Understanding Mergers Between Hospitals and Health Systems in Different Markets
A growing body of evidence shows that consolidation in health care provider markets has led to increases in prices without clear evidence of increases in quality. Policymakers and regulators have historically focused on consolidation within the same geographic area, but there have been a large number of mergers and acquisitions (referred to as “mergers” in this brief) between hospitals and health systems that operate in different regions (referred to as “cross-market mergers” in this brief), including several multi-billion dollar deals over just the past couple of years. Some experts have raised concerns that cross-market mergers could result in hospitals and health systems raising their prices. It is also possible that cross-market mergers could result in the elimination of service lines by some acquired hospitals, which may reduce access to care.
This issue brief explains the role and implications of cross-market mergers in hospital and health system markets and describes the approaches that government antitrust agencies have taken in reviewing these types of transactions.
What Is a Cross-Market Merger?
A “cross-market merger” entails a merger between two health care providers that operate in different geographic markets for patient care.1, 2 For instance, this term could apply to the following scenarios:
- Two health systems that operate in different geographic markets merge. For example, in April 2023, Kaiser Permanente and Geisinger announced their plans to merge. These systems operate in different regions of the United States, with Kaiser Permanente operating in five states in the West (including California) and Georgia, Maryland, Virginia, and DC and Geisinger operating in Pennsylvania. In 2022, Kaiser Permanente and Geisinger earned $95 billion and $7 billion in operating revenues, respectively.3
- A health system acquires an independent hospital in a geographic market where it does not operate. One example is Christus Health’s acquisition of Gerald Champion Regional Medical Center in July 2023. Christus Health is a large health system based in Texas that includes 28 hospitals, while Gerald Champion Regional Medical Center is an independent hospital in Alamogordo, New Mexico that is over 200 miles away from the nearest Christus Health facility.
Cross-market mergers can involve hospitals and health systems that are in neighboring markets as well as entities that are hundreds or even thousands of miles apart. An example of the former is the recent merger between University of Michigan Health—which is based in Ann Arbor, Michigan—and Sparrow Health System, which is based about 65 miles away in Lansing, Michigan. An example of the latter is the recently proposed merger of UnityPoint Health—which operates in the Midwest (Iowa, Illinois, and Wisconsin)—and Presbyterian Healthcare Services, which operates in New Mexico.
How Common Are Cross-Market Mergers?
Hospital and health system mergers are common, and many of these mergers involve providers in different geographic markets. For example, according to one study, about 1,500 hospitals were targeted as part of a completed merger or acquisition from 2010 through 2019 and most of these deals (55%) involved hospitals or health systems in different commuting zones. According to another study, about one in eight rural hospitals merged with an out-of-market hospital or health system from 2010 through 2018. A series of large, cross-market mergers in recent years have drawn further attention to this topic. Table 1 below provides examples of nine large, cross-market merger deals announced since June 2021, each of which entailed health systems with combined annual operating revenues of at least five billion dollars.
Cross-market mergers may be appealing to health systems that are seeking to expand for at least a couple of reasons. First, cross-market mergers have received little resistance from government antitrust agencies relative to mergers between health care providers that operate in the same market.4 Second, many health care markets are already highly concentrated, leaving fewer opportunities for health systems to expand within a given region.
What Are the Potential Implications of Cross-Market Mergers?
Cross-market mergers may benefit patients in some instances when hospitals and health systems are able to operate more efficiently as a combined entity. Even if hospitals and health systems are located in different markets, they may be able to share knowledge and best practices with each other, such as by collaborating to develop better clinical practice guidelines and sharing effective strategies and tools for managing patients’ care. Operating at a larger scale may also facilitate providers’ participation in complicated, value-based payment programs, which some health plans offer in an effort to reduce costs and improve the quality of care. Hospitals and health systems merging within and across markets can also potentially achieve efficiencies by purchasing goods and supplies in greater volume.
In some scenarios, small and struggling hospitals may seek to merge with large health systems in order to improve their finances or offer higher-quality services. For example, a large health system with deep pockets could provide a smaller hospital with resources to purchase new equipment and invest in quality improvements or provide a financial backstop and access to capital that may enable a struggling rural hospital to keep its doors open. A large, financially successful system could also share management strategies with hospitals that are losing money to help them operate more efficiently.
However, cross-market mergers may lead to higher prices. In fact, researchers have estimated that these types of deals have led to price increases ranging from 6 to 17 percent, though only a small number of studies have focused on cross-market mergers.
There are at least a few reasons why cross-market mergers could lead to price increases, even though they entail hospitals and health systems that are not competing against each other in the same area. First, a combined health system with providers in, say, different areas of a state may be able to use its dominant position in one market to negotiate higher prices in another when contracting with a given health plan (e.g., a state employee plan with enrollees that reside in several markets). Second, a combined health system may compete with other health systems that also operate across the same markets. In that case, the combined health system may be hesitant to offer lower prices in one market out of concern that their competitor will retaliate by lowering prices and undercutting them in other markets. Finally, a large system that, say, acquires a small hospital may have more expertise in bargaining with insurers, which it could use to negotiate for higher prices.
Another concern that has been raised about certain types of mergers, which could also apply to some cross-market mergers, is that they may reduce access to care. For instance, a large health system that acquires a small rural hospital may be less responsive to community needs and more willing to eliminate service lines, such as obstetric care. Relatedly, a hospital may also reduce spending on community benefits after being acquired by a health system.
How Do Government Antitrust Agencies Approach Cross-Market Mergers?
Federal and state antitrust agencies seek to promote competitive markets—often to benefit consumers—by scrutinizing mergers and other potentially anticompetitive practices. Antitrust agencies have historically focused on mergers between hospitals and health systems that operate in the same geographic market, though there are signs that they have begun to take a closer look at cross-market mergers. While federal antitrust agencies have yet to formally challenge a cross-market merger, the Federal Trade Commission (FTC) has identified these types of deals as an area of interest and has investigated at least two specific cross-market mergers (between Advocate Aurora Health and Atrium Health and between Spectrum Health and Beaumont Health).5
At the state level, the state attorney general in California has used its legal authority to impose conditions on mergers that have been identified as cross-market deals. These conditions have included, for example, placing restrictions on price increases and requiring that the merged entities maintain certain services, such as by having a minimum number of emergency room, intensive care, and obstetrics beds. In Minnesota, the state attorney general had begun to investigate whether to challenge a proposed merger between Fairview Health Services (based in Minnesota) and Sanford Health (based in South Dakota) before the two systems abandoned their plans in July 2023.
Cross-market mergers have never been fully-litigated by a federal or state antitrust agency, and doing so in the short term may be difficult. First, only a handful of analyses have focused on cross-market mergers, limiting the ability of regulators to cite potential consequences based on empirical evidence. Second, antitrust agencies have not yet released detailed guidelines for evaluating cross-market mergers,6 nor have they tested legal strategies for challenging cross-market mergers in the courts. In contrast, when antitrust agencies challenge within-market mergers, they can rely on years of legal precedent as well as economic frameworks recognized by the courts. Finally, antitrust litigation can be complex and expensive. Without adequate funding, it may be impractical to challenge a large number of health care provider business practices that raise anticompetitive concerns, including cross-market mergers. Given these challenges, it is conceivable that cross-market mergers will continue unabated in the near future.
Hospital and health system mergers are common, and these mergers often involve providers in different geographic markets. Cross-market mergers may have benefits in some scenarios, for example, if the providers involved share effective clinical strategies for improving patient care. However, a handful of studies indicate that cross-market mergers can lead to increases in health care prices. It is also possible that some hospitals may become less responsive to community needs after a cross-market merger. Antitrust agencies have begun to take a closer look at mergers of hospitals and health systems across different geographic regions, which may have a bearing on affordability and access to care in many regions across the country, but they have yet to fully-litigate a cross-market merger.
Some policy and regulatory options have been floated that could address some of the concerns about cross-market mergers. For example, government regulators could use their existing authority to scrutinize cross-market mergers, which antitrust agencies have begun to do. States could enact laws to give government agencies authority to require some or all types of providers to obtain prior approval from the government before merging. California has done so, and attorneys general in the state have used this authority to impose conditions on cross-market mergers to limit price hikes and require that merging entities maintain certain services. In addition, regulators could prohibit certain types of clauses in contracts between providers and insurers that may allow merged entities to leverage market power to negotiate for higher prices in one market based on their strong position in another.7
Each of these policy and regulatory options would involve tradeoffs. For example, determining whether to challenge a given cross-market merger could entail weighing the potential benefits of a merger, such as allowing a small hospital to keep its doors open, against the potential for some harm, such as higher health care prices and potentially less access to care for patients in a given market. As the number of cross-market mergers increases, these concerns and tradeoffs are likely to be on the radar of policymakers and regulators.
This work was supported in part by Arnold Ventures. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities.
This brief defines cross-market mergers based on providers being in separate geographic markets. We distinguish this from vertical mergers, which occur when there is consolidation between providers that offer different services along the same supply chain, such when a hospital acquires a physician practice.
Regulators and researchers have long grappled with how to define the boundaries of geographic markets for health care services. As a result, a merger that is considered to cross markets by some may be identified as occurring within a single market by others.
Kaiser Permanente and Geisinger are both integrated health systems that include both insurance plans and health care providers. Revenues reflect all sources of operating income.
For example, in 2015, the Federal Trade Commission (FTC) initiated a legal challenge against a planned merger between two Illinois health systems—Advocate Health and Northshore University HealthSystem—arguing that the combined entity would control over half of the market for general acute care inpatient services in the North Shore area of Chicago. The two systems eventually abandoned their plans to merge. However, Advocate Health was later involved in two cross-market mergers—first with Aurora Health (based in the neighboring state of Wisconsin) to form Advocate Aurora Health and then with Atrium Health (based in North Carolina, South Carolina, Georgia, and Alabama) to form Advocate Health. The Federal Trade Commission investigated the latter merger, but the government did not seek to challenge either merger in the courts.
The Department of Justice (DOJ) and FTC have taken additional steps that indicate that they are taking a closer at cross-market mergers. For example: (1) in September 2021, the FTC announced that they would be considering cross-market effects in their reviews of large merger deals, (2) in February 2023 and July 2023, respectively, the two agencies withdrew from their health care policy statements which, among other things, may have created a safety zone for large health systems to acquire small hospitals in other markets, and (3) in July 2023, the two agencies released a draft version of their updated guidelines for reviewing mergers that included language which might be used to challenge cross-market mergers (though this is not yet clear).
In July 2023, the FTC and DOJ released a draft version of their updated guidelines for reviewing mergers that included language which might be used to challenge cross-market mergers (though this is not yet clear).
This would entail banning “all-or-nothing clauses,” which require an insurer that wants to contract with a particular provider in a system to contract with all providers in that system.