Healthcare industry leaders are closely watching a House-passed bill that could make it easier for hospitals to merge without getting tangled in lengthy antitrust challenges.
The American Hospital Association supports the Republican-sponsored bill, which passed the House late last month, arguing that it “removes a deterrent to hospital integration and realignment, which is essential for success in the changing health care landscape.”
But some legal experts say the bill wouldn't make much difference in most hospital mergers, and that it isn't likely to gain Senate approval or the president's signature this year. It's opposed by Federal Trade Commission chairwoman Edith Ramirez, who testified that the bill “would fundamentally alter a critical aspect of the agency's institutional role and risks impeding its ability to protect American consumers and the public interest.”
The bill, known as the Standard Merger and Acquisition Reviews Through Equal Rules (SMARTER) Act, would harmonize the processes used by the U.S. Justice Department and the Federal Trade Commission for challenging mergers.
Under current law, the Justice Department must prove a “substantial likelihood” of success in court to win an injunction blocking a deal while a merger challenge is litigated. The FTC, however, has to prove that a preliminary injunction is in “the public interest” – a that standard some say is less strict The bill would apply the same standard to injunction requests by both agencies.
Another difference under current law is that the Justice Department's challenges are litigated in federal court, while the FTC typically seeks a preliminary injunction in federal court and then holds its own administrative hearings to determine whether the merger should move forward. The SMARTER Act would eliminate the FTC's administrative hearings and require the FTC to work through merger challenges solely through the courts.
The FTC scrutinizes hospital mergers, while the DOJ generally reviews insurance mergers.
The SMARTER Act passed the House by a mostly partly-line vote of 235-171. It was introduced last June by Rep. Blake Farenthold (R-Texas), and co-sponsored by House Judiciary Committee Chairman Bob Goodlatte (R-Va.) and Regulatory Reform, Commercial and Antitrust Law Subcommittee Chairman Tom Marino (R-Pa.).
The AHA told the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights in October that the threat of an FTC challenge scares away many hospitals from pursuing potentially lawful mergers because of the time and cost of litigating a case first at a preliminary injunction hearing and then in FTC administrative proceedings. And if the merging hospitals disagree with the outcome of the administrative hearings, they spend more time and money challenging the findings in federal appellate court.
The AHA also said it's arguably easier for the FTC than Justice to win a court injunction because of the differing standards.
Ramirez, however, spoke against the bill before the subcommittee in October. She opposed scaling back the FTC's administrative hearing powers, saying the agency has used the administrative process to help shape antitrust law, leading to a number of successful challenges. In recent years, the FTC has had a string of successes in challenging hospital mergers.
Antitrust experts have differing views as to what the legislation could mean for hospital mergers.
Chris Raphaely, a partner at Cozen O'Connor who represents providers, said if the bill passes, it's possible fewer hospitals would abandon mergers if they lose against the FTC at the preliminary injunction stage. More hospitals may choose to continue fighting in court if they know they don't have to first go through administrative hearings for merger deals at the FTC, which can take as long as two years, he said.
“In a world of transactions where time is of the essence, to put everything on hold through that longer process is often difficult and often ends up in the proposed merger being abandoned simply because of a loss at the preliminary injunction stage and other issues unrelated to the merits of the case,” Raphaely said.
Raphaely said the bill likely would have the biggest effect on “close call” merger cases.
But Thomas Greaney, a former assistant chief in charge of health care antitrust enforcement at the Justice Department, said the bill “seems to be much ado about not that much in terms of making any substantive change.”
Though the FTC and the Justice Department technically have to meet different standards to win preliminary injunctions, courts in practice tend to apply the same standard, said Greaney, now co-director of the Center for Health Law Studies at St. Louis University School of Law.
Chris Sagers, a law professor at Cleveland State University, agreed. “If there really were a meaningful difference between the two standards, you should see the FTC winning more often in merger cases, but they don't,” Sagers said.
There is some evidence that mergers actually have a tougher time getting through the Justice Department than the FTC. Mergers that must go through Justice are more likely to be challenged than those that go to the FTC, according to the American Antitrust Institute. The Institute opposes the SMARTER Act, arguing that the FTC's administrative process must be safeguarded because it has helped shape effective U.S. merger policy.
“The American Hospital Association should have been more careful what they wished for because they spent a lot of time and money on this, and it's not going to do them any good,” Sagers said. “They're going to lose just as many merger cases.”
Many also doubt that the bill will become law this year despite its House passage. Even if the Senate were to pass the bill, it's unlikely President Barack Obama would sign it given that the administration has come out against it, said Jeffrey May, a senior legal analyst with Wolters Kluwer, an information, software and services company.
This effort, however, isn't likely to go away any time soon, even if it fizzles this year, because the issue has become a hot-button issue, May said. “Whatever the outcome in the current Congress, this legislation will be back in the next Congress,” he said. “The success in the House now, I think, will embolden future sponsors.”
The legislation likely would have a better chance under a Republican president who wants to be perceived as being supportive of business interests, Sagers said.