The revolution in health care antitrust: New methods and provocative implications

David Dranove*, Andrew Sfekas

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

9 Scopus citations

Abstract

Context: In recent years, federal courts have permitted hospital consolidations and other potentially anticompetitive actions by accepting hospitals' claims that they compete in expansive geographic markets. Recent events, including two actions by the U.S. Federal Trade Commission, suggest that antitrust is undergoing a sea change, thanks in part to new methods for defining geographic markets. This article reviews the recent history of hospital antitrust, describes the methods used to define markets, and illustrates the new methods by considering two consolidations recently proposed by a New York regulatory agency. Methods: The new methods for defining geographic markets rely on estimates from conditional choice models using patient-level hospitalization data. These estimates are the raw material for computations of price effects derived from a theoretical model of hospital pricing in a managed care environment. Findings: Applying these methods to two proposed consolidations in New York shows that one of the mergers would likely raise prices by a substantial amount without the promise of offsetting efficiencies but that the other would not have this effect. Conclusions: New methods for geographic market definition may fundamentally alter how courts will evaluate antitrust challenges. Although additional research is necessary to refine the predictions of these new methods, consolidating hospitals, as well as any other hospitals engaging in potentially anticompetitive conduct, can no longer anticipate a friendly reception in the courtroom.

Original languageEnglish (US)
Pages (from-to)607-632
Number of pages26
JournalMilbank Quarterly
Volume87
Issue number3
DOIs
StatePublished - Sep 1 2009

Keywords

  • Health economics
  • Hospital antitrust
  • Hospitals
  • Mergers

ASJC Scopus subject areas

  • Health Policy
  • Public Health, Environmental and Occupational Health

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