Lina Khan's FTC has challenged health system mergers — but not disruptors

Two years ago, Federal Trade Commission Chair Lina Khan voiced concerns about a merger boom in the U.S., warning that the high volume of transactions is stretching agency resources. That boom has arrived, with healthcare deal revenues hitting an all-time high of $45 billion in 2022 and showing no signs of abating.

To combat this, the FTC wants to increase its fiscal 2024 budget by $160 million — $70 million of which will be dedicated to tackling healthcare merger challenges, rulemaking and investigations. Its overall budget for next fiscal year, if approved by U.S. lawmakers, would be $590 million.

Much of the increased funding would be used to hire more staff, cover the increased costs of operations and provide employee pay bumps as Ms. Khan and the FTC ramp up antitrust enforcement against healthcare mergers and acquisitions. 

Over the last year, the commission filed administrative complaints and sought preliminary injunctions against three health system mergers, all of which scrapped their acquisition plans.

In February 2022, Care New England and Lifespan — both based in Providence, R.I. — called off plans to merge after the commission filed a suit with Rhode Island Attorney General Peter Neronha to block the deal. The merger would have given the combined system 80 percent of the market's hospital beds and ownership of eight of Rhode Island's 13 hospitals. 

"If this extraordinary and unprecedented level of control and consolidation were allowed to go forward, nearly all Rhode Islanders would see their healthcare costs go up for healthcare that is lower in quality and harder to access, and Rhode Island's healthcare workers would be harmed," Mr. Neronha said in his decision.

In June, Nashville, Tenn.-based HCA Healthcare and Dallas-based Steward Health Care System abandoned their proposed deal involving five Utah hospitals. The decision came 13 days after the commission challenged the transaction.

"As the second- and fourth-largest healthcare systems in the Wasatch Front region of Utah, which surrounds Salt Lake City, HCA Healthcare and Steward Health Care System help to keep costs down for consumers by competing vigorously with each other. The result is lower prices and more innovative services for patients and their families," said Holly Vedova, director of the FTC's Bureau of Competition. "If these companies merge, this competition will be lost, and Steward will no longer be available to patients as a low-cost provider in this region."

That same month, two New Jersey systems — New Brunswick-based Saint Peter's Healthcare System and West Orange-based RWJBarnabas Health — terminated a definitive agreement to merge after the FTC filed a suit to block the transaction. 

In a statement 10 days earlier, Ms. Vedova pointed to possible antitrust concerns, arguing the combined system would have a market share of about 50 percent for general acute care services in Middlesex County. "Saint Peter's University Hospital is less than one mile away from [RWJBarnabas] in New Brunswick, and they are the only two hospitals in that city," she said.

Since the beginning of 2022, Becker's has reported on 14 other hospital deals that have been abandoned for various reasons.

The FTC has been less apt to intervene in deals involving so-called healthcare disruptors. On Feb. 21, the agency said it would not sue to block Amazon's $3.9 billion acquisition of primary care company One Medical. The tech giant completed the deal the next day, despite the fact the agency under Ms. Khan has set its sights on the growing power of Big Tech.

The FTC found evidence of anti-competitive tactics but decided it was too hard of a case to win and could not determine what market would be monopolized, people with knowledge of the agency's thinking told Politico in a March 20 report. One Medical has more than 220 primary care clinics across the country.

On Feb. 27, the FTC warned Amazon and One Medical to keep patients' healthcare data private and not use it for marketing or advertising purposes. Data privacy has been a top concern for the agency, which recently completed huge settlements with digital health companies GoodRx and Better Help for sharing patient data with social media platforms.

Federal regulators have also reportedly been investigating CVS' proposed $8 billion agreement to buy home health company Signify Health. Meanwhile, U.S. Sen. Elizabeth Warren recently asked the FTC to review CVS' planned $10.6 deal for Oak Street Health, a chain of primary care clinics focused on older adults.

Ms. Warren also requested the agency "retroactively analyze previous acquisitions of primary and home healthcare companies by large health insurers and retailers such as [UnitedHealth Group], Humana, [Walgreens Boots Alliance], Walmart and Amazon. If the FTC determines that any of these deals violated antitrust law, I urge you to unravel them."

UnitedHealth Group, for example, bought home health company LHC Group in February for $5.4 billion despite an FTC probe.

The FTC has been successful in blocking recent health system mergers, but time will tell whether it continues to block Big Tech mergers after a string of setbacks, according to The Wall Street Journal. The healthcare M&A landscape may face even more scrutiny in 2024, however, if the FTC's request for a budget increase is granted, giving it more funds, resources and personnel to challenge such transactions.

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