By Jane Meggitt
The Federal Trade Commission has recently rejected several high-profile healthcare mergers and acquisitions, in some cases even after state regulators had approved the deal. As of mid-June, the FTC has already blocked what it calls “anticompetitive hospital mergers” three times in 2022 alone. Is this a legitimate reaction to a healthcare environment becoming less competitive, or is the agency overreacting?
St. Peter’s Healthcare System and RWJBarnabas Health
The FTC authorized an administrative complaint and filed a lawsuit in federal court to block the acquisition of Saint Peter’s Healthcare System by RWJBarnabas Health, or RWJ, which is one of the largest hospital systems in New Jersey. The complaint alleges that in Middlesex County, in the central part of the state, the acquisition will harm competition for inpatient general acute care services. These are a broad range of essential medical and surgical diagnostic and treatment services that require an overnight hospital stay. The merger would have combined the only two hospitals located in New Brunswick, the home of Rutgers University. The city is one of the most densely populated areas in the nation’s most densely populated state.
The FTC’s federal court suit seeks a temporary restraining order and preliminary injunction to stop the deal and maintain the status quo while the agency pursues an administrative trial on the merits of the case. On June 14, 2022, the parties announced that they had abandoned the transaction.
According to the FTC, the merger would have eliminated head-to-head competition, leading to increased prices and reduced quality of care. In a statement, Federal Trade Commission Bureau of Competition Director Holly Vedova said, “I am proud to say that this is the third time the Commission has filed a complaint to block an anticompetitive hospital merger so far in 2022. This enforcement action is a reminder that the FTC remains vigilant in enforcing the antitrust laws and will continue to protect healthcare consumers who are faced with unlawful hospital consolidation.”
In a statement, RWJ CEO Barry H. Ostrowsky said the proposed transaction would have “transformed quality, increased access and decreased the overall cost of care for the people of this State through the creation of a premier academic medical center. Despite the loss of this opportunity, RWJBarnabas Health remains resolute in its commitment to serve the people of New Jersey – especially those who reside in our most vulnerable, chronically underserved communities – and shall continue to do so.”
Utah and Rhode Island Abandoned Mergers
In Utah, HCA Healthcare and Steward Health Care System abandoned their proposed deal involving five hospitals. The decision comes less than two weeks after the FTC challenged the transaction, citing higher prices and reduced quality.
In Rhode Island, the two largest health systems abandoned their merger in February after the FTC sued to block the union. Care New England and Lifespan decided they would not pursue litigation, instead stating they would find ways to partner that are “appropriate from a legal perspective,” allowing them to best serve their community’s needs.
FTC and DOJ Forum on Merger Effects
Why has the FTC responded to M&As so negatively in recent months? A forum held this spring in conjunction with the Department of Justice provides answers. A “listening” forum held on April 22 featured healthcare professionals as speakers. Many of these speakers shared stories of a downward spiral in quality of care and services after mergers took place, including:
- Outsourcing resulting in loss of staff or benefits
- Rising costs for patients
- Lower nurse-to-patient ratios
- Interruption of existing collaborative clinical and research relationships
- Huge increases in drug prices
- Decline in the number of hospital beds
- Interference with physician autonomy to make medical decisions
- Cuts in pay and/or hours
- Harmful billing and collection practices
Perhaps Dr. Michael Shapiro, a general surgeon specializing in organ transplantation and professor of surgery at Rutgers New Jersey Medical School, summed it up most succinctly: “I’m not so naive as to not recognize that healthcare is an industry, but the role of hospitals and networks is different than other industries. The goal is to provide care to patients in the community rather than to maximize profits.”
However, there were speakers strongly defending M&As. Carlo Passeri, representing the Biotechnology Innovation Organization, with over 1,000 biotech companies as members, said M&A plays “a significant role in driving biomedical innovation and the launching of new medicines in the United States and globally.” He noted that in 2020, 55 percent of the $34 billion invested in live scientist startups originated from private capital.
Dramatic Downturn in Q’1 22
Overall, the first quarter of 2022 saw a dramatic downturn in healthcare M&A. The FTC was certainly not solely responsible, and much of the blame goes to a slowing economy, rising interest rates, global supply chain problems, and the fallout from the war in Ukraine. Deal volume declined by more than one-third, while private equity deal activity fell by half. Of course, deal volume was especially high during the pandemic.
Part of that is the result of the Biden Administration’s 2021 executive order on promoting competition in the American economy. The FTC and DOJ have been called on to enforce antitrust laws vigorously in the healthcare industry. Regulators are instructed to review and revise merger guidelines if the potential action may harm patients. The executive order points out that such mergers can lead to increased prices without quality of care improvement.
Going forward, private equity interest in healthcare IT and analytics, as well as physician practices should remain stable. Interest in hospitals and health systems will take a back seat. The FTC’s recent behavior contributes to this slowdown, but so do increased labor and supply costs.
