Hospital Mergers Draw Antitrust Scrutiny, FTC Warns Of High Costs

Federal antitrust regulators are targeting the flood of hospital mergers that emerged in the wake of the new health care legislation.

Hospital companies struck 86 merger and acquisition deals valued at $7.9 billion in 2011, the most in a decade, the Wall Street Journal reports. The Federal Trade Commission maintains that such deals can squash competition in local markets, enabling hospitals to secure enough market share that they can raise prices on patients and health insurance companies .

Hospitals contend consolidation is necessary to achieve the larger scale and greater efficiency they need to adapt to health care reform , a sluggish economic recovery, and declining payments from government health programs and private insurance companies. Nonprofit hospitals, in particular, benefit from mergers, Moody's Investor's Service said in report in this month.

When hospitals combine, however, there's evidence that prices and profit margins increase , according to a study on the cost of six surgical procedures published by University of California, Berkeley economist James Robinson in the American Journal of Managed Care last year.

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Health care reform is contributing to consolidation in two major ways. First, the law cut Medicare payments to hospitals by $155 billion below what they would have been through 2019, which intensified the pressure to reduce costs. Second, the law created bonus payments for medical providers, including hospitals and doctors, that better coordinate care for patients, which has led companies to join forces.

Consumers have been facing steadily rising health care costs for decades. Health insurance premiums increased 40 percent from 2007 to this year , when the average monthly cost for workers who get benefits from their jobs reached $2,764, according to a survey by the consulting firm Towers Watson and the National Business Group on Health, a trade group composed of larger employers.

Though the Federal Trade Commission was able to halt, for now, a merger between two hospitals in Toledo, Ohio, the agency lost the most recent round in a court case against a deal between two hospital systems in Albany, Georgia, that will give one company total control of that region's market. The Georgia case may go to the U.S. Supreme Court.

Though the FTC made some headway on its mission to curb hospital consolidation in Ohio, and was able to secure some concessions during the merger of some Chicago-area hospitals in 2004, the agency failed all seven times it tried to block deals from 1994 to 2000, the Wall Street Journal reports. Many mergers in the late 1990s and early 2000s occurred in response to Medicare payment cuts made as part of a push to balance the federal budget.