Various forces are driving healthcare providers to pursue integration to reduce prices and improve efficiency. Right now, the dominant payment model for healthcare is fee-for-service, in which a patient is charged for each individual service, test, or visit. An alternative model is value-based care, in which the emphasis is on value as opposed to volume. But to provide value-based care, health systems generally must be integrated enough to connect a patient with all of the physicians they might need. This incentivizes certain health systems to seek consolidation by merging with other hospitals or physician groups. The merging of these entities runs the risk of antitrust scrutiny.

Antitrust law in the United States largely measures anticompetitive harm by short-term price increases. There is reason to believe that this emphasis on short-term price increases will stand in the way of otherwise beneficial mergers that pursue the provision of value-based care. This is because it is almost an inherent aspect of the model that consumers may pay greater prices in the short term, but costs are lowered down the line (since patients ideally will need fewer costly treatments). This Note argues that anticompetitive concerns, especially patient costs and quality outcomes, must now be analyzed differently when focusing on the long-term horizon of value-based care.

The full text of this Note can be found by clicking the PDF link to the left.


The United States spends about twice as much per person on healthcare costs as other high-income countries. 1 Roosa Tikkanen & Melinda K. Abrams, U.S. Health Care From a Global Perspective, 2019: Higher Spending, Worse Outcomes?, Commonwealth Fund (Jan. 30, 2020), https://www.commonwealthfund.org/publications/issue-briefs/2020/jan/us-health-care-global-perspective-2019 [https://perma.cc/8E4N-UA3W] (comparing the United States with other “high-income countries” including Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom). Despite this massive spending, compared to other Organisation for Economic Co-operation and Development (OECD) countries, Americans have the lowest life expectancy, the highest chronic disease burden, the highest rates of hos­pitalization from certain preventable causes, and the fewest doctor visits. 2 Id. But note, the U.S. healthcare system is distinct due to its fragmented payor market, which contributes to structural financial problems. OECD, Private Health Insurance Spending 1 (2022), https://www.oecd.org/health/Spending-on-private-health-insurance-Brief-March-2022.pdf [https://perma.cc/4VFT-393Y] (“Private health insurance accounts for a third of all health spending in the United States . . . [but in] around half of OECD countries it accounts for 5% or less of health spending.”). Meanwhile, the number of Americans who lack health insurance is grow­ing while affordability is falling. 3 William H. Shrank, Nancy-Ann DeParle, Scott Gottlieb, Sachin H. Jain, Peter Orszag, Brian W. Powers & Gail R. Wilensky, Health Costs and Financing: Challenges and Strategies for a New Administration, 40 Health Affs. 235, 235 (2021). Healthcare is a top policy concern for politicians and voters alike, 4 Ashley Kirzinger, Audrey Kearney & Mollyann Brodie, KFF Health Tracking Poll—February 2020: Health Care in the 2020 Election, Kaiser Fam. Found. (Feb. 21, 2020), https://www.kff.org/health-reform/poll-finding/kff-health-tracking-poll-february-2020/ [https://perma.cc/BC69-87K7] (reporting that in anticipation of the 2020 election, voters listed healthcare first and then the economy as their top priorities when choosing their presidential vote). prompting the landmark Patient Protection and Affordable Care Act of 2010 (ACA)—as well as more than sixty Congressional attempts to repeal it and five Supreme Court cases seeking to strike it down. 5 Ezekiel J. Emanuel & Abbe R. Gluck, Introduction to The Trillion Dollar Revolution: How the Affordable Care Act Transformed Politics, Law, and Health Care in America 7, 7, 9 (Ezekiel J. Emanuel & Abbe R. Gluck eds., 2020). In July 2020, the CEO of the American Medical Association announced that the American healthcare system is failing to serve the public and called for a disruption of the status quo. 6 James L. Madara, America’s Health Care Crisis Is Much Deeper Than COVID-19, Am. Med. Ass’n (July 22, 2020), https://www.ama-assn.org/about/leadership/america-s-health-care-crisis-much-deeper-covid-19 [https://perma.cc/8XRB-VV2Y]. In such a troubled yet tremendously important industry, one promising path toward improving the efficiency of healthcare is eliminating the fee-for-service reimbursement model and replacing it with value-based care.

Healthcare is typically operated under a fee-for-service structure, in which providers charge for each service, including visits, exams, and tests. 7 Fee for Service, HealthCare.gov, https://www.healthcare.gov/glossary/fee-for-service/ [https://perma.cc/UZ7Y-SZQ2] (last visited July 27, 2022). A fundamental flaw of this model in an industry like healthcare is that it incentivizes high outputs, since profit is directly linked to the provision of discrete services. 8 How and Why the Value Based Payment (Pay for Performance) Model Is Trending in the Healthcare Industry, Insider Intel. (Apr. 15, 2022), https://www.insiderintelligence.com/​insights/value-based-care-pay-for-performance-healthcare-model [https://perma.cc/W7QP-ERRR]. It further runs the risk that patients may receive unnec­essary or duplicative treatments that they nonetheless have to pay for. 9 Heather Lyu, Tim Xu, Daniel Brotman, Brandan Mayer-Blackwell, Michol Cooper, Michael Daniel, Elizabeth C. Wick, Vikas Saini, Shannon Brownlee & Martin A. Makary, Overtreatment in the United States 5 (2017), https://doi.org/10.1371/journal.pone.0181970 [https://perma.cc/8JLA-TH8D] (reporting that from a study of over 2,000 physicians, al­most 65% believe that up to 30% of medical care is unnecessary); Jacqueline LaPointe, Driven by Fee-For-Service, Docs Say Up to 30% of Care Unnecessary, RevCycle Intel. (Sept. 15, 2017), https://revcycleintelligence.com/news/driven-by-fee-for-service-docs-say-up-to-30-of-care-unnecessary [https://perma.cc/9GD5-E2ZY] (reporting on the Lyu et al. survey, supra, finding that “fee-for-service payment structures played a major role in overtreatment”). Value-based programs instead prioritize the quality of care that people re­ceive along with the health of the populations around them. 10 Value Based Programs, Ctrs. for Medicare & Medicaid Servs., https://​www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/Value-Based-Programs [https://perma.cc/4HH2-GWL4] (last visited Aug. 7, 2022). In short, value-based care is concerned with value rather than volume.

This model is expanding in the United States, and hospitals and healthcare providers are pursuing consolidation to accomplish this transi­tion. 11 See Monica Noether & Sean May, Charles River Assocs., Hospital Merger Benefits: Views From Hospital Leaders and Econometric Analysis 3 (2017), https://www.aha.org/​system/files/2018-04/Hospital-Merger-Full-Report-FINAL-1.pdf [https://perma.cc/3RSJ-V2JM] (“Hospital leaders also recognize that such fundamental changes to the payment system require them to integrate . . . to form systems that achieve the scale necessary to make the substantial investments required to . . . bear the financial risk inherent in value-based payment systems.”). There are two major reimbursement models worth noting here: shared risk and shared savings. In both models, assuming a patient receives care over a period of time and from multiple providers with varied special­ties, the departments collaborate to determine the most efficient care and reduce cost. Meanwhile, a payor sets a cost-containment goal. Under a shared-risk reimbursement plan, providers are incentivized to monitor spending because they may be required to pay back a portion of any finan­cial overrun or loss they incur above the anticipated budget. 12 Wendy Gerhardt, Leslie Korenda, Mitch Morris & Guarav Vadnerkar, Deloitte, The Road to Value-Based Care: Your Mileage May Vary 4 (2015), https://www2.deloitte.com/​content/dam/insights/us/articles/value-based-care-market-shift/DUP-1063_Value-based-care_vFINAL_5.11.15.pdf [https://perma.cc/GQG2-HQSC]. Similarly, a shared-savings system incentivizes providers because they may receive a portion of any savings they generate when the cost of quality care comes out under the goal. 13 Id.

Healthcare entities purport to seek consolidation to offer important benefits to patient care and population health, 14 Noether & May, supra note 11, at 8–9. yet mergers often risk drawing the scrutiny of market regulators. 15 Healthcare markets are often already highly concentrated, meaning that only a few firms compete in the relevant geographic market, so a merger of any kind may automatically trigger antitrust review. See Zack Cooper & Martin Gaynor, Addressing Hospital Concentration and Rising Consolidation in the United States, 1% Steps for Health Care Reform 2, https://onepercentsteps.com/wp-content/uploads/brief-hc-210208-1700.pdf [https://perma.cc/U999-7KPB] (last visited July 27, 2022) (calculating that more than 80% of hospital markets in the United States qualify as “highly concentrated” under the FTC and DOJ’s merger review criteria). Proponents of consolidation in the healthcare industry, including the industry trade group the American Hospital Association, explain that mergers are often designed to integrate the delivery of care, provide new services, lower costs, share technology, and bear the financial risk of value-based care. 16 Id. at 6–10; Kaufman Hall, The Benefits of Integration: Healthcare in a Time of Rapid Transformation 2 (2021), https://www.kaufmanhall.com/sites/default/files/2021-10/kh-cha-benefits-of-integration-report_d9-reduced.pdf [https://perma.cc/6P7R-8TMW] (explaining that healthcare systems seek mergers that “preserve access to care in under­served communities, enhance the quality and affordability of care, and strengthen the resiliency of the healthcare system”); Bryan Sung, Chris Harris, Mary Beth Mikols & Sam Vos, Deloitte, Health Care Mergers and Acquisitions: The IT Factor 3 (2018), https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-lshc-health-care-mergers-and-acquisitions-final.pdf [https://perma.cc/PZ3U-SBW6] (“[T]he movement toward . . . the ability to offer services in all phases of patient care . . . has primarily been achieved through M&A as smaller [firms] fuse into larger health care systems to realize economies of scale.”). But positive outcomes must be balanced against the reality that merged organizations tend toward monopoly in certain markets and risk increasing prices for consumers. 17 See Examining the Impact of Healthcare Consolidation: Hearing Before the Subcomm. on Oversight & Investigations of the H. Comm. on Energy & Com., 115th Cong. 22–26 (2018) (statement of Martin Gaynor, Professor of Economics and former Director of the FTC’s Bureau of Economics) (citing a range of studies that found post-merger price increases ranging from 20% to 30% and some up to 50%); Cooper & Gaynor, supra note 15, at 3 (citing evidence that hospital consolidation has raised consumer prices and can reduce clinical quality); Karyn Schwartz, Eric Lopez, Matthew Rae & Tricia Neuman, What We Know About Provider Consolidation, Kaiser Fam. Found. (Sept. 3, 2020), https://​www.kff.org/health-costs/issue-brief/what-we-know-about-provider-consolidation/ [https://perma.cc/WML3-7Z4Z] (“A wide body of research has shown that provider consolidation leads to higher health care prices for private insurance . . . .”). These anticompetitive harms to the market are regulated by federal and state antitrust laws. The federal laws specifically are enforced by the Federal Trade Commission (FTC), the Department of Justice (DOJ), and private parties. 18 The Enforcers, FTC, https://www.ftc.gov/tips-advice/competition-guidance/​guide-antitrust-laws/enforcers [https://perma.cc/BK9M-Q8WT] [hereinafter FTC, Enforcers] (last visited July 27, 2022).

The measurable outcomes of these mergers both in terms of price and quality of care are hotly contested. 19 See infra section II.C. Opponents, including the Biden Administration, argue that healthcare mergers are increasingly anticom­petitive and result in higher costs for patients. 20 See Exec. Order No. 14,036, 86 Fed. Reg. 36,987, 36,988 (July 9, 2021) (“Hospital consolidation has left many areas, especially rural communities, with inadequate or more expensive healthcare options.”); Fact Sheet: Executive Order on Promoting Competition in the American Economy, The White House (July 9, 2021), https://www.whitehouse.gov/​briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/ [https://perma.cc/6Y39-N24K] (“Thanks to un­checked mergers, the ten largest healthcare systems now control a quarter of the market.”). Industry leaders, however, dispute these conclusions and further argue that mergers are a necessity for survival after the passage of the ACA and its new regulatory burdens. 21 See, e.g., Noether & May, supra note 11, at 13 (“[All of the hospital system leaders interviewed by the AHA] articulated the compelling need for scale and breadth of services in order to meet the demands of health care reform initiatives.”); Traci Prevost, Wendy Gerhardt, Ion Skillrud & Debanshu Mukherjee, The Potential for Rapid Consolidation of Health Systems, Deloitte (Dec. 10, 2020), https://www2.deloitte.com/us/en/insights/​industry/health-care/hospital-mergers-acquisition-trends.html [https://perma.cc/7SHH-82GC] (“One can never accurately predict what may happen in a decade; however, trans­formation of care delivery models and, therefore, hospital consolidation will likely continue.”).

Healthcare entities continue to refine commercial and legal arguments to persuade regulators to approve proposed mergers, including arguments that increased efficiencies may benefit the public. 22 See infra section I.B. These effi­ciencies are more important than ever in a healthcare landscape that is fundamentally changing. 23 See, e.g., John Henning Schumann, How Health Care in the U.S. May Change After COVID: An Optimist’s Outlook, NPR (May 13, 2021), https://www.npr.org/sections/​health-shots/2021/05/13/996233365/how-health-care-in-the-u-s-may-change-after-covid-an-optimists-outlook [https://perma.cc/2HNY-U6ZC] (addressing paradigm-shifting fac­tors like COVID-19, the transition to telemedicine, and the decentralization of care or “meeting patients where they are”). And the standard metrics for healthcare evalu­ation are changing as a result. Anticompetitive concerns, especially patient costs and quality outcomes, must now be analyzed differently when considering the long-term horizon of value-based care. 24 See infra section III.C.

Today, the prevailing policy of antitrust law, as applied to hospital mergers, is to obstruct market concentration that has the potential to re­sult in harm to consumer welfare, measured principally by the elevation of prices charged to customers in the short term. 25 See DOJ & FTC, Horizontal Merger Guidelines § 1 (2010), https://www.ftc.gov/​system/files/documents/public_statements/804291/100819hmg.pdf [https://perma.cc/​XM3U-DL8V] [hereinafter Horizontal Merger Guidelines]; see also Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 539 (2013) (“[T]he principal objective of antitrust policy is to maximize consumer welfare by encouraging firms to behave competitively.” (quoting Phillip E. Areeda & Herbert Hovenkamp, 1 Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 100 (3d ed. 2006))); Herbert J. Hovenkamp, Antitrust: What Counts as Consumer Welfare?, Penn Law: Legal Scholarship Repository 1 (July 20, 2020), https://​scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=3196&context=faculty_scholarship [https://perma.cc/859T-KWGC] (“The dominant view of antitrust law today is its rules should be based on a ‘consumer welfare’ principle. We assume that consumers are best off when prices are low.”). This Note argues that the focus on short-term price effects is incorrect as a normative matter because the consumption of healthcare is not readily analogous to that of conven­tional commodities. 26 See infra section III.C. Instead, courts and antitrust regulators should fac­tor in a new theory of the healthcare market and efficiencies analysis that focuses on the qualitative value of care provided under longer-term, value-based arrangements rather than the quantitative volume of traditional fee-for-service models. 27 See infra section III.B. This analysis is defensible doctrinally. That is, under circuit precedent, courts continue to recognize the efficiencies defense which affirms that consumers can benefit from merger-specific outcomes that sufficiently counteract anticompetitive price effects. 28 See infra section I.B.

This Note makes several contributions. Part I explains the foundation of American antitrust law at the federal level as well as the normative evo­lution of antitrust priorities. In particular, it engages with the exceptions within antitrust law that are reserved for the healthcare industry before providing an up-to-date primer on the use of the efficiencies defense in district and circuit courts. Part II describes the challenges the healthcare industry faces, including the structural changes to the field, the compli­cated nature of health insurance payors as consumers, and the complex economic analysis necessary for understanding the commercial side of medicine. Finally, Part III of this Note identifies three areas where greater antitrust clarity could advance the process of transitioning to value-based care. These proposals include accounting for the distinct payor mix when evaluating impacts on consumers who are insulated from price changes, prioritizing quality as a procompetitive dimension, and clarifying the timeframe for analyzing post-merger cost and quality outcomes.