Finance
e-Newsletter
Intelligence Unit Special Reports Special Events Subscribe Sponsored Departments Follow Us

Twitter Facebook LinkedIn RSS

Healthcare M&As To Face Greater Scrutiny?

Elyas Bakhtiari, for HealthLeaders Media, August 30, 2010

For a while now, signs have been pointing to increased merger and acquisition activity among hospitals and health systems. Hefty IT requirements, rising costs, and reimbursement concerns are pushing hospitals to seek efficiencies through consolidation and expand market share before millions of newly insured patients enter the market.

But healthcare consolidation has begun to attract the attention of anti-trust officials, journalists, and other watchdogs, and the added scrutiny may create a headwind for hospitals looking to make a deal.

The FTC is currently investigating mergers between Dartmouth-Hitchcock Medical and Catholic Medical Center in Manchester, NH; Hartford Healthcare Corp. and Central Connecticut Health Alliance; and ProMedica Health System’s and St. Luke’s hospital in Maumee, OH, according to Bloomberg news. The DOJ is also reportedly investigating Partners Healthcare in Massachusetts and the University of Pittsburgh Medical Center for potentially “anticompetitive agreements.”

The big red flag seems to be the favorable contracts that consolidated systems are able to negotiate. Bloomberg highlighted the Sacramento market, where an MRI at a local imaging center costs 45% less than the same procedure at Sutter Davis Hospital, which benefits from the market leverage of its parent company, Sutter Health Co. With nearly a third of the market between San Francisco and San Diego, Sutter is able negotiate prices 40%-70% higher than most competitors. (See Bloomberg’s chart comparing the prices of select procedures in major markets around the country).

Greater negotiating power is one of the incentives for consolidating in the first place. Whether you are a group of physicians or a large hospital system, an increase in market share is often an advantage when sitting down to sign a payer contract.

But according to a study from a former DOJ economist, higher prices resulting from hospital mergers between 1997 and 2006 add about $12 billion to annual healthcare costs. With so much focus at the federal level on cutting waste and bending the long-term cost curve, officials will likely have a close eye on the line between competitive advantage and anticompetitive pricing.

Comments are moderated. Please be patient.