Health care costs for medical services, which are borne by both employers and patients, have steadily increased. These increases concern employers and stakeholders of all stripes. Some commentators have attributed at least part of the increase in health care costs to the growth of health care provider systems. These are defined as entities that consist of two or more hospitals owned, leased, sponsored, or contract-managed by a central organization. These systems can also involve affiliations with physician groups and may span multiple counties or even states.
The fact that multicounty health care provider systems have raised prices leads to the question of how systems have been able to leverage their growth to increase prices. Is it because of horizontal acquisitions? Is it because of vertical affiliations? Or are there other factors involved as well? Recent scholarship suggests that other factors may be involved in addition to horizontal acquisitions or vertical affiliations. For example, a study published in 2018 that found a relationship between the growth of multicounty health care systems and increases in the prices for medical services suggests the existence of one additional factor—namely, cross-market mergers that involve providers who are not direct competitors.
A recently published review by Federal Trade Commission economists Keith Brand and Ted Rosenbaum on economic studies of cross-market health care mergers—which can be defined as health care mergers of providers who are located more than 30–45 minutes apart from each other in apparently nonoverlapping markets—sheds important light on the exact relationship between cross-market mergers and price increases. Brand and Rosenbaum reach three conclusions. First, cross-market mergers have systematically led to increases in prices. Second, some of the observed price increases from cross-market mergers may involve providers that in fact are in overlapping markets, albeit narrow ones, involving “high value” services—that is, services, provided exclusively by academic medical hospitals, for which patients are willing to travel farther. Third, other observed price increases could result from cross-market mergers involving substitutes from a common-customer perspective—that is, from the perspective of customers desiring multimarket plans who need both hospitals even though they are in different markets. Brand and Rosenbaum also report that, alternatively, observed price increases could result from the fact that cross-market mergers give providers a mechanism to evade political or regulatory constraints that prevent them from fully using their bargaining leverage in an existing market in which they have market power. Finally, Brand and Rosenbaum find it unlikely that price increases can be justified as an increase in bargaining sophistication of the acquired provider that enables that provider to extract increased profits (assuming that such a justification is procompetitive).
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The author has served as lead counsel for the State in California ex rel. Becerra v. Sutter Health, No. CGC18565398 (Cal. Super. Ct. Mar. 29, 2018), a case in which the State of California challenged the alleged anticompetitive practices of a health care system. He is now Supervising Deputy Attorney General of the antitrust unit of the Healthcare Rights and Access Section of the California Office of the Attorney General. This article reflects only his views and not those of the California Office of the Attorney General, other state attorneys general, the National Association of Attorneys General, or any other organization.
