FTC Antitrust Underenforcement Increases Hospital Prices

Federal regulators failed to properly enforce mergers over two decades.

The Federal Trade Commission (FTC) has recently upped its level of enforcement on M&A activity, but a new study finds that the agency didn’t take enough action against mergers previously.

Underenforcement of antitrust laws negatively harms competition in hospital markets and leads to price increases for patients, according to the research published in the American Economic Review.

Of the 1,164 mergers among acute-care hospitals from 2000 to 2020, the FTC challenged only 13 (1%) instead of the 238 they could have enforced (20%) using the standard screening tools available to them to identify anticompetitive activity.

Based on the prices that hospitals negotiate with payers, the study’s authors found that the mergers the FTC could have challenged between 2010 and 2015 eventually led to price increases of 5% or more.

Mergers in rural regions and areas with lower incomes and higher rates of poverty had larger average price increase than urban areas and those with higher income, highlighting competition and health inequity.

The FTC’s inaction doesn’t appear to be due to lack of information, with researchers stating that about half of the deals that could have been flagged for negatively impacting competition were reported to the agency under federal law.

Rather, the authors suggest that underfunding of the FTC restricted its enforcement capabilities. The study notes that the agency’s average annual budget and antitrust enforcement budget between 2010 and 2015 was $315 and $136 million, respectively. For comparison, the mergers that occurred during that period increased health spending on the privately insured by $204 million on average in the following year.

“We posit that much of the underenforcement is likely a function of a lack of funding for the antitrust enforcement agencies,” Zarek Brot-Goldberg, an assistant professor at the Harris School at the University of Chicago and one of the study’s authors, said in a news release. “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.”

The FTC has, however, stepped up its efforts to halt mergers deemed harmful, with the recent Hart-Scott-Rodino Report revealing that the agency and the Department of Justice (DOJ) filed 50 merger enforcement actions in 2022. That figure marked the highest level of enforcement activity since 55 merger enforcement actions took place in 2001.

This past December, the FTC and DOJ also issued their final merger guidelines that should give regulators more leeway in going after deals.

As a result, several transactions have been recently challenged as the process for completing mergers becomes more difficult.