Antitrust – artdiamondblog.com

Medical Mergers Can Reduce Competition and Raise Prices When Government Aids Incumbents or Fetters Entrepreneurs

The story quoted below gives useful evidence that in the recent past hospital mergers have generally resulted in higher prices. But the story is incomplete, creating the misleading impression that government antitrust action is clearly needed. My hypothesis: mergers can increase efficiency and lower patient prices, but only tend to do so when hospitals are constrained by the real or potential entry of entrepreneurial health providers. Unfortunately entry is currently very limited, often by government actions. Often new hospitals must acquire a certificate of need before they are allowed to exist.

Often, incumbent hospitals successfully object to those certificates. Federal subsidies differentially go to large incumbent hospitals. Federal Covid-relief funds went to large incumbent hospitals that used much of the funds to buy up other hospitals. Less directly, enormous government regulation creates a differential burden on the small new entrant that likely cannot afford the huge specialized staff to successfully navigate the voluminous opaque regulations.

If we want lower prices, government should allow mergers, but also stop creating constraints that discourage entry. Government should especially reduce the regulations that discourage medical entrepreneurship.

(p. D4) The nation’s hospitals have been merging at a rapid pace for a decade, forming powerful organizations that influence nearly every health care decision consumers make.

The hospitals have argued that consolidation benefits consumers with cheaper prices from coordinated services and other savings.

But an analysis conducted for The New York Times shows the opposite to be true in many cases. The mergers have essentially banished competition and raised prices for hospital admissions in most cases, according to an examination of 25 metropolitan areas with the highest rate of consolidation from 2010 through 2013, a peak period for mergers.

The analysis showed that the price of an average hospital stay soared, with prices in most areas going up between 11 percent and 54 percent in the years afterward, according to researchers from the Nicholas C. Petris Center at the University of California, Berkeley.

The new research confirms growing skepticism among consumer health groups and lawmakers about the enormous clout of the hospital groups. While most political attention has focused on increased drug prices and the Affordable Care Act, state and federal officials are beginning to look more closely at how hospital mergers are affecting spiraling health care costs.

During the Obama years, the mergers received nearly universal approval from antitrust agencies, with the Federal Trade Commission moving to block only a small fraction of deals. State officials generally looked the other way.

President Trump issued an executive order last year calling for more competition, saying his administration would focus on “limiting excessive consolidation (p. B1) throughout the health care system.” In September [2018], Congress asked the Medicare advisory board to study the trend.

. . .

Prices rise even more steeply when these large hospital systems buy doctors’ groups, according to Richard Scheffler, director of the Petris Center.

“It’s much more powerful when they already have a very large market share,” said Mr. Scheffler, who recently published a study on the issue in Health Affairs. “The impact is just enormous.”

For the full story see:

Reed Abelson. “When Hospitals Merge, Patients Often Pay More.” The New York Times (Wednesday, November 14, 2018 [sic]): B1 & B6.

(Note: ellipses added.)

(Note: the online version of the story has the same date as the print version, and has the title “When Hospitals Merge to Save Money, Patients Often Pay More.” Where the wording of the versions differs, the passages quoted above follow the online version.)

The article co-authored by Scheffler and mentioned above

Scheffler, Richard M., Daniel R. Arnold, and Christopher M. Whaley. “Consolidation Trends in California’s Health Care System: Impacts on Aca Premiums and Outpatient Visit Prices.” Health Affairs 37, no. 9 (Sept. 2018): 1409-16.

$6 Billion of Taxpayer Money Wasted in 2021 for Bogus Hospital “Facility” Fees Where No Hospital Facility Was Used

The complexity, opaqueness, arbitrariness, and conflicts of interest of government healthcare, as exemplified by Medicare, make it rife for several kinds of inefficiency and fraud. The passages quoted below, document one kind.

(p. B4) Hospitals are adding billions of dollars in facility fees to medical bills for routine care in outpatient centers they own. Once an annoyance, the fees are now pervasive, and in some places they are becoming nearly impossible to avoid, data compiled for The Wall Street Journal show. The fees are spreading as hospitals press on with acquisitions, snapping up medical groups and tacking on the additional charges.

The fees raise prices by hundreds of dollars for widely used and standard medical care, including colonoscopies, mammograms and heart screening.

The added cost isn’t justified, physicians and economists say. Medicare advisers said last year the federal insurer likely overpaid for a sample of services by about $6 billion because of the fees in 2021.

. . .

The fees show up on patients’ bills after hospitals snap up clinics and doctors. Hospitals can designate the newly acquired clinics as an extension of their operations, forcing patients to pay the fees to cover costs for the entire hospital.

Fees have grown more pervasive as hospitals have gone on an acquisition tear in recent years, chasing after patients who have more options to get medical care somewhere else. Many hospital systems now get at least half their revenue from patients who aren’t admitted. By one estimate, more than half of doctors work for hospitals.

For the full story see:

Melanie Evans. “Patients Rack Up Hidden Hospital Fees.” The Wall Street Journal (Tuesday, March 26, 2024): B4.

(Note: ellipsis added.)

(Note: the online version of the story has the date March 25, 2024, and has the title “Hospitals Are Adding Billions in ‘Facility’ Fees for Routine Care.”)

Healthcare Competition Sometimes Reduces Prices

Numerous complex government healthcare regulations differentially increase the costs of small healthcare firms and independent healthcare practitioners that cannot afford to hire the specialized experts to understand and navigate the regulations. As a result the small firms and independent practitioners often give up and merge with larger organizations, thereby reducing competition. Also, in many locations, governments give incumbent hospitals veto power over the start-up of new hospitals, thereby also reducing competition.

(p. A3) Prices for surgery, intensive care and emergency-room visits rise after hospital mergers. The increases come out of your pay.

Hospitals have struck deals in recent years to form local and regional health systems that use their reach to bargain for higher prices from insurers. Employers have often passed the higher rates onto employees.

Such price increases added an average of $204 million to national health spending in the year after mergers of nearby hospitals, according to a study published Wednesday [April 24, 2024] by American Economic Review: Insights.

Workers cover much of the bill, said Zack Cooper, an associate professor of economics at Yale University who helped conduct the study. Employers cut into wages and trim jobs to offset rising insurance premiums, he said. “The harm from these mergers really falls squarely on Main Street,” Cooper said.

For the full story see:

Melanie Evans. “Hospital Prices Rise After Mergers, and Patients Bear Brunt.” The Wall Street Journal (Thursday, April 25, 2024): A3.

(Note: bracketed date added.)

(Note: the online version of the story was updated April 24, 2024, and has the title “The True Cost of Megamergers in Healthcare: Higher Prices.” The online version says that the title of the print version was “Hospital-Care Prices Rise After Mergers.” But my national edition of the print version had the title “Hospital Prices Rise After Mergers, and Patients Bear Brunt.”)

The forthcoming article co-authored by Cooper, and mentioned above, is:

Brot-Goldberg, Zarek, Zack Cooper, Stuart Craig, and Lev Klarnet. “Is There Too Little Antitrust Enforcement in the U.S. Hospital Sector?” American Economic Review: Insights (forthcoming).

When Medical Insurers Own Doctor Practices, Medicare Advantage Creates “Conflicts of Interest and Opportunities to Game the System”

Through its Optum division health insurer UnitedHealth has 90,000 affiliated doctors. Under the federal government’s Medicare Advantage program, UnitedHealth received higher payments from the federal government for its customers who have more dire diagnoses. This creates an incentive for UnitedHealth to pressure its affiliated doctors to code their patients with dire diagnoses.

(p. A3) UnitedHealth has built a sprawling health services company that shows no sign of slowing down. With annual revenue of $372 billion in 2023, it ranks among the five largest companies in the U.S. on that measure. Its stock, meanwhile, has returned more than 600% in the past decade.

UnitedHealth’s success has been fueled by its expansion beyond insurance as its care delivery and solutions unit Optum steadily acquires a vast array of health services companies, from a pharmacy-benefits manager to specialty pharmacies to doctor groups and surgical centers. Over the past two decades, Optum has spent about $82 billion on nearly 100 acquisitions, according to a tally by Raymond James analysts.

Much like the rest of the U.S. economy, America’s healthcare system has consolidated in recent decades, creating giant hospital systems, chain-owned medical practices and vertically integrated insurance conglomerates. Immense scale can drive efficiencies and reduce the cost of care. But in the highly complex and opaque world of U.S. healthcare, where giant companies always seem to be a step ahead of regulators, it also raises potential conflicts of interest and opportunities to game the system. The benefits of size often flow to those companies, not patients or the employers and taxpayers footing much of the bill.

. . .

A key growth driver for UnitedHealth is Optum’s steady acquisitions of doctor practices. Optum now has ties with 90,000 doctors—about 10% of the country’s physician workforce.

. . .

Much of the vertical integration in the industry has focused on the Medicare Advantage business, the sector’s golden goose. These are the private plans in which the government pays insurers a fixed rate to manage the care of seniors. The sicker the patient, the more the government pays.

In recent years, some insurers’ acquisitions seem targeted at controlling the Medicare coding apparatus. If you control the doctors who code patients, you control how much you get paid, explains Loren Adler, a fellow at the Center on Health Policy at the Brookings Institution, a nonprofit research organization. UnitedHealth and other insurers argue that they are simply coding patients according to their risk profile and that they comply with Centers for Medicare and Medicaid Services rules.

But they have been accused of abusing the system by coding patients too aggressively. An investigation by the Office of Inspector General of the Department of Health and Human Services found that Medicare insurers received $9 billion in questionable payments in a single year.

For the full commentary see:

David Wainer. “Insurers as Healthcare Providers Risk Conflict of Interest.” The Wall Street Journal (Friday, June 14, 2024): B10.

(Note: ellipses added.)

(Note: the online version of the commentary has the date June 13, 2024, and has the title “What Happens When Your Insurer Is Also Your Doctor and Your Pharmacist.”)

When Hospitals Compete Less, Prices Rise More

(p. B10) If the fries at your local burger joint are soggy or if you’re suddenly charged $25 for ketchup, you’ll probably eat somewhere else next time. That’s the beauty of competition.

Healthcare doesn’t quite work that way. For starters, you don’t always get to choose your medical provider—your insurer often does by contracting with them. And even the insurer can’t easily walk away, either: Giant hospital systems are swallowing up big chunks of the country’s healthcare system through vertical and horizontal integration. That leaves fewer parties with which to negotiate.

If McDonald’s bought Burger King and then Wendy’s, you could always cook at home instead, but nearly everyone needs to go to the doctor or the hospital at some point. Patients also aren’t nearly as cost sensitive as they would be with other purchases because employers and insurers pick up much of the tab. They often don’t even know the price ahead of time.

Hospital executives argue that mergers lead to improved efficiency and better outcomes for patients. But, after years of rampant consolidation between hospitals, most regions in the U.S. are now dominated by a few large players. That has led to higher prices and no significant improvements in patient care.

Rising costs don’t just lead to alarmingly high medical bills—they also make all of us worse off by increasing premiums, the bulk of which are paid by the nation’s employers. That affects even people who rarely visit a doctor. As those premiums soar and employers look to offset the cost, they indirectly eat into people’s paychecks.

Over the past two decades, there have been more than 1,000 mergers among the country’s approximately 5,000 hospitals, according to a forthcoming paper in American Economic Review: Insights.

For the full commentary see:

David Wainer. “As Hospitals Grow, So Does Your Bill.” The Wall Street Journal (Friday, June 7, 2024): B10.

(Note: the online version of the commentary has the date June 6, 2024, and has the same title as the print version.)

The paper in American Economic Review: Insights, mentioned above, is:

Brot-Goldberg, Zarek, Zack Cooper, Stuart Craig, and Lev Klarnet. “Is There Too Little Antitrust Enforcement in the U.S. Hospital Sector?” American Economic Review: Insights (forthcoming).

Intel Was a Feared Monopoly but Now “Is in a Fight for Its Life”

(p. B3) It might not look like it yet, but Intel is in a fight for its life.

. . .

The threats to Intel are so numerous that it’s worth summing them up: The Mac and Google’s Chromebooks are already eating the market share of Windows-based, Intel-powered devices. As for Windows-based devices, all signs point to their increasingly being based on non-Intel processors. Finally, Windows is likely to run on the cloud in the future, where it will also run on non-Intel chips.

. . .

It wasn’t always this way. For decades, Intel enjoyed PC market dominance with its ride-or-die partner, Microsoft, through their “Wintel” duopoly.

. . .

I asked Dan Rogers, vice president of silicon performance at Intel, if all of this is keeping him up at night. He declined to comment on Intel’s past, but he did say that since Pat Gelsinger, who had spent the first 30 years of his career at Intel, returned to the company as CEO in 2021, “I believe we are unleashed and focused, and our drive in the PC has in a way never been more intense.”

. . .

Geopolitical factors, for one, have the potential to change the entire chip industry virtually overnight. Intel could suddenly become the only game in town for the most advanced kind of chip manufacturing, if American tech companies lose access to TSMC’s factories on account of China’s aggression toward Taiwan, says Patrick Moorhead, a former executive at Intel competitor AMD, and now head of tech analyst firm Moor Insights & Strategy.

When it comes to Intel, he adds, “Never count these guys out.”

For the full commentary, see:

Christopher Mims. “KEYWORDS; Is This the End of ‘Intel Inside’? Not If Intel Has Anything to Say About It.” The Wall Street Journal (Saturday, Dec. 2, 2023): B13.

(Note: ellipses added.)

(Note: the online version of the commentary has the date December 1, 2023, and has the title “KEYWORDS: CHRISTOPHER MIMS; Is This the End of ‘Intel Inside’?”)

FDA Commissioner Said FDA Was “Too Slow” to Allow Foreign Firms to Supply Baby Formula to Fill Empty Shelves in U.S. Stores

(p. A3) Federal health regulators outlined plans Friday [Sept. 30, 2022] that will allow overseas baby-formula makers to continue selling their products in the U.S. long term following a baby-formula shortage that led to empty shelves at some stores.

. . .

The guidance is expected to help bolster the supply chain for baby formula and could be a financial gain for global manufacturers that have long sought to enter the concentrated U.S. market, where Abbott Laboratories and Reckitt Benckiser Group account for most infant- and toddler-formula sales.

. . .

The FDA responded by temporarily letting foreign manufacturers ship their products to the U.S. FDA Commissioner Robert Califf commissioned an external review of the agency’s food division, saying in congressional testimony that the agency’s response to the shortage was too slow.

For the full story, see:

Stephanie Armour. “FDA Sets New Plan On Baby Formula.” The Wall Street Journal (Saturday, Oct. 1, 2022): A3.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story has the date September 30, 2022, and has the title “Overseas Baby-Formula Makers Given Path to Keep Selling in U.S.”)

Perverse Medicare Pricing Incentives Drive Hospital Consolidation Inefficiency

(p. A17) Currently, Medicare pays hospital-owned facilities two to three times as much as independent physician offices for the same service, according to the Alliance for Site Neutral Payment Reform. This creates an enormous incentive for large hospital chains to acquire outpatient practices. Consolidation creates a vicious circle in which larger hospital systems can demand ever higher rates from insurers and also have the capital to buy up physician practices. Removing this perverse incentive will ensure that patients have access to trusted doctors and appropriate care at the same price regardless of treatment location and remove artificial pressure to consolidate.

These bipartisan reforms would deliver hundreds of billions in savings for families. Site-neutral payments would save taxpayers more than $153 billion in Medicare spending over the next decade and also substantially reduce premiums and cost-sharing for Medicare beneficiaries by $94 billion, according to CRFB. In total, these changes could save patients and taxpayers between $346 billion and $672 billion over the next decade.

Large hospital systems have exploited our nation’s outdated billing systems to foist gigantic bills on Americans. Bringing much-needed transparency in hospital billing will deliver more affordable care and put patients back in control.

For the full commentary, see:

Bobby Jindal and Charlie Katebi. “Doctor’s Office Care at Hospital Prices.” The Wall Street Journal (Thursday, July 27, 2023): A17.

(Note: the online version of the commentary has the date July 26, 2023, and has the same title as the print version.)

Federal Trade Commission (FTC) Seeks to Bury Merging Firms in Paperwork

(p. A13) The Federal Trade Commission is trying to make it harder for companies to merge by burying them in paperwork. The FTC’s proposed overhaul of a critical part of the U.S. merger review process would increase the average time to prepare a merger filing from 37 hours to 144. According to the agency’s calculations, that’s roughly $350 million in added costs for an estimated 7,100 filings a year, which would be a boon for lawyers but a burden for businesses.

The one-size-fits-all proposal to add dozens of hours of paperwork per deal—regardless of competitive concerns—is an overreach by the FTC and the Justice Department’s antitrust division that will disproportionately chill investments at the lower end of the reporting threshold.

For the full commentary, see:

Christopher Williams and Henry Hauser. “Antitrust Officials Pile on the Paperwork.” The Wall Street Journal (Wednesday, July 5, 2023): A13.

(Note: the online version of the commentary has the date July 4, 2023, and has the same title as the print version.)

Bell Labs Allowed Tanenbaum to Pursue Any Research that Interested Him

(p. A11) One evening in 1955, Morris Tanenbaum’s wife was playing bridge with friends. Dr. Tanenbaum, a chemist who worked for Bell Telephone Laboratories, the research arm of American Telephone & Telegraph Co., saw a chance to dash back to work to test his latest ideas about how to make better semiconductor devices out of silicon.

He tried a new way of connecting an aluminum wire to a silicon chip. He was thrilled when it worked, providing a way to make highly efficient transistors and other electronic devices, an essential technology for the Information Age.

“I don’t think I needed a car to get home that evening,” he said later in an oral history recorded by the IEEE History Center. “I was flying high.”

Dr. Tanenbaum’s pioneering work in the mid-1950s demonstrated that silicon was a better semiconductor material for transistors than germanium, the early favorite. He earned seven patents.

He later served as a senior executive of AT&T and helped manage the breakup of the phone monopoly mandated by the 1982 settlement of a Justice Department antitrust suit. At the signing of the consent decree, Dr. Tanenbaum cried gently, according to “The Deal of the Century,” a history of the breakup by Steve Coll.

What pained him most was the fate of Bell Laboratories, which had invented the transistor in 1947 and allowed him, as a young Ph.D. chemist in the early 1950s, to pursue basic research even if it didn’t promise near-term financial rewards. . . .

“Bell Laboratories, the world’s premier industrial laboratory, was destroyed, a major national and global tragedy,” he wrote later in an unpublished memoir written for his family.

. . .

Hired by Bell Laboratories in Murray Hill, N.J. in 1952, he was told to look around for a research project that interested him. Researchers were allowed to pursue nearly any project “potentially related to some Bell System problem or future opportunity,” he wrote later. “What more could a young person expect?”

He zeroed in on studies of potential semiconducting materials. The first transistors were made from germanium, but that material was expensive. Silicon is abundant and thus cheaper. It also helps prevent overheating of circuits. Early efforts to use silicon for electronic devices hadn’t worked well, though. That was a challenge for Dr. Tanenbaum and his colleagues, including Ernie Buehler.

They weren’t alone in finding ways to use silicon. Gordon Teal was doing similar work at Texas Instruments Inc. in the mid-1950s. “From that moment forward, the world was focused on silicon,” Dr. Tanenbaum wrote.

Though AT&T made early breakthroughs, other companies, including Intel Corp. and Texas Instruments, charged ahead with better and faster microchips that transformed the world. AT&T was busy trying to defend its telephone monopoly. On the silicon front, Dr. Tanenbaum said, “we kind of dropped the ball.”

For the full obituary, see:

James R. Hagerty. “Chemist Helped Put Silicon in Microchips.” The Wall Street Journal (Saturday, March 04, 2023): A11.

(Note: ellipses added.)

(Note: the online version of the obituary has the date March 3, 2023, and has the title “Morris Tanenbaum, Who Helped Put Silicon in Microchips, Dies at 94.” The fourth paragraph quoted above appears in the online, but not the print, version.)

The book by Col mentioned above is:

Coll, Steve. The Deal of the Century: The Breakup of AT&T. New York: Atheneum Books, 1986.

The “Affordable” Care Act Gives Huge Drug Subsidies to Rich, Urban “Nonprofit” Hospitals

(p. A1) A decades-old federal program that offered big drug discounts to a small number of hospitals to help low-income patients now benefits some of the most successful nonprofit health systems in the U.S.

Under the program, hospitals buy drugs at reduced prices and sell them to patients and their insurers for much more, often at facilities in affluent communities.

One participant is the Cleveland Clinic’s flagship hospital, which reported $1.35 billion in net income last year. The hospital doesn’t admit enough Medicaid and low-income Medicare patients to qualify for low-cost drugs under the program’s original requirements. But a quirk in federal law allowed the hospital to qualify as a “rural referral center,” despite its location near the center of Cleveland.

Despite the benefits, the program hasn’t resulted in new drug discounts for low-income Cleveland Clinic patients, nor has it caused the hospital to increase the financial assistance it offers to those who can’t afford care. (p. A10) The charity care the main hospital writes off represents less than 2% of its patient revenue, according to a Wall Street Journal analysis of hospital Medicare filings.

. . .

The hospital’s $1.35 billion net income figure for 2021, she said, includes investment returns.

Cleveland Clinic’s adoption of the drug-discount program at its main hospital in April 2020 produced about $136 million in savings on drugs that year, the spokeswoman said.

The federal drug-discount program, known as 340B after the statutory provision that created it, requires pharmaceutical companies to sell drugs to participating hospitals at reduced prices. The program has grown rapidly in recent years. It now includes about 2,600 nonprofit and government hospitals, which spent at least $38 billion on discounted drugs last year, according to the Health Resources and Services Administration, the federal agency known as HRSA that oversees the program.

What the hospitals do with their valuable discounts isn’t always clear.

The program doesn’t require participating hospitals to pass on drug discounts to patients, insurers or Medicare. There is no rule limiting how much they can charge for the drugs. They don’t have to report how much they make from such sales, nor do they have to spend any profits to benefit low-income patients.

. . .

The 2010 Affordable Care Act brought a big expansion of 340B, adding new categories including critical access hospitals, which are small, typically rural facilities, and rural referral centers, which are supposed to be rural hospitals that treat a large volume of patients, including many complicated cases.

Under the federal definition of rural referral centers, hospitals that aren’t in rural locations could still qualify if they meet other criteria—minimally, having at least 275 beds. There is no requirement to serve rural patients.

. . .

“We were trying to help rural hospitals,” said Robert Kocher, an Obama White House health adviser involved in crafting the ACA who is now at venture-capital firm Venrock. “It would not be our intention to have a medical center in Cleveland, Boston or Chicago be included.”

For the full story, see:

Anna Wilde Mathews, Paul Overberg, Joseph Walker and Tom McGinty. “Drug Discounts Aimed at Needy Boost Hospitals.” The Wall Street Journal (Wednesday, Dec. 21, 2022): A1 & A10.

(Note: ellipses added.)

(Note: the online version of the story has the date December 20, 2022, and has the title “Many Hospitals Get Big Drug Discounts. That Doesn’t Mean Markdowns for Patients.”)