The Federal Trade Commission has won every case it has brought against hospital mergers, but its enforcement is only capturing a fraction of the consolidation happening in the industry.

Strict antitrust laws and a lack of resources mean the agency can only go after the most obvious anticompetitive hospital mergers, but new research on deals across markets could allow the agency to branch out, antitrust attorneys and economists say.

The discussion comes as Democratic FTC Commissioner Rebecca Slaughter is urging the agency to be more aggressive about going after hospital and clinic consolidation and lawmakers are preparing a hearing on the issue.

Hospital consolidation is costing states and the federal government tens of billions of dollars, Ashish Jha, director of the Harvard Global Health Institute, said. The FTC’s budget of $309.7 million in fiscal year 2019 is trivial compared with what the government is paying for consolidation, he added.

Hospital care accounted for 32% of national health expenditures in 2016, according to the Department of Health and Human Services. Multiple studies have shown that hospital mergers lead to prices that are 10% to 40% higher. As hospital prices increase, so does the amount of money the federal government spends on Medicare and Medicaid.

The number of hospital consolidations has risen from 50 in 2009 to 115 in 2017.

Increasing hospital consolidation doesn’t mean the FTC isn’t effective. “It’s that the laws they enforce are pretty limited,” said Leemore Dafny, former deputy director for health-care and antitrust at the FTC’s Bureau of Economics.

The agency could define some hospital markets more broadly rather than viewing them as isolated, specialized entities. For example, she said, a children’s hospital and an adult hospital technically serve different markets, but insurance plans need both in their networks to be viable. The FTC could argue they operate in the same market.

The FTC has sued to stop 10 hospital mergers since 2007 and been successful in each case. Those challenges were mainly “horizontal” mergers of the same types of facilities.

The hospital industry is now turning to “vertical” mergers that combine companies in different parts of the same industry, in part because the government has been effective at stopping the horizontal mergers. These deals typically involve a hospital buying up a physician practice.

Negotiating Power

Hospitals and doctors want more power in their discussions with insurers, said Eleanor Tyler, a Bloomberg Law analyst. Mergers between insurance companies in recent years have led hospitals to think that if they consolidate, they can negotiate better rates.

The hospital industry is less concentrated than other sectors like airlines, according to Debbie Feinstein, former director of the FTC’s Bureau of Competition. If hospital prices are increasing, consolidation isn’t necessarily to blame, she said. She’s now the head of the global antitrust group at Arnold & Porter.

Hospitals are facing requirements to use electronic health records, which are expensive and can be prohibitively so for smaller hospitals, Tyler said.

Crossing Markets

The FTC has avoided cross-market mergers that, for example, blanket a state, said Christopher Garmon, a former staff economist at the FTC. There is some difference of opinion on how these deals affect markets because the parties aren’t directly competing with each other, Feinstein said.

But cross-market mergers allow hospitals to “exploit” insurers that need to cover a “broad graphic area,” said Thomas Greaney, a former assistant chief in antitrust division of the Justice Department.

If a hospital system is in control of an entire state, or even a large part, it can negotiate better prices with an insurer that needs to cover that area. Greaney is a professor at the University of California Hastings College of Law.

The FTC can’t win a merger challenge without solid economic evidence that the merger could reduce competition, he added.

There is some research suggesting cross-market deals are anticompetitive, but it’s in the fledgling stages.

A Northwestern University 2016 study found cross-market hospital mergers lead to prices that are 6% to 10% higher. Other researchers are in the process of studies looking at these kinds of mergers, but the FTC has yet to broach that question.

Any new data on cross-market deals could entice enforcers to become more active in the area, said Garmon, a professor of health administration at the University of Missouri, Kansas City.

Defining a Market

Defining a hospital’s market is essential for making a viable antitrust case, but the parameters can be set in multiple ways. That makes it difficult for the government to argue in court that any specific market would be harmed by a merger, Austin Frakt, a professor of health law, policy, and management at Boston University, said. Hospitals can specialize in different areas and dominate in one kind of care and not another, and patients can choose depending on what they need.

Courts require a high bar for evidence to block mergers, said Michael Kades, director of markets and competition policy at the Washington Center for Equitable Growth. Kades is a former FTC attorney. They need certainty about every purported effect of a deal. That takes time and money.

For example, the FTC spent four days, over 1,600 exhibits, and 16 witnesses to prove to a court that a merger between the only two doctor groups in Bismarck, N.D., could have created a monopoly.

Some states have also gotten involved to protect hospital mergers because they tend to be major employers, Jha said. State offices reviewing these mergers may also not be as aggressive as the FTC.

The FTC is also unable to challenge mergers where states give the hospitals antitrust immunity through a certificate of public advantage, Garmon said.

Resources Issue

Funding and staff at the FTC has been flat in recent years, while the volume of health-care mergers has dramatically increased, Emily Gee, a health economist at the Center for American Progress, said.

“If you’re busy challenging the most egregious cases, you won’t have the resources to go after that next tier,” Kades said.

Former enforcers, researchers, and analysts all agree the FTC needs more research on hospital mergers.

The last time a retrospective study on prior hospital consolidation was conducted was in 2008. Those studies in particular are persuasive in court, especially when judges don’t have expertise in antitrust law, a former senior antitrust enforcer said on condition of anonymity.

These studies are expensive, however, and require more resources.

The budding interest from lawmakers and economists about the new generation of hospital mergers could help the agency make the case to increase its funding to allow for more research.