The Importance of Substitution in Assessing Health Care Provider Mergers

Abstract

As the number of challenged health care mergers has risen, so too has interest in the tools used to assess market power in health care markets. Some have expressed concern about the differences between the analytical methodology used in healthcare markets and the methods commonly used in other industries. We argue that, whatever the market, antitrust analysis's underlying goal should be to understand substitution patterns between the merging parties. The methods used to address the unique institutional features of healthcare markets should wax (or wane) with their ability to address that fundamental issue. Although the suite of tools used by enforcers to assess the consequences of health care mergers remains a work in progress, at present, analyses that employ diversion ratios and willingness-to-pay capture substitution patterns better than alternatives and represent the state of the art.