Physician Group and Healthcare Facility Merger Study

On January 14, 2020, the Federal Trade Commission (FTC) ordered six insurance companies to provide information that will allow the agency to study the effects of consummated physician group and healthcare facility mergers that occurred from 2015 through 2020.  The studies that the FTC’s Bureau of Economics (BE) will conduct with this data will add to BE’s already substantial body of research analyzing the competitive consequences of mergers via “retrospective” empirical analysis. 

This summary explains why the FTC is undertaking this project, and the research and policy questions that BE intends to address.

Background

Healthcare spending accounts for a significant share of US GDP – according to CMS, in 2019 it accounted for almost 18 percent of GDP (over $11,000 per person).  Physician and clinical services account for 20 percent of this total.  Similarly, the FTC devotes a substantial share of its resources to healthcare antitrust enforcement: over the last five fiscal years, 18 percent of the FTC’s competition enforcement actions were in the general healthcare sector (e.g., hospitals, physicians, etc.), according to the latest annual update. Understanding better how consolidation in these markets has affected competition can help the FTC better utilize its enforcement resources and evaluate its merger forecasting tools, ultimately benefiting consumers, patients, and taxpayers through more effective antitrust enforcement.

U.S. physician markets are undergoing a dramatic restructuring. Traditional solo physician practices and small single-specialty physician group practices are rapidly being replaced by large multi-specialty physician group practices, or physician group practices that are owned or employed by hospital systems.  For instance, between 2010 and 2016, the percentage of primary care physicians employed by a hospital or healthcare system is estimated to have increased from 28 percent to 44 percent.  These changes have been driven, in part, by mergers and acquisitions involving physician practices.

There is very little research examining the impact of physician and healthcare facility mergers on competition.  Mergers and acquisitions of physician practices can take a number of different forms that can raise different types of antitrust concerns.  First, mergers among physician practices within the same specialty may raise traditional horizontal antitrust concerns; for example, the combination of two groups of cardiologists serving the same geographic area. In 2015, the FTC issued an order settling charges that an orthopedic practice created through a combination of six independent orthopedic practices was anticompetitive and violated the antitrust laws.

Second, hospital acquisitions of physician practices might raise vertical antitrust concerns. For example, acquired physician practices may have incentives to alter their referral patterns to favor their affiliated hospital system over competing hospital systems; in some cases, this conduct could lessen competition. Alternatively, such vertical mergers potentially could result in efficiencies (such as enhanced coordination of care between physicians and hospitals that result in improved healthcare outcomes) that outweigh potential competitive harms.  Increasingly, physician practice mergers may raise both vertical and horizontal concerns (and create possible efficiencies) because they combine both substitutes and complements.

Similarly, consolidation among the operators of healthcare facilities, such as imaging laboratories or outpatient surgical centers, also can raise antitrust concerns. To our knowledge, the only outpatient healthcare facility sector in which the impact of market consolidation has been studied using a merger retrospective methodology is kidney dialysis, where concentration measured at the national level has increased over time. (See, e.g., Paul Eliason, Benjamin Heebsh, Ryan McDevitt & James Roberts, How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry, Q. J. Econ. (2020)).

Objectives of the Project

The project will evaluate multiple possible competitive effects of physician mergers.  First, the project will examine how horizontal mergers (i.e., mergers of competing providers) have affected provider prices, and whether price effects have been more pronounced for mergers involving certain medical specialties. Second, the project will examine how horizontal mergers affect non-price outcomes, including better or worse healthcare outcomes for patients of merged providers. Third, the project will examine how vertical mergers in provider markets have affected competition.  This part of the project will focus on the acquisition of physician practices by hospitals, and mergers of multi-specialty physician practices, and assess whether such mergers have adversely affected competition.

The proposed project also will evaluate the competitive impact of horizontal non-inpatient healthcare facility mergers. First, we will examine how mergers of competing healthcare facilities, such as imaging or dialysis centers, affect prices paid by commercial payers.  In addition, we will examine whether such mergers affect patient outcomes (either beneficially or adversely), or result in measurable efficiencies. This study will not focus on inpatient healthcare facility mergers (i.e., hospital mergers). BE staff have conducted eight studies examining hospital mergers.

Construction of Sample

The goal of this project is to develop findings that are broadly applicable to U.S. physician group and outpatient healthcare facility markets.  To meet this goal, we must construct a data set of health insurer claims that is reasonably representative of provider markets in the United States.  We required that the sample includes states that have broad geographic scope, including states from each of the four primary U.S. Census Divisions (namely the Midwest, Northeast, South, and West), and includes states having substantial rural and urban populations. 

In addition, to ensure that the health care data we collect accurately describes the prices typically paid to health care providers by those with commercial insurance, we require that the sampled insurers collectively cover a large fraction of beneficiaries with commercial health insurance in the selected states.  Using these criteria, six health insurance companies have been ordered to provide the FTC with claims data:  Aetna, Anthem, Cigna, Florida Blue,  Health Care Service Corporation, and United Healthcare.  These insurers are required to provide health claims data for 15 states: Colorado, Florida, Georgia, Indiana, Illinois, Kentucky, Maine, Missouri, Montana, Nevada, New Hampshire, New Mexico, Ohio, Oklahoma, and Texas.

Expected Output

BE will release the results of the studies publicly, when available, in a manner consistent with the FTC’s confidentiality rules governing the study process.  Because the scope of this project is large, it will likely take several years to complete.  For this reason, the BE anticipates releasing a series of research papers examining different aspects of physician and healthcare provider mergers over time, rather than a single paper containing all of the analyses.  This approach will allow the findings of the individual studies to be released expeditiously to the public as soon as they are completed.