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Hillrom’s market power is driven toward “slowly gaining control of the entire hospital room,” a federal lawsuit states.
This story is the first of a new Prospect series called Rollups, looking at obscure markets that have been rolled up by under-the-radar monopolies. If you know of a rollup like this, contact us at rollups(at)prospect.org.
I don’t recommend spending a lot of time lying in a bunch of hospital beds, but if you have recently, an unusual word has probably gotten lodged in your memory banks: Hillrom. That’s because it’s overwhelmingly likely that name was emblazoned somewhere on your bed.
According to a blockbuster federal lawsuit filed last week by a competing bed manufacturer, Hillrom controls at least 70 percent of the installed base of standard hospital beds, intensive care unit (ICU) beds, and birthing beds for pregnancies, along with at least 64 percent of annual sales. The lawsuit alleges that Hillrom is maintaining market share in this $1 billion industry through a series of secret, exclusive deals, locking the leading hospital systems into long-term contracts and making it impossible for anyone else to compete.
I’ve read a lot of lawsuits like this, and this one contains virtually every monopolist trick in the book to entrench power. Hillrom may be little-known, but if the allegations are even close to accurate, the company is unbelievably ruthless, and undeterred by repeated accusations of anti-competitive behavior, for which it has paid competitors more than $500 million.
Just last month, Hillrom, which rose to dominance in part by acquiring rival companies, was itself acquired by Baxter International, a medical device maker that now has an integrated product line supplying virtually everything for the hospital room. The competing company, Linet, is asking the federal court for significant damages for monopolization, and an injunction against exclusive dealing and other schemes. Without action, Linet says, the various harms of the hospital bed monopoly will grow far worse.
I’ve read a lot of lawsuits like this, and this one contains virtually every monopolist trick in the book to entrench power.
HILLROM (WHOSE PARENT COMPANY is spelled Hill-Rom; don’t ask) was originally part of Hillenbrand Industries, a half-century-old company with two main divisions: hospital beds and caskets. You could see how one could flow into the other. Caskets, by the way, are also a monopolized industry: Hillenbrand subsidiary Batesville Casket and Matthews International control 82 percent of the market.
In 2008, Hillrom split off, focusing on the medical device sector. It had already been building a juggernaut, and running into trouble. Hillrom has repeatedly offered customers big, up-front discounts on hospital beds, in exchange for guarantees that the customer would either exclusively deal with Hillrom, or commit to purchasing at least 90 percent of its future products from the company to qualify for continued discounts. (This is known as a “90/10” requirement.)
Hillrom also bundled its products together. The hospital bed is a piece of technology, with its chips and sensors associated with patient monitoring and federally mandated nurse-calling systems. Hillrom happened to have these other systems in its portfolio, and would offer package deals at a discount, as long as you kept buying from them. Hillrom’s suite of products was developed mainly through buying other companies. From 2003 to 2021, it made 15 separate acquisitions, including three rival bed-makers and a host of specialty items for care diagnostics, monitoring, patient positioning devices, and much more.
All this activity constituted at least four antitrust violations in one: Exclusive dealing violates Section 1 of the Sherman Antitrust Act. Bundling or “tying” products together, and conditioning prices based on that bundling, is also illegal. The vertical integration makes Hillrom’s mergers arguably illegal. And combined, all this served to fortify Hillrom’s monopoly, violating Section 2 of the Sherman Act.
You could also potentially add unfair and deceptive practices, because the savings purchasers based their decisions on were also illusory. In a 2003 lawsuit, hospitals and providers alleged that Hillrom raised prices considerably before offering the “discounts.” Hillrom would also quote a bare-bones price for its beds, with the customer eventually realizing it had to pay much more to get the add-ons that integrate the bed with Hillrom’s other systems.
Hillrom settled that provider lawsuit in 2006 for $337.5 million, agreeing also to a three-year injunction to separately price and discount each of its products. Eleven years earlier, in 1995, Hillrom had paid $250 million to Kinetic Concepts, a former rival, over the same kind of exclusive deals. And there have been two other undisclosed settlements since, with Freedom Medical in 2011 and Universal Health Services in 2015, also over exclusionary, long-term, sole-source agreements, with rebates and discounts conditioned on continued buying.
So Hillrom, based on at least a half-billion dollars in payouts over 25 years for the same conduct, appears to be a “serial abuser of the antitrust laws,” as the lawsuit puts it. But according to its new accuser, that didn’t stop Hillrom from using its go-to tactic again.
LINET, A CZECH HOSPITAL BED manufacturer and a leading supplier in Europe, took the opportunity when Hillrom was under injunction to enter the U.S. market in 2010. Linet’s standard hospital bed is 10 to 30 percent cheaper than rivals’ like Hillrom, and costs less to maintain, according to the lawsuit.
At first, Linet found quick success, gaining contracts with two of the four large group purchasing organizations (GPOs) that virtually all hospitals buy medical devices from, including beds. But after initially ignoring its rival, Hillrom recognized the threat, according to the suit.
This time, Hillrom didn’t make deals with the GPOs, which merely provide a list of suppliers for hospitals to make purchases. Instead, Hillrom went to the large hospital systems, known as integrated delivery networks (IDNs). These include companies with nationwide member hospitals like HCA, Providence, Tenet, Ascension, and Trinity. The top ten IDNs account for over 20 percent of all hospital beds, and overall 91 percent of beds are affiliated with an IDN.
Hillrom established a large “strategic sales” force, the lawsuit alleges, to persuade the biggest IDNs to sign long-term “corporate enterprise agreements” (CEAs). This “Godfather offer” locks IDNs into purchasing standard, ICU, and birthing beds from Hillrom for five to seven years, more than double the length of typical IDN deals. Hillrom signed up HCA and Providence to these deals in 2014, which former Hillrom CEO John Greisch said on an earnings call was “one of the most successful years in our company’s history.”
Hillrom, based on at least a half-billion dollars in payouts over 25 years for the same conduct, appears to be a “serial abuser of the antitrust laws.”
The IDNs, in turn, would force member hospitals to buy Hillrom products, regardless of their preferences. Hillrom reps would closely monitor member hospitals to ensure they were in compliance, informing the IDN if some product other than Hillrom’s was bought. Providers knew they would be penalized if they deviated, so they purchased Hillrom products.
Like Hillrom’s previous agreements that triggered antitrust lawsuits, the CEAs offered substantial rebates for an exclusive deal across multiple sectors, from beds to nurse-calling systems to other products. They often included the 90/10 requirement, requiring hospitals to purchase at least 90 percent from Hillrom to keep the discount.
The nature of the hospital bed market elongated the commitment. A bed lasts 10 to 15 years; sales are sporadic and staggered. And hospitals want standard beds across their departments, cutting down on training and minimizing vendors and repair services. This makes the IDN agreements close to perpetual.
The CEAs were secret—after 2014, Hillrom stopped announcing them in press releases and scrubbed the HCA and Providence announcements from their website—and made to look like a series of independent product-level agreements, rather than an overall deal. But sometimes Hillrom’s leaders made inadvertent revelations: In 2016, Greisch told the JPMorgan Healthcare Conference that the company was “a significant partner” with “every major IDN in North America.”
This ended up slowing Linet’s expansion, locking them out of at least 50 percent of all bed markets, by their estimates. And Linet alleges that this combined with another damaging anti-competitive tactic.
Hillrom is the only hospital bed manufacturer that also owns a nurse-calling system, known as NaviCare (which Hillrom acquired in 2004). Hillrom’s Centrella Smart+ Bed, its only standard hospital bed, markets itself with NaviCare as a “connected ecosystem.” (It also includes over 50 patents, making it difficult for new entrants into the market to even assemble a bed without Hillrom suing them.)
The only way to access the full features of NaviCare, including patient data and linkage to electronic health records, is with a Centrella Smart+ bed. It is not interoperable with Linet beds. No other nurse call system is closed in this way.
Call systems are hardwired into every hospital room. A hospital would literally have to rip NaviCare’s wiring out of the walls if they wanted to switch away from Hillrom beds. It’s a literally locked-up market for the life span of the call system, which is typically 30 years. Hillrom, in other words, has mastered what Amazon’s Jeff Bezos has called the “flywheel effect”: If a hospital buys one product from Hillrom, due to a lack of interoperability, the hospital becomes coerced by circumstance into buying all of its products.
If Hillrom’s conduct is allowed to continue, the lawsuit argues, “The last remnants of competition in the hospital bed market will be wiped out and, with it, the voices of doctors and nurses across the country who are demanding choice and fair competition … [I]nnovation will be halted, health care costs will continue to rise, and the available supply of hospital beds will be further limited.”
THE EXTREME SECRECY OF HILLROM’S arrangements makes it difficult for Linet to provide much evidence for its claims: A couple of the allegations are literally buttressed by statements in LinkedIn accounts of Hillrom executives. But Linet does tell about its experiences of trying to enter the hospital bed market, which are damning.
Linet states that on several occasions, hospitals told the company that Linet made the better product, but their IDN told them to buy Hillrom instead. Other hospitals didn’t give Linet a straight answer as to why they lost the bid, which is unusual. Several hospitals went through the motions of bidding for new beds; one request for proposal (RFP) put out by an IDN included a picture of a Hillrom bed in it as an example of what they wanted.
Hospitals have also told Linet that they didn’t know Hillrom prohibited competitor beds from communicating certain information through the NaviCare system until they tried to do it. Once hospitals learned about the lack of compatibility, they backed out of the Linet sales. One hospital asked Hillrom to allow Linet beds to send advanced signals through NaviCare, and Hillrom refused, according to the lawsuit.
A hospital would literally have to rip NaviCare’s wiring out of the walls if they wanted to switch away from Hillrom beds.
Linet also reported that Hillrom sales reps disparaged Linet products to customers, spreading misinformation that patients often fell out of Linet beds, that the beds would get routinely stuck in a tilted position, that they were manufactured in a communist country with child labor, and that they would have to be sent to the Czech Republic for service.
Julie Porter, lead attorney for Linet, didn’t respond to a request for comment. The parent company of Hillrom also failed to respond.
Hillrom’s market power is driven toward “slowly gaining control of the entire hospital room,” the lawsuit states. Ironically, this is precisely what made Hillrom an acquisition target.
Last year, Hillrom started making public statements about getting into the business of infusion pumps, which deliver the exact doses of medications intravenously to patients. The idea was seemingly to tie Hillrom’s bed monopoly to these devices. But infusion pumps are already a concentrated market, and Baxter International is the market leader.
In July 2021, Baxter called Hillrom with an offer to purchase the company. The $10.5 billion deal closed in December. It was clearly, as the Linet lawsuit puts it, a “killer acquisition,” with Baxter buying Hillrom to stop it from competing with them on infusion pumps. The combined company can now become a “super bundler” for smart hospital rooms. Baxter has boasted in financial disclosures that “no single company competes with us in all of our businesses.”
Baxter is infamously responsible for producing about half of the nation’s IV bags, which suffer from persistent shortages because practically all of the products are produced out of one manufacturing facility in Puerto Rico.
But while that deal has already closed, the Federal Trade Commission did send Baxter a letter last October, stating that the agency could still opt into reviewing the Hillrom deal and challenge the merger, even after it closed.
If literally anything in this wild Hillrom lawsuit is true, that’s exactly what the FTC needs to do.
