The Federal Trade Commission's new premerger notification goes into effect Monday, but some health systems plan to put filings on hold to see if the regulation will stick.
Last year, FTC amended the Hart-Scott-Rodino Act form, which had not been updated for nearly five decades.
Related: FTC lays out final rule on merger filings
The finalized form was stripped down from the initial proposal, but organizations still have to share more data about their proposed transactions.
Health systems and other companies are hopeful legal and potential congressional challenges will overturn the regulation, which is expected to increase administrative costs tied to most filings.
Here’s what to know about the new premerger notification form.
What does the new form require?
Under the new regulation, healthcare companies must submit a wide range of information including data on previous mergers and acquisitions, investors linked to their organizations, transaction-related correspondence and potential service and supplier overlaps.
However, the final rule did not include provisions from the initial proposal such as workers’ commutes and any workforce-related penalties incurred over the last five years.
Still, a lot more information is required at the front end of the transaction disclosure and review process, healthcare attorneys said.
“This is going to add a layer of complexity to how you run a deal,” said Lisl Dunlop, an antitrust healthcare attorney at law firm Axinn, Veltrop & Harkrider.
How will the new form impact dealmaking?
Healthcare lawyers expect the new rule to significantly increase the time it takes to prepare most filings and potentially draw out the review process.
Transactions may get more attention from federal regulators as a result of the more robust premerger notification form, said Ryan Kantor, an antitrust attorney at law firm Morgan Lewis.
“It will be more difficult to fly under the radar,” he said.
Bruce McCulloch, an antitrust lawyer at law firm Freshfields, said it will take at least four weeks to prepare merger filings under the new process, up from about one to two weeks with the previous process.
“The FTC vastly underestimated the number of hours and cost it will take to prepare the filings,” he said.
Other advisers also expect the new requirements will drive up premerger notification filing costs.
Costs linked to filings may increase between threefold and sevenfold, depending on the proposal, but that won’t likely be enough to quash deal proposals, McCulloch said.
Will lawmakers or the president challenge the regulation?
Congress may try to overturn the rule through the Congressional Review Act, lawyers said. Rep. Scott Fitzgerald (R-Wis.) said at a Feb. 4 American Bar Association event that Congress is considering reviewing the regulation under the act, which allows the lawmakers to overturn certain rules.
The rule is a clear departure from Congress’ intent under the 2022 Merger Filing Fee Modernization Act to decrease administrative burdens facing small businesses, Fitzgerald said at the event. Fitzgerald was named chairman of the Judiciary Subcommittee on the Administrative State, Regulatory Reform and Antitrust in December.
In addition, President Donald Trump’s Jan. 20 executive order may prompt a regulatory review. Under the order, federal agencies must consider postponing for 60 days any rules that have been issued but not taken effect.
In the meantime, the rule will still go into effect, an FTC spokesperson confirmed.
Why did the Chamber of Commerce file a lawsuit?
The U.S. Chamber of Commerce filed a lawsuit last month alleging the FTC does not have the authority to gather all the information required in the new form.
The lawsuit, filed Jan. 10 in the U.S. District Court for the Eastern District of Texas, seeks to set aside the final rule. The additional cost linked to merger filings greatly outweighs any potential benefit, and the agency did not adequately explain why the former premerger notification requirements were insufficient, the Chamber of Commerce alleges.
The FTC declined to comment.
A spokesperson for the chamber said in a statement the FTC needs to draft a new rule that “avoids bureaucratic traps and doesn’t stifle innovation and reduce market efficiencies — shortcomings that ultimately harm consumers who benefit from the competitive dynamics that mergers can foster.”
How are health systems responding to the new regulation?
Health systems with pending deals rushed to submit filings last week, before the new rule kicked in.
But some providers are waiting to see if the rule will hold, or delaying filings until there are several merger proposal test cases, advisers said.
Other health systems are taking a more proactive approach by bringing merger and acquisition advisers into the dealmaking process earlier and trying to get their documents in order. But those organizations are likely the minority, advisers said.
“I don’t get the sense that much is being done to prepare,” said Beth Vessel, an antitrust lawyer at law firm Holland & Knight.
