The Plan to Stabilize and Strengthen New York's Health Care System: An Antitrust Perspective, Milbank Quarterly
Context: In recent years, federal courts have facilitated hospital consolidations and other potentially anticompetitive actions by accepting hospital claims that they compete in expansive geographic markets. Recent events, including two Federal Trade Commission actions, suggest that a sea change in antitrust is ongoing, thanks in part to the development of new methods for defining geographic markets. In this paper we review the recent history of hospital antitrust and describe the evolving methods used to define markets. We illustrate 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, we find that one of the mergers would likely raise prices by a substantial amount without the promise of offsetting efficiencies. Conclusions: New methods for geographic market definition fundamentally alter how courts will evaluate antitrust challenges. Although additional research is necessary to refine the predictions of tehse new methods, consolidating hospitals, as well as any other hospitals engaging in potentially anticompetitive conduct, can no longer rely on a friendly reception in the courtroom.
David Dranove, Andrew Sfekas
Dranove, David, and Andrew Sfekas. 2009. The Plan to Stabilize and Strengthen New York's Health Care System: An Antitrust Perspective. Milbank Quarterly. 87(3)