The agency tasked with policing competition was able to thwart a number of hospital tie-ups this year, but in a closely watched deal, regulators did not challenge a megamerger between Advocate Aurora Health in the Midwest and Atrium Health in the South.
A challenge would have represented a rare attempt by the Federal Trade Commission to block a so-called “cross-market” merger in healthcare.
Instead, regulators stuck to challenging the kinds of provider deals they’ve historically contested, raising questions about its antitrust enforcement in an industry that continues to see deals evolve beyond traditional geographic markets.
“It would be reckless to take away from this that the FTC is going to cease investigating in this area,” Mike Cowie, partner at law firm Dechert, said of cross-market deals.
The FTC has successfully blocked deals between direct competitors, but cross-market deals are trickier, said Cowie, who previously led antitrust merger investigations at the FTC.
The Advocate-Atrium deal was an opportunity for the FTC to contest a health system merger with no geographic overlap. Advocate-Atrium’s facilities span six separate states and their respective hospitals do not compete with one another for the same patients in a single market.
Challenging rivals who compete in the same geographic market has been a hallmark of past FTC challenges.
Still, researchers have raised concerns about the effects that cross-market deals can have on healthcare prices.
A 2019 study found that prices can increase by as much as 10% after systems acquire hospitals in separate markets within the same state. Researchers found these providers have more leverage over insurers after combining.
But anticompetitive enforcement hasn’t caught up, researchers argued in the paper. The current methodology used to spot anticompetitive deals assumes that prices won’t increase unless providers “are vying to provide the same set of services to the same set of patients.” However, researchers argued the current thinking should be expanded to include insurers.
“Since insurers serve employers across multiple geographic regions, a merged crossmarket hospital system that covers those regions can demand higher reimbursement rates from insurers,” the researchers said.
Cross-market deals are not uncommon.
More than half of the hospital mergers between 2010 and 2012 involved hospitals or systems without facilities in the same metropolitan statistical area, the researchers said.
The Advocate-Atrium deal closed in December without a challenge from the FTC. The merger creates the fifth-largest nonprofit health system, generating annual revenue of $27 billion with 67 hospitals.
Leemore Dafny, a Harvard professor and an author on the cross-market research said, “it’s a sign that the merger wave continues and hospitals believe they are in a stronger position to succeed with more scale.”
The FTC’s healthcare challenges this year show the agency is “focusing on the devil it knows,” Pahl Zinn, an attorney at Dickinson Wright in Detroit, said.
The FTC’s current merger guidelines do not address cross-market mergers, antitrust attorneys said. The agency will need to retool their analysis to be able to address these types of situations, Zinn said.
“Many judges rely very heavily on the merger guidelines in assessing whether a transaction is unlawful,” said Jim Burns, partner at the law firm Williams Mullen and chair of the group’s antitrust practice.
Burns likened the merger guidelines to those used for federal sentencing after people are convicted of crimes. It’s an attempt to apply a uniform standard.
Antitrust regulators are looking to modernize those guidelines, which have not been updated in 12 years. They have called on the public to submit comments as part of that effort.
The FTC did not respond to a request for comment on where it is in that process.
Still, the agency prevented numerous hospitals mergers this year.
Rhode Island’s first- and second-largest providers scrapped plans to merge after facing an FTC suit. HCA also abandoned plans to acquire its rival Steward Health Care System in Utah; and RWJBarnabas Health nixed plans to acquire Saint Peter’s Healthcare in New Jersey.
However, overall, the Biden administration has not seen much success in the antirust cases it has brought to court, which includes challenges across all sectors — beyond just healthcare.
Antitrust regulators recorded their first win in federal court under the Biden administration in October when a judge sided with the Department of Justice and blocked book publisher Penguin Random House from acquiring its rival Simon & Schuster in a $2 billion deal.
The win followed two back-to-back losses in federal court, including a loss against UnitedHealth’s acquisition of Change Healthcare. Until the win in the publishing case, “neither the DOJ nor the FTC had yet secured a win based on a complaint filed by the Biden administration in federal district court,” law firm Dechert said in its latest quarterly report on antitrust enforcement.
Regulators have had an impact even if they’ve been largely unsuccessful in court, said Burns with Williams Mullen.
“It's probably fair to say that they have changed the way folks look at mergers,” Burns said. “I think there has been much more pre-merger reflection by merging parties.”