Mergers of Nonprofit Hospitals: Rectifying a (Serious) Failure of Antitrust Enforcement

Abstract:     
Although federal judges have resisted giving due effect to standard antitrust principles in scrutinizing mergers of nonprofit hospitals, the presence of health insurance makes it especially important to oppose monopoly in health services markets. U.S.-style health insurance gives monopolist providers extraordinary pricing freedom, thus exacerbating monopoly’s usual redistributive effects. Significant allocative inefficiencies - albeit not the kind generally associated with monopoly - also result when the monopolist is a nonprofit hospital. Because it is probably impossible to undo past hospital mergers creating undue market power, we suggest another remedy: the application of antitrust rules against "tying" arrangements so that purchasers can more easily frustrate hospitals' profit-enhancing practice of overcharging for large bundles of services rather than separately exploiting each monopoly they possess.

Working Paper Series