Module 3: Hospital Pricing and Competition

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# Module 3: Hospital Pricing and Competition
## Part 4: Mergers and Competition Policy
### Ian McCarthy | Emory University
### Econ 372

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# Types of hospitals involved in mergers
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# Types of hospitals involved in mergers

- Ascension-Presence: Largest non-profit system in US adds 10 hospitals to existing 9 hospitals in Chicago
- Fairview-HealthEast: 11 hospital system becomes largest in Twin Cities area
- Hospital corporation of america (HCA) adds 4 hospitals to the 10 existing HCA hospitals in Houston
- Northwestern-Centegra: Forms 10 hospital system in Chicago
- Emory-DeKalb: Forms 10 hospital system in Atlanta
- Jefferson-Einstein: Forms 18 hospital system in Philadelphia area

.footnote[Source: NIHCM Hospital Consolidation Trends]

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# Different merger types
Essentially two types of mergers:

1. "Within-market"
2. "Out-of-market"

Why do you think these matter?

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# Within-market mergers

- Most well-understood merger type
- Established tools for examination in anti-trust
- Defining the market is still a contentious issue

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# Within-market mergers

- Listed previously (Emory-DeKalb, etc.)
- **Big** price effects
  - 20 to 40% in many studies
  - Up to 60% in some studies
  - Bigger increases the closer are the hospitals
  - Price increases spillover to other hospitals too
- Account for about 50% of all mergers since 2000

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# Out-of-market mergers

- Less understood
- No formal structure for analyzing in court
- These types of mergers are essentially permitted without risk of DOJ/FTC challenge

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# Out-of-market mergers

- Involve larger systems spanning different isolated markets
  - Advocate-Aurora: 27 hospital system in IL and WI
  - Baptist Memorial-Mississippi Baptist: 22 hospitals in TN, AR, and MS
  - UPMC-Pinnacle: 24 hospital system recently added 8 in central PA
  - Catholic Health Initiatives-Dignity Health: 142 hospitals in 21 states
  - HCA: 177 hospitals in 21 states
  - RCCH HealthCare Partners: 89 hospitals in 30 states, focusing on non-urban areas
- About 35% of all mergers are out-of-market but in same state, 15% out-of-state
- Smaller but meaningful price increases, 5 to 10%

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# How do they increase prices?

- Already discussed within-market mergers, outside options, and bargaining power
- What about out-of-market mergers?

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# How do they increase prices?

Two ways this can happen theoretically:

1. Common customers (hospital markets are local, but insurance markets are more broad)
2. Multi-market contact (particularly relevant for understanding out-of-state mergers)

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# 1. Common customers
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# 2. Multimarket contact
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# Where do we go frome here?

1. Adopt sensible policies
  - Certificate of need laws
  - Certificate of public advantage
  - Scope of practice laws
  - Any willing provider laws
  - Site-based payment differentials (encourage vertical integration)
2. Antitrust enforcement

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# A note on surprise billing

Some hope here following the **No Surprises Act** (in effect January 2022):
- Emergency care (excluding ground ambulances?)
- In-network facilities
- New process...
  - OON provider bills health plan
  - Health plan communicates median in-network amount
  - Provider bills cost-sharing to patient

- **But** patient can be asked to waive rights

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# Finishing the class

- Please review the Brookings Report, [Making health care markets work](https://www.brookings.edu/research/making-health-care-markets-work-competition-policy-for-health-care/)