Report Health System Consolidation

Health spending increased by 9.7% in 2020 compared to a 4.3% increase in 2019. High health care spending is largely attributed to increases in prices for services and fees, rather than high utilization of services. 

Various studies have found increased health system consolidation can lead to higher health care prices. This includes horizontal consolidation, i.e., between the same types of organizations like hospitals, and vertical consolidation, i.e., across different types of providers, like hospitals acquiring physician practices. 

Providers often maintain that consolidation enhances the financial stability of health facilities, particularly for smaller providers. Research on the impact of consolidation on the price, quality and efficiency of health care remains mixed. Some research demonstrates that health system consolidation may generate efficiencies and offers greater care coordination and quality of care. While various studies conclude that consolidation results in higher health care prices, driven by the increased market power and decreased competition of health systems. And some studies suggest increased prices are not associated with significant improvements in quality of care. 

With consolidation on the rise, states are considering policies to enhance oversight on health care mergers and acquisitions and further examining their impact on health care costs and quality. 

Federal Overview 

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have joint authority over antitrust enforcement. Some legal experts argue gaps exists in federal antitrust enforcement for health care mergers and acquisitions, such as the FTC having limited authority over non-profit health care organizations or only some mergers triggering federal review. For example, vertical consolidations, e.g., acquiring independent physician practices, may not exceed the financial threshold to require reporting to the FTC. Recently, the FTC and DOJ’s antitrust division launched a joint public inquiry aimed at strengthening enforcement against illegal mergers. 

State Actions 

States can provide oversight of health system consolidation through various state agencies, like state Attorney General offices or departments of health. Through these entities, states can pursue a number of policy approaches for oversight, including policies relating to: 

• Transaction Review, Approval and Notice 
• Anti-Competitive Contract Terms 
• Certificate of Need 
• Certificate of Public Advantage  

Please see each of the maps below for state-specific information about each of these policy areas. For specific statutory links to these authorities, see the table at the bottom of the page.  

Transaction Notice, Review and Approval 

State policymakers may consider legislation to require hospitals, health systems, physician groups and private investment firms to notify authorized state entities, e.g., state attorney general or state healthy agency, of proposed mergers, facility closures or contractual affiliations. State policymakers can also augment the attorney general’s ability to require transactions to be reviewed by the attorney general or state entity, and then either approve, conditionally approve or deny the proposed transaction.  

To help facilitate the review, legislatures may create statutory review standards to determine whether health care transactions are beneficial or harmful to the current health care market. For example, review standards may include:  

• Whether the transaction will harm health care markets and/or competition. 
• Whether the transaction will increase prices for consumers. 
• Whether it increases or reduces access to health care services. 
• Whether it could harm public interest. 

Anti-Competitive Contract Terms 

Experts suggest that consolidated markets may lead to large, dominant firms being able to negotiate anticompetitive contract terms with vendors, leading to decreased competition. To increase competition, states have considered policies that ban or limit what may be considered as anti-competitive health plan contract terms.  

To date, six contract clauses have raised the most concerns amongst policymakers and antitrust enforcement. These include: 

• Most Favored Nation (MFN) Clause: a guarantee that a buyer of goods or services (i.e., an insurer) receives terms from a seller (i.e., a hospital or provider) that are at least as favorable as those provided to any other buyer. Also known as a price parity clause or prudent buyer clause.  
• Non-Compete Clause: an agreement, typically in an employment contract, that an employee (i.e., a physician) will not compete with his or her current employer (i.e., practice group or hospital) within a geographic area for a limited amount of time. These agreements may also include prohibitions on soliciting or continuing to offer medical care to patients of the current medical group (i.e., a non-solicitation clause).  
• All-Or-Nothing Clause: a requirement that an insurer must contract with all facilities in a health system if they want to contract with any facilities in the system. Provider organizations typically use all-or-nothing provisions to leverage the status of their must-have facilities.  
• Anti-Tiering/Anti-Steering Clause: a contractual requirement that an insurer place all physicians, hospitals and other facilities associated with a hospital system in the most favorable tier of providers (i.e., anti-tiering) or at the lowest cost-sharing rate to avoid steering patients away from that network (i.e., anti-steering). Also known as anti-incentive clause. 
• Gag Clause (or Price Secrecy Provision): a contractual agreement in which providers and insurers prevent patients or employers from knowing the negotiated rates and other costs of health care services.  
• Exclusive Contracting Clause: a contractual agreement in which a provider prevents the insurer from contracting with other competitive providers. Under the umbrella of exclusive dealing provisions and tying agreements. 

Certificate of Need 

Certificate of need (CON) laws require approval of major capital expenditures and projects for certain health care facilities. States using CON programs require new or expanding health care facilities to submit their plans for review prior to the project approval. CON programs aim to restrict duplicative services to help control health care costs. Please note the following CON tracking includes CON statutes addressing mergers, acquisitions, changes in ownership, as well as broader CON authority.