Geographic Market Issues in Hospital Mergers

30 June 2003
By Dr. Thomas McCarthy with Dr. Scott Thomas

In merger analysis, the key question is whether the merger will create or enhance market power. In this article, the authors explain that the relevant geographic market is often important in answering this question in hospital mergers because it will describe the geographic reach of those suppliers that significantly constrain the behavior of the merging firms, which in turn indicates the concentration levels and other aspects of the relevant market. Properly identifying the relevant geographic market, then, is often critical to hospital merger analysis. The authors outline several recent cases in which the geographic market determination was dispositive and, based on these cases and their extensive experience, recommend that a variety of tests should be used to examine the many aspects of identifying the relevant geographic market.

The authors of this article highlight, describe, and critique the most commonly employed methodologies for delineating the geographic market in hospital merger cases. They discuss the most common methods that the antitrust agencies and others have used to identify relevant geographic markets. Lastly, the authors examine the methodologies employed in a number of recent hospital merger court cases and the court's acceptance or rejection of those approaches.

This article was published as a chapter 3 in the American Bar Association's Health Care Mergers and Acquisitions Handbook, 2003.