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Acquisition of local nonprofit hospitals by regional hospital systems may weaken community control of local hospital pricing

The period 1994 to 1997 was a record time for hospital mergers and acquisitions, reportedly reaching levels of more than 600 per year. The pace of this merger activity has reignited a long-standing debate over how government antitrust enforcement agencies should approach mergers involving nonprofit hospitals.

Some contend that traditional antitrust policy, driven by the principle that competition promotes consumer welfare, should not apply to mergers involving nonprofit hospitals because these hospitals typically yield to community pressures not to raise prices. Others argue that the acquisition of local hospitals by regional hospital systems could replace local governance arrangements with centralized control, which would weaken the control typically exercised by local communities over a nonprofit hospital's use of market power or pricing.

In a recent study, researchers examined three types of nonprofit hospitals. They found that members of non-local systems priced their inpatient services more aggressively in the presence of market power than did either hospitals operating independently or hospitals operating as members of local systems. The study also found a marked tendency among all nonprofit hospitals studied to exercise market power in the form of higher prices, doing so at a faster clip in more concentrated markets.

These results point to the need for some degree of antitrust oversight for mergers and acquisitions involving nonprofit hospitals, especially where there will be relatively weak community control over the hospital in question. Antitrust risks may be particularly great when a merger that will have a substantial impact on competition involves a non-local system, notes Fred Hellinger, Ph.D., of the Agency for Healthcare Research and Quality. Dr. Hellinger and his colleagues at Boston University used a panel data set to examine the relationship between market concentration and price growth for three types of nonprofit hospitals in California: independent facility, member of a local hospital system, and member of a non-local hospital system.

For more details, see "Community control and pricing patterns of nonprofit hospitals: An antitrust analysis," by Gary J. Young, J.D., Ph.D., Kamal R. Desai, Ph.D., and Dr. Hellinger, in the December 2000 Journal of Health Politics, Policy & Law 25, pp. 1051-1081.

Reprints (AHRQ Publication No. 01-R019) are available from the AHRQ Publications Clearinghouse.

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