Possible Changes to the 2010 Merger Guidelines Regarding Pro-Competitive Efficiencies


In the recent hospital merger cases successfully challenged by the FTC (whether via the parties calling off the merger or losing in federal court), the merging parties have argued that, while the merger would not be likely to substantially lessen competition, it would in any case result in pro-competitive benefits that outweigh any negative impact on competition. In each of those cases the arguments made by the merging parties were rejected.

The benefits that would ostensibly result from the merger and that were rejected by the FTC and the courts included upgrades and increased capacity, the expansion of complex tertiary and quaternary care, cost savings resulting from service optimization between the merging hospitals and quality improvements at the merging hospitals. They were rejected because they were found to be either speculative or non-merger specific and that the few pro-competitive effects that the hospitals did establish did not constitute significant economies that would ultimately benefit competition.

Not surprisingly, the pro-competitive arguments offered by the merging parties in the most recent cases were in line with those identified and discussed in the American Hospital Association’s (AHA) March 22, 2022 response to the Jan. 18, 2022 request of the Department of Justice and FTC (the Agencies) for comments concerning possible changes to the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines (collectively the Guidelines) and the impact the revisions will have on patient care.

The Agencies’ Request for Comments Relating to Efficiencies

In the Agencies’ request for comments and with particular reference to the question of benefits arising from mergers and possible revisions to the Merger Guidelines, the Agencies requested, among other things, the following information:

  • Do the guidelines reflect the best evidence regarding how often mergers in fact achieve the cost savings and other benefits claimed by merging parties?
  • What are some examples of cases where merger-specific efficiencies were, in fact, realized or not realized?
  • What types of claimed efficiencies and other benefits appear more likely to be realized?
  • What evidence is there concerning the durability of any beneficial effects?
  • For those mergers that appear to yield cognizable efficiencies, what degree of certainty should the guidelines require that they cannot be achieved in any other way?
  • Where a merger is expected to generate cost savings via the elimination of “excess” or “redundant” capacity or workers, should the guidelines treat these savings as cognizable “efficiencies”? How should the guidelines address the potential for capacity reductions to reduce service quality?

Before discussing the AHA’s response, it should of course be noted that the questions posed by the Agencies serve as a useful roadmap for hospital systems considering a merger and addressing the issue of pro-competitive benefits.

The AHA’s Response

As for its response to the questions posed by the Agencies, the AHA first focuses on the insurance industry stating that, with the powers they already possess, the Agencies can and should do more to challenge anticompetitive mergers and deceptive and other conduct by insurance companies that harms consumers. The AHA cites approvingly the Agencies’ challenge to deals like UnitedHealth Group’s proposed acquisition of Change Healthcare, and asserts that the Agencies’ power to “go after” anticompetitive conduct has been expanded with the 2021 passage of the Competitive Health Insurance Reform Act, which “repealed the much-maligned McCarran-Ferguson Act’s federal antitrust exemption for the health insurance industry such that the antitrust agencies are now greatly empowered to investigate and challenge anticompetitive practices by health care, dental and vision insurers.”

With specific respect to the question of benefits arising from mergers and possible revisions to the Guidelines, the AHA offers the following benefits (which in many ways are just a re-articulation of the benefits offered by the health systems and rejected by the FTC and courts in the most recent merger cases):

  • By joining a health system, hospitals can (i) be better able to marshal necessary resources, (ii) restart planned projects, (iii) recruit and retain talented clinical staff and personnel, (iv) upgrade facilities and (v) offer specialty services to high-touch patients; and in the case of the acquired hospital, also increase much-needed investment in personnel, technology and equipment.
  • Mergers improve clinical care in a cost-effective manner while preserving access to care in underserved communities.
  • Mergers increase geographic coverage by bringing specialty services and management capabilities to new markets or by expanding them in underserved markets.
  • Health care quality is enhanced because acquiring hospitals can standardize clinical protocols and are able to oversee and hold individual hospitals accountable for measurable outcomes.
  • Larger scale can allow smaller hospitals to adopt risk-bearing alternative payment models, which place the value on patient outcomes rather than patient volume.
  • Mergers can enable health systems to provide better coordinated care by accessing analytics and providing access to specialty care and care coordination staff who help to ensure patients’ needs are met.
  • Mergers can generate substantial savings and better patient outcomes from improved and integrated information technology (IT) systems and data analytics. For example:
    • Mergers can facilitate the creation and expansion of repositories of cost and clinical data that allow hospitals to identify and implement optimal management and innovative care protocols.
    • Advanced IT systems have the capability of providing accurate and real-time results for better diagnoses and treatments.
    • State-of-the-art systems are a considerable fixed cost that some hospitals can ill afford. Integrated hospital systems can often more readily invest in and implement robust IT infrastructure in an efficient and streamlined way, ensuring that affiliated hospitals, regardless of their size or location, can benefit equally.
    • With access to the latest technology, as well as aggregate clinical data, health care providers in hospital systems are often able to perform more sophisticated analyses and implement best practices and innovations (such as telemedicine and care coordination services) that greatly improve patient access and care. These improvements, in turn, allow merged hospitals to provide critical, flexible and complementary services to their communities, regardless of a patient’s ability to pay.
    • Merger efficiencies allow struggling hospitals to realize significant cost savings and pass those savings on to their patients.
    • As hospitals are facing rapidly rising costs and unsustainable financial pressures, the efficiencies that mergers produce can enable these hospitals to remain open and maintain, or even expand, the scope of services they offer. These hospitals also benefit from capital infusions from acquiring hospitals, providing another means to avoid bankruptcy and closure.
    • Avoiding closure of these hospitals is especially important because smaller communities rely on their local hospitals for essential medical services.

The AHA next presents what it describes as “recent scholarship” demonstrating that hospital mergers do indeed benefit patients and payers in multiple ways, and the AHA requests that any revisions to the guidelines should account for these pro-competitive efficiencies and enable the Agencies to properly recognize these benefits when reviewing proposed transactions.

By way of example, the AHA points to studies conducted by several third-party experts.

Charles River Associates

The consulting firm Charles River Associates (CRA) recently conducted an econometric analyses of contemporary hospital acquisitions.

The study analyzed the effects of hospital acquisitions on hospitals’ costs and quality of care. CRA reports that it found that changes in the annual operating expenses of acquired hospitals were lower than those of comparable non-acquired hospitals, and that these decreases in expenses were accompanied by declines in revenue per admission.

It also found evidence that measures of inpatient quality at acquired hospitals improved relative to comparable non-acquired hospitals.

In this report CRA explains that it is revisiting its prior econometric analysis and including two additional years of data for 2018 and 2019 on cost, quality and revenue outcomes from hospital transactions. According to CRA, the addition of these data allows it to measure the effects of 144 additional hospital acquisitions and also allows it to measure the effects of the hospital acquisitions it had previously included in its studies over a longer period of time. This most recent analysis expands the data it uses to include approximately 6,000 additional hospital-year observations.

Using these new data, it states that the updated results reinforce the conclusions of its previous reports that hospital acquisitions benefit patients by providing access to higher-quality care at a lower cost. More specifically, CRA explains:

  • Consistent with our previous analyses, hospital acquisitions are associated with a statistically significant 3.3% reduction in annual operating expenses per admission at acquired hospitals.
  • At the same time, performance on key indicators of quality is improved: our empirical analysis continues to show a statistically significant reduction in inpatient readmission rates and a composite readmission/mortality outcome measure. Mortality rates at acquired hospitals also decline, but not by a statistically significant amount. The lack of statistical significance of the mortality outcome may be related to the inclusion of recent hospital transactions in our analyses; for recent transactions, it is difficult to measure quality improvements over the short post-acquisition time period reflected in our data.
  • Revenue per admission at acquired hospitals also decline relative to non-merging hospitals by a statistically significant 3.7%. These results are suggestive that savings that accrue to merging hospitals are passed on to health plans.
  • Conclusion: our updated econometric analyses continue to indicate that through hospital acquisitions, hospital systems have been successful in reducing costs, lowering expenditures and improving quality.

Kaufman Hall

A report by the health care consulting firm Kaufman Hall came to similar conclusions.

This report noted that hospital partnerships, mergers and acquisitions have provided many benefits to patients and their communities. These benefits include saving certain hospitals from closure and preserving and often enhancing patient access to care.

By way of example, Kaufman Hall found that nearly four in 10 (38%) acquired hospitals added one or more services post-acquisition. Patients at hospitals acquired by academic medical centers or large health systems also gain improved access to tertiary and quaternary services. The report noted that these combinations give health systems access to the scale needed to: (1) enhance the patient experience of care, (2) engage in partnerships with employers and health plans to improve the accessibility and affordability of care and (3) obtain capital at an affordable cost to make investments in care delivery advances, technology and population health infrastructure.

Other Studies

The AHA also references some other studies.

For example, one study found that a full-integration approach after a hospital merger was associated with improvement in quality outcomes. The authors found fewer central line infections, fewer catheter-related infections and increased patient satisfaction following consolidation and concluded that a hospital merger with a full-integration approach to consolidation was found to be associated with improvement in quality outcomes.

Another study found that adjusted for patient, hospital, and community characteristics, decreases in mortality among stays at rural hospitals for acute myocardial infarction, heart failure, stroke and pneumonia post-merger were greater at merged hospitals than at comparison hospitals.

And other studies have found statistically significant cost reductions at acquired hospitals averaging between 4% and 7%.


The comment period ended on April 22, and as expected a substantial number of comments were submitted by many interested parties across a wide range of industries. It will of course be of great interest to see how the Agencies react to the comments and revise the Guidelines.