When Enron collapsed in 2001, energy trader John Arnold departed with a seven-figure bonus and no charges of wrongdoing. The billionaire went on to start a hedge fund and later, Arnold Ventures LLS, a philanthropy that in the last decade has disbursed more than $2.5 billion to support initiatives ranging from criminal justice reform to gun control to restructuring government-funded pensions and reducing high drug prices. In March 2022, Arnold Ventures announced funding for a non-profit drugmaker planning to produce and sell $30 insulin.
Now the organization is providing financial backing to three lawsuits filed in Wisconsin, Connecticut, and North Carolina by law firm Fairmark Partners LLP. The suits, filed on behalf of consumers who pay commercial insurance premiums, allege that the defendants, large hospital systems, leveraged their market power to suppress competition and illegally raise prices.
Government and academic studies indicate that anticompetitive hospital mergers inflate service prices without improving the quality of medical care. Since 2010, metropolitan hospital markets in the U.S. have become highly concentrated. Now, instead of locally owned community institutions, medical centers—including hospitals, clinics, and doctor offices—tend to belong to vast networks that extend over multiple cities or even states.
While antitrust enforcement generally blocks deals that would merge two competing hospitals within the same local community, single ownership of hospitals separated by greater distances is often unchallenged. And states that see consolidations of hospitals subsequently experience hospital price increases between 7% and 9%.
Chains controlling one or more local spheres wield the influence to raise prices across all their markets by demanding insurers include either all or none of their markets. Insurers negotiating prices on behalf of consumers can either accept these terms or face exclusion of their health plans from key locations, which hinders their ability to sell plans to employers with workers across different geographic areas.
The relationship between hospital mergers and price hikes has drawn the attention of lawmakers on both sides of the aisle. After the Trump administration required hospitals to disclose their pricing, exposing vastly different rates for the same services across hospitals, the Biden administration singled out hospital consolidation as harmful to consumers and asked regulatory agencies to review and consider revisions to applicable merger guidelines.
Even assuming regulatory reforms are on the horizon, enforcing antitrust laws against hospitals is an expensive, complex, and time-consuming proposition. Rather than allowing the challenging circumstances to thwart government enforcement and disadvantage consumers, Fairmark hopes through these funded lawsuits to build an evidentiary foundation that government entities can later act on.
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