The Antitrust Implications of Entry by Small-Scale Hospitals

Analyses of general acute care hospital mergers have traditionally defined the relevant product market as inpatient medical and surgical acute care and have generally assumed that economies of scale exist at least up to 100 beds. However, an examination of recent entry into California suggests that antitrust authorities should reconsider these two positions. First, twenty-one of the thirty-five general acute care hospitals that have recently opened or plan to open soon have fewer than 100 beds. Some of these hospitals are entering urban and suburban areas in which they must compete with larger hospitals. Entry by these hospitals suggests that sub-100 bed hospitals can efficiently provide at least some inpatient acute care services. Second, some of the sub-100 bed entrants are an outgrowth of outpatient surgery centers and provide only a subset of the services provided by full-service general acute care hospitals. The emergence of this type of hospital suggests that competitive conditions and entry conditions may now vary substantially across the range of inpatient acute care. If this is the case, then grouping separate acute care services into a broad cluster market may no longer be a useful means of simplifying the analysis of hospital mergers.