The Justice Department and the Federal Trade Commission on Wednesday released draft merger guidelines designed to crack down on deals that constrain labor markets and those that allow organizations to control services that rivals may use to compete, among other types of transactions.
The draft includes more than a dozen guidelines that would impact merger oversight across all sectors of the economy, including healthcare.
The guidelines aim to limit consolidation that would prevent a potential competitor from entering the market, curtail transactions that would reduce incentives for organizations to pay employees’ higher wages, and curb mergers or acquisitions that would allow one company to control multiple products and services along various supply chains. Under the draft guidelines, antitrust agencies would also examine organizations’ cumulative merger and acquisition activity, rather than just the latest transaction, and adjust the concentration threshold that the FTC and DOJ use to measure market competition.
Antitrust agencies use the Herfindahl-Hirschman Index to gauge market concentration and estimate the competitive consequences of a merger or acquisition. Under existing guidelines, the FTC might scrutinize transactions that would lead to an HHI increase of between 100 and 200 in highly concentrated markets. The proposed guidelines broaden the scope of their review, stating that transactions should be presumed illegal if the merged company's market share is greater than 30% and there is an HHI change of more than 100.
“These thresholds would result in many more transactions being subject to higher scrutiny,” said Beth Vessel, a partner at law firm Holland & Knight who focuses on antitrust issues.
The updated guidelines reflect the realities of how companies do business in the modern economy, FTC Chair Lina Khan said in a news release.
“Informed by thousands of public comments—spanning healthcare workers, farmers, patient advocates, musicians, and entrepreneurs—these guidelines contain critical updates while ensuring fidelity to the mandate Congress has given us and the legal precedent on the books,” she said.
Hospital consolidation, along with hospitals’ acquisition of physicians, often give healthcare providers more leverage in their contract negotiations with insurers. These types of deals typically result in higher reimbursement rates for providers, which can inflate prices for various services and boost insurance premiums, as well as stifle wage growth as employers pay more for healthcare, research shows.
While the FTC has continued to challenge hospital transactions that would combine facilities in the same or adjacent markets, the agency has been less willing to sue to block mergers and acquisitions among health systems spanning multiple states or distinct markets. That is, in part, because antitrust law is not designed to analyze cross-state mergers.
The updated guidelines would add some risk and uncertainty to proposed healthcare provider mergers, but it will still be difficult for the antitrust agencies to challenge cross-market transactions, said Alexis Gilman, a partner at law firm Crowell & Moring who focuses on antitrust issues.
“We haven’t seen that theory tested yet in the courts,” he said.
Meanwhile, private equity firms, insurers and hospitals continue to purchase physician practices as they seek to increase their referral base and bring more patients into their respective organizations. The draft guidelines state that the agencies may evaluate acquisitions as part of an industry trend, suggesting continued scrutiny of “roll-up” transactions involving private equity firms, Vessel said.
Historically, resource constraints have limited the number of transactions the FTC reviews and challenges. The FTC requested a $160 million increase to its 2024 budget, allowing it to add more full-time staff. While the updated guidelines may allow the agency to challenge more transactions, the FTC will still be constrained by available resources and existing case law, Gilman said.
In the draft guidelines, the FTC and DOJ implied that they would invest more in retrospective merger reviews. The appendix of the proposed guidelines states that the agencies will consider the market effects of consummated mergers, which may take some time to unfold. This may open up completed mergers to a more rigorous review, Vessel said.
The public comment period closes on Sept. 18. The agencies did not say when they expect to finalize the guidelines.
