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During an American Bar Association (ABA) program on antitrust
and health care issues on October 1, 2012, U.S. Federal Trade
Commission (FTC) Deputy Director for Health Care and Antitrust,
Leemore Dafny, said that the FTC will focus on how patients
purportedly react to price increases, as measured by
"diversion ratios," when deciding which hospital mergers
to investigate further for potential anticompetitive
effects.
Dafny stated that the FTC will focus on diversion ratios rather
than geographic markets because relying on geographic market
overlaps in hospital mergers may do a poor job of identifying the
true source of potential competition problems. Instead, the
FTC has and will continue to evaluate hospital mergers to look at
whether patients would be willing and able to substitute one
hospital for the other if one hospital decided to raise prices for
services, using the diversion ratio or the proportion of patients
who would switch between them in response to a change in
prices. Importantly, the diversion ratio does not rely on any
one particular geographic market definition to give the FTC what it
believes to be an accurate idea of how a hospital merger might
affect competition.
To the extent the FTC considers geography, its staff begins by
examining the primary service area of the hospitals – the
area from which the hospitals draw about 75 percent of their
patients – when conducting a preliminary evaluation of a
merger to determine whether overlaps exist. According to
Dafny, the more significant the overlaps, the higher the likelihood
of a potential competition problem.
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