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White House Economic Report Raises Red Flags About M&A Trend

News  |  By Jack O'Brien  
   February 22, 2018

The annual report expressed the Trump administration’s worries over potential provider monopolies forming through healthcare consolidation, recommits efforts to lower consumer prices. 

The White House released President Donald Trump’s economic report Wednesday, highlighting concerns about rising consumer prices due to the growing consolidation trend among healthcare providers.

The Trump administration views its recent actions removing “economically destructive regulations” created by the Affordable Care Act (ACA) as consistent with promoting competition among hospitals to lower prices and improve quality for patients.

In the report, the Trump administration argued that the mandated federal cuts in hospital payments in the ACA, coupled with over-regulation, created significant financial challenges for small physicians’ groups and solo providers. Hospital mergers have taken off in the face of these steep obstacles, with smaller providers either joining together to achieve competitive scale or were being acquired by larger health systems.

“Instead of relying on consumer choice and competition to control costs, the ACA encouraged healthcare providers to combine into larger health systems and to take on financial risk, based on the unproven assumption that this would incentivize providers to decrease unnecessary services, cut costs, and improve outcomes,” the report stated.  

“However, excessive consolidation in the market may enable producers to use their market power to raise prices, lower quality and innovate less than they would in a competitive market.”

Related: Mercy Health and Bon Secours Announce Merger

Between 2011 to 2015, there were nearly 98 hospital mergers and acquisitions per year, compared to nearly 59 mergers per year during the prior decade, according to the report. The Trump administration draws a correlation between the increased frequency of the mergers and acquisitions market, which is expected to remain active in 2018, to the implementation of new regulatory burdens introduced through the ACA.

The report cited a study on consolidation that found nearly 50% of hospital markets are “highly concentrated,” meaning only one or two hospital systems operate in a given region.  

Hospital prices in monopoly markets are 15% higher than those in markets with four or more hospitals, according to one study, while another found that vertical integration “led to an increase in market share, which was associated with higher prices and increased spending.”

In addition to consolidation spurred by federal over-regulation, the administration argued that state regulations also create significant barriers to entry and competition for smaller providers. These regulations include certificate-of-need laws and rules about scopes of practice.

The administration plans to release a report this spring identifying federal and state government regulations that “reduce competition and increase consolidation,” while offering recommendations to address these policies.

The White House says this upcoming report will serve as a follow-up to Trump’s October 12 executive order, which eased restrictions on association health plans in order to “free the market from these mandates and constraints on competition.”

Related: Association Health Plans Would Be Another Hit to Struggling Insurers

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.


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