Going Vertical: The Hospital-Health Insurer Merger

In today’s health care reform environment, “efficient health care delivery,” “stemming soaring health care costs,” and “improving outcomes” are just a few of the many often-stated goals. The proper role of antitrust enforcement in achieving these goals remains a hot topic of debate. Consolidation through mergers and other forms of integration are not new in the health care industry, but interest in such transactions as potential tools, or obstacles, for health care reform continues to grow. The analysis of competition in health care mergers has typically focused on horizontal mergers, such as hospital mergers, health insurance company mergers, pharmacy benefit plan mergers, or physician practice group mergers. Vertical mergers, such as mergers between hospitals and health insurers, however, have not been extensively studied or investigated. While economic theory indecisively suggests that vertical integration can be either efficiency enhancing or anticompetitive, we may now have a live experiment in Allegheny County, Pennsylvania in which to examine the competitive effects—and impact on the health care reform goals—of a hospital-health insurer merger.

In a closely watched case in 2010, the U.S. Court of Appeals for the Third Circuit reinstated a Pittsburgh hospital’s antitrust lawsuit against a competing hospital and the area’s largest health insurer. West Penn Allegheny Health System, Inc. v. UPMC; Highmark, Inc., 627 F.3d 85 (3d Cir. 2010). Now the relationship between the two hospitals and the health insurer has taken a new twist with the acquisition of the plaintiff hospital by the defendant health insurer.

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