St. Louis’ largest health system, BJC HealthCare, plans to merge with Kansas City’s second-largest, Saint Luke’s Health System, uniting more than 28 hospitals, including Allen County Regional Hospital in Iola, on both sides of Missouri by the end of this year.
The merger, which would span markets 250 miles apart and include facilities in neighboring Kansas and Illinois, is just one of the latest in a quickly consolidating hospital industry. Cross-market deals accounted for more than half of all hospital mergers and acquisitions during the last decade, according to a paper from experts on antitrust law. Today, nearly 60% of health systems operate multiple hospitals in different geographic markets.
Not only are such deals more common, they can increase costs for patients. Merged hospitals in the same state but in different markets raised prices as much as 10% compared with other hospitals, researchers found after analyzing past deals. A separate study found stand-alone hospitals raised prices 17% after they were acquired by a hospital company in another market.
But for some 50 years, federal regulators have not stepped in to prevent hospitals from merging with systems in other markets, according to antitrust law experts. Without federal intervention, states that have seen such megamergers, such as Michigan and California, are often left to wrestle with the complex question of how to respond, given the likelihood of higher prices for their residents.
The Federal Trade Commission and the Justice Department are reviewing public comments on draft merger guidelines designed to crack down on mergers in multiple sectors, including health care. It’s not yet clear if or how cross-market hospital mergers within a state could be affected. Still, the draft says consolidation should not “entrench or extend a dominant position” by extending into “new markets.”
But such cross-market mergers aren’t quite a textbook case of a monopoly. When hospitals have bought up local rivals, knocking out their competition, federal regulators have intervened to block these traditional mergers to protect patients from the resulting loss of competition. In recent years, they helped stop proposed mergers in New Jersey, Utah, and Rhode Island. The thinking is that without local competition, prices increase and the quality of care decreases.
It’s harder to prove how cross-market mergers, like the one planned in Missouri, reduce competition if the hospitals do not operate within a single market, said Chris Garmon, an assistant professor at the University of Missouri-Kansas City, who researches hospital mergers. Regulators would have to prove the mergers don’t just raise prices but also run afoul of the law by suppressing competition.
“That’s why we haven’t seen a cross-market merger challenge yet. It’s because it’s hard to tell the story of why this would be a problem,” he said.
The Federal Trade Commission did not answer questions from KFF Health News on its broader strategy around such deals or the BJC-Saint Luke’s merger. Whether an investigation is underway is not public information, said Mitchell Katz, an agency spokesperson.
After the FTC didn’t stop cross-market hospital mergers in California and Michigan, those states landed poles apart in handling the deals. California won concessions after challenging a deal, while Michigan did not intervene.
In Missouri, the key question is whether state officials will intervene. Attorney General Andrew Bailey, a Republican, is reviewing the merger, which requires his office’s approval before it can close, said Madeline Sieren, a spokesperson for the AG.
Neither BJC nor Saint Luke’s answered questions from KFF Health News about potential price increases or plans to improve quality. The hospitals have estimated the merged system will generate annual revenue topping $10 billion.
The Missouri systems ought to explain how this merger will benefit patients by lowering costs and improving quality, Garmon said.
“Whether they actually do them or not depends on whether they actually have the incentive to do them,” Garmon said.
