In part, the high level of health care antitrust activity reflects the fact that the sector is not just large, but undergoing substantial structural changes. For example, between the year 2000 and October 2016, LexisNexis’ Mergerstat M&A database indicates that there were 14,420 acquisitions of at least one American firm in 41 industry categories typically considered by the Federal Trade Commission. Of these deals, close to half were connected to the health care sector, with about 20 percent concerning pharmaceuticals or medical supplies and 24 percent relating to health services. Given this extraordinary volume of deals, it is hardly a surprise that health care mergers have accounted for a large share of the enforcement actions of the antitrust agencies.
Nor has the health care sector attracted antitrust interest only because of its consolidation. There also has been substantial discussion and litigation over potentially problematic conduct in various health care markets. This has been particularly true in the pharmaceutical arena, where the federal antitrust agencies, multiple state attorneys general, and private parties have brought cases against drug manufacturers, alleging that they have improperly tried to sustain supra-competitive pricing. Concerns about anticompetitive practices have also arisen in the context of provider markets, with the California Attorney General recently suing a large health system over its approach to contracting.
The scholarly literature has kept pace with the courts and enforcement agencies in their scrutiny of health care markets. Physicians, economists, public health scholars, and antitrust practitioners have all devoted considerable time and effort to understanding the implications of the changing dynamics of the sector. A non-exhaustive list of topics considered in the scholarly literature includes: econometric efforts to understand the consequences of past mergers, attempts to better understand how differences in insurer market structure interact with provider market structure, and assessments of the role played by Medicare in affecting private insurers’ rates.
As the overall volume of cases and discussion continues to increase, it seems appropriate to pause to take stock of what questions seem to have compelling, consistent answers while also identifying those that may remain open. That is the goal of this Symposium.
The Symposium begins with a focus on provider mergers. There have been tremendous numbers of these. A major health care advisory services firm estimates that there have been close to 1400 hospital mergers since 2000. The number of physician-involved transactions is likely far larger; one source suggests that there were close to 400 transactions just in the physician practice management subsector in a five year period.
Given such a huge volume of transactions, it would be hubris in the extreme to proclaim that all theoretical issues have been settled. Nevertheless, a succession of court opinions, advised in many instances by amici briefs from the broader antitrust community, have supported the general approach taken by the antitrust agencies and provided clarity on a number of key factors. In this issue, Cory Capps, Laura Kmitch, Zenon Zabinski, and Slava Zayats summarize these recent cases and suggest takeaways for practitioners.
One of the main areas of contention in any provider merger is over the existence and magnitudes of any merger-related efficiencies. The prospect of getting these credited by a court remains a daunting one as explained by Norman Armstrong and Subramaniam Ramanarayanan. As they note, all else equal, the hesitancy of courts to credit parties’ claims suggests that the best and most effective place to make a case for substantial synergies is with the agencies themselves during the investigatory process. This is hard to disagree with. However, a careful review of the existing scholarly literature by Hannah Neprash and J. Michael McWilliams suggests that the threshold of evidence demanded by the antitrust agencies should be considerable. As the authors describe, the academic literature evaluating whether health care integration leads to significant cost or quality efficiencies has not generally found that it does.
Though there is increasing consensus about many elements of provider merger cases, it is also true that there remain significant unanswered questions. For example, Kathleen Easterbrook, Gautham Gowrisankaran, Dina Older Aguilar, and Yufei Wu suggest that there may be underappreciated contexts in which horizontal combinations put downward pressure on negotiated prices. Somewhat relatedly, another type of provider merger has become increasingly controversial at present. These are what have come to be called “cross-market” mergers. This phrase has been used to describe transactions involving parties drawn from what might typically be evaluated as separate relevant markets but which an increasing number of empirical papers have suggested may nevertheless be associated with competitive effects. Herein, Keith Brand and Ted Rosenbaum review the economic theory and evidence suggesting that there may be consistent effects from these types of transactions. Even if these types of transactions are associated with consistent effects, however, the question of whether and how an enforcement agency could challenge one remains.
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