Hospitals and Physician Services

A. Introduction
This chapter provides an overview of how antitrust markets are
defined in hospitals and physician services. Chapter VIII will discuss
market definition in two other important health care areas:
pharmaceuticals and medical devices.
A critical question that must be considered when determining the
scope of relevant product and geographic markets in hospitals and
physician services is “who is the consumer?” In most industries, the
answer to this question is obvious: the consumer is the person who
purchases and consumes the good or service. In health care markets,
where a number of participants play roles in the purchase decision, the
answer is less clear.
For example, the health care product or service is often selected by
(or at least with the help of) a physician. Many purchase decisions also
may be influenced by managed care organizations. Finally, the choice of
health insurance available to a consumer may be limited by an employer.
In particular, employers select plans, which in turn may affect the
purchase decision.
This chapter describes how market participants may influence the
purchase decision. It then discusses how relevant markets have been
defined in hospitals and physician services.1
1. As explai ned more fully below, the economic principles outlined in the
2010 Merger Guidelines are commonly employed when defining relevant
markets in the health care industry. U.S. DEPT OF JUSTICE & FED. TRADE
COMMN, HORIZONTAL MERGER GUIDELINES § 4.1 (2010), reprinted in 4
Trade Reg. Rep. (CCH) ¶ 13,100, a vailable a t [hereinafter
2010 MERGER GUIDELINES]. See Chapter I for a general discussion of
market definition under the 2010 Merger Guidelines.
278 Market Definition in Antitrust
B. Hospital Industry
1. Specific Issues in Market Definition
Market definition in hospital services often focuses on the patient as
the consumer. Ultimately, the patient chooses the hospital, although both
physicians and health insurers influence patients’ choices. More
information is becoming available to patients, making their choices a
more significant factor in market definition. In addition, financial
incentives are increasing for patients to be more active in healthcare
decisions, such as through consumer-directed health plans.
Nonetheless, in recent litigation the Federal Trade Commission
(FTC) has specifically identified third-party payors as the critical
purchasers of health care services, because those entities pay for most or
all of the hospital services consumed by patients. Payors have significant
ability to influence the choice of hospital, though they do not always
exercise it. Most often, they influence choice of provider by limiting the
providers included in their networks. Payors may also influence
patients’ choices through financial incentives, such as differential co-
pays and deductibles or by segregating providers into tiers corresponding
to different out-of-pocket payments for patients. Financial incentives
also are commonly incorporated into benefit designs for self-insured
Traditional market analysis of the behavior of health care providers
recognizes that government third-party payors, specifically Medicare,
Medicaid, and Tricare, behave differently from commercial payors.
These government payors do not negotiate fees in their traditional plans.
Therefore, their purchases often are excluded from the market definition
exercise. However, a rapidly growing segment of the government-
insured business is being handled by managed care plans in which some
fee negotiation exists.
As in other antitrust contexts, market definition is typically
considered a necessary first step in competition analyses for hospital
services. The Eighth Circuit has stated that “[t]he determination of the
relevant market is a ‘necessary predicate’ to a finding of a Clayton Act
violation.”2 Yet the 2010 revision of the Merger Guidelines has shifted
focus away from the primacy of market definition, stating that “[t]he
Agencies’ analysis need not start with market definition” and that
2. FTC v. Freeman Hosp., 69 F.3d 260, 268 (8th Cir. 1995).

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT