AHA urges FTC, Justice Department to update merger guidelines

Photo: Martin Barraud/Getty Images

The American Hospital Association is prompting the Federal Trade Commission and the U.S. Department of Justice to update its merger guidelines, in response to a request by the two federal agencies for comments and suggestions regarding how to overhaul the merger rules.

The FTC and DOJ have solicited suggestions about modernizing the guidelines in ways that better detect and prevent anti-competitive deals.

In a March 30 letter to the agencies, the AHA floated two proposed revisions: that antitrust enforcers should address defects in the economic models used to evaluate hospital transactions, and that guidelines should enable antitrust agencies to account for the better care coordination that can be achieved through mergers.

While maintaining that the merger guidelines don't require any "major" revisions, the AHA did have some critiques for the economic models employed by the FTC. 

According to the hospital group, the FTC's models have two components: a demand model, which the FTC uses to predict how many patients view the merging hospitals as their top two choices; and a supply model, which the agency uses to predict whether a deal will allow merging hospitals to negotiate higher prices from insurers.

These models are flawed, the AHA said, because they're based on overly simple or incomplete assumptions. 

"Most notably, the demand models overemphasize how much value patients assign to travel times and ignore other important considerations that affect how consumers select a hospital, such as past treatment experiences, where patients' physicians have admitting privileges, and physician referrals," the AHA wrote.

Because of that, the demand models do a poor job of predicting consumers' preferences for hospitals, the AHA contended. It said the supply-side models are also flawed largely due to a one-size-fits-all approach.

The AHA's second major suggestion – that antitrust agencies account for the improved care coordination of merged entities – is rooted in some of the perceived benefits of hospital consolidation, including the ability to materially lower costs and improve coordination and clinical integration, while preserving access in underserved communities.

"In essence, clinical integration involves pooling infrastructure and resources to develop, implement and monitor protocols, best practices and other organized processes that foster higher quality care in a more efficient manner," the AHA wrote. "The guidelines should enable the antitrust agencies to account for the better coordination of care that hospital mergers produce."

Also highlighted in the AHA's letter are the benefits of clinical integration, which the group said is facilitated by mergers and acquisitions. Combined entities with a common purpose, the organization said, can better align efforts to improve quality and patient safety, improve their showing in pay-for-performance initiatives, and create scale to help defray the added costs of clinical integration efforts.

"The agencies and the guidelines should recognize these additional benefits to hospital mergers" the AHA wrote.

WHAT'S THE IMPACT?

Ultimately, the AHA took a pro-merger stance, but maintained that, aside from its suggestions, the merger guidelines should not be amended in any major ways. Generally, it said, the guidelines are a good benchmark for antitrust compliance and enforcement, and changing them too often could undermine both their persuasive value with courts and the ability of businesses to rely on them.

"Rather than dramatically changing the merger guidelines, the agencies can and should do more with the power they currently possess to challenge anticompetitive mergers and deceptive conduct by insurance companies," the letter read. "The current guidelines allow the agencies to challenge deals like UnitedHealth Group's proposed acquisition of Change Healthcare, a suit that was recently and rightfully brought by the DOJ. 

While the AHA indicated its approval for the FTC blocking the insurance deal, it has taken a stance advocating the benefits of efficiencies and better coordinated care in hospital mergers.

The courts and federal agencies have been less than enthused. This week, for instance, a federal appeals court upheld the FTC's preliminary injunction against Hackensack Meridian Health from acquiring the Englewood Healthcare Foundation, with the agency citing anti-competition concerns over the merger's high market concentration in Bergen County, New Jersey.

Not all mergers are created equally, however. An independent analysis commissioned by Brown University found that the recently proposed merger of the Lifespan and Care New England health systems could boost the economic impact of academic medicine from $8.2 billion in 2020 to $11.5 billion by 2035, a $3.3 billion increase. The organizations reportedly withdrew their bid to merge after the FTC came out against the deal.

THE LARGER TREND

In January, the FTC and the DOJ's Antitrust Division launched its joint public inquiry aimed at strengthening enforcement against what it called "illegal mergers," citing evidence that many industries across the economy are becoming more concentrated and less competitive. This imperils choice as well as economic gains for consumers, workers and entrepreneurs, the FTC said, and can result in higher prices and lower wages.

It would leave insurers with few alternatives for inpatient general acute-care services, which encompass a broad range of inpatient medical and surgical diagnostic and treatment services that require an overnight hospital stay, the FTC said.

"When businesses face competition, it spurs them to improve their products, develop new ones, and lower prices," the FTC said in January. "Mergers can reduce choices for consumers, workers, and other businesses, leaving them increasingly dependent on larger and more powerful firms that have purchased greater power to dictate the terms of their deals."

The agencies' power to go after anticompetitive conduct has recently been expanded with the 2021 passage of the Competitive Health Insurance Reform Act (CHIRA), which repealed the McCarran-Ferguson Act's federal antitrust exemption for the health insurance industry. 

"The antitrust agencies are now greatly empowered to investigate and challenge anticompetitive practices by healthcare, dental and vision insurers," the AHA said.

When a merger or acquisition occurs in healthcare, the conjoining providers often say that patient experience will benefit as a result. But findings published in the New England Journal of Medicine in January 2020 suggest that may not be the case.

In fact, that study found just the opposite: Acquired hospitals saw a patient experience that was moderately worse, on average. What's more, 30-day mortality and readmission rates stayed largely the same at such facilities.

The only real improvement that was found among the majority of acquired entities was in the realm of clinical process, which improved modestly. But the improvement was so incremental that it couldn't be linked to the actual acquisition, and prices for commercially insured patients tended to be higher.

The findings mirror research published in February 2019 indicating that mergers and acquisitions may negatively impact patient satisfaction and the perception of their care.

Regardless, consolidation in the healthcare industry continues. Kaufman Hall research from April 2021 found that while the volume of M7A deals is on the decline, the average transaction size is increasing, leading to an increase in so-called "mega-mergers."

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com