Cross-Market Mergers in Healthcare: Adapting Antitrust Regulation to Address a Growing Concern

102 Cornell L. Rev. 821 (2017)In the United States, the FTC and the Antitrust Division of the Department of Justice together serve to keep domestic markets free and competitive for the benefit of American consumers. One such way these antitrust regulators maintain and enforce free competition is by blocking potential mergers between competing firms that would result in higher prices or lower quality products without creating offsetting positive efficiencies. Thus, merger review by antitrust enforcers inherently involves weighing the procompetitive benefits of mergers against the anticompetitive consequences. Since 1968, the antitrust regulators have evaluated the procompetitive and anticompetitive effects of mergers under the framework of the Horizontal Merger Guidelines. Mergers between firms that operate in separate and distinct geographic areas, known as “cross-market mergers,” present a unique challenge to antitrust regulators in performing this balancing test, as the anticompetitive effects of such mergers are unclear.Since President Obama signed the Patient Protection and Affordable Care Act (ACA) into law in 2010, there has been a surge in the number of mergers between healthcare providers, as firms in the healthcare industry strive to achieve the Act’s goal of “population health management.” Increasingly, healthcare mergers are occurring between providers that draw patients from separate and distinct geographic markets. Antitrust regulators, following the most recent Horizontal Merger Guidelines, have been hesitant to challenge these cross-market mergers because they do not increase the concentration of any particular geographic market, suggesting that cross-market mergers do not have a noticeable effect on competition. Nonetheless, recent studies indicate that cross-market mergers among healthcare providers raise prices for insurance payors, and ultimately patients, without producing any improvement in quality of care.This Note argues that the higher prices following crossmarket provider mergers are anticompetitive effects caused by the merged firm’s increased bargaining power and by the crossmarket subsidization of price increases. In response to this finding, antitrust regulators should take a new approach to reviewing proposed cross-market mergers that focuses on identifying signals of a potential price increase. Ultimately, both regulators and courts must adapt merger review to address the unique issues surrounding cross-market mergers. Part I provides an overview of how regulators and courts currently review healthcare provider mergers under the Horizontal Merger Guidelines. Part II provides an overview of the current climate in the market for healthcare services by introducing the players in the market—providers, payors, employers, and patients— and examining how they negotiate to arrive at the price for healthcare services. Part II also offers an explanation as to why healthcare providers are so keen to merge following the ACA and how such mergers may be beneficial to society. Part III then examines both the anticompetitive and procompetitive effects of cross-market mergers between healthcare providers. Finally, Part IV proposes a new approach for regulators and courts to evaluate cross-market mergers aimed at predicting these potential competitive effects.