This chapter covers the economic theory and evidence about the impact of provider consolidations (mergers and acquisitions) in healthcare services. As expected, hospital combinations within local markets (horizontal) are associated with higher unit prices but no measurable improvement in metrics of quality or outcomes. Prices increase by about 15%. Currently 30%–40% of the US population lives in big cities with competitive hospital markets. However, an equal fraction lives in smaller cities that could support more competitive hospitals; public policy to encourage competition there would be appropriate. The chapter investigates economic theories of vertical integration across markets; results here are less robust. An example of enhanced market power through bundling is provided, but a health system’s ability to do so is limited by lower administrative cost to employers of dealing with a single insurer that covers sellers in such markets.

In this chapter, we review the tools and tactics competition authorities use to evaluate the competitive consequences of mergers using various examples. Merger policy in the United States is governed by Section 7 of the Clayton Act, which forbids mergers that are apt to impair competition or tend to create a monopoly. Since Section 7 is a preventive – rather than a remedial – provision, the antitrust Agencies need not demonstrate actual harm. The Agencies need only prove that the adverse effects are likely to accompany that merger. A careful review of the change in the market structure before and after the proposed merger is often employed to determine the likelihood of an adverse effect. We illustrate the Agencies’ methodology by looking at mergers of health insurers, physician groups, and pharmaceutical companies.