Federal antitrust laws are designed to ensure that businesses, including hospitals, have a strong incentive to operate efficiently, keep prices down, and keep quality up. When hospitals propose a merger, the Pennsylvania Office of the Attorney General’s Antitrust Section reviews the merger plans to ensure compliance with antitrust laws. Data from the Pennsylvania Health Care Cost Containment Council (PHC4) is crucial to this evaluation.
The Office of Attorney General has a 20-year history of relying on inpatient discharge, outpatient procedure and financial information from PHC4, along with data from the federal Centers for Medicare and Medicaid Services (CMS,) in order to evaluate and determine the potential merging hospitals’ market power. The Office of Attorney General challenges hospital mergers which would impair other surrounding hospitals’ ability to compete against them, resulting in higher prices.
“We use PHC4 data, in combination with data from CMS, to analyze the likely effects of the merger on consumers and competition,” said James A. Donahue III, Chief of the Antitrust Section. The Antitrust Section looks at product characteristics, such as whether the hospitals perform open heart procedures, and evaluates geographic components, such as where patients live and from how far hospitals attract patients.
Mr. Donahue noted that there are currently several active merger cases, which he believes are driven by the nation’s economic situation and the uncertainty that has come with health care reform. Hospitals with an old physical plant, particularly rural hospitals, may have difficulty borrowing money to renovate or add wings. In addition, large cuts to Medicare and Medicaid reimbursements are expected to create financial challenges. Fewer people have private health insurance, and more have Medicare and Medicaid, both known to pay less than private insurers.
In accordance with protocol, the Office of Attorney General collaborates with the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) when hospital merger investigations are conducted jointly. The Antitrust Section of Pennsylvania Office of Attorney General primarily enforces federal laws, since Pennsylvania’s only antitrust law deals with bid-rigging.
If it finds evidence that the merger would lead to a large market share and higher prices for consumers, the Office of Attorney General would advise the parties of its concerns. A consent decree may be issued, in which the hospital would agree to preserve prices. Or, if the concerns are not addressed, the FTC or U.S. DOJ would go to court to block the deal.
“PHC4 data is indispensable to the Office of Attorney General to make informed decisions and facilitate competition in the health care arena,” said Mr. Donahue.
Return to the Case Studies page: VIEW ALL CASE STUDIES
