Sunday, November 1, 2015

Merger Mania

This has been a busy week for the merger mania as it is in full swing. We are going to need a new drug for that and ironically those are the ones whom are most infected.

The article in the New York Times discusses the issues surrounding some of the current mergers on the plate - from drug companies, to drug stores to medical practices - just what does that mean for the average consumer? And when something benefits us the regular joe, the push back is lobsided

Undeserved Payments to Hospitals
By Philip M. Boffey
The New York Times
October 29, 2015

The American Hospital Association is attacking a bipartisan budget deal that would serve the American people well. The deal would extend the debt ceiling, raise caps on government spending by $80 billion and avoid a government shutdown. The association’s complaint is that the bill, which has passed the House and is awaiting Senate approval, would reduce a rapidly-growing source of unjust payments to hospitals.

Section 603 of the bill would effectively force hospitals to stop pretending that physician offices and clinics they acquire as part of a merger are actually part of the main hospital campus. The distinction is important because Medicare pays outpatient clinics located at hospitals a lot more than it pays off–site clinics and doctors for the same services. For certain ambulatory surgeries, for example, Medicare pays roughly 80 percent more in a hospital outpatient department than in a freestanding off-site clinic. The issue is also important to Medicare beneficiaries because they can end up paying a lot more in cost-sharing at what is designated a hospital clinic than in a free-standing clinic.

In fact, Section 603 is a much weaker reform than is needed. It would apply only to outpatient clinics acquired in the future. Physician practices and clinics that have already been acquired by a hospital would be allowed to live by the old rule. The provision should be applied to all hospital acquisitions of off-campus sites whenever they occurred.

Another hospital group, the Federation of American Hospitals, which represents for-profit hospitals, called the provisions in Section 603 a “limited payment change” and acknowledged that Congressional leaders “did their best” to minimize the impact on hospitals. Greater reductions in payments to hospital outpatient departments have been proposed in recent years by the Medicare Payment Advisory Commission, a group of independent experts that advises Congress.

The Congressional Budget Office estimates that even the weak provision would save $9 billion over 10 years, which would help pay for increased spending under the budget bill. If the Senate approves the bipartisan deal, a number of special interest groups may seek riders to appropriations bill to restore or increase their funding. Congress should resist any special pleading by the American Hospital Association.

The same consumer that is largely the biggest prop to the economy along with housing. Seems like old times right? Well not quite. I need a beer, well that might be just that A Beer, as why bother with having numerous brands and choices? They are all made by one business (well eventually).

So if you can't beat 'em buy them is the new mantra of American business. Free Market not so much.

How Mergers Damage the Economy

The New York Times
OCT. 31, 2015

In many industries, like airlines, telecommunications, health care and beer, mergers and acquisitions have increased the market power of big corporations in the last several decades. That has hurt consumers and is probably exacerbating income inequality, new research shows.

A recent paper by two economists, Jason Furman and Peter Orszag, says that consolidation might have contributed to the trend of some businesses earning “super-normal returns” that are about 10 times as large as the median returns, up from three times in the early 1990s. This trend may have driven the rise in income inequality by increasing the income of executives and shareholders of those businesses relative to everybody else.

In addition, two finance professors at the University of Southern California estimate that nearly a third of American industries were highly concentrated in 2013, up from a quarter of all industries in 1996, according to The Wall Street Journal.

These trends ought to concern everybody, particularly lawmakers in Congress and officials at the antitrust division of the Department of Justice, the Federal Trade Commission and other government agencies that review mergers. It is increasingly clear that officials have allowed too many mergers. This has especially been true of Republican administrations and conservative judges who bought into the dubious notion that consolidation leads to great efficiency and that the free market will fix any problems.

The George W. Bush administration, for example, allowed Whirlpool to acquire Maytag even though the two companies controlled three-quarters of the market for some home appliances. Also under that administration, the wireless phone industry consolidated from six national companies to four. The two largest, Verizon and AT&T, now command about 70 percent of all subscribers.

The Obama administration has not been wedded to free-market dogma, but it has also waved through some big mergers. Officials approved two big airlines mergers — United and Continental, and American and US Airways. Just four national airlines now carry the vast majority of domestic passenger traffic, down from six when Mr. Obama came into office. The big carriers control so many gates and takeoff and landing slots at their hub airports that other airlines can’t mount a real challenge.

With fewer competitors to worry about, consolidated businesses can raise prices more easily without worrying about losing customers. And they can actively or tacitly collude with the remaining players in the industry to fix prices or production levels. The Justice Department is investigating whether the big airlines have agreed not to add more flights to keep their planes full and fares high.

Every weekday, get thought-provoking commentary from Op-Ed columnists, The Times editorial board and contributing writers from around the world.

Mergers tend to lead to more mergers. In the health care industry, big insurers like Anthem and Aetna say they need to get bigger to have more leverage in negotiations with hospitals and doctors’ practices that have become bigger through acquisitions in recent years.

Walgreens last week said it was buying Rite Aid so it could demand better terms from big drug makers and pharmacy benefit managers. Whether or not this merger improves Walgreens’s bargaining position, it will reduce consumer choice and may lead to higher prices.

The presence of a few dominant companies in an industry also makes it harder for entrepreneurs to start new businesses in that sector. The rate at which new businesses are created in the economy as a whole has been steadily falling since the 1970s, according to the Census Bureau. In 2013, the growth rate was 10.2 percent, down from 17.1 percent in 1977.

More legal challenges could help limit further consolidation and restore more dynamism to the economy. The Justice Department’s antitrust division has in recent years won nearly every merger challenge it has brought. The division and the Federal Communications Commission prevented Comcast from buying Time Warner Cable and AT&T from acquiring T-Mobile. But the division’s record suggests that it could be taking a tougher line. It allowed American Airlines and US Airways to merge after they agreed to sell just a few gates and take off and landing slots to other airlines. It should not have settled so quickly for so little.

Congress should also study whether there are ways to strengthen the antitrust laws. It could, for instance, require regulators to consider whether mergers in concentrated industries are in the broader public interest, not just whether they would harm consumers through higher prices. The F.C.C. can already use such a test to evaluate media and telecom deals to determine, for example, whether a merger will limit the diversity of opinions in media. Unfortunately, Congress is unlikely to adopt new antitrust legislation while Republicans are in control of both houses.

Given the already high consolidation in many industries, government officials have to be vigilant about investigating businesses that abuse their dominant position. In extreme cases, antitrust laws allow officials to seek the breakup of businesses, as the Justice Department did with the old AT&T monopoly in 1974. (That case was settled in 1982, and the company was broken up in 1984.) But it will be harder to use this tool now because most dominant companies are careful not to assemble that level of market power. That makes it all the more important for officials to do a better job of reviewing mergers in the first place.

Markets work best when there is healthy competition among businesses. In too many industries, that competition just doesn’t exist anymore.

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