The Federal Trade Commission's recent track record in hospital merger challenges avoided a rare blemish as Novant Health dropped its proposed acquisition of two North Carolina hospitals from Community Health Systems.
A split U.S. Court of Appeals for the Fourth Circuit on Tuesday ordered a stop on Novant’s purchase of Lake Norman Regional Medical Center as the appellate court reviewed the proposal. Novant had also proposed acquiring the Davis Regional Medical Center, but ended its pursuit of the acquistion of both hospitals shortly after the appellate court's decision.
Related: Judge denies another FTC request to block Novant-CHS deal
Since Novant nixed the merger, the FTC has only one loss in 10 hospital transactions the regulatory agency has challenged over the past decade, excluding states with Certificate of Public Advantage laws. The commission continues to flex its oversight authority through litigation, the threat of which often causes health systems to back away from transactions, said Kimberly Ruppel, a healthcare attorney at law firm Dickinson Wright.
While the FTC hasn't lost many hospital merger challenges over the past decade, the agency has targeted few deals. The commission is limited by its budget and the merger reporting threshold as many transactions fly under the agency's radar, policy experts said.
“The FTC has only challenged 10 out of hundreds of transactions,” said Glenn Melnick, a health economist at the University of Southern California. “The incentives for the FTC are not to fight something if the FTC doesn’t think it will win.”
Hospital transaction activity isn’t expected to slow, despite a renewed interest from the FTC, the Justice Department, lawmakers and state attorneys general to curb provider consolidation.
Here are the potential impacts of the FTC's recent hospital merger cases.
Novant/CHS
Prior to the FTC's appeal, U.S. District Court for the Western District of North Carolina Judge Kenneth Bell had over the past month denied multiple attempts from the agency to pause the $320 million sale of the Lake Norman Regional Medical Center and Davis Regional Medical Center to Novant.
The FTC sued to block the the proposed acquisition in January, alleging Winston-Salem, North Carolina-based Novant could have raised prices and reduced care quality if it controlled nearly two-thirds of the inpatient hospital market in the eastern Lake Norman area. In the June 5 ruling, Bell was swayed by Novant’s argument that the hospitals would be in danger of closing if the deal did not go through, what’s known as the failing firm defense.
“The failing firm defense is supposed to be an exception, and this ruling seemed to normalize it,” said Barak Richman, a law professor at George Washington University who studies antitrust and health policy.
It’s still possible that Bell’s ruling could embolden other health systems to pursue mergers under the protection of the failing firm defense, but the appellate court decision hurt that argument, said Beth Vessel, a partner at the law firm Holland & Knight who specializes in antitrust law.
HCA Healthcare/Steward Health Care
Nashville, Tennessee-based HCA announced plans in September 2021 to acquire five Utah hospitals from Dallas-based Steward Health Care.The sale would have combined the second- and fourth-largest systems in the Salt Lake City area and Utah’s Wasatch Front region.
The FTC filed a lawsuit in June 2022 to block the proposed transaction, alleging it would likely lead to higher prices, less innovation and lower quality care. HCA called off the deal later that month.
Policy experts said the case is one example where the FTC focused on a relatively narrow geographic market — three distinct markets within the greater Salt Lake City area — rather than a single, broad geography. That strategy has proved more successful than the broader geographic market analyses that led to a string of losses for the FTC throughout the 1990s, they said.
"Merging hospitals are no longer making arguments before the court that the geographic market is 500 miles wide," said Christopher Garmon, a health economist at the the University of Missouri - Kansas City and former staff economist at the FTC.
Three other hospital mergers were called off in 2022 after the FTC intervened: West Orange, New Jersey-based RWJBarnabas Health and St. Peter's Healthcare System in New Brunswick, New Jersey; Lifespan and Care New England Health System — the two largest providers in Rhode Island — and Hackensack Meridian Health and Englewood Health.
Hackensack Meridian Health/Englewood Health
Edison, New Jersey-based Hackensack and Englewood in Bergen County, New Jersey, signed a definitive acquisition agreement in October 2019.
Federal regulators sued to block the deal in December 2020, warning it could stifle competition as the combined entity would have allegedly controlled three of the six acute care hospitals in Bergen County. Hackensack lost the initial case and unsuccessfully appealed, ultimately scrapping the proposal in April 2022.
The courts showed that the health systems viewed themselves as competitors, said Jody Boudreault, chair of the antitrust life sciences and healthcare practice at law firm Baker Botts. In addition, Hackensack had a history of raising prices after it acquired hospitals, she said.
“The circuit court then found that the parties’ efficiencies were not hard commitments to invest in Englewood, thus cost savings and service optimization were too speculative to count,” Boudreault said.
Jefferson Health/Einstein Healthcare Network
Jefferson Health and Einstein Healthcare Network announced their proposed merger in March 2018 and completed their merger in October 2021. With Novant backing away from the deal with CHS, Jefferson-Einstein is the only transaction over the past decade that was completed in states without COPAs after FTC formally intervened.
The FTC and the Pennsylvania attorney general sued to block the merger in February 2020, alleging it would stifle competition and likely lead to price increases if the combined entity controlled 60% of the North Philadelphia acute care market.
In the complaint and market share analysis, the FTC excluded one of the biggest systems in the area: Philadelphia-based Penn Medicine.
That is, in part, why a federal judge dismissed the case in December 2020. Jefferson and Einstein revealed contract negotiations with a large insurer that threatened to drop Jefferson and Einstein from its network, demonstrating there were viable substitutes and ample competition, Holland and Knight’s Vessel said.
“The hospitals’ case was helped by the fact that the area was densely populated, with numerous potential competitors, and the fact that the commercial health insurance market was very consolidated there,” she said.
However, the geographic market definition worked in the FTC's favor in its challenges of the Advocate Health-NorthShore and Penn State Health-PinnacleHealth proposals.
Advocate/NorthShore
Charlotte, North Carolina-based Advocate and Evanston, Illinois-based NorthShore announced merger plans in September 2014.
The FTC sued to block the proposal in December 2015, alleging the combined system would control 60% of the inpatient hospital services in Chicago's north suburbs, where Advocate and NorthShore operated competing hospitals.
Similar to the Novant case, a federal judge denied the FTC’s preliminary injunction. However, the agency was successful on appeal. Advocate and NorthShore scuttled their merger plans in March 2017.
The definition of the relevant geographic market was the key issue that divided the district and appellate courts, policy experts said.
"Showing more localized market concentration and price impacts from mergers have strengthened the FTC's arguments,” Melnick said. “Still, the FTC is not going after out-of-market mergers that aim to enhance system power, which is the real problem today.”
Penn State/PinnacleHealth
Hershey, Pennsylvania-based Penn State and Harrisburg, Pennsylvania-based PinnacleHealth proposed to merge in December 2013.
The FTC filed a lawsuit to block the proposal in December 2015, alleging the combined entity would control 64% of the south-central Pennsylvania market.
The Penn State-Pinnacle case marked another instance where the agency's initial preliminary injunction was denied but the commission successfully appealed, ultimately leading the health systems to drop their merger plans in October 2016.
Patients who traveled to the academic medical center in Hershey for complex services were unlikely to turn to other hospitals if prices increased, so other facilities weren't viable substitutes, the U.S. Court of Appeals for the Third Circuit determined.
Like with the Third Circuit Court in the Penn State-Pinnacle case, seeing the Fourth Circuit Court in the Novant case reverse a bad ruling is a relief, Richman said.
"It seems that a system designed to correct bad mistakes does exactly that every now and then," he said.
