Skip to content

Return to the Full Article View You can republish this story for free. Click the "Copy HTML" button below. Questions? Get more details.

FTC, Calif. AG Put Pressure on M&A — and Confuse Providers

Today is the Federal Trade Commission’s birthday, but hospitals aren’t celebrating.

The agency has deepened its pressure on hospital deal-making — scrutinizing dozens of mergers, filing motions to block several acquisitions and even examining whether hospitals’ purchases of physician groups may be anti-competitive.

And federal regulators’ efforts are trickling down to the state level. As reported in California Healthline last week, Golden State’s attorney general has launched her own study of whether hospital-physician consolidation is leading to higher health care costs.

Industry leaders say that the regulators’ timing couldn’t be worse, or more confusing. Even as doctors and hospitals deal with ever-tighter reimbursement concerns, the Affordable Care Act pushes them to align in new structures. The M&A activity is necessary to survive, the American Hospital Association argued in an amicus brief filed to a federal appeals court this week.

Essentially, it comes down to a fundamental question that officials can’t seem to decide how to answer.

Should health care providers compete — or consolidate?

Background on Debate

When “Road to Reform” first looked at provider market power concerns back in 2010, the competition vs. consolidation debate was largely confined to health care academic journals and trade conferences.

And as the debate has heated up, both approaches continue to have their supporters and detractors.


For years, competition in health care was perceived as a net good.

Doctors opened their own offices, hospitals worked to lure consumers and providers bargained for better rates than their neighbors.

Health officials and legislators in both political parties generally like the idea of doctors and hospitals competing on quality — that Medicare should ultimately reward top performers with higher payments, for example.

But competition in health care is heavily regulated compared to competition within other industries. Many states have Certificate of Need laws that require providers to receive approval for new facilities or even high-end equipment, in hopes of tamping down unnecessary spending.

And federal officials have sometimes squashed emerging competitors, who could have introduced new models to benefit consumers. After years of hospital lobbying, the Affordable Care Act essentially squelched the development of doctor-owned hospitals.

There’s also a school of thought that competition in health care is wasteful. Does every hospital really need a cutting-edge, 64-slice CT scanner? Is the profit motive a destructive force? Are so many stand-alone hospitals and physicians contributing to lack of care coordination?


These questions about competition, and the broader fee-for-service payment structure, have helped drive health care industry’s renewed move toward integration and a slew of new payment reforms. Accountable care organizations, bundled payments, medical homes — pick your model. All are included in the ACA, which incents providers to band together in hopes of providing better and less-expensive care.

But FTC is concerned that the rise in mergers and acquisitions is creating a damaging market environment. According to FTC Chair Jon Leibowitz, some hospital mergers lock up health care markets and lead to higher prices for patients and insurance companies. “If you want to do something about controlling costs in health care, you have to challenge anticompetitive hospital mergers,” Leibowitz has said.

FTC in 2002 reinvigorated its scrutiny of hospital mergers after numerous unsuccessful attempts to block deals. Since then, the agency has challenged several consolidation efforts, including a hospital merger in Toledo, Ohio, and more recently, a Nevada health system’s effort to lock 10 cardiologists into non-compete contracts. Specifically, FTC alleged that the health system gained too much market control of cardiology services in the region after acquiring two area practices.

Golden State’s Role: Staging Ground, Battleground

In some ways, California is ground zero for the competition vs. consolidation debate. That’s partly because the state is home to a number of large, profitable hospital chains — competing up and down the coast, as well as into rural areas — in addition to several well-known integrated delivery systems, like Kaiser Permanente.

But it’s also because the Golden State is where federal anti-trust regulators suffered a major defeat: losing a prominent 1999 effort to block Sutter Health’s acquisition of Summit Medical Center. The loss capped off a string of defeats for FTC and state officials but later fueled regulators’ comeback. When FTC renewed its scrutiny of provider mergers in the 2000s, the agency muscled up by commissioning a study of how the Sutter-Summit merger ultimately affected the market.

That 2008 study found that the merger led to “a substantial price increase” and questioned whether current anti-trust protections were sufficient; FTC has since cited the study to preemptively argue against mergers like the Toledo, Ohio, case.

FTC’s effort was followed in 2010 by a Center for Studying Health System Change study that reviewed a number of provider mergers in the Golden State. Researchers concluded that consolidation ultimately strengthened providers’ negotiating power, resulting in higher premiums and raising questions over whether consolidation really helped the market.

California AG Drills Down on Doctor Acquisitions

While the most attention has focused on hospital mergers, an investigation launched by California Attorney General Kamala Harris represents the latest front of M&A scrutiny: Are hospitals’ acquisitions of physician groups leading to higher health care costs?

Harris’ investigation, which has been under way for several months, reportedly centers on several large hospital systems, like Dignity Health and Scripps Health, and whether they’ve gained enough market power to increase prices in a way that violates antitrust laws.

The California Hospital Association has pushed back, with CHA President Duane Dauner suggesting that the allegations ignore the new “demands … [and] expectations being created by federal and state laws.”

Meanwhile, the investigation raises doubts for hospital leaders pursuing the increasingly common strategy of acquiring physician practices and employing specialists. Hospitals now employ 40% of primary care physicians who see patients at the hospital, a rate that has doubled since 2000, the Wall Street Journal reports.

What’s Next: More Questions and a Key Court Date

So the challenge for providers: How to move forward when officials are sending mixed signals? And what to do with the consolidation that’s already well under way?

According to Irving Levin Associates, U.S. hospitals announced nearly 90 mergers last year — the highest level in more than a decade. And more providers continue to explore partnerships intended to increase efficiency as payers tighten fees.

Some answers may come from the Supreme Court, as a case that may reshape hospital deal-making looms this fall. FTC on Nov. 26 will argue that a Georgia health system — Phoebe Putney — broke antitrust rules in its 2011 purchase of Palmyra Medical Center.

While Phoebe Putney is a public hospital, which means that FTC’s argument focuses on whether state-run organizations can disregard federal antitrust law, the case is the most high-profile effort to prevent hospital mergers and the ruling may set a new precedent on what qualifies as anticompetitive behavior in health care. “Road to Reform” will be watching — and reporting — on the outcome.

Here’s what’s happening around the nation.

Administration Actions

  • On Monday, HHS touted a newly implemented provision of the Affordable Care Act that requires insurers to provide members with an easy-to-understand summary of benefits and out-of-pocket costs of their health plans (Morgan/Humer, Reuters, 9/24). HHS said the summaries are now available for consumers in the individual insurance market, and will be made available to those in group health plans during their next open enrollment period (Zigmond, Modern Healthcare, 9/24).

Challenges to Reform

  • Last week, Oklahoma Attorney General Scott Pruitt (R) filed a lawsuit arguing that the government does not have the authority under the ACA to offer subsidies to help U.S. residents purchase coverage in federally run health insurance exchanges. Since the state has said that it will not create an exchange, Pruitt argues that it should not be subjected to the employer mandate, which penalizes companies for not offering affordable coverage to workers if they receive a subsidy (Radnofsky, Wall Street Journal, 9/19).

Eye on the Courts

  • Last week, federal District Court Judge Keith Starrett ruled that a lawsuit filed by Mississippi Gov. Phil Bryant (R) and a resident challenging the ACA’s individual mandate is “premature” because the plaintiffs would not be affected by the law unless they dropped their health coverage (AP/Atlanta Journal-Constitution, 9/16).

In the States

  • Despite opposing the ACA, officials in several Republican-led states are working toward meeting the law’s Nov. 16 deadline for having a framework ready for a health insurance exchange. At least four states — Arizona, Mississippi, Nevada and New Mexico — have completed enough planning to meet the deadline. California Health Benefit Exchange Executive Director Peter Lee said some officials in those states are trying to keep their plans to set up exchanges secret to avoid upsetting opponents of the law (Goodnough, New York Times, 9/23).
  • Massachusetts’ health care cost-control law provides a model for federal and state lawmakers looking to limit the growth of health care costs, according to a new analysis published last week in the journal Health Affairs. Among other recommendations, the analysis said that implementing near-universal health coverage — as planned under the ACA in 2014 — will increase pressure on government to enact payment reform (Brimmer, Healthcare Finance News, 9/20).

On the Hill

  • Last week, the House Energy and Commerce Committee voted 26-14 to approve legislation (HR 1206) that would amend the ACA’s medical-loss ratio provision to exclude insurance agents’ and brokers’ fees from the MLR calculation. Republicans said the bill would help protect the jobs of insurance agents and brokers, while Democrats said it would weaken consumer protections (Baker, “Healthwatch,” The Hill, 9/20).

Rolling Out Reform

  • Last week, Republicans and Democrats traded barbs over the ACA’s potential effect on enrollment and benefits for Medicare Advantage plans. At a hearing, Rep. Wally Herger (R-Calif.) said the ACA’s $300 billion in cuts over the next decade will force many insurers out of the MA program and leave beneficiaries with additional costs (Pittman, MedPage Today, 9/21). Democrats argued that the cuts will not harm beneficiaries, while CMS issued a report showing that enrollment in MA plans is likely to increase by 11% next year while premiums are expected to remain steady (Carey, Kaiser Health News, 9/21).
KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

Some elements may be removed from this article due to republishing restrictions. If you have questions about available photos or other content, please contact