Top regulator: There's no evidence hospital consolidation tends to improve quality

Would-be dealmakers need 'anti-trust lawyers … who know the drill'

The director of FTC's Bureau of Competition tells HealthLeaders Media she is skeptical of many common justifications for health industry consolidation.

At the same time, Deborah Feinstein says FTC's decision to block three hospital mergers in the past three months does not signal "any shift in how we think about" mergers.

The top challenge for provider CEOs: Systemness

Further, FTC rejects the view that the incentives in the Affordable Care Act (ACA) to promote economies of scale are in tension with FTC's mandate to promote competition, Feinstein says.

"I would say the ACA encourages collaboration that does not need to be done through consolidation," she says, adding that accountable care organizations and many hospital mergers comply with antitrust laws.

That makes FTC skeptical of hospitals who say they must merge to achieve certain ends, Feinstein explains. "We can come up with examples of providers who are accomplishing the same goals in different ways, without consolidating, without joint negotiations with payers." Instead, she adds, hospitals can legally set up partnerships that "allow them to compete and collaborate at the same time."

There is clear evidence that certain types of deals can be anticompetitive, Feinstein argues. "When the facts show that [a deal] is likely to increase concentration substantially in the relevant geographic market, we know from empirical studies that in those situations prices will go up," she says.

And Feinstein is skeptical of some common arguments for consolidation—particularly quality improvements. "If somebody wants to show me the empirical evidence that acquisitions tend to lead to quality improvements—something that we have not seen—that would be interesting to us," she says.

Getting FTC's stamp of approval

Feinstein cites three specific criteria FTC looks for when evaluating whether a merger can provide potential improvements in value or quality:

  • Can the benefits of a deal only be accomplished through a merger?
  • Are the proposed benefits verifiable, meaning are they "really going to happen?"
  • Are the proposed benefits "cognizable," meaning they don't occur at the expense of reduced output, higher prices, or lower quality?

Hospitals can also help themselves by providing evidence that their previous acquisitions have resulted in quality increases, Feinstein adds.

With mergers, could hospitals become 'too big to fail?'

To help hospitals predict whether FTC will consider a proposed merger to be anticompetitive, Feinstein says systems should ask themselves "not only 'who is my closest competitor?' but 'who do I compete with?'"

But one of the best things an organization can do when exploring a deal is "to get experts involved, anti-trust lawyers who've been through this and who know the drill," she says. "Early advice is often crucial" (Commins, HealthLeaders Media, 12/29/15).

Five characteristics of the most successful M&A deals

We are in the midst of the most significant period of provider consolidation in the last 30 years.

The most successful M&A deals are focused on delivering a better product to patients and purchasers, rather than insulating the system from competition. Find out what separates these deals from the rest.

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