Lifespan / CNE Merger Economics

The largest hospital system in Rhode Island, Lifespan, is trying to merge with the second-largest hospital system in Rhode Island, Care New England. Next Wednesday I’ll be on a panel discussing the proposed merger, following a panel with the Presidents of the three institutions involved (Lifespan, CNE, and Brown University). I’ll summarize my thoughts here.

Basic economics tells us that if a company with 50% market share buys a company with 25% market share in the same industry, they have strong market power and are likely to use this monopoly position to raise prices.

The real world is often more complicated, especially when it comes to health care, but in this case I think basic economics holds up well. A wealth of empirical evidence, including studies of previous hospital mergers, suggest that reduced hospital competition leads to higher prices without bringing commensurate benefits in quality or efficiency.

I think the Federal Trade Commission will almost certainly challenge the merger, and that they will likely succeed in doing so. The FTC merger guidelines more or less demand it, and current FTC leadership if anything seems to want to be more aggressive than required on antitrust. To me the biggest question is whether they will try to stop the merger entirely, or whether they would allow it to proceed subject to conditions (e.g. spin off one or two hospitals to remain independent)- I’ll be watching with interest and letting you know how it goes.

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