It looks like the Feds got this one right

Finding evidence that the antitrust agencies are helping the economy is notoriously difficult because the agencies challenge anticompetitive behavior, including mergers. But when they lose in court, nature provides us with a natural experiment that, in principle, should allow us to examine the effects of anticompetitive mergers, or at least mergers that were thought to be anticompetitive at the time. Today's WSJ follows up on 1989 merger between the only two hospitals in Roanoke, Virginia.

Nearly two decades later, the cost of health care in the Roanoke Valley -- a region in southwestern Virginia with a population of 300,000 -- is soaring. Health-insurance rates in Roanoke have gone from being the lowest in the state to the highest.

That's partly a reflection of Carilion's prices. Carilion charges $4,727 for a colonoscopy, four to 10 times what a local endoscopy center charges for the procedure. Carilion bills $1,606 for a neck CT scan, compared with the $675 charged by a local imaging center.

Carilion's market clout is manifest in other ways. With eight hospitals, 11,000 employees and $1 billion in assets, the tax-exempt hospital system has become one of the dominant players in the Roanoke Valley's economy. Its dozens of subsidiaries include businesses ranging from athletic clubs to a venture-capital fund.

These mergers affect the bargaining that goes on between hospitals and insurers. As our favorite textbook says, if the alternatives to agreement determine the terms of agreement, then a merger that can put a bigger hole in a provider network has the potential to raise price. These mergers make insurers more eager to reach agreement, and this often means higher prices paid to hospitals.