The Federal Trade Commission’s antitrust unit has been very active in the health care sector in recent years, thanks in part to the steady beat of hospital mergers and acquisitions taking place. In 2015, 102 hospital transactions were announced, up slightly from 99 the year before. Halfway through 2016, we’ve recorded 48 hospital deals, which is keeping pace with the two previous years.
The FTC challenged a few of those deals, including the NorthShore University Hospital/Advocate Health Care merger in Chicago and the Penn State Hershey Medical Center/PinnacleHealth System in Pennsylvania. The agency has notched up some significant wins in years past, most recently the December 2015 decision to stop St. Luke’s Health System from acquiring the primary care practice, Saltzer Medical Group. The FTC argued that the combination would give St. Luke’s the market power to demand higher rates for health care services provided by primary care physicians in Nampa, Idaho and surrounding areas. The federal district court held that the acquisition violated Section 7 of the Clayton Act and the Idaho Competition Act, and ordered St. Luke’s to fully divest itself of Saltzer’s physicians and assets. The Ninth Circuit affirmed the district court ruling.
That winning streak ended in May 2016, when a federal judge declined to temporarily block the Penn State Hershey/PinnacleHealth merger, which was announced in June 2014. U.S. District Judge John Jones III rejected the agency’s request to temporarily block the merger, which would create a new not-for-profit health system in central Pennsylvania. In his opinion, he excoriated the FTC for its opposition to such mergers in the current healthcare environment. The FTC, he said, defined the systems’ geographic market too narrowly and did not account for the distances many patients travel to reach the hospitals.
The case in Chicago, which was filed in December 2015, days after the St. Luke’s/Saltzer ruling, seemed like another slam-dunk for the FTC. Even when the deal was announced in September 2014, the parties stated the combined system would be the largest integrated health care system in Illinois, and the 11th largest not-for-profit healthcare system in the United States. In June 2016, U.S. District Judge Jorge Alonso declined to grant the FTC a preliminary injunction to halt the merger because, in the judge’s opinion, the FTC’s criteria used to define the systems’ geographic market were flawed.
Do these setbacks mean hospital M&A is now a free-for-all? In a word, no. That’s the opinion of Ken Hawkins, SVP of acquisitions and development for Community Health Systems (NYSE: CYH). Speaking at a recent Healthcare M&A conference in Nashville, he added that the judge in the Penn State/Pinnacle case “was ruling against Obamacare. The FTC had their B-team on that one. Now they’re appealing it and taking it to the Appeals Court in Philadelphia, which has two Obama appointees on the bench. They’ll take it up to the Supreme Court if they have to, because it’s a big deal.”
The NorthShore/Advocate decision was still sealed at the time of this conference, to allow the parties time to ask for redactions of sensitive parts of the opinion. (It was released the following Monday, June 20.) Based on the knowledge that the judge ruled the FTC’s market assessment was too narrow, Hawkins opined that the FTC would probably “let that one go ahead.”
Another panelist, Howard Wall, EVP, chief administrative officer and general counsel at RegionalCare Hospital Partners, added, “The Idaho case targeting the physician group acquisition is more scary, I think. It shows we need clear guidance on clinical integration.”
Given the FTC’s recent track record, clarification won’t come any time soon.