This new post by Barak Richman appears on the Health Affairs Blog as part of a series stemming from the Fourth Annual Health Law Year in P/Review event held at Harvard Law School on Friday, January 29, 2016.
It appears that 2016 will follow 2015 as another year of massive consolidation in the health care sector. It therefore follows that 2016 will, also like 2015, be another year in which assorted health care industries receive significant antitrust scrutiny. Against this backdrop, it is timely and revealing to examine the current state and trajectory of antitrust law as it intersects and shapes health care policy.
Beginning in the late 1980s, when hospitals and hospital systems started an intense consolidation trend that continues today, many were challenged by the Federal Trade Commission (FTC) for creating anticompetitive and therefore illegal pricing power. Yet the FTC was unsuccessful in convincing courts that this was a harmful trend, and the Commission earned a costly, long losing streak, suffering defeats in each of six landmark cases between 1994 and 1999 (Note 1). The district courts reasoned that the hospitals’ mergers would provide better and more efficient care, that patients would travel to obtain cheaper care, and in any event, because the hospitals were nonprofit, they would not exercise market power to increase prices.
All these predictions have been proven incorrect. Hospital mergers (including those involving nonprofits) have significantly increased prices, and there has been no evidence of increased efficiencies. In fact, evidence suggests that, because the administration of health insurance both reduces the impact of marginal price increases and limits demand in close substitutes, hospital monopolists are even more costly than “typical” monopolies. One significant development in 2015 is new research which revealed that cost variation in the US is largely determined by hospitals market power. The string of FTC losses and the consequent wave of hospital consolidations can only be described as a collective and massive failure of antitrust policy. […]
Read the full post here.