Antitrust Regulators Struggle to Keep Up With Hospital M&A

by Peter Johnson

Hospital consolidation has entered a new stage: Large regional hospital systems have finished acquiring most of their smaller local competitors and have begun to combine with large health systems of similar size. Experts say the new phase of market concentration, which also includes large hospital groups acquiring physician groups and outpatient centers, is bound to increase prices for health plans and consumers — and that there’s little regulators can do to stop or reverse it. 

Expect consolidation to continue full speed ahead  

• Over the past decade-plus, hundreds of hospital groups have combined, following a trend toward consolidation and vertical integration across the American economy. According to the American Hospital Association, nearly 1,600 hospital transactions took place between 1998 and 2017.  
• Financial experts tell AIS Health that consolidation among health systems is certain to continue. 
• “The overarching factors of relatively inexpensive debt financing, coupled with record amounts of ‘dry powder’ from private equity investors and corporate balance sheets, will continue to drive deal activity well into 2022 and beyond for the health care sector,” Nick Donkar, partner and U.S. health services deals sector leader at PwC, tells AIS. 
• Anu Singh, managing director at Kaufman Hall, adds that health systems entering megadeals hope to increase efficiency and develop new capabilities, especially now that the pandemic has changed the financial calculus for hospitals.  
• “There have been some liquidity issues. There are some labor issues, there are some expense categories that are working against organizations. But we also had the benefit of CARES Act funding, and so we haven’t seen the pandemic’s full impact on hospitals absent CARES yet, but that’s starting to come.”  

Biden admin aims for tough stance on deals 

• Under the Biden administration, regulators seem poised to take a sharper look at consolidation of all types. The FTC and Dept. of Justice on Jan. 18 announced “a joint public inquiry aimed at strengthening enforcement against illegal mergers,” according to a press release. 
• But, as Singh points out, hospital economics are a regional game. Since most hospital transactions take place between entities that operate in one state, state attorneys general are usually the regulators with jurisdiction over deals.  
• That’s one reason why so many combinations were possible, according to Maureen Hensley-Quinn, senior program director at the National Academy for State Health Policy. 
• Hensley-Quinn says many state antitrust regulators do not have the statutory authority to block deals at the individual hospital level. That’s a problem for antitrust enforcement, since consolidation into health systems has happened sequentially, with large systems swallowing smaller hospitals one by one over long periods of time. 
• “How would the state know that some of these business partnerships are being made?” Hensley-Quinn asks. “Without knowing that they’re happening, the state can’t do anything about it.” 

From Health Plan Weekly