Abstract:

As healthcare markets continue to consolidate and prices continue to rise, economists, legal scholars, antitrust enforcers, and policymakers have the opportunity and obligation to examine how the dynamics of our healthcare markets have changed over time and how those changes affect consumers and competition. Although antitrust merger law is designed to arrest anticompetitive harms in their incipiency, it has failed to prevent anticompetitive consolidation in most sectors of the healthcare industry. Of particular concern is the inattention of antitrust enforcers to the growing market power of healthcare systems that span multiple local geographic markets. While more than half of all hospital mergers have occurred across geographic markets in the last decade, none have been challenged in federal court. Emerging economic data suggest that these mergers can result in price increases for hospitals throughout the newly merged systems, and a number of cases document the propensity of hospital systems to exercise post-merger market power. As economic knowledge develops, new analytic frameworks are sometimes needed. This article develops an initial framework for cross-market merger analysis, outlining the circumstances in which anticompetitive effects may result because the merger increases the likelihood of tying or enhances market power in a properly defined cluster market. Our hope is that this framework will encourage economists, legal scholars, and antitrust enforcers to work collaboratively to identify and restrict the growth of “system power” resulting from anticompetitive cross-market healthcare mergers.

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