Health Economics, Policy and Law

Articles

The impact of geographic market definition on the stringency of hospital merger control in Germany and the Netherlands

Marco Varkevissera1 c1 and Frederik T. Schuta2

a1 Associate Professor of Health Economics, Institute of Health Policy & Management (iBMG), Erasmus University Rotterdam, The Netherlands

a2 Professor of Health Economics, Institute of Health Policy & Management (iBMG), Erasmus University Rotterdam, The Netherlands

Abstract

In markets where hospitals are expected to compete, preventive merger control aims to prohibit anticompetitive mergers. In the hospital industry, however, the standard method for defining the relevant market (SSNIP) is difficult to apply and alternative approaches have proven inaccurate. Experiences from the United States show that courts, by identifying overly broad geographic markets, have underestimated the anticompetitive effects of hospital mergers. We examine how geographic hospital markets are defined in Germany and the Netherlands where market-oriented reforms have created room for hospital competition. For each country, we discuss a landmark case where definition of the geographic market played a decisive role. Our findings indicate that defining geographic hospital markets in both countries is less complicated than in the United States, where antitrust analysis must take managed care organisations into account. We also find that different methods result in much more stringent hospital merger control in Germany than in the Netherlands. Given the uncertainties in defining hospital markets, the German competition authority seems to be inclined to avoid the risk of being too permissive; the opposite holds for the Dutch competition authority. We argue that for society the costs of being too permissive with regard to hospital mergers may be larger than the costs of being too stringent.

(Online publication February 21 2012)

Correspondence:

c1 Correspondence to: Professor Marco Varkevisser, Institute of Health Policy & Management (iBMG), Erasmus University Rotterdam, Room J8-03, P.O. Box 1738, Rotterdam 3000, The Netherlands. Email: varkevisser@bmg.eur.nl