Christopher Garmon

Hospital Mergers and Competitive Effects: Two Retrospective Analyses

Abstract We present empirical analyses of the effects of two hospital mergers – both occurring in the northern suburbs of Chicago in 2000 – on the pre‐ and post‐merger prices negotiated with commercial health insurers. Using difference‐in‐differences methodology and data on actual transaction prices, specifically the prices paid by private health insurance companies and patients for inpatient care, we find one of the mergers was anticompetitive. Relative to price increases at other hospitals, the merger between Evanston Northwestern and Highland Park Hospitals led to large and statistically significant post‐merger price increases. Our results are robust across data sources, control groups, and case‐mix adjustment methods.

Two Hospital Mergers on Chicago's North Shore: A Retrospective Study

We provide an in-depth analysis of the price effects of two hospital mergers that occurred in the north shore suburbs of Chicago in early 2000: Evanston Northwestern Healthcares (ENH) purchase of Highland Park Hospital (HPH) and the merger of St. Therese Medical Center (STMC) and Victory Memorial Hospital (VMH). Using standard difference-in-differences methods with data from multiple sources, including health insurance data with actual transactions prices, we find that the ENH/HPH merger led to a large and statistically significant post-merger price increase. We find no evidence of a price increase after the STMC/VMH merger. These results are robust across data sources, control groups, and case mix adjustment methods.

The Accuracy of Hospital Merger Screening Methods

This paper analyzes the accuracy of various prospective hospital merger screening methods used by antitrust agencies and the courts. The qualitative and quantitative predictions of the screening methods calculated with pre-merger data are compared with the actual post-merger price changes of 26 hospital mergers measured relative to controls. The evaluated screening methods include traditional structural measures (e.g., Herfindahl-Hirschman Index associated with various market definitions), measures derived from hospital competition models (e.g., diversion ratios, Willingness-to-Pay, and the Logit Competition Index), and hospital merger simulation. Diversion ratios, Willingness-to-Pay, and the Logit Competition Index are found to be more accurate at predicting post-merger price effects than traditional methods.

Hospital Competition and Charity Care

This paper explores the relationship between competition and hospital charity care by analyzing changes in charity care associated with changes in a hospitals competitive environment (due to mergers and divestitures), using hospital financial and discharge data from Florida and Texas. Despite the pervasive belief that competition impedes a hospitals ability to offer services to the uninsured and under-insured, I find no statistically significant evidence that increased competition leads to reductions in charity care. In fact, I find some evidence that reduced competition leads to higher prices for uninsured patients.

Employer-provided health insurance and hospital mergers

This paper explores the impact of employer-provided health insurance on hospital competition and hospital mergers. Under employer-provided health insurance, employer executives act as agents for their employees in selecting health insurance options for their firm. The paper investigates whether a merger of hospitals favored by executives will result in a larger price increase than a merger of competing hospitals elsewhere. This is found to be the case even when the executive has the same opportunity cost of travel as her employees and even when the executive is the sole owner of the firm, retaining all profits. This is consistent with the Federal Trade Commissions findings in its challenge of Evanston Northwestern Healthcares acquisition of Highland Park Hospital. Implications of the model are further tested with executive location data and hospital data from Florida and Texas.

The Use of Multiple Control Groups and Data Sources as Validation in Retrospective Studies of Hospital Mergers

In their Comment on “Hospital Mergers and Competitive Effects: Two Retrospective Analyses”,1 Gregory Adams and Monica Noether argue there are reasons to doubt our conclusion, the opinion of the Administrative Law Judge, and the opinion of the Federal Trade Commission that the merger of Evanston Hospital with Highland Park Hospital was anticompetitive. First, to set the record straight, this conclusion/opinion is not based on empirical results “alone” (as claimed by Adams and Noether). The conclusion that the Evanston merger lessened competition and facilitated the ability of the merged hospital to exercise market power is based on other evidence as well. For example, in a document written shortly after the merger, hospital executives stated the post-merger price increases were due to the increased market power of the merged hospital:

Complements Integration and Foreclosure: The Case of Joint Consumption

In some cases, complementary products are sold to different sets of agents to aid in transactions between them. In the context of a simplified model, this article shows that a monopolist has an incentive to integrate into and foreclose other sellers of a complementary product used in fixed proportions with the monopolized product, but which is sold to different consumers. While these latter consumers are made worse off by integration and leverage, output is expanded and the monopolists original consumers are made better off. The effect of integration and leverage on overall welfare is uncertain. I illustrate this model with an example involving trucking fleet cards (sold to trucking companies) and fuel desk point-of-sale systems (sold to truck stops) that are used in conjunction when diesel fuel is purchased.

Health Care Competition or Regulation: The Unusual Case of Albany Georgia

On December 15, 2011, Phoebe Putney Health System acquired the only other hospital in Albany, Georgia — Palmyra Medical Center — despite the Federal Trade Commission’s challenge of the merger as anticompetitive. The acquisition was consummated after the district and appellate courts ruled that Phoebe Putney had antitrust immunity due to its regulation by the local Hospital Authority of Albany-Dougherty County. In February 2013, the Supreme Court reversed these rulings and remanded the case back to the lower courts, after Palmyra Medical Center had become part of Phoebe Putney Memorial Hospital, making a divestiture infeasible. Thus, the acquisition of Palmyra Medical Center by Phoebe Putney provides a natural experiment to study the effects of an otherwise anticompetitive hospital merger subject to local regulation. We found that, after a large price spike in the first post-merger year, the commercial price of inpatient hospital services in Albany, Georgia moderated toward the control group price in subsequent post-merger years. Regarding quality, we found a significant post-merger reduction in inpatient hospital quality relative to controls across many quality metrics. We discuss the implications of these findings for recent initiatives that grant hospitals antitrust immunity in exchange for local regulation.

Major League Baseball’s First Year Player Draft A Natural Laboratory for the Study of Bargaining

Major League Baseball’s (MLB) Draft is a natural laboratory for the study of bargaining: There are no bonus restrictions, draft picks cannot be traded, and there are no commitment issues (i.e., players “declaring” for the draft). This article tests the implications of bargaining theory using data from the 2003-2010 MLB drafts. In 2007, new draft rules were introduced, but not uniformly across the draft, making it possible to estimate the effect of each change. Although the rule changes were designed to lower bonuses, they had the opposite effect. The rule changes led to

One In Five Inpatient Emergency Department Cases May Lead To Surprise Bills

178 million in extra compensation to drafted players.