Study: Lax antitrust enforcement boosting hospital prices

A recent study in the journal American Economic Review: Insights found that lax antitrust enforcement contributed to less competition and higher prices for hospital care.

The study, conducted by researchers at the University of Chicago, Harvard University, Yale University, and the University of Wisconsin-Madison, analyzed over 1,000 hospital mergers among approximately 5,000 acute-care hospitals that happened in the US from 2000 to 2020. Of the mergers analyzed, the Federal Trade Commission (FTC) only challenged 13 — an enforcement rate of about 1%, researchers reported.

The FTC has a competition mission to enforce the rules of a competitive marketplace. This mission includes antitrust laws that aim to promote competition and protect consumers from anti-competitive mergers and business practices. Healthcare is a major focus of the FTC’s mergers and competition agenda.

However, the recent study suggested that the FTC has not done enough to promote competition in healthcare, leading to higher prices for consumers.

“It is plainly clear that there has been underenforcement of antitrust laws in the hospital sector,” study co-author Zack Cooper, an associate professor of health policy at the Yale School of Public Health and of economics in Yale’s Faculty of Arts and Sciences, said in a statement. “We show that about 20% of hospital mergers from 2002 to 2020 could have been easily predicted to increase concentration, lessen competition, and raise prices.”

The hospital mergers that went under the FTC’s radar could have been flagged using standard screening tools that were available to the agency during the study’s period, researchers found. These unchallenged mergers would have had a minimal effect on competition and prices, they said, if the FTC were optimally targeting antitrust enforcement. Instead, these mergers led to price increases of 5% or more based on pricing data that hospitals use to negotiate rates with private payers.

Researchers estimated that healthcare spending increased for the privately insured by $204 million in the year after the period from 2010 to 2015 when 53 hospital mergers occurred on average annually.

Additionally, hospital mergers in rural regions and areas with lower incomes and higher poverty rates had more substantial price increases following the deals. Hospital price increases especially affected outpatient services, mostly likely because these regions already have fewer freestanding clinics to compete with hospitals.

“Since 2000, hospital prices have grown faster than prices in any other sector of the economy,” Cooper continued. “The average price of an inpatient admission is now nearly $25,000. We need to be doing more to preserve competition in U.S. hospital markets.”

Researchers pointed to underfunding as a source of lax antitrust enforcement on behalf of the FTC.

“Mergers in the hospital sector are generating short-run harms that roughly approximate the FTC’s entire budget, which suggests the agency might lack sufficient resources to take necessary enforcement action and preserve competition,” study co-author Zarek Brot-Goldberg, assistant professor at the Harris School of Public Policy at the University of Chicago, said in the statement.

Researchers said the FTC seemed to lack access to information needed to identify potentially anticompetitive mergers during the period.