Preserving Competition

When a health entity owns more than one hospital or health plan in an area, it may wield too much power and control over the delivery of health care in that community. Just as the buyer will argue it will become more “efficient,” the buyer may also raise prices and diminish quality if this “efficiency” translates into less competition. The Federal Trade Commission is responsible for reviewing antitrust concerns for hospital transactions under the federal Hart-Scott-Rodino Antitrust Improvements Act. In order to qualify for FTC review, the acquisition must meet strict requirements relating to the size and financial strength of the corporations involved. For the FTC to review a sale, both parties must have assets of more than $100 million, and the purchasing entity must have at least $50 million in the seller’s assets when the sale is completed. The FTC must be notified of the sale before it is completed, and is given 30 days to investigate and determine whether there are antitrust implications. The FTC has not often taken the position that a proposed hospital or health plan merger will have a negative effect on marketplace competition. That trend may be changing, however.

In early 2003, the FTC began an investigation into the proposed sale of Slidell Memorial Hospital to Tenet. With that sale, Tenet would have been the only medical services provider in Slidell, Louisiana. Members of the community were concerned that the quality of service would suffer and prices would increase if Tenet owned all of the hospital beds in Slidell. Because Slidell Memorial was a public hospital, Louisiana law allowed the community to vote on whether the conversion should occur. There was much discussion of the antitrust issues. Newspapers inaccurately reported that the FTC had no such concerns about the sale, despite the fact that it had conducted an extensive investigation and had interviewed many community members about the sale. Four days before the public vote, the FTC issued a letter saying it was concerned about the anti-trust implications of the sale. Click here to see the FTC’s letter to the Louisiana Attorney General (PDF). This was the first time the FTC has issued a comment outside of the litigation context on a hospital conversion. At the polls, the community overwhelmingly rejected the proposed conversion.

Read this report by the FTC about the proper role of competition in the health care industry (PDF).

What You Can Do:

• Ask the parties to articulate why this transaction does not implicate marketplace competition. Will they, for example, cap price increases and commit to maintaining service levels and quality?
• If the conversion involves parties that are each worth more than $100 million, ask the FTC to investigate the antitrust implications.
• If the conversion involves smaller parties, ask the Attorney General or other regulator to investigate the effects on competition.