Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Edited by Peter C. Carstensen and Susan Beth Farmer

This comprehensive book contains case studies on the evolution of competition policy, with an emphasis on merger policy, for seven major US industries that have experienced substantial deregulation in the past forty years – electricity, natural gas, telecommunications, railroads, airlines, hospitals and banking. Also included is a comparison of the EU’s experience in attempting to bring about competition in the energy, finance, and airline industries.

Chapter 7: Hospital Mergers

Thomas L. Greaney

Subjects: economics and finance, competition policy, industrial organisation


Thomas L. Greaney INTRODUCTION If one were to ask a hospital administrator how deregulation had affected his/her institution’s operations, the question would be greeted with some surprise, if not outright scorn. To be sure, many regulations have been eliminated over the last twenty years. However, vast areas of administrative oversight persist or have been added during that same period. The extent and nature of deregulation affecting acute care hospitals requires some historical context and an understanding of the complex arrangements that shape today’s health care institutions. This chapter will therefore begin with a brief historical account of the changing regulatory landscape. Next, it will provide an analysis of the economic and institutional forces affecting the health care industry today. Then, it will turn to the role of antitrust law in fostering change in an evolving industry. General acute care hospitals have long been subject to a wide array of federal, state and private regulatory regimes. Although some of the most intrusive, command and control forms of regulation, such as state ratesetting and certificate of need (CON) laws (requiring prior administrative approval for entry and large capital investments) have been removed or modified, a large body of law continues to govern the operations of hospitals. Government-financed payment systems, which include Medicare, Medicaid, TRICARE, the Indian Health Service and a large number of miscellaneous programs, account for more than half of acute care hospital revenues (Mayo 2000, 1267). Not surprisingly, as a condition of payment these...

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