Hospital mergers are slowly building monopolies, but regulators rarely intervene

Hospitals have gone on a doctor-buying spree in recent years, in many areas acquiring so many independent practices they’ve created near-monopolies on physicians.

Research published Tuesday throws new light on the trend, showing that large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied.

But it goes further, helping answer some of health policy’s frequently asked questions: How could this happen? Where are the regulators charged with blocking mergers that have been repeatedly shown to drive up the price of health care?

The answer, in many cases, is that they’re out of the game.

Doctor deals are typically far too small to trigger official notice to federal antitrust authorities or even attract public attention, finds a paper published in the journal Health Affairs.

When it comes to most hospital-doctor mergers, antitrust cops operate blind.

“You have a local hospital system and they’re going in and buying one doctor at a time. It’s onesies and twosies,” said Christopher Ody, a Northwestern University economist and one of the study’s authors. “Occasionally they’re buying a group of five. But it’s this really small scale” that adds up to big results, he said.

The paper, drawing from insurance data in states covering about an eighth of the population, found that 22 percent of markets for primary care doctors, surgeons, cardiologists and other specialties were “highly concentrated” in 2013. That means that, under Federal Trade Commission guidelines, a lack of competitors substantially increased those doctors’ ability to raise prices without losing customers.

The research didn’t sort physician groups by ownership. But other studies show that large, predominant practices are increasingly owned by hospitals, which see control of doctors as a way to both coordinate care and ensure patient referrals and revenue.

According to one study, hospitals owned 26 percent of physician practices in 2015, nearly double the portion from 2012. They employed 38 percent of all physicians in 2015, up from 26 percent three years earlier.

In the study by Ody and colleagues, only 15 percent of the growth by the largest physician groups from 2007 to 2013 came from acquisitions of 11 doctors or more.

About half the growth of the big practices involved acquisitions of 10 or fewer doctors at a time. About a third of the growth came not from mergers but from hiring doctors out of medical school or other sources.

Federal regulations require notification to anti-monopoly authorities only for mergers worth some $80 million or more — far larger than any acquisition involving a handful of doctors.

Very few of the mergers that drove concentration over the market-power red line — or even further — in the studied areas would have surpassed that mark or a second standard that identifies “presumably anti-competitive” combinations.

But the little deals add up. In 2013, 43 percent of the physician markets examined by the researchers were highly or moderately concentrated according to federal guidelines that gauge monopoly power by market share and number of competitors.

(A market with three practices in a particular specialty, each with a third of the business, would be at the lower end of what’s considered highly concentrated. A market with one doctor group doing at least 50 percent of the business would be highly concentrated no matter how many rivals it had.)

Bigger and fewer doctor practices, fueled largely by hospital acquisitions, do drive up prices for patients, employers and taxpayers, several studies confirm.

Part of the increase results from a reimbursement quirk. Medicare and other insurers pay hospital-based doctors more than independent ones. But another part comes from the lock on business held by large practices with few rivals, Ody said.

“It’s a problem,” said Martin Gaynor, a health care economist at Carnegie Mellon University and former head of the FTC’s Bureau of Economics. “All the evidence that we have so far … indicates that these acquisitions tend to drive up prices, and there’s other evidence that seems to indicate it doesn’t do anything in terms of enhancing quality.”

The American Hospital Association, a trade association, declined to comment on the study since officials hadn’t seen it. But the AHA often argues that “hospital deals are different” and that doctor acquisitions keep patients from falling through the cracks between inpatient and outpatient care.

The FTC has moved to block or undo a few sizable doctor mergers, including an orthopedics deal in Pennsylvania and an attempt by an Idaho hospital system to buy a medical practice with dozens of doctors.

But the agency largely lacks the tools to challenge numerous smaller transactions that add up to the same result, said Ody.

An FTC spokeswoman declined to comment on the study’s findings.

Ody urged state attorneys general and insurance commissioners to look more closely at doctor combos. Sometimes state officials can question mergers overlooked by federal authorities. Or they can block anti-competitive practices, such as when hospitals seek to exclude competitor physicians from insurance networks.

Beyond that, “I hope that people notice this [research], and I hope people think creatively about what kinds of solutions might be appropriate for this,” he said. “I don’t know what they are.”

This article was originally published by Kaiser Health News.