- The Federal Trade Commission on Friday withdrew two antitrust policy statements on merger enforcement in healthcare markets, arguing they’re outdated and no longer reflect market realities.
- The now-defunct statements were not legally binding, but included language outlining when hospital and provider consolidation and partnerships were generally safe from antitrust scrutiny, including safe harbors for purchases of small hospitals.
- Hospital groups slammed the FTC’s decision to rescind the guidance, though regulators said annulling the statements would help promote competition. The Department of Justice rolled back the same statements earlier this year.
The Clinton- and Obama-era policy statements outline circumstances when regulators would or would not challenge M&A activity or other partnerships between hospitals, along with accountable care organizations’ participation in the Medicare Shared Savings Program.
The 1996 statement on hospital enforcement policy gives guidance on antitrust safety zones, or conduct that regulators generally won’t challenge under antitrust law.
For example, the document notes that regulators will not challenge any merger between two general acute-care hospitals if one of the hospitals has fewer than 100 beds and an average of fewer than 40 inpatients a day.
The FTC said it is withdrawing the statements because they no longer provide accurate guidance to market participants in light of significant changes in the industry over the last three decades.
Regulators plan to continue enforcement of mergers and other deals on a case-by-case basis, relying on general principles of antitrust enforcement and competition policy. The commission voted 3-0 to withdraw the statements.
The decision removes a guidepost for hospitals looking to consolidate without attracting the ire of regulators, as many courts rely on such guidelines in analyzing the legality of deals.
The American Hospital Association said it was “deeply disappointed” the guidelines were pulled back, and said more flexibility, not less, was needed in antitrust enforcement.
“Withdrawing all the guidance without consultation with the field is both unnecessary and reckless,” AHA general counsel Melinda Hatton said in a statement.
Hospitals say consolidation is necessary to brace themselves against a variety of headwinds in the market that were exacerbated during COVID-19, including labor pressures, supply chain problems and rising drug and supply costs.
M&A has been steadily rising in the sector, and consultants are predicting a new wave of transactions coming out of the pandemic as systems look for cross-regional partners and to take advantage of larger operators’ financial strength.
Research has shown that hospital consolidation results in higher prices for consumers, with little or no corresponding increase in the quality of care.
The Biden administration has been turning up the heat on M&A in the healthcare industry. Despite hospitals stumping for the status quo, regulators are looking to modernize merger guidelines — which haven’t been updated for upwards of a decade — to crack down on anticompetitive deals.
And in late June, the FTC proposed a change to pre-merger notification requirements to give regulators more time to review a deal. The change is expected to slow the pace of dealmaking in the sector.
Earlier this year, SUNY Upstate Medical University and Crouse Health System’s proposed merger was called off after the FTC warned that the two were close competitors. Last year, a federal appeals court blocked a tie-up between Hackensack Meridian Health and Englewood Hospital, while two of Rhode Island’s largest health systems abandoned plans to merge after the FTC sued.
Yet despite heightening scrutiny, regulators have seen mixed success in challenging complex or nontraditional deals, sparking criticisms that anticompetitive enforcement hasn’t kept up with the times.
A major cross-market merger between Atrium Health and Advocate Aurora Health closed in December without a challenge from the FTC, creating the fifth-largest nonprofit system in the U.S.