- The nation's most powerful hospital lobby is ramping up its defense of hospital mergers as the Biden administration aims to crack down on provider consolidation.
- The American Hospital Association sent a letter Wednesday to top officials in the White House, HHS, Department of Justice and Federal Trade Commission defending health system M&A and attempting to shift Washington's rising antitrust focus from providers to commercial health plans.
- The letter included an updated AHA-funded study on the benefits of hospital mergers, which was previously criticized by outside experts for cherry-picked data, among other methodological weaknesses.
In an executive order signed in July, President Joe Biden directed regulatory agencies to vigorously enforce antitrust laws, including in healthcare as hospital M&A continues at a rapid clip. The order came shortly after the FTC said it plans to prioritize healthcare in its enforcement strategy over the next decade, as research indicates lack of industry competition has led to price increases without improving the quality of care.
"Too many hospital mergers lead to jacked up prices and diminished care for patients most in need," Lindsay Kryzak, the FTC's director of public affairs, said in a statement earlier this month. Kryzak's remarks followed a U.S. district court's decision to grant a preliminary injunction against New Jersey system Hackensack Meridian Health's proposed acquisition of close competitor Englewood Healthcare Foundation, a deal the FTC opposed.
"The Court has hit pause on this merger, which the FTC alleges is unlawful. Hospital executives hatching merger plans should take note," Kryzak said.
The recent swell of M&A filings prompted the FTC earlier this month to warn organizations looking to merge that the agency would be retrospectively reviewing deals, which could result in completed mergers being unwound. Regulators have forced hospitals to unravel completed deals before, including ProMedica's acquisition of a Toledo, Ohio, hospital in 2015 following a five-year court battle.
The Biden administration's renewed antitrust efforts have drawn a response from industry groups, as shown by the AHA's new letter to policy and regulatory officials. AHA CEO Rick Pollack called Kryzak's remarks "unfortunate" in the letter, as "most proposed hospital mergers present no competitive issues and offer real benefits for those communities."
As evidence, AHA sent regulators a study conducted by Charles River Associates, first published in 2019 before being updated to include more recent data this August. The study found contemporary hospital mergers result in cost savings and quality improvements, without a corresponding increase in revenue consistent with the acquisition of market power.
The 2019 version showed acquired hospitals realized a greater than 2% reduction in annual operating expenses, while the 2021 version found a more than 3% reduction. Both said that lowering in costs was tied to a statistically significant drop in inpatient readmission and mortality rates.
However, that study contradicts a mountain of research finding prices tend to be higher in more consolidated markets and that providers with greater market share see higher commercial profit margins, leading to higher costs per discharge. The brunt of those higher costs is often borne by consumers in the form of higher premiums and out-of-pocket costs.
In its letter, however, AHA maintained that cost savings from mergers are passed onto plans, but it's unclear whether they make their way to consumers. The trade association, which represents some 5,000 hospitals, criticized antitrust agencies for stringently reviewing hospital mergers and avoiding the commercial health insurance industry, saying they receive unequal amounts of attention.
Payers appear to "have skirted much of the antitrust enforcement and regulatory attention provided by this assemblage of federal agencies," Pollack said.
Hospital mergers have been increasing over the past decade. Deal size was even accelerated by the pandemic as many smaller facilities, facing the risk of closure as volumes plummeted, had little choice but to consolidate with larger systems to avoid shutting their doors.
In the first half of 2021, deal revenue was at $17.2 billion across 27 transactions, according to a Kaufman Hall report. During that same period last year, revenue was $17 billion across 43 transactions.