Biden’s FTC has blocked 4 hospital mergers and is poised to block more

Fresh from the Federal Trade Commission’s successful challenges to four hospital mergers, the Biden administration’s new majority on the commission is primed to fight consolidation more aggressively in the health care industry than in years past.

Although hospital mergers were supposed to improve cost efficiency, experts agree that massive consolidation and the creation of hospital networks have increased U.S. medical costs, by far the highest in the world. Many enjoy almost monopoly pricing power.

Last year, President Joe Biden directed the FTC and other federal agencies to promote market competition in health care and other industries. Biden said hospital mergers and acquisitions have left the 10 largest health care systems in control of a quarter of the market and closing hospitals in rural and other underserved areas.

“We feel encouraged and want to fulfill the executive order’s call to be aggressive on antitrust enforcement,” said Mark Seidman, an assistant director in the FTC’s Bureau of Competition, who chatted with KHN about the agency’s efforts on health care (see accompanying interview). Commerce commissioners say it’s a key way to slow the rise in health care costs; protecting patient access and quality of care; and prevent layoffs, wage cuts, and unfair labor practices.

But antitrust experts say it will take time for the FTC to find the right cases to test more muscle-exerting theories. And bringing such a lawsuit would almost certainly trigger pushback from Republican commissioners, the health care industry and the courts. They argue that some mergers make sense, helping lower costs while preserving access for patients, employers and insurers.

“With additional scrutiny, you’re putting a huge burden on parties seeking to do a combination that prevents beneficial, potentially anti-competitive behavior,” said Leigh Oliver, a veteran antitrust attorney at the law firm Clifford Chance who represents health care companies.

In one of the FTC’s recent victories, RWJBarnabas Health, which operates 12 hospitals, canceled its June acquisition of St. Peter’s Health Care System, which operates a hospital for adults and children in central New Jersey. The FTC filed a federal lawsuit to block the deal, citing evidence that it would raise prices and hurt patient care.

Also in June, HCA Healthcare, which operates 182 hospitals, halted its acquisition of five Steward Health Care System hospitals in Utah’s Wasatch Front region, shortly after the FTC filed a lawsuit to block the transaction, claiming it would raise prices and reduce quality. care

“This should be a lesson to hospital systems and their counsel across the country: The FTC will not hesitate to take action to enforce antitrust laws to protect health care consumers,” said Holly Vedova, director of the FTC’s Competition Bureau. a statement

Barry Ostrowski, CEO of RWJBarnabas Health, disagreed with the FTC’s challenge to his system’s merger, saying in a statement that the proposed acquisition of St. Peter’s would “change quality, increase access and lower the overall cost of care for the public. This state.”

In March, a federal appeals court upheld a lower court order blocking a merger between Hackensack Meridian Health and Englewood Healthcare Foundation in Bergen County, New Jersey. The FTC said it would raise prices. The case was started by the Trump administration and continued under Biden.

State officials often join forces with the FTC to block mergers.

In February, a proposed merger between Rhode Island’s two largest hospital systems, LifeSpan and Care New England Health System, was scrapped after the FTC and Rhode Island’s attorney general filed a lawsuit to block the deal.

Extensive research has shown that prices increase when hospital systems acquire or merge with their competitors or when they purchase a significant percentage of physician practices in their markets. Highly consolidated markets, such as Northern California (dominated by Sutter Health) and Western Pennsylvania (dominated by UPMC) tend to have higher prices.

The FTC has a long history, under both Democratic and Republican administrations, of antitrust enforcement actions to block so-called horizontal mergers between hospitals that could stifle competition in a market.

Under the FTC’s traditional economic theory, an area should attract new competitors with high prices, and that competition will drive down prices. But the regulatory hurdles and huge costs involved in setting up healthcare networks — which include hospitals and doctors, as well as other aspects such as testing facilities — make such a movement unlikely, if not impossible.

So Biden appointees at the FTC and the Department of Justice have announced they want to adopt some legal theories of antitrust enforcement that have been deployed less frequently.

In January, the two agencies launched a joint effort to solicit public input on ways to strengthen enforcement against mergers that could cause social harm.

Last December, FTC Chair Leena Khan said the agency would examine how the proposed merger could affect not only prices, but also workers in the labor market. “Stronger antitrust enforcement can help ensure that workers have the freedom to seek higher wages and better working conditions,” he said.

Too much market power can allow companies to impose tough, take-it-it contract terms with non-compete clauses, he added.

Physicians and other health care professionals say large health care companies are increasingly pressured to sign contracts that prevent them from going to work for competitors in the same market or even the same state. At a joint FTC-DOJ public forum in April about the impact of health care mergers, representatives of two emergency physician groups said their members were being offered these types of take-it-or-leave-it contracts.

In February, Khan and another Democratic commissioner, Rebecca Kelly Slaughter, said they would prefer to include such a complaint about unfair labor practices in the FTC’s challenge to the proposed Lifespan-Care New England merger.

But the two Democratic commissioners didn’t have a majority at the time, Oliver said, and they didn’t want to move forward without consensus among the commissioners.

The commission had a 3-2 Democratic majority for part of last year after Khan joined the panel, but then another Democratic commissioner, Rohit Chopra, left to lead a different federal agency in October. Democratic commissioners did not regain a majority until the Senate confirmed Alvaro Bedoya in May.

Douglas Ross, a veteran antitrust attorney who has represented hospitals and teaches antitrust law at the University of Washington, said it is well established that antitrust enforcers can block mergers if they harm labor market competition. “What’s new is that this administration is actively looking for cases where they can claim,” he said.

Democratic commissioners also want to take a harder line in challenging so-called vertical mergers. In these agreements, hospitals, insurers or other types of healthcare organizations seek to merge with or acquire companies that provide essential products, services or personnel. An example is when hospitals or insurers acquire large physician practices, which leads to higher prices for research. Patients will go to a longtime physician only to find the price has doubled or more, simply because the practice has been bought by a hospital, which now sets the rates.

Antitrust enforcers have long viewed such mergers as promoting efficiency because services and supplies can be obtained at lower costs, but in September the FTC’s Democratic majority argued that the purported public benefits of vertical mergers were not supported by market evidence. Two Republican commissioners sharply dissented, saying the majority’s move “threatens to chill legitimate consolidation activity and undermine efforts to rebuild our economy in the wake of the pandemic.”

Nevertheless, in an even more vigorous scrutiny test of vertical integration, FTC commissioners voted unanimously last year to file an administrative complaint to block Illumina, the top maker of gene-sequencing machines, from acquiring Grail, a promising developer of a blood test. Early detection of many types of cancer. The company argued that Illumina could use the acquisition to prevent Grail’s emerging rivals from competing in the market.

Today, “agencies are very suspicious of vertical acquisitions, and I think they’re willing to be very aggressive in their investigations,” Ross says. “But it’s too early for us to know whether the court will move.”

Even so, some experts question whether aggressive FTC antitrust enforcement will help patients and employers who are paying higher prices in areas dominated by one or two health systems. It may be time for direct price controls, they said.

“There’s not much the FTC can do to challenge the ability of hospitals to raise prices after they gain market power,” said Thomas Greaney, a research professor at California Hastings College of the Law in San Francisco who studies healthcare antitrust. The problem “So a natural reaction in some states is to say, ‘Let’s regulate those prices.'”

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