Monday, June 30, 2014

One supposed attribute of the recent agreement between the Massachusetts Attorney General and Partners Healthcare System is a provision "allowing payers to split Partners into separate contracting entities for up to 10 years."

While this is offered as a remedy to PHS' market power, use of this kind of mechanism is by no mean proven.

Indeed, when there was a proposed acquisition by Inova Health Systems of Prince William Hospital in northern Virginia, the Federal Trade Commission along with the Virginia AG challenged the acquisition in May 2008.  Within a few weeks, the parties abandoned the transaction.

In reviewing that case, an economic analysis was later prepared by Gautam Gowrisankaran, Aviv Nevo and Robert Town, “Mergers When Prices Are Negotiated:  Evidence from the Hospital Industry." As noted in the abstract, "remedies based on separate bargaining do not alleviate the price increases" that would have resulted from the merger.

I'm not suggesting the Inova analysis necessarily holds for Massachusetts, but the question must be asked:  Did the Massachusetts Attorney General conduct a rigorous economic analysis in the Partners case, or did she just assume that this separate contracting provision would be meaningful? If the former, where's the analysis?  It should be available for public scrutiny.

By the way, here's the overall conclusion of the paper: "We find that a proposed hospital acquisition in Northern Virginia that was challenged by the Federal Trade Commission would have significantly raised hospital prices."  Where's the similar challenge here?  Why aren't state and federal officials working in concert in the PHS case?


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