Your exorbitant medical bill, brought to you by the latest hospital merger

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When Mark Finney moved to southwestern Virginia with his young family a decade ago, there were different hospital systems and a range of independent doctors to choose from.

But when his knee started aching in late 2020, he discovered that Ballad Health was the only game in town: He went to his longtime primary care doctor, now employed by Ballad, who sent him to an orthopedist's office that had been purchased by Ballad. That doctor sent him to get an X-ray at a Ballad-owned facility and then he was referred to a physical therapy center called Mountain States Rehab that was now owned by Ballad as well.

Though none of the interventions took place in an actual hospital, all came with a hospital "facility fee." When the price of physical therapy doubled overnight — to nearly $200 for approximately 30 minutes — there was nowhere else to go, because Ballad Health effectively had a monopoly on care in 29 counties of the Appalachian Highlands in northeastern Tennessee, southwestern Virginia, northwestern North Carolina and southeastern Kentucky.

"I was stuck," said Finney, a college professor. "My wife now drives 50 miles to see a doctor that's not part of Ballad, and I don't have a doctor anymore."

Biden administration regulators have unleashed a blizzard of antitrust activity and have broadened the definition of the types of unfair competition they can target. Regulators blocked a merger between the publishing giants Penguin Random House and Simon & Schuster, saying it could have decreased author compensation and diminished the "diversity of our stories and ideas." Regulators have filed suit to block JetBlue's acquisition of Spirit Airlines on the grounds that the existence of the lower-cost Spirit kept fare increases by other carriers in check.

After decades of unchecked mergers, health care is the land of giants, with one or two huge medical systems monopolizing care top-to-bottom in many cities, states and even whole regions of the country. Reams of economic research show that the level of hospital consolidation today — 75% of markets are now considered highly consolidated — decreases patient choice, impedes innovation, erodes quality and raises prices.

Ballad has generously contributed to performing arts and athletic centers as well as school bands. But, critics say, it has skimped on health care — closing ICUs and reducing the number of nurses per ward — and demanded higher prices from insurers and patients. It has a habit of suing patients for unpaid bills. Its chief executive was paid about $4 million last year.

For many years in the last century the Federal Trade Commission made little effort to go to court to block hospital mergers because judges tended to rule that as nonprofit entities, hospitals were unlikely to use monopoly power to pursue abusive business practices. How wrong they were.

In 2021 President Joe Biden ordered the FTC to be more aggressive about hospital mergers and even to review those that had already occurred. But it is unclear if the agency has the tools to do much. "Regulators are 10 to 15 years behind and don't have the resources — so that's where we are," said James Capretta, a senior fellow at the American Enterprise Institute.

The normal procedure for blocking proposed hospital mergers is cumbersome: often lengthy analysis to prove the effects on a particular market, warning letters, negotiations and finally challenges in court.

"Its job is like shooting fish in a barrel. It's really hard to show that a prospective transaction is anticompetitive," said Leemore Dafny, a Harvard economist who worked at the FTC about a decade ago. "I saw how hard it was for government to prove its case, even when it seemed obvious."

In one market, two hospitals might be enough to ensure competition, in another, four. Even if the price goes up, that may not be considered anti-competitive if quality improves.

The FTC has an even harder time evaluating the vertical merger, which is far more common: when a big hospital system buys up a much smaller hospital or some doctors' practices and independent surgery or radiology centers — or when it merges with a local insurer.

Many such mergers are never vetted at all, since transactions under $111 million do not have to be reported to the agency. "It's a visibility problem," Rao said. "We hear about it from news reports or from a state attorney general" who is more in touch with activity on the ground. Many of today's behemoth systems — such as Northwell Health in New York, Sutter in California and University of Pittsburgh Medical Center in Pennsylvania — grew often by buying one small hospital, physician practice or surgicenter at a time, below the threshold where they would attract federal regulators' scrutiny or merit use of their limited resources.

When hospitals buy doctors' practices, research shows, rates for visits tend to go up as they did for Finney. Some purchases are essentially catch-and-kill operations: Buy a nearby independent outpatient cardiac center, for example, in order to eliminate cheaper competition.

The newest challenge is how to handle the growing number of cross-market mergers, where huge health systems in different parts of a state or of the country join forces. While the hospitals are not competing for the same patients, emerging research shows that these moves result in higher prices, in part because the increased negotiating clout of the enormous health system forces companies that cover employees in both markets to pay more in what previously was the cheaper region.

There are attempts and proposals to reinject a modicum of competition or restraint into the health system: The FTC has sought to ban noncompete clauses in job contracts that prevent doctors and nurses from moving from one hospital to another within a certain time, for example.

But many economists on both the left and the right have concluded that, at this point, meaningful competition may be difficult to restore in many markets. Barak Richman, a professor of law and business administration at Duke University, said, "It's depressing for economists who live and breathe by competition to say maybe we just need price regulation."

Indeed, a number of states — red and blue — are now gingerly floating moves to directly rein in prices. This year the Indiana legislature, for example, banned hospitals from charging facility fees for visits outside of the hospital. The lawmakers even considered fining hospitals whose prices were more than 260 of percent the Medicare rate — though they deferred that move for two years in the hope that the threat would encourage better behavior.

With the FTC becoming more aggressive and legislatures considering such measures, perhaps hospital systems will heed the warnings and behave more like the care providers they're meant to be and less like monopoly businesses.