The altar of hospital mergers: Union proposals dropped days after FTC decides not to be silent forever | Saul Ewing Arnstein & Lehr LLP

As we pass mid-2022, many healthcare systems are thinking about acquisitions they would like to make before the end of the calendar year. In addition to necessary due diligence, contractual considerations, and licensing and regulatory issues, acquirers and sellers would be well served to put antitrust considerations at the top of the analysis agenda, in an effort to prepare for potential review by the Federal Trade Commission (FTC), the U.S. Department of Justice (DOJ), and/or a state Attorney General.

What do you want to know:

  • Antitrust is an important part of healthcare mergers and acquisitions
  • The DOJ, FTC, and/or state attorneys general may delay or derail a proposed transaction; the Biden administration has clearly stepped up federal law enforcement efforts in the healthcare world
  • Three midway through 2022 examples of hospital mergers that collapsed almost immediately after the FTC raised objections

As the pressure on healthcare systems to achieve economies of scale and increase revenue streams and profitability continues to be the focus of executives’ attention, the potential healthcare market consolidation that results in urban, suburban and rural areas is the subject of increasing scrutiny from all antitrust authorities. agencies. The natural tension between these perspectives must be understood and addressed to give deals a chance to survive.

It’s been made clear three times already this year in Utah, New Jersey, and Rhode Island, where major healthcare system mergers were dropped on average within about 14 days after the FTC filed a lawsuit. righteousness difficult. These findings, coupled with the fairly obvious wave of very aggressive enforcement via the FTC’s willingness to sue, must be at the forefront not only of the executive leadership of health systems, but also in the provider markets. The merging parties viewed the agreements as a means to achieve their goals, but the FTC viewed the same agreements as a means to harm competition.

These three planned hospital system mergers that were scuttled are part of an ongoing pattern of intensified FTC engagement and enforcement in the healthcare industry. See also, for example: Aveanna Healthcare and Maxim Healthcare Services (private nursing services, discontinued January 2020) and Methodist LeBonheur Healthcare and Tenet Healthcare (discontinued acquisition by the first of two Memphis-area hospitals from the second, December 2020).

What are the main lessons of these “marriages” aborted in the hospital? When the FTC finds excessive concentration in the affected market and ultimate harm to consumers and patients in those markets, it will speak out as the parties prepare for the altar.

Leaders of healthcare providers in healthcare systems and large physician groups must engage in a delicate balancing act: the desire to “grow” in the face of resulting market concentration and the emerging trend from the “deal” to creating a monopoly.

The proposed Rhode Island merger cited above involved the two largest health care providers in the state. It was relatively easy to anticipate a vigorous challenge there, again on the fundamental premise that the combination, in the words of the FTC, would create “one dominant entity that would have led to higher prices and quality of inferior care for Rhode Islanders”.

Similarly, in the proposed New Jersey hospital merger, the FTC made a fairly simple observation: “A hospital is less than a mile from another hospital…there is overwhelming evidence that this acquisition would be bad for patients, because the parties would no longer have to compete to offer the lowest prices and the best quality and the best service.

The same premise existed in the Utah merger proposal. FTC Competition Bureau Director Holly Vedova said, “This transaction… (like the one dropped two days ago in New Jersey)…should never have been offered in the first place.” (emphasis provided)

Director Vedova added, clearly ringing the real alarm bells in no-nonsense terms:

This should be a lesson learned for hospital systems across the country and their boards. (emphasis ours): The FTC will not hesitate to take action to enforce antitrust laws to protect health care consumers facing unlawful hospital consolidation. Had this transaction been allowed…(given the market concentration achieved, it would have resulted)…higher prices, less innovation and lower quality care for patients. I am pleased that patients and healthcare providers no longer have to endure uncertainty while waiting for the courts to rule on the FTC’s legal challenges.

Each of these three failed mergers is indicative of more aggressive FTC enforcement and further emphasis (and reminder for all healthcare executives) of core antitrust concerns.

Six years ago, in 2016, when two central Pennsylvania healthcare systems announced a merger, the FTC noted at the time:

“The parties’ decision to abandon this transaction preserves hospital competition in the Harrisburg area….[H]Once completed, the merger would likely have resulted in lower quality and more expensive health care, at the expense of Harrisburg residents and their employers.

While the background rhetoric sounds the same, there is a difference between the failed mergers in 2016 and 2022: the 2016 case was litigated over a six-month period and was only dropped after the parties lost in the Third Circuit Court of Appeals. In 2022, all three proposed transactions were dropped almost immediately — within about two weeks of the FTC filing the lawsuit, ostensibly saving at least tens of thousands of dollars in litigation and related advisory costs.

Although the DOJ is also taking on a case, it can only take it to court, so the FTC will likely continue to be the ultimate arbiter for proposed hospital mergers, given that its two pressure points in litigation – administrative before the agency or before the courts. Healthcare executives are wise to have their attorney explain the procedural and substantive nuances of dealing with the FTC versus the DOJ.

In addition to focusing on the agency, private parties are watching the healthcare deal closely: In late June, an Illinois federal judge dismissed a claim by an outpatient surgery center challenging the acquisition of another hospital by a hospital. Plaintiff ASC alleged that the hospital merger would result in fewer referrals to ASC for outpatient surgeries. The judge noted that potential harm does not establish factual harm and, in contrast, federal antitrust regulators do not need to allege harm to intervene in a case. While the federal judge in this lawsuit allowed the plaintiff to amend his claims, the court also made it very clear that the FTC and DOJ would be the best plaintiffs “especially as the current administration takes a heavier hand against hospital mergers that increase health care product for consumers: and at the same time criticized the private plaintiff before him for “taking matters into his own hands to enforce federal law…enforcement is best left to agencies responsible for doing so…”.

Potential “buyers” and “sellers” of healthcare providers should keep antitrust considerations top of mind when considering a transaction and conduct market analysis prior to ongoing consolidation. It is obviously important to carefully and correctly gather the terms and documents of the agreement. It’s also important to focus on potential challenges from the FTC, DOJ, and state attorney general to ensure the union is consummated at the altar.

Valerie J. Wallis