new study. The researchers at Harvard, the University of Chicago, and the University of Wisconsin-Madison attribute this underenforcement to a lack of funding.
Zarek Brot-Goldberg, co-author and assistant professor at the University of Chicago, told HCB News that he hopes this study will encourage policymakers to give the FTC more resources.
"Under the IRA, the Biden administration granted more resources to the IRS to pursue unpaid taxes from millionaires," he added. "In many ways, this parallels giving the FTC more ammunition to crack down on."
Brot-Goldberg and his colleagues uncovered that the FTC challenged only 13 of the 1,164 mergers among acute-care hospitals in the U.S. from 2000 to 2020. That equates to an enforcement rate of roughly one percent.
The agency has screening tools that could have identified 238 of those mergers as likely to threaten competition and raise prices. The researchers used data on prices the hospitals negotiate with private insurers and found that the unchallenged mergers between 2010 and 2015 led to price increases of five percent or more.
The approximately 53 hospital mergers that took place annually during this time period raised health spending on the privately insured by $204 million for the following year. The FTC's average antitrust enforcement budget at the time was $136 million.
In addition to more funding for the FTC, Brot-Goldberg argued that states need to stop protecting hospital mergers. He pointed to a proposed merger that's currently happening in Indiana between Union Health and Terre Haute Regional Hospital.
The hospitals are applying for a Certificate of Public Advantage (COPA) and if the state grants it, they will be protected from federal scrutiny. A study published by the University of Chicago in 2022 found that although these COPAs put the merged hospital under state regulation, they don't do much to prevent the hospitals from raising prices.
"I hope our study shows states that protecting merging hospitals will only make things worse off for local citizens," said Brot-Goldberg.
The study also found that there were larger average price increases in rural areas and places with lower incomes and higher poverty rates. This is happening because these regions have fewer free-standing clinics with surgical and imaging services to compete with hospitals in the outpatient market.
Fortunately this hasn't resulted in fewer patients seeking inpatient care in these regions, but it's not an ideal situation for the insurance companies.
"If you have insurance and a really expensive item like inpatient care gets more expensive, the extra dollar price is largely going to be paid by insurance, not directly by the patient," said Brot-Goldberg. "We think the responses we do see are probably caused by plans dropping the merging hospitals from their networks when they can, which isn't often."
Zarek Brot-Goldberg, co-author and assistant professor at the University of Chicago, told HCB News that he hopes this study will encourage policymakers to give the FTC more resources.
"Under the IRA, the Biden administration granted more resources to the IRS to pursue unpaid taxes from millionaires," he added. "In many ways, this parallels giving the FTC more ammunition to crack down on."
Brot-Goldberg and his colleagues uncovered that the FTC challenged only 13 of the 1,164 mergers among acute-care hospitals in the U.S. from 2000 to 2020. That equates to an enforcement rate of roughly one percent.
The agency has screening tools that could have identified 238 of those mergers as likely to threaten competition and raise prices. The researchers used data on prices the hospitals negotiate with private insurers and found that the unchallenged mergers between 2010 and 2015 led to price increases of five percent or more.
The approximately 53 hospital mergers that took place annually during this time period raised health spending on the privately insured by $204 million for the following year. The FTC's average antitrust enforcement budget at the time was $136 million.
In addition to more funding for the FTC, Brot-Goldberg argued that states need to stop protecting hospital mergers. He pointed to a proposed merger that's currently happening in Indiana between Union Health and Terre Haute Regional Hospital.
The hospitals are applying for a Certificate of Public Advantage (COPA) and if the state grants it, they will be protected from federal scrutiny. A study published by the University of Chicago in 2022 found that although these COPAs put the merged hospital under state regulation, they don't do much to prevent the hospitals from raising prices.
"I hope our study shows states that protecting merging hospitals will only make things worse off for local citizens," said Brot-Goldberg.
The study also found that there were larger average price increases in rural areas and places with lower incomes and higher poverty rates. This is happening because these regions have fewer free-standing clinics with surgical and imaging services to compete with hospitals in the outpatient market.
Fortunately this hasn't resulted in fewer patients seeking inpatient care in these regions, but it's not an ideal situation for the insurance companies.
"If you have insurance and a really expensive item like inpatient care gets more expensive, the extra dollar price is largely going to be paid by insurance, not directly by the patient," said Brot-Goldberg. "We think the responses we do see are probably caused by plans dropping the merging hospitals from their networks when they can, which isn't often."
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