AHA Asks DOJ, FTC for Minor Hospital Merger Guideline Revisions

The American Hospital Association (AHA) has asked the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) to revise hospital merger guidelines to better account for the benefits hospital mergers generate and to adjust how antitrust agencies evaluate hospital transactions.

In a letter to Jonathan Kanter, the assistant attorney general of the DOJ’s Antitrust Division, and Lina M. Khan, the chair of the FTC, AHA detailed how hospital mergers improve patient care, lower costs, and provide support to smaller health systems.

In January, FTC and DOJ announced plans to modify the current merger guidelines across all industries to prevent anticompetitive deals. The agencies put out a request for information on how antitrust laws should be enforced regarding healthcare mergers.

In response, AHA stated that while the merger guidelines—consisting of the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines—do not need major revisions, the federal agencies should implement two specific changes that align the guidelines with legal and economic principles and contemporary market realities.

First, the agencies should adjust the guidelines to require antitrust agencies to correct defects in the economic models used to evaluate hospital transactions.

The FTC currently uses two models to analyze hospital transactions. The demand model predicts how many patients view the merging hospitals as their top two choices. The supply model attempts to predict whether a merger will allow merging hospitals to negotiate higher prices from health plans.

According to the AHA, these models are flawed and lead the agencies to make inaccurate predictions about hospital mergers. The demand models operate on assumptions that tend to be simple or incomplete, the letter stated.

For example, the demand model overemphasizes the value patients assign to travel times and ignores other patient considerations, such as past treatment experiences, physician referrals, and where physicians have admitting privileges. Therefore, AHA said that the FTC’s current demand model could not successfully predict consumer preference for hospitals.

The supply model uses the upward pricing pressure approach, which fails to model a marketplace where prices are negotiated. Additionally, the supply model has produced errors when calculating hospital economic margins and does not consider how competing hospitals and payers will respond to changing hospital prices, the letter asserted.

AHA also said that the FTC relies on willingness to pay (WTP), even though past data shows no evidence that WTP changes are a reliable indicator of post-merger price increases.

“The major shortcomings in the supply and demand models used by the FTC to evaluate hospital transactions have resulted in ineffective and inaccurate merger reviews,” the letter stated. “The merger guidelines should be updated to correct this problematic framework for analyzing hospital mergers so that the agencies do not harm consumers by inappropriately challenging hospital mergers that would benefit patients and their communities.”

Secondly, AHA urged DOJ and FTC to revise the merger guidelines to allow antitrust agencies to consider the benefits of hospital mergers, including improved care coordination.

According to AHA, hospital mergers can help lower healthcare costs and improve clinical integration while maintaining access to care for 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 organization wrote. “The guidelines should enable the antitrust agencies to account for the better coordination of care that hospital mergers produce.”

Healthcare mergers and acquisitions can help align hospital efforts to improve care quality, improve the merged system’s ability to perform well in pay-for-performance initiatives, and create scale to help finance the added costs of clinical integration initiatives.

Aside from these two suggested revisions, the letter also noted that the antitrust agencies should do more to challenge anticompetitive mergers and deceptive conduct from health plans. AHA cited the DOJ’s recent lawsuit to block UnitedHealth Group’s proposed acquisition of Change Healthcare as an example of how the agencies can limit anticompetitive behavior from payers.