Hospital mergers: the shift from federal antitrust enforcement to state regulation.

The authors examine and analyze the burgeoning merger activity in the hospital arena, as well as the nonfederal attempts made to regulate that activity. They conclude that the present, ad hoc, system of state regulation is sorely wanting and that it would be preferable if stronger antitrust enforcement and judical decisions prevented competition reducing mergers. If a merger results in a true monopoly (and nonetheless passes antitrust scrutiny), its regulation should be the responsibility of the pertinent state public utility board which, unlike the courts and state attorneys general, has sufficient expertise to adequately regulate the merged entities. Otherwise, the faults of the present system, which is easily manipulated by hospitals seeking political and legal cover for their activities, are likely to be perpetuated.

Rural hospital mergers, antitrust policy, and the Ukiah case.

This article examines the antitrust issues in rural hospital mergers by focusing on an important antitrust case involving the merger of two small hospitals in Ukiah, California. A key issue in this matter was whether the geographic market served by the merger included a nearby larger city. The economic efficiency of small rural hospitals and the competitive implications of their mergers are examined in the context of the Ukiah case. Economies of scale are shown to be important for small rural hospitals and should mitigate any increase in price. The efficiencies defense is shown to be difficult to make even when economies of scale make the likelihood of efficiencies high. The financial difficulties of many rural hospitals, especially in areas where too many exist, mean that mergers such as this one in Ukiah often are an efficient way to keep these hospitals financially sound and accessible. The Ukiah case suggests the desirability of the merger guidelines that permit most mergers of small rural hospitals.

Exclusive arrangements in the hospital industry.

There have been numerous antitrust cases concerning exclusive hospitals privileges. The plaintiff often alleges both that he was foreclosed from the market and that an illegal tying agreement exists. This paper, which draws heavily from the cases, concludes both that the relevant market for hospital based physicians is national and that the impact on competition is minimal. The hospital frequently initiates the exclusive arrangement which suggests that efficiency is enhanced. Our analysis also shows that the tying claims are generally unpersuasive. However, exclusive arrangements on occasion may be a device to exclude competitors. Finally, economic criteria are developed to help determine the desirability of particular exclusive arrangements.

Hospital mergers and antitrust: an economic analysis.

The hospital industry has recently experienced substantial merger activity. This paper examines several actual and proposed hospital mergers to determine the extent of competition in the affected markets and the effect these mergers may have on competition. Our focus is on mergers between hospitals in the same market. We define the relevant product and geographic market for hospitals, then develop criteria for evaluating hospital mergers and analyze several merger cases using these criteria. We conclude that these mergers threaten the competition that exists in most of the markets discussed, and that the claimed efficiency justification for mergers is not convincing.

Competition's flawed perspective on the health care market and an alternative approach.

This article contends that competition advocates have treated the public market as peripheral to the development of a private allocative efficient market based on price determinations. A system which omits 40% of distributive resources, 30% of its users and over 50% of hospital revenues sets the stage for cost/charge spirals that promote greater inefficiencies than those which presently exist. The government in the sixties set a goal of universal quality service for medical care. However, this goal has not been achieved and the sky-rocketing cost for medical care is putting an increasing burden on the government. The authors attempt to provide a basis for the incorporation of the concept of the mixed market through a definition of public and private reimbursement systems. The public sector, rather than paying directly for care, purchases it in an efficient market which it helps to form. The government working with other health insurance companies in the private market attempts to set reasonable charges for reimbursement for medical services. Any price above the competitive level will be paid directly by the consumer. However, quality care is guaranteed to the consumer at the reasonable charge by insurance company referred physicians.