Hospital Mergers and Economic Efficiency

71 Pages Posted: 13 Mar 2016 Last revised: 8 Sep 2016

See all articles by Roger D. Blair

Roger D. Blair

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

Christine Durrance

University of North Carolina (UNC) at Chapel Hill - Department of Public Policy

D. Daniel Sokol

University of Florida Levin College of Law; Department of Information Systems and Operations Management

Date Written: March 10, 2016

Abstract

Consolidation via merger both from hospital-to-hospital mergers and from hospital acquisitions of physician groups is changing the competitive landscape of the provision of health care delivery in the United States. This Article undertakes a legal and economic examination of a recent Ninth Circuit case examining the hospital acquisition of a physician group. This Article explores the Saint Alphonsus Medical Center-Nampa Inc. v. St. Luke’s Health System, Ltd. (St. Luke’s) decision — proposing a type of analysis that the district court and Ninth Circuit should have undertaken and that we hope future courts undertake when analyzing mergers in the health care sector. First, the Article addresses the question of how best to frame the acquisition of a physician group by a hospital — is the merger horizontal, vertical, or potentially both? In undertaking this analysis the Article examines the broader issue of the treatment of Accountable Care Organizations (ACOs) in antitrust law. ACOs are short of full integration and as such, a potential contractual alternative for hospitals and physician groups to an acquisition. A hospital acquisition of a physician practice also has implications for how to view competitive effects in the context of ACOs. Indeed, in St. Luke’s the Ninth Circuit suggests that integration short of full merger was a possible alternative. Second, the Article examines the justification for integration as a way to address countervailing power in health care, the reduction of transaction costs, and potential cost and quality efficiencies. Third, the Article applies the economics of these issues to merger case law generally and specifically to the St. Luke’s decision. Ultimately, the Article finds the economic analysis of the Ninth Circuit lacking. Finally, the Article offers policy implications of the decision and concludes with some suggestions to improve health care antitrust analysis in practice for litigated cases to make such analysis better follow economic principles.

Keywords: antitrust, mergers, acos, hospitals, health care, competition

JEL Classification: I11, K21, L40, L41

Suggested Citation

Blair, Roger D. and Durrance, Christine and Sokol, D. Daniel, Hospital Mergers and Economic Efficiency (March 10, 2016). Washington Law Review, Vol. 91, 2016, Available at SSRN: https://ssrn.com/abstract=2746067

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)

Christine Durrance

University of North Carolina (UNC) at Chapel Hill - Department of Public Policy ( email )

Abernathy Hall
Chapel Hill, NC 27599-3435
United States

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

Department of Information Systems and Operations Management ( email )

Warrington College of Business
ISOM Department STZ
Gainesville, FL 32611-7169
United States

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