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Show the entire Wasatch Front, independent third-party insurers such as Blue Cross and CIGNA cannot organize disparate and separately-owned hospitals into viable teaming arrangements capable of forming the basis of a health insurance product. Had divesture not been ordered, only two stand-alone hospitals (Salt Lake Regional Medical Center, the former downtown Holy Cross Hospital, and the University Hospital) would have remained. Since these hospitals are located less than two miles from each other, the necessary geographic coverage could not be obtained by combining them in a health care offering. As a result, third-party payers would have been, and to large measure still are, forced to rely on cooperation from one of the two large networks in order to organize the stand-alone hospitals into a teaming arrangement. Unfortunately, neither large network has any incentive to enter into such an agreement. Any discounts offered by such a joint arrangement would be in direct competition with the large networks' efforts to staff the plan exclusively with their own hospitals, and the third-party payers' product would be in direct competition with the networks' own managed care products. Thus, hospitals outside one of the large networks ran a serious risk of eventually being excluded from insurance panels and, therefore, from the patients subscribing to those plans. If the merger would have been allowed without divestiture, the result would have been a market consisting of two large networks and two stand-alone hospitals (and FHP). As a result, the two large networks would have dominated the health care market, as the following table of Wasatch Front (excluding Utah County) hospitals illustrates: Wasatch Front Hospital Ownership10 COLUMBIA/HTI •Davis (Davis, 120 Beds, Pri Care) •Jordan Valley (S.L., 50 Beds, Pri Care) •Lakeview (Davis, 128 Beds, Pri/Sec Care) •Mountain View (Utah, 112 Beds, Pri/Sec Care) •Ogden Regional (Weber, 195 Beds, Pri/Sec/Ter Care) •Pioneer Valley (S.L., 139 Beds, Pri/Sec Care) •St. Mark's (S.L., 233 Beds, Pri/Sec/Ter Care) DSfTERMOUNTAIN HEALTH CARE •Alta View (S.L., 70 Beds, Pri Care) •Cottonwood (S.L., 147 Beds, Pri/Sec+ Care) •LDS (S.L., 482 Beds, Pri/Sec/Ter Care) •McKay-Dee (Weber, 347 Beds, Pri/SecA'er Care) •Primary Children's (S.L., 268 Beds, Pri/Sec/Ter+) FHP • FHP (S.L., 125 Beds, Pri/Sec Care) • Fully integrated clinics dispersed throughout four counties UNIVERSITY OF UTAH (S.L., 395 Beds, Pri/Sec/Ter Care) SLRMS (S.L., 200 Beds, Pri/Sec/Ter Care) The Danger of Only Two Competitors There are two economic reasons why limiting effective competition to two large networks would likely lead to an anticompetitive outcome. Recall that in a market dominated by managed care, one critical point of competition is the competition between networks offering discounted services in order to be included in third party payer panels. If only two networks exist, this first level of competition is undermined. Economic principles predict that the existence of only two viable bidders of hospital services to third party payers will result in decreased discounts, and, therefore, increased health care costs for consumers.11 Moreover, and maybe of even more significance, is the fact that a smaller number of bidders enhances the possibility of collusive bidding. This is because the gain from collusion is increased when the number of bidders is small because each competitor locks in a high market share. At the same time, the benefit from defection from the cartel is reduced because the defector can only steal market share from a small number of cartel members. The only remedy for this anticompetitive structure was to require the divestiture of a sufficient number of hospitals, with appropriate geographic dispersion, so that a third viable hospital network could be formed.12 The FTC's required divestiture of North Davis Medical Center, Jordan Valley Hospital, and Pioneer Valley Hospital made this possible. Unfortunately, the FTC could not mandate the formation of a third network. The most it could do was order divestiture and trust market forces to accomplish the rest. In response to the di- Much Ado About Nothing |