Transparency and Competition

The nationwide trend of health care consolidation is driving up costs. This is especially true in rural communities where competition is already limited. In addition, a lack of transparency in pricing and anticompetitive behaviors have led to higher medical expenses. As a result, many individuals face increased levels of medical debt.

Studies have found that following the merger of two neighboring hospitals, prices increase anywhere from 20 to 60 percent. While research has shown that physician prices increase by 3 to 14 percent post- acquisition. A 2020 report to Congress by the Medicare Payment Advisory Commission confirmed this, concluding that “[t]aken together, the preponderance of evidence suggests that hospital consolidation leads to higher prices. These findings imply that hospitals seek higher prices from insurers and will get them when they have greater bargaining power.”

This has led to an increased interest among policymakers in such mergers and acquisitions as well as other potentially anticompetitive practices among hospitals, physicians, and other health care providers. Some have proposed strengthening antitrust regulation—which aims to protect competitive markets—as a tool for tackling rising health care costs, increasing the affordability of care, and reducing the large number of adults with medical debt. States have also begun enacting efforts to address anticompetitive practices that are contributing to higher health care costs.

Federal and state antitrust agencies play a role in challenging anticompetitive practices of health care providers and other businesses. At the federal level, the Federal Trade Commission (FTC) and the Department of Justice share responsibility for enforcing federal antitrust laws, including the Sherman Act, the Clayton Act, and the FTC Act. State attorneys general offices also have the authority to bring action under federal antitrust law, as well as under state statutes, which sometimes expand upon federal law.

Federal antitrust laws protect open competition in economic markets. Antitrust laws reflect the general principle that competition produces high-quality goods and services at the lowest price. In recent years, courts have clarified that these laws apply to entities involved in health care delivery. The Department of Justice and the Federal Trade Commission have published guidelines for applying antitrust laws and principles to the health care market. The guidelines partly grew out of complaints from physicians and hospitals that antitrust laws prevented them from pursuing collaborative efforts that could result in more, not less, cost-effective health care. The guidelines clarify the differences between legal, competitive collaboration and illegal, anticompetitive collaboration. The guidelines show an understanding of the dynamics of the health care market, as do the enforcement actions that the agencies have taken. 

Some fear that accountable care organizations and other new service-delivery models will encourage physician practice consolidation and hospital mergers. While consolidation and mergers may lead to greater efficiency, they also have the potential to create monopolies that would limit competition and lead to an increase in medical care costs. Alternatives to antitrust regulation and enhanced oversight are needed to discourage anticompetitive practices. 

States have taken an interest in laws that aim to improve competition in the market and make health care more affordable for employers and consumers. Some states have taken action to make pricing information more readily available to consumers to increase transparency. Other states have sought to enact laws that prohibit anticompetitive contracting practices that have become more commonplace with the consolidation of health care. These practices include: 
•    All or nothing clauses which require any health plan that wants to contract with a particular provider or affiliate in a health system must contract with all other providers or a specific affiliated provider in the health system.
•    Anti-steering clauses that restrict employers and health plans from encouraging enrollees to obtain services at a competitor or from offering incentives to use specific providers.
•    Anti-tiering clauses that require insurers to all facilities associated with a health system in the most favorable tier (anti-tiering). 
•    Gag clauses that require providers and insurers to agree not to disclose prices, including negotiated rates from patients or plan sponsors.
•    Most favored nation clauses that guarantee an insurer gets terms (prices) from a health system that are at least as favorable as all other insurers.