FTC Chair Makes Clear Hospital Consolidation Hurdles

Hospital and health system mergers and acquisitions have grown by 70% since 2010. That means "vigorous enforcement of the antitrust laws is more important than ever," says the chair of the Federal Trade Commission.

Federal Trade Commission Chairwoman Edith Ramirez has reaffirmed that regulators will continue to take a "very active" look at consolidations in the healthcare sector, including efforts to skirt antitrust laws through state interventions that she said still have the potential to limit competition and drive up costs for consumers.

In a recent speech before the American Health Lawyers Association, Ramirez left little doubt about where the FTC stands on hospital consolidation, noting that hospital and health system mergers and acquisitions across the nation have grown by 70% since 2010.

"In the midst of these ongoing changes, vigorous enforcement of the antitrust laws is more important than ever," she told the lawyers. "That is the key message I want to leave with you today."

Related: Keynote Address of FTC Chairwoman Edith Ramirez

"The latest empirical research continues to consistently show that provider competition results in the greatest price and quality benefits for consumers, justifying the FTC's continued vigilance in healthcare provider markets. And we have been very active," she said, noting that the commission is currently challenging at least three high-profile hospital mergers.

A Troubling Tactic

A particularly troubling trend, she said, involves the efforts of some healthcare systems to bypass federal antitrust review by obtaining state-issued Certificate of Public Advantage waivers. She specifically cited the Cabell Huntington Hospital's proposed acquisition of nearby St. Mary's Hospital in Huntington, WV, and the proposed Mountain States/Wellmont merger in Tennessee and Virginia.

"Proponents of these legislative measures claim that FTC enforcement efforts undermine the policy aims of the Affordable Care Act to improve the quality of healthcare and lower costs by encouraging more coordination between healthcare providers in local communities," Ramirez said.

"In my view, these legislative efforts to immunize combinations from the antitrust laws are misguided and risk harming consumers. We understand that coordination of care has the potential to further key goals of healthcare reform, including encouraging provider collaboration, avoiding duplicative testing, increasing preventive care, and encouraging greater patient follow-up. But procompetitive collaborations are already permissible under the antitrust laws."

As a result, Ramirez said the primary effect of COPA laws "may very well be to immunize mergers that will not generate substantial efficiencies and therefore would not pass muster under the antitrust laws, likely leading to increased healthcare costs and lower quality and decreased access to care."

Hospitals' Response

Reached this week, Wellmont and Mountain States issued a joint statement in response.

"The policy and laws of Tennessee and Virginia permit the very type of collaboration our systems have proposed.  We are following the law and decades of precedent that have been set by the courts and other states, which support the legal foundation and rationale for proposed mergers like ours," the statement read.

"We respect the important work the FTC and our state attorneys general do, and we remain committed to cooperating with them.  The enormous value of our proposed merger is evident through the support that has been expressed by the business community, which pays a large share of the costs of health care, and the leaders throughout the region, who see the evidence of the value created by our proposed merger for the people of our region.  We sincerely appreciate the hard work the FTC does and we believe our proposed COPA addresses the very issues the chairwoman discussed."

"We agree some hospital mergers lead to higher costs without demonstrable benefit for their communities, and we believe the COPA we have proposed provides a clear alternative to those types of mergers.  We have held more than 40 public meetings throughout the region, and the process for approval by the states has been more transparent than the types of mergers the chairwoman has referenced.  In fact, the FTC has participated in those public meetings and has provided comments we believe have been important in the process."

Ramirez said most merging hospitals have "largely failed to present us with even a close case on efficiencies, often providing little substance to back-up their claims. In particular, parties have failed to make their case when trying to demonstrate that a merger is necessary to achieve the claimed efficiencies."

"Parties often claim that their merger will provide the necessary patient volume to allow them to engage in risk-based contracting and population health management," she said. "We recognize that healthcare is increasingly moving in this direction, and we continue to assess, on a case-by-case basis, whether a merger that enables parties to engage in these and other activities could benefit consumers.  Yet there is strong evidence that scale, at least over a certain threshold, is not necessary to engage in those practices.  Greater scale can also be achieved through another combination that is not a merger with a close rival."