Quality-Enhancing Merger Efficiencies

29 Pages Posted: 28 Oct 2014 Last revised: 29 Sep 2015

See all articles by Roger D. Blair

Roger D. Blair

University of Florida - Warrington College of Business Administration - Department of Economics

D. Daniel Sokol

University of Florida Levin College of Law

Date Written: October 26, 2014

Abstract

The appropriate role of merger efficiencies remains unresolved in US antitrust law and policy. The Patient Protection and Affordable Care Act (ACA) has led to a significant shift in health care delivery. The ACA promises that increased integration and a shift from quantity of performance through increased competition will create a system in which quality will go up and prices will go down. Increasingly, due to the economic trends that respond to the ACA, including considerable consolidation both horizontally and vertically, it is imperative that the antitrust agencies provide an economically sound and administrable legal approach to efficiency enhancing mergers. In this regard, horizontal hospital mergers present particularly challenges for antitrust. Most hospital merger cases focus on cost based efficiencies, as does most of the academic empirical literature. Yet, government policy seems out of synch with quality analysis. This essay proceeds as follows. First, it provides a discussion of the welfare effects on quality and its implications for antitrust analysis. In the next part, the article explores quality analysis both in the 2010 Horizontal Merger Guidelines and in antitrust case law. In doing so, the essay identifies areas both of clarity and ambiguity regarding quality enhancing efficiencies policy. In the subsequent part, the essay draws parallels to an efficiency analysis of quality under rule of reason analysis, in which the essay offers examples of resale price maintenance and tying of franchising contracts. Thereafter, in the next part, the essay addresses how agencies and courts should treat quality efficiencies in mergers. In doing so, the essay draws upon the existing academic literature in empirical industrial organization economics and public health on measurements of what is hospital quality in a consolidating healthcare marketplace. In its concluding section, the essay advocates a more robust use of quality measurements as a guiding principle of merger law and policy that is flexible enough for case by case analysis and that will provide for ease of adminstrability and outcomes more in line with sound economic analysis than the current system.

Keywords: mergers, efficiencies, quality, health care, antitrust

JEL Classification: K21, L40

Suggested Citation

Blair, Roger D. and Sokol, D. Daniel, Quality-Enhancing Merger Efficiencies (October 26, 2014). 100 Iowa Law Review 1969 (2015); University of Florida Levin College of Law Research Paper No. 15-9. Available at SSRN: https://ssrn.com/abstract=2515112 or http://dx.doi.org/10.2139/ssrn.2515112

Roger D. Blair

University of Florida - Warrington College of Business Administration - Department of Economics ( email )

342 Matherly Hall
Gainesville, FL 32611-7140
United States
352-392-0179 (Phone)
352-392-7860 (Fax)

D. Daniel Sokol (Contact Author)

University of Florida Levin College of Law ( email )

Spessard L. Holland Law Center
P.O. Box 117625
Gainesville, FL 32611-7625
United States
(352) 273-0968 (Phone)
(352) 392-3005 (Fax)

HOME PAGE: http://www.law.ufl.edu/faculty/d-daniel-sokol

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