Cross-Market Mergers: Theories of Harm and Limiting Principles

Several studies find evidence of systematic price increases following specific types of “cross-market” hospital mergers and acquisitions—meaning combinations of hospitals that are too far apart to be close substitutes or in the same relevant antitrust market. The literature on cross-market healthcare mergers continues to grow, and antitrust agencies have in recent years investigated transactions on the basis of cross-market concern. As yet, however, no agency has fully litigated a cross-market challenge. We first review the mechanisms could drive cross-market price. We discuss logical predicates for each theory, as well as factors that may increase or decrease antitrust concern. We focus in particular on the common customer mechanism, which posits that hospitals can be substitutes from the perspective of employers and the health insurers that market products to them, even if they are not substitutes for individual patients. This mechanism appears to have been the primary focus of the known investigations to date and most closely relates to a potential lessening of competition. Finally, we discuss the important distinction that, while complementarity between sellers is ruled out by definition for in-market mergers, parties to a cross-market merger can be complements or substitutes.

By Cory Capps, Leyla Karakas & Tetyana Shvydko^[1]

Several studies find evidence of systematic price increases following specific types of “cross-market” hospital mergers and