Rajan Wilcox
Hospitals have been acquiring independent practices in recent years, creating near-monopolies on physicians. This has resulted in higher prices for patients, employers, and taxpayers. These mergers often go unnoticed by federal antitrust authorities as they are considered small deals. However, they have a significant impact on the market, with large doctor practices exceeding federal guidelines for market concentration. The FTC has taken an active role in preventing anti-competitive business deals in the healthcare industry, but rural communities remain vulnerable to the effects of hospital mergers, with higher prices and reduced services.
| Characteristics | Values |
|---|---|
| Hospitals acquiring independent practices | In 2015, hospitals owned 26% of physician practices, up from 12% in 2012 |
| Physician markets exceeding federal monopoly guidelines | 43% in 2013 |
| Hospitals employing physicians | 38% of all physicians in 2015, up from 26% in 2012 |
| Large practice acquisitions | 15% of growth from acquisitions of 11+ doctors |
| Small practice acquisitions | 50% of growth from acquisitions of 10 or fewer doctors |
| Federal notification threshold | $80 million |
| FTC merger challenges | 24 in 2022 |
| California healthcare markets | Approaching monopoly levels |
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What You'll Learn
- Hospitals acquire independent practices, creating near-monopolies on physicians
- Federal guidelines for market concentration are exceeded
- Doctor deals are too small to trigger official notice to federal antitrust authorities
- Large, predominant practices are increasingly owned by hospitals
- The FTC lacks tools to challenge smaller transactions
Hospitals acquire independent practices, creating near-monopolies on physicians
In recent years, hospitals have been on a doctor-buying spree, acquiring many independent practices and creating near-monopolies on physicians. This trend has resulted in large doctor practices, many of which are owned by hospitals, exceeding federal guidelines for market concentration. This has led to increased prices for patients, employers, and taxpayers.
One reason for this trend is that hospitals see controlling doctors as a way to coordinate care and ensure patient referrals and revenue. According to a study, hospitals owned 26% of physician practices in 2015, a significant increase from 12% in 2012. Additionally, they employed 38% of all physicians in 2015, up from 26% in 2012. The growth of these large practices is often fueled by acquisitions of ten or fewer doctors at a time, which falls below the threshold for notification to anti-monopoly authorities.
The Federal Trade Commission (FTC) has taken an increasingly active role in cracking down on anti-competitive business deals in the healthcare industry. In 2022, the FTC brought 24 merger enforcement challenges, the second-highest number in the last decade. However, the FTC lacks the tools to challenge numerous smaller transactions that collectively result in increased concentration and higher prices.
To address this issue, Ody, the author of the study, urged state attorneys general and insurance commissioners to scrutinize doctor combinations more closely. State officials have the power to question mergers that may have been overlooked by federal authorities. By taking a proactive approach, states can help prevent the formation of healthcare monopolies and protect patients from unfair price increases.
Overall, the trend of hospitals acquiring independent practices and creating near-monopolies on physicians is concerning. It has led to increased prices and reduced competition, which can harm patients and hinder their access to affordable and quality healthcare.
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Federal guidelines for market concentration are exceeded
According to the US Department of Justice and Federal Trade Commission, a market with an HHI of between 1,000 and 1,800 is considered moderately concentrated, while an HHI of more than 1,800 is considered highly concentrated. A highly concentrated market may indicate that there is a lack of competition and potential for collusion among firms, leading to higher prices and reduced consumer welfare.
In the context of healthcare, research has shown that hospitals have been acquiring independent physician practices, leading to increased market concentration and the creation of near-monopolies. In 2013, 43% of physician markets examined were found to be highly or moderately concentrated according to federal guidelines. This concentration has been driven by hospital acquisitions of smaller doctor practices, as well as the hiring of doctors out of medical school. As a result, prices for patients, employers, and taxpayers have increased.
Federal regulations require notification to anti-monopoly authorities only for mergers worth $80 million or more. This means that many acquisitions involving a small number of doctors do not trigger official notice, allowing hospitals to create near-monopolies without attracting attention from federal antitrust authorities.
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Doctor deals are too small to trigger official notice to federal antitrust authorities
In recent years, hospitals have been on a doctor-buying spree, acquiring many independent practices and creating near-monopolies on physicians. Research reveals that large doctor practices, mostly owned by hospitals, exceed federal guidelines for market concentration in over 20% of the areas studied. Despite this, federal antitrust authorities are often unaware of these mergers as doctor deals are typically too small to trigger official notice.
Federal regulations require notification to anti-monopoly authorities only for mergers worth $80 million or more. This means that acquisitions involving a handful of doctors, which are common, are not subject to the same scrutiny. For example, a study by Ody and colleagues found that only 15% of the growth of the largest physician groups from 2007 to 2013 came from acquisitions of 11 doctors or more. About half of the growth of these big practices involved acquisitions of 10 or fewer doctors.
The American Hospital Association (AHA) often argues that "hospital deals are different" and that doctor acquisitions ensure continuity of care for patients. While the FTC has blocked or undone some sizable doctor mergers, it often lacks the tools to challenge smaller transactions that can lead to the same result. As a result, state officials may need to step in and question mergers overlooked by federal authorities or block anti-competitive practices, such as hospitals excluding competitor physicians from insurance networks.
Ody, a Northwestern University economist and one of the study's authors, urges state attorneys general and insurance commissioners to pay closer attention to these "doctor combos." He highlights the small scale of hospital-doctor mergers, with hospitals often buying one doctor at a time or a group of five, which adds up to significant market concentration. This dynamic allows hospitals to raise prices without losing customers due to a lack of competitors.
In conclusion, while doctor deals may be too small to trigger official notice to federal antitrust authorities, they contribute to the growing trend of hospital mergers fueling healthcare monopolies. This issue warrants attention from state officials and creative solutions to address the impact on patients, employers, and taxpayers.
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Large, predominant practices are increasingly owned by hospitals
Hospitals have been on a doctor-buying spree in recent years, acquiring many independent practices and creating near-monopolies on physicians. Research reveals that large doctor practices, predominantly owned by hospitals, exceed federal guidelines for market concentration in over 20% of the areas studied. These mergers often go unnoticed by federal antitrust authorities as they are too small to trigger official notice.
According to studies, hospitals owned 26% of physician practices in 2015, a significant increase from 12% in 2012. They employed 38% of all physicians in 2015, up from 26% in 2012. The growth in large physician groups is attributed to acquisitions of smaller practices with ten or fewer doctors, rather than large-scale mergers. Federal regulations require notification to anti-monopoly authorities only for mergers valued at $80 million or more, which is typically larger than acquisitions involving a few doctors.
Hospitals view these acquisitions as a way to coordinate care, ensure patient referrals, and maintain revenue. However, the consequences include higher prices for patients, employers, and taxpayers. This is partly due to Medicare and other insurers paying hospital-based doctors more than independent practitioners. The large practices resulting from these mergers also hold a lock on business due to their limited competition, allowing them to charge higher prices without fear of losing customers.
The Federal Trade Commission (FTC) has taken an increasingly active role in challenging anti-competitive mergers in the healthcare industry. They have blocked or undone several sizable doctor mergers and are authorized to review potential mergers valued above $200 million. Despite these efforts, the FTC often lacks the tools to challenge numerous smaller transactions that collectively contribute to the formation of monopolies.
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The FTC lacks tools to challenge smaller transactions
In recent years, hospitals have been on a doctor-buying spree, acquiring many independent practices and creating near-monopolies on physicians. This has resulted in higher prices for patients, employers, and taxpayers. While the FTC has taken action against a few sizable doctor mergers, it often lacks the tools to challenge smaller transactions that contribute to the same outcome.
Federal regulations require notification to anti-monopoly authorities only for mergers worth $80 million or more, which is far larger than any acquisition involving a small number of doctors. As a result, many doctor deals fly under the radar, attracting neither official notice from federal antitrust authorities nor public attention. This has allowed hospitals to acquire independent practices without scrutiny, leading to increased market concentration and higher prices.
The FTC's ability to review mergers is limited to those valued above $200 million. While the FTC has taken an increasingly active role in cracking down on anti-competitive business deals, its focus has been on preventing consolidation in other sectors of the economy, such as consumer goods, high tech, and energy. In the healthcare industry, the FTC's efforts have been less prominent, with only a few notable interventions in doctor mergers.
The lack of tools to challenge smaller transactions has significant consequences for patients, employers, and taxpayers. Smaller mergers that go unchecked can still contribute to the formation of monopolies or near-monopolies, reducing competition and driving up prices. This is especially true in rural communities, where the elimination of just one or two competitors can give remaining hospitals significant power to set prices without fear of competition.
To address this issue, Ody, the author of the study, urged state attorneys general and insurance commissioners to scrutinize doctor combinations more closely. State officials have the power to question mergers that may have been overlooked by federal authorities, providing an additional layer of protection for consumers.
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Frequently asked questions
Hospitals have been on a doctor-buying spree, acquiring many independent practices and creating near-monopolies on physicians. These large, predominant practices are often owned by hospitals, which see control of doctors as a way to coordinate care and ensure patient referrals and revenue.
The formation of monopolies allows a handful of hospital networks to charge high prices without being challenged. Several studies confirm that bigger and fewer doctor practices, fueled by hospital acquisitions, drive up prices for patients, employers, and taxpayers.
Rural communities are often hit the hardest when large healthcare corporations buy up their hospitals. With fewer hospitals, patients struggle to access care. Additionally, large hospital corporations may eliminate crucial service lines, such as obstetrics and maternal care, deeming them less profitable or less important.
The FTC has the power to review and block mergers that are valued above $200 million if they are deemed to substantially prevent competition. In recent years, the FTC has taken a more active role, bringing an increased number of merger enforcement challenges to protect patients.
A California Health Care Foundation report found that most markets across California are highly concentrated, with hospital markets approaching "monopoly levels" in many counties. This consolidation has resulted in increased prices for healthcare services, reduced wages for health workers, and a negative impact on quality.
