Are Airports More “Essential” Than Hospitals?

CON/CHNA/Regulatory, Affiliation/M&A

It’s bad for consumers when they have only one choice in service providers, right?

That’s certainly the conventional wisdom in healthcare. When two hospitals announce some type of combination, economists and regulators (and sometimes trial lawyers) automatically start warning about market power, higher prices, and lower quality.

Competition in healthcare is the highest value, it seems.

Take Lewisburg, PA, a farming town with a population of 5,500. In 2019, Lewisburg’s Evangelical Community Hospital announced plans to partner with Geisinger Health, a well-regarded integrated system comprising 10 hospitals. Evangelical would retain its independent status, though Geisinger would acquire a 30% stake, promising $265 million in community healthcare investments over five years.

That kind of investment could be transformative for a small community, but federal regulators were having none of it. In 2020, the Trump Justice Department sued to block the tie-up, arguing that the combined entity would have 71% market share in a six-county region.

“[T]he transaction is likely to lead to higher prices, lower quality, and reduced access to high-quality inpatient hospital services for patients in central Pennsylvania,” the DOJ said in a statement. “Preserving competition in healthcare markets is a priority for the Department of Justice.”

But here’s the irony: While one federal department is suing to preserve competition in healthcare, another is spending hundreds of millions of dollars to subsidize monopolies in transportation.

Drive two or three hours in any direction from Lewisburg, and you’ll reach a small-town airport served by just one airline. None of those communities (Altoona, Bradford, Du Bois, Johnstown, and Lancaster) could support commercial air service on their own, so the Department of Transportation writes subsidy checks every year under a program known as Essential Air Service (EAS).

EAS has been around since the airline industry was deregulated in 1978, and the program’s budget has grown to about $370 million. Currently, about 115 communities in the continental U.S. are subsidized under EAS, including the five Pennsylvania towns mentioned above.

Take the Johnstown Airport, about 2.5 hours away from Lewisburg. There are two scheduled departures each day, both operated by United Express. If you’re departing from Johnstown and you’d rather fly Delta, American or any other airline, you’re out of luck. This is a monopoly airport, so United Express is your only choice. As for nonstop destinations, you’re limited to Washington Dulles or Chicago O’Hare – both major hubs for United Airlines.

So, just to review the math: The DOT pays almost $3.5 million per year to maintain 100% market share for United, a for-profit company with $45 billion in revenue. Meanwhile the DOJ blocks a deal that would have created 71% market share for Geisinger, a nonprofit system with $17.8 billion in revenue.

The Geisinger deal was blocked by the Trump Administration, but things haven’t necessarily improved since then. According to the Wall Street Journal, in July 2021, “the Biden administration singled out hospital combinations in an executive order seeking to promote competition across many industries, and urged federal antitrust agencies to rethink their scrutiny of mergers” (emphasis added).

Why single out hospital combinations, while continuing to subsidize airline monopolies? That seems like a huge double standard.

As our healthcare finance expert has pointed out, smaller hospitals, in particular, are facing a major financial crisis right now. By affiliating with larger systems, many of these struggling hospitals could get the resources they need to keep the doors open. Without the merger option, I worry that we’ll see another wave of hospital closures in the near future.

Every time a community loses its hospital, it’s worth asking the question: Why do regulators view air service as somehow more “essential” than healthcare?

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