Who polices hospitals merging across markets? States give different answers

BJC HealthCare, St. Louis’ largest health system, plans to merge with Saint Luke’s Health System, Kansas City’s second-largest, by the end of this year, bringing together more than 28 hospitals on both sides of Missouri.

The merger, which would span markets 250 miles apart and include facilities in neighboring Kansas and Illinois, is just the latest in an industry that is rapidly consolidating. According to an antitrust law expert paper, cross-market deals accounted for more than half of all hospital mergers and acquisitions over the last decade. Almost 60% of health systems now operate multiple hospitals in different geographic markets.

Not only are such deals becoming more common, but they can also increase patient costs. Researchers discovered that merging hospitals in the same state but in different markets raised prices by up to 10% compared to other hospitals after analyzing previous deals. A separate study discovered that after being acquired by a hospital company in another market, stand-alone hospitals raised their prices by 17%.

However, according to antitrust law experts, federal regulators have not intervened to prevent hospitals from merging with systems in other markets for nearly 50 years. States that have seen such megamergers, such as Michigan and California, are frequently left to grapple with the complex question of how to respond, given the likelihood of higher prices for their residents, in the absence of federal intervention.

The Federal Trade Commission and the Department of Justice are reviewing public comments on draft merger guidelines intended to crack down on mergers in a variety of industries, including health care. It’s unclear whether or how cross-state hospital mergers will be affected. Nonetheless, the draft stipulates that consolidation should not “entrench or extend a dominant position” by entering “new markets.”

However, such cross-market mergers are not a textbook example of a monopoly. When hospitals have purchased local rivals, effectively eliminating competition, federal regulators have intervened to prevent these traditional mergers from occurring in order to protect patients from the resulting loss of competition. They have recently assisted in the defeat of proposed mergers in New Jersey, Utah, and Rhode Island. The theory is that without local competition, prices rise and care quality suffers.

According to Chris Garmon, an assistant professor at the University of Missouri-Kansas City who studies hospital mergers, it is more difficult to demonstrate how cross-market mergers, such as the one planned in Missouri, reduce competition. Regulators would have to demonstrate that the mergers not only raise prices but also violate the law by suppressing competition.

“That is why we have yet to see a cross-market merger challenge.” “It’s because it’s difficult to explain why this would be a problem,” he explained.

The Federal Trade Commission did not respond to questions from KFF Health News about its overall strategy regarding such transactions or the BJC-Saint Luke’s merger. According to Mitchell Katz, an agency spokesperson, whether an investigation is underway is not public knowledge.

After the FTC failed to prevent cross-market hospital mergers in California and Michigan, the states’ approaches to the transactions became diametrically opposed. California obtained concessions after contesting a deal, whereas Michigan did not intervene.

The FTC did conduct a thorough investigation into the 2020 merger in Michigan between Spectrum Health, based in Grand Rapids, and Beaumont Health, based in the Detroit area. Nonetheless, it did not oppose the marriage that resulted in the state’s largest hospital chain, Corewell Health, with 22 hospitals spread across more than 150 miles.

Some were dissatisfied with the lack of intervention, including Bret Jackson, CEO of the Economic Alliance for Michigan, a nonprofit that assists employers in dealing with health-care costs. According to Jackson, Spectrum was already the more expensive operator. He is concerned that once the insurance contracts with the individual hospital systems expire, Beaumont’s prices will rise to match Spectrum’s.

“They’re not going to want to take a pay cut,” said Jackson of Spectrum. “We’re really concerned about it.”

Jackson stated that he, like the automotive companies and laborers he represents, is tired of rising hospital prices. Health care costs account for about 10% of the average American family’s income.

Corewell Health spokesperson Ellen Bristol did not respond to KFF Health News’ questions about patient costs, but she did say that the collaboration is improving quality statewide and creating efficiencies that will help the company navigate economic headwinds.

Despite the fact that regulators did not intervene, FTC staffers and Michigan’s Department of Attorney General exchanged emails for months, according to communications obtained by KFF Health News through a state public records request.

According to the emails, the FTC asked the attorney general’s office to connect its staffers with employers and state officials, as well as provide information and data on the state’s health care landscape. The FTC interviewed executives from automotive supplier BorgWarner and utility company CMS Energy.

Jackson said he, too, was interviewed by the FTC, which he said was more interested in Michigan’s market dynamics than his thoughts on the deal.

The FTC’s assessment of the merger is difficult to interpret because many of the emails provided by the state to KFF Health News have been redacted. They do, however, show what information and who the FTC consulted in order to make a decision.

According to the emails, state officials were also made aware of the FTC’s findings. According to the subject line, on the evening of January 13, 2022, an assistant AG sent a lengthy email to Michigan Attorney General Dana Nessel about the FTC’s review of potential antitrust implications. The entire email, except for the greeting and signature, was blacked out in the version provided to KFF Health News.

Other emails show that the next day, hospital officials began discussing final language for a press release announcing the deal’s imminent completion with the AG’s office.

Michigan took no action to halt the transaction or investigate further. A spokesperson for Nessel, a Democrat, said the agreement was outside of her office’s authority, further frustrating Jackson of the Economic Alliance for Michigan.

“We need to give state regulators the tools to at least assess mergers in the health care system,” Jackson stated.

Nessel’s viewpoint is not shared by all states. In California, a 2020 merger agreement between Huntington Hospital in Pasadena and Cedars-Sinai Health System, with its flagship hospital in Los Angeles, drew the attention of then-state Attorney General Xavier Becerra, who imposed conditions to protect consumers, such as price caps.

Becerra, a Democrat who is now the Secretary of Health and Human Services, had argued that the cross-market merger would raise prices.

Employers relied on having both Cedars-Sinai and Huntington Hospital in their networks to ensure adequate access to all employees spread across the massive Los Angeles region, which California officials said has several distinct markets serving patients. According to an analysis commissioned by the AG’s office, if the two were to merge, employers would have to accept price increases to maintain access to both entities. By refusing to include all hospitals, health systems can “threaten to create important holes in a health plan’s provider network,” according to the analysis, giving the system more leverage to extract higher prices from the health plan.

Cedars-Sinai and Huntington sued the AG over the merger conditions.

Finally, the parties agreed on revised terms, which included a 10-year ban on all-or-nothing contracts with insurers and a five-year price increase cap.

The agreement allowed Cedars-Sinai to expand access while reflecting a shared goal of “keeping healthcare affordable,” according to Duke Helfand, a Cedars-Sinai spokesperson. Nonetheless, it was regarded as a victory for antitrust enforcers, with implications that could reverberate across the country, according to some health economists.

The key question in Missouri is whether state officials will intervene. Attorney General Andrew Bailey, a Republican, is reviewing the merger, which requires his approval before it can close, according to Madeline Sieren, the AG’s spokesperson.

Neither BJC nor Saint Luke’s responded to KFF Health News’ questions about potential price increases or plans to improve quality. The hospitals estimate that the combined system will generate more than $10 billion in annual revenue.

Garmon believes the Missouri systems should explain how the merger will benefit patients by lowering costs and improving quality.

“Whether they actually do them or not depends on whether they actually have the incentive to do them,” Garmon stated.

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