Undoing Health System Monopolies May Be A Lost Cause

When Mark Feeney moved his young family to Southwest Virginia a decade ago, there were a variety of hospital systems and a variety of independent doctors to choose from.

But when his knee started hurting in late 2020, he found Ballad Health was his only option: He went to his longtime doctor, now at Ballad, who referred him to an orthopedic practice that Ballad bought. That doctor sent him to the Ballad center for x-rays, and then he was referred to a physical therapy center called Mountain State Rehab, which is now also owned by Ballad.

Although none of the procedures were performed in an actual hospital, a "facility fee" was charged for everything. When the cost of physical therapy doubled overnight—to nearly $200 for about 30 minutes—there was no way out, as Ballad Health had a virtual monopoly on treatment in 29 Appalachian counties in northeast Tennessee, southwest Virginia, northwest North Carolina and the southwest.

"I'm stuck," said Mr. Feeney, the university professor. "My wife now drives 50 miles to see a non-Ballad doctor, and I no longer have a doctor."

The Biden administration's regulators have unleashed a firestorm of antitrust activity and broadened the definition of the types of unfair competition they can fight. Regulators have blocked a merger between publishing giant Penguin Random House and Simon & Schuster on the grounds that it would cut author pay and reduce the "diversity of our stories and ideas". Regulators sued JetBlue to block its acquisition of Spirit Airlines, arguing that Spirit's low-cost presence prevents other airlines from raising fares.

But while hospital mergers and creeping mergers have proven more traumatic and costly for countless Americans like Mr. Feeney, they can be difficult to break through.

After decades of chaotic mergers, health care has become a land of giants, where one or two giant health systems have monopolized care from the top down in many cities, states, and even entire regions of the country. Numerous economic studies show that the level of standardization in hospitals today—75% of markets are now considered overly standardized—restricts patient choice, stifles innovation, reduces quality, and drives up costs.

Ballad has made generous donations to the performing arts, sports center and orchestra. But critics say he has cut health care costs by closing intensive care units and reducing the number of nurses on the ward, while charging higher rates to insurers and patients. She usually sues patients for unpaid bills. Last year, its CEO earned $4 million.

For many years in the last century, the Federal Trade Commission made little effort to prevent hospital mergers in court, as judges generally ruled that hospitals, as nonprofit entities, were unlikely to use their monopoly power to sue for abusive business practices. How wrong they were.

In 2021, President Biden ordered the Federal Trade Commission to be more aggressive about hospital mergers and even to review those that have already taken place. It's unclear, however, whether the agency has the tools to do much. "Regulators are 10-15 years behind and under-resourced, and that's where we are now," said James Cabrito, a senior fellow at the American Enterprise Institute.

The usual process for blocking hospital merger projects is cumbersome: it often involves a lengthy analysis to prove the impact on a particular market, warnings, negotiations and finally litigation.

said Rahul Rao, deputy director of the agency's competition division, who called the issue a "top priority." But there were 53 hospital mergers and acquisitions in 2022, and more than 90 mergers a year in recent years.

"His work is like fishing in a barrel. It's very difficult to prove that a potential deal is anticompetitive," said Lymore Daphne, a Harvard economist who has worked at the Federal Trade Commission for nearly a decade. "I saw how difficult it was for the government to defend its position, even when it seemed obvious."

Two hospitals may be enough to ensure competition in one market, and four in another. Even if the price goes up, the improvement in quality cannot be considered anti-competitive.

More difficult for the FTC to assess is a vertical merger, which is more common: when a large hospital system buys a much smaller hospital or independent medical and surgical practice or radiology center, or when it merges with a local insurance company.

Many of these mergers are not reviewed at all, as transactions worth less than $111 million do not need to be reported to the regulator. "It's a vision problem," said Mr. Rao. "We hear about it from the media or from the attorney general," which has more to do with action on the ground. Many of today's giants, such as Northwell Health in New York, Sutter in California and the University of Pittsburgh Medical Center in Pennsylvania, often grew by acquiring a small hospital, doctor's office or surgery center, each falling below the threshold that allows them to attract attention.

Studies show that when hospitals buy doctors' offices, as Mr. Feeney did, the number of visits increases. Some purchases are essentially catch-and-kill purchases: for example, buy an independent heart center next to an ambulance to weed out cheaper competitors.

As hospital systems grew and became large employers, their influence on state legislatures created new barriers to integration. Sympathetic state lawmakers passed a so-called public interest certification law to protect hospitals from federal and state antitrust lawsuits. Those certifications in Tennessee and Virginia allowed Ballad to form two competing systems in 2018, despite objections from the Federal Trade Commission. Recently, the North Carolina Senate gave the go-ahead for the expansion of the UNC health system, regardless of the opinion of the regulatory authorities.

A recent challenge is managing the growing number of cross-market mergers as large health systems merge in different parts of the state or country. Although hospitals aren't competing for the same patients, new research shows that the measures are driving up prices, in part because the giant health system's increased bargaining power forces coverage companies in both markets to pay more in a previously cheaper area.

There are attempts and proposals to reintroduce a minimum level of competition or restrictions in the health care system: The Federal Trade Commission (FTC) has tried to ban incomplete clauses in employment contracts that prevent, for example, doctors and nurses from moving from one hospital to another within a certain time.

However, many economists, both left and right, have concluded that the restoration of real competition in many markets may be difficult at this stage. Barack Richman, a professor of law and economics at Duke University, said: "Economists who live and breathe competition are frustrated by the suggestion that maybe we just need to regulate prices."

In fact, a number of countries - red and blue - are currently taking a very cautious approach to price controls. This year, for example, the Indiana Legislature banned hospitals from charging for out-of-hospital visits. Lawmakers even considered fining hospitals that charged 260% more than the Medicare rate, though they delayed that move for two years in hopes that the threat would encourage better behavior.

As the Federal Trade Commission becomes more aggressive and lawmakers consider such measures, perhaps hospital systems will heed the warnings and act more like the guardians they should be, rather than the monopolistic corporations they are.

Matt Reeve: Matthew Stephen Reeve (The Complete Series)