From Rockford to Joplin and Back Again: The Impact of Economics on Hospital Merger Enforcement

Abstract

After a string of failed attempts to block hospital mergers in the 1990s, federal prospective hospital merger enforcement essentially ceased for a decade. Then, in the late 2000s, outcomes in litigated hospital merger cases reversed dramatically, with the FTC prevailing in a number of significant efforts to block hospital mergers. This sharp reversal can be traced back to the development of economic models of hospital competition that, by design, closely match the structure of the industry. These new models provided the enforcement agencies with a more sound theoretical framework—willingness-to-pay analysis—upon which to base their cases and a set of empirical tools for evaluating competitive effects. In this article, I provide an overview of the willingness-to-pay framework and the comparatively new empirical tools, and I describe how both have affected hospital merger enforcement.