Some bad news from Chicago regarding anti-trust law:
Two large Chicago-area hospital systems will be allowed to move forward with a merger despite the Federal Trade Commission’s opposition.
After a six-day hearing in April, a federal court judge in Chicago ruled Tuesday in favor of Advocate Health Care and NorthShore University HealthSystem in the legal fight over health care competition…
Executives at Advocate and NorthShore argued the FTC chose the boundaries of the market it considered to favor its position and failed to account for the fact that more patients are treated outside hospitals and for the role insurer Blue Cross and Blue Shield of Illinois plays in setting prices….
This case is similar to another FTC loss in Pennsylvania where the judge determined that the FTC used a market definition that was too narrow and too small. I perosnally disagree with the judge’s logic as he was looking at where the patients came to a regional high end medical center and determined that was the relevant market instead of determining where the people who lived near the hospitals could reasonably go for services.
The FTC anti-trust power is critical to administrative actions to reduce the healthcare cost curve. It is a political and judicial question as to how aggressive the FTC can be as I noted last December:
Cutler and Morton in 2014 found the following regarding hospital concentration:
More populous areas are less concentrated on average. Even still, concentration is pervasive. Nearly half (n = 150) of hospital markets in the United States are highly concentrated, another third (n = 98) are moderately concentrated, and the remaining one-sixth (n = 58) are unconcentrated. No hospital markets are considered highly competitive.[my emphasis]
The FTC can be a significant cost control lever. An aggressive FTC that cracks down on almost all hospital mergers as a default response would increase competition…. The question is whether or not the FTC in 2017 will have high level political support to engage in default opposition to most insurer and provider mergers in most market segments?
That is the political question. I am not too optimistic about that answer as hospitals and more importantly doctors are some of the most trusted individuals and entities in the American public discourse. A doctor crying on camera that a merger disapproval will not let her treat her patients as well as she wants to is a powerful image that half a dozen policy nerds can’t credibly counter-act… Yet, an aggressive FTC is one of the few “easy” or at least non-legislative routes to containing healthcare costs.
The judicial levers of power that can create slightly better functioning markets are being pulled away so the FTC is less likely to act as a deterrent to consolidation for market power reasons than we could have hoped for last fall.
Duh! When industry says “We want a monopoly, let’s merge!” there’s not much the gubmint can do about it nowadays. Anti-trust legislation as it now stands, is toothless and under-enforced. Where’s OUR Teddy Roosevelt?
The judge was an Obama appointee, so I guess we can’t just put this down to a Republican jurist putting his thumb on the scales. In which case our only hope is to improve the law? Ugh.
Is the argument about BCBS of Illinois “setting prices” bullshit? I’m assuming that an affluent area like the north shore would have a pretty healthy market place.
Seems like new laws will be needed to protect consumers. Praying for a different Congress- and soon!
Advocate is the 900lb gorilla in the Chicagoland area when it comes to healthcare systems. And they’ve been gobbling up other hospitals. Anti-choice, but Evangelical Lutheran IIRC, so at least they’ll prescribe birth control.
Thanks for the news
It really is. You tell no lie.
FTC should appeal.
@burnspbesq: I am almost certain that they will. They appealed a decision in Pennsylvania that used similar logic.
I agree with you Richard on the Pennsylvania decision, I thought the way the judge determined the market definition made no sense for most patients, and I think it stands a good chance of being overturned by the Third Circuit (which covers Pennsylvania and is notoriously friendly to antitrust plaintiffs). The Chicago case I think is a closer call — from what I’ve read of the briefs, the FTC really did gerrymander the market definition pretty badly (excluding hospitals which were clearly options for patients from the market), and the district court may have had a point in rejecting it (though I haven’t seen the decision yet because its still sealed). We’ll see…
Still, I’m just not so sure it is or should be necessary for the FTC to argue that these are such narrow markets in the first place (they narrow the definition so that they can claim that the merged parties will have a huge overall share of the market). Especially in Clayton Act Section 7 case, the standard for finding a merger is unlawful is just “substantial lessening of competition.” That’s a lot less to prove compared to a monopolization case, where you have to prove monopoly power (which lawyers define as more than “market power” — despite there being no real distinction…), as well as exclusionary conduct etc. I think it should be enough in a Clayton Act case to show that the merging parties have a 50% plus share, especially if you have evidence that similar past mergers in that sector lead to price increases (which in hospital cases, the FTC has good studies showing price increases).
I would also note that this is the second time FTC has done these narrow market definitions — they also caught a lot of flack for gerrymandering the market definitions in the Staples – Office Depot case this spring, and observers thought they did so poorly at trial that the defense rested without calling a single witness (a stunning move many of us lawyers thought insane). The judge ultimately sided with the FTC anyway ( whoops on not calling a witness!), but the FTC probably did more to hurt its case with the narrow definition than if it had gone in with at least alternative definitions to preserve their own credibility.
Anyway, I don’t think there is any danger that this the end of aggressive FTC challenges to hospital mergers. Antitrust courts generally will not recognize “we need more bargaining power against big insurers” as a legitimate efficiency justification, so these hospital systems will need to have some explanation about why a merger will drive down costs and they won’t have market power to keep that returns for themselves. I think there probably are plenty of situations where hospitals can become more efficient via merger (e.g. small rural hospitals who need economies of scale), but I’m not worried that the FTC will be chastened here by two bad decisions. They still have a winning record over the past 10 years.
@Lounger: Judges don’t like changing settled law, and we’ve had enough right-wing jurisprudence in the past two decades that a moderate judge is not likely to reverse precedent.
Back in July of last year, I wrote:
There never was much chance I was wrong about that, but I sure wish I had been.
Mr. Mayhew, this is your industry, your bread and butter. I get that you don’t make corporate policy. So, since you seem to oppose this, what will you be doing about it?
To which, I would like to add, that the same line of reasoning applies to the hospitals, as well as insurance companies, which are exempt from anti-trust law. The combination of oligopoly in health insurance and provision of care seems likely to continue make the US health care system the most expensive in the world for at least another generation, unless there is enormous pressure for reform brought to bear on Congress.