The Next Frontier in Hospital Mergers: Crossing Geographic Markets

Antitrust Law

With the Federal Trade Commission’s successful track record in challenging mergers of provider systems operating in the same geographic area, several hospitals are looking farther afield for merger partners. One recent example of such a deal is the December announcement that Illinois-based Advocate Health Care (Advocate) plans to merge with Wisconsin-based Aurora Health Care (Aurora) to create a 27-hospital system. This announcement comes less than a year after Advocate abandoned its plans to merge with fellow Illinois-based NorthShore University Health System (NorthShore) after a federal judge ultimately granted the Federal Trade Commission’s request for a preliminary injunction.

The Advocate/Aurora deal does not fit within traditional FTC enforcement paradigms. Advocate and Aurora do not have a direct geographic overlap in the service areas of their facilities and have not historically been direct head-to-head competitors for inclusion in insurer networks. But the transaction raises the interesting enforcement question of whether provider mergers across market boundaries can still raise competition concerns.

Background: Advocate-NorthShore Merger

In September 2014, Advocate announced its plans to merge with NorthShore. The FTC and the State of Illinois challenged the merger in December 2015. Although the FTC initially lost its bid for a preliminary injunction at the District Court in June 2016, in October 2016, the Seventh Circuit Court of Appeals reversed. On remand, the District Court granted the injunction, and the parties subsequently abandoned their transaction.

As the Court of Appeals explained, the case hinged on the proper definition of geographic markets for hospitals. Because patients generally prefer to receive general acute care services close to home, employers require, and insurers must offer, health plans that provide patients with access to in-network hospitals near where they live. Insurance executives testified that an insurer’s network must include either Advocate or NorthShore. Evidence that some—or even many—patients are willing to travel does not overcome this conclusion. As a result, the geographic market was conservatively defined as an eleven-hospital area in the northern suburbs of Chicago that included six of the defendants’ hospitals.

The Advocate/Aurora Transaction

This time, Advocate has looked outside its current region for a merger partner. Aurora operates 15 hospitals in Wisconsin and only a couple of health centers in northern Illinois, all geographically distinct from the Advocate system. According to the parties, the transaction will create the tenth largest not-for-profit integrated healthcare system in the U.S.

The parties tout the efficiencies and cost savings that will result from enhanced scale, expanded access and a shared commitment to transform healthcare delivery. The rationale for the transaction is that the “organizations are coming together from unique and complementary positions of strength, particularly at a time of evolving industry dynamics.”

Advocate’s president and CEO, Jim Skogsbergh, took care to distinguish the Aurora deal from the attempt to merge with NorthShore. Skogsbergh insists that Chicago-area residents are “not going to see price increases as a result of this transaction.” Illinois hospitals are “price takers, not price makers” because of the dominance of Blue Cross Blue Shield (BCBS) of Illinois and the hospitals’ “very distinct” markets. Contrasting the transaction with Advocate's prior attempt to merge with NorthShore, Skogsbergh also explained that this transaction does not reflect an overlap in “a series of ZIP codes in the northern area of Chicago.”

Potential Antitrust Concerns With Cross-Market Mergers

Historically, “cross-market mergers”—transactions involving important hospitals in geographically distinct areas—have fallen outside the scope of FTC concern. Over the last several years, however, several commentators have questioned whether large provider systems encompassing multiple (but generally adjoining or nearby) geographic markets may have an anticompetitive impact in limiting the ability of health plans to negotiate favorable rates. See G. Vistnes and Y. Sarafidis, Cross-Market Hospital Mergers: A Holistic Approach, 79 Antitrust L.J. 253 (2013).

In 2016, a study by Dafny, Ho and Lee examined 500 hospital mergers between 2000 and 2012, finding that mergers of hospitals in different geographic markets in the same state (as much as 90 minutes driving time apart) drove up hospital prices by 6 percent to 10 percent. In addition, the former FTC Chairwoman, Edith Ramirez, suggested in May 2016 that, while the FTC has “focused [its] enforcement efforts on horizontal mergers between competing healthcare providers,” it also receives complaints “that provider consolidation in non-overlapping geographic or product markets may also lead to higher prices…” and is “continuing to explore” this area. FTC Chairwoman Edith Ramirez, Keynote Address at the Antitrust in Healthcare Conference, Arlington, VA (May 12, 2016).

The basis for antitrust concerns with such transactions is that even geographically distinct hospitals have common insurer customers, and such transactions can enhance bargaining leverage. Given the state-by-state nature of health insurance regulation, in-state cross-market transactions raise more obvious concerns than mergers across state lines, where the payers in each state may be different. In the Advocate/Aurora transaction, given the proximity of Aurora’s southern facilities to the Illinois border and the fact that Aurora appears to be in-network for BCBS of Illinois as well as large, national private insurers, the FTC can be expected to look closely at the potential impact of the transaction on pricing to the region’s insurers.


Since its success in challenging the consummated Evanston Northwestern/Highland Park merger in 2008, the FTC had maintained a consistent approach to hospital mergers, focusing exclusively on horizontal mergers between competing healthcare providers and narrow geographic markets. Further, federal courts have endorsed the FTC’s reasoning and economic analysis on this basis. In the Advocate/Aurora transaction, the two health systems have separate geographic footprints, so any enforcement action would be a major departure from the traditional approach, and probably unlikely. Having said that, the transaction will certainly get a close look by the FTC and the Illinois and Wisconsin state attorneys general. And given the current enforcement environment, we can expect to see more transactions like this that potentially raise cross-market issues.

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