FTC has blocked 4 hospital mergers; about to thwart further attempts at consolidation

Posted on July 23, 2022 at 8:06 am

harris-meyer

Kaiser Health News

Fresh off the Federal Trade Commission’s successful challenges to four hospital mergers, the Biden administration’s new majority on the commission is poised to combat consolidation in the health care industry more aggressively than in recent years. years.

Although hospital mergers were supposed to improve profitability, experts agree that the creation of large conglomerates and hospital networks has pushed up US medical costs, which are by far the highest in the world. Many enjoy near monopoly pricing power.

Last year, President Joe Biden ordered the FTC and other federal agencies to promote market competition in health care and other industries. Biden said hospital mergers and acquisitions had left the 10 largest health care systems in control of a quarter of the market and led to the closure of hospitals in rural and other underserved areas.

“We feel empowered and seek to meet the executive order’s call to be aggressive in antitrust enforcement,” said Mark Seidman, deputy director of the FTC’s Competition Bureau, who spoke with KHN about the agency’s efforts. in health care (see escort interview). Trade commissioners say this is a key way to curb health care price increases; protect patient access and quality of care; and prevent employee layoffs, pay cuts, and unfair labor practices.

But antitrust experts said finding the right cases to test stricter enforcement theories will take time for the FTC. And bringing such cases is sure to draw rejection from Republican commissioners, the health care industry and the courts. They argue that some mergers still make sense, as they help reduce costs and preserve access for patients, employers and insurers.

“By over-investigating, you are putting a tremendous burden on parties looking to make combinations that are beneficial, which could deter pro-competitive behavior,” he said. leigh olivera veteran antitrust attorney with the Clifford Chance Law Firm who represents health care companies.

In one of the FTC’s recent victories, RWJBarnabas Health, which operates 12 hospitals, in June ruled out its acquisition from St. Peter’s Healthcare System, which runs a hospital for adults and children in central New Jersey. The FTC had filed a federal lawsuit to block the deal, citing evidence that would raise prices and hurt patient care.

Also in June, HCA Healthcare, which operates 182 hospitals, halted its acquisition of five Steward Health Care System hospitals in the Wasatch Front region of Utah shortly after the FTC filed a lawsuit to block the transaction, claiming it would raise prices and would reduce the quality. of care.

“This should be a lesson learned for hospital systems across the country and their attorneys: The FTC will not hesitate to take action to enforce antitrust laws to protect health care consumers,” said Holly Vedova, director of the Office. of Competition of the FTC, in a declaration.

Barry Ostrowsky, CEO of RWJBarnabas Health, disagreed with the FTC’s challenge to the merger of his system, saying in a declaration that the proposed acquisition of St. Peter’s “would have transformed the quality, increased access and lowered the overall cost of care for the people of this state.”

In March, a federal appeals court upheld the order of a lower court that blocked a merger between Hackensack Meridian Health and the Englewood Healthcare Foundation in Bergen County, New Jersey. The FTC said it would have raised prices. That case was started by the Trump administration and continued under Biden.

State officials often join forces with the FTC to block mergers.

In February, a proposed merger between Rhode Island’s two largest hospital systems, Lifespan and Care New England Health System, it was cancelled after the FTC and the Rhode Island Attorney General sued to stop the deal.

extensive research has found that prices increase when hospital systems acquire or merge with their competitors or when they buy a significant percentage of medical practices in their market. Highly consolidated markets such as Northern California (dominated by Sutter Health) and Western Pennsylvania (dominated by UPMC) tend to have higher prices.

The FTC has a long history, under both Democratic and Republican administrations, of taking antitrust enforcement actions to block so-called horizontal mergers between hospitals that could stifle competition in a market.

According to the FTC’s traditional economic theory, high prices in a region should attract new competitors, and that competition will drive prices down. But the regulatory hurdles and massive costs involved in creating a health care network, which includes hospitals and doctors, as well as other aspects like testing facilities, make such a move unlikely, if not impossible.

Therefore, Biden appointees at the FTC and the Justice Department have announced that they want to adopt some less frequently implemented antitrust legal theories.

In January, the two agencies launched a joint effort seeking public comment on ways to strengthen the app against mergers that could result in societal harm.

The last December, Lina Khan, Chairman of the FTC He said the agency would examine how the proposed mergers could affect not only prices but also workers in the labor market. “Strong antitrust enforcement can help ensure that workers are free to seek higher wages and better working conditions,” he said.

Excessive market power, he added, can allow companies to impose onerous, take-it-or-leave-it contract terms, including non-compete clauses.

Doctors and other health professionals have said they are increasingly pressured by large health care companies to sign contracts that prevent them from working for competitors in the same market or even the same state. in a joint FTC-DOJ public forum in April On the effects of health care mergers, representatives of two emergency physician groups said their members were receiving such take-it-or-leave-it contracts.

In February, Khan and another Democratic commissioner, rebecca kelly massacrethey said I would have liked to include such allegation of unfair labor practices in the FTC’s challenge to the proposed merger of Lifespan-Care New England.

But the two Democratic commissioners didn’t have a majority at the time, Oliver said, and they may not have wanted to move forward without a consensus among commissioners.

The commission had a 3-2 Democratic majority for part of last year after Khan joined the panel, but then another Democratic commissioner, Rohit Chopra, left in October to head a different federal agency. Democratic commissioners did not regain their majority until the Senate confirmed Alvaro Bedoya In May.

douglas ross, a veteran antitrust attorney who has represented hospitals and teaches antitrust law at the University of Washington, said it is well established that antitrust enforcers can block mergers if they harm competition in the labor market. “What’s new is that this administration is actively looking for cases where they can make that claim,” he said.

Democratic commissioners also want to take a tougher line in challenging so-called vertical mergers. In these deals, hospitals, insurers, or other types of health care companies seek to merge with or acquire companies that provide needed products, services, or personnel. An example is when hospitals or insurers acquire large medical practices, which study to have found leads to higher prices. Patients will visit a longtime doctor only to find that prices have doubled or more, simply because the office has been bought by a hospital, which now sets the fees.

Antitrust enforcers have long viewed such mergers as promoting efficiency because services and supplies can be obtained at lower cost, but the FTC’s Democratic majority in September argued that the alleged benefits to the public of vertical mergers are not supported by market evidence. The two Republican commissioners strongly disagreedsaying the majority’s action “threatens to chill legitimate merger activity and undermine attempts to rebuild our economy in the wake of the pandemic.”

However, in a test of more vigorous scrutiny of vertical mergers, FTC commissioners voted unanimously last year to introduce an administrative complaint to block Illumina, a leading producer of gene sequencing machines, acquires Grail, a promising developer of a blood test for early detection of many types of cancer. The agency argued that Illumina could use the acquisition to prevent emerging Grail rivals from competing in the market.

Today, “agencies are very suspicious of vertical acquisitions, and I think they are willing to be extremely aggressive in investigating them,” Ross said. “But whether or not the courts agree, it’s too early to tell.”

Still, some experts questioned whether the FTC’s aggressive antitrust enforcement will help patients and employers who pay high prices in areas dominated by one or two health systems. It may be time for direct price regulation, they said.

“There is not much the FTC can do to challenge the ability of hospitals to raise prices once they have acquired market power,” he said. Thomas Greaney, a research professor at the University of California, San Francisco, Hastings School of Law, who studies antitrust issues in the health care sector. “So there’s a natural reaction in some states to say, ‘Let’s regulate those prices.'”

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