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3 letters will make or break health system growth in 2023

Hospitals and health systems face a variety of short- and long-term challenges in the year ahead, and one can be summed up in just a few letters: the FTC.

The Department of Justice and Federal Trade Commission have been extraordinarily active in challenging mergers and acquisitions under the Biden administration. Since Jan. 1, 2021, the governmental agencies have attempted to block 22 deals, a Reuters analysis found based on agencies' announcements. For comparison, that is twice as many as President Donald Trump's first two years and outnumbers challenges made during the first two years of President Barack Obama's first term. 

Behind the quantitative review of activity is a change to the composition of the FTC worth noting. In May, after an eight-month process, the Senate confirmed Alvaro Bedoya as the FTC's fifth commissioner and its third Democrat. Before then, the FTC had been gridlocked with two Republican commissioners and two Democrats, meaning anything Chair Lina Khan wanted to do that required the commission's vote would need support from at least one Republican. With the addition of the third Democrat, Ms. Khan — a vocal critic of Big Tech and advocate for stronger antitrust regulation — gained latitude. 

In early 2022, Rhode Island's two largest hospital systems, Lifespan and Care New England Health System, called off their merger after the FTC pushed back. Shortly after, a federal appeals court upheld a lower court's injunction that blocked a merger between Hackensack Meridian Health and Englewood Healthcare Foundation in New Jersey, which the FTC alleged would raise prices. The case was initiated by the Trump administration and continued under the Biden administration; the hospitals scrapped the deal in April. 

June was a big month for FTC pushback on hospital consolidation, culminating in four health systems calling off two mergers within days of the agency filing suits to block the deals. Votes to challenge the deals were unanimous.

​​In New Jersey, Saint Peter's Healthcare System and RWJBarnabas Health terminated a definitive agreement to merge less than two weeks after the FTC filed a challenge, which alleged the consolidation would harm competition for inpatient general acute care services in Middlesex County, resulting in a combined market share of approximately 50 percent for general acute care services in the county.

Nashville, Tenn.-based HCA Healthcare called off plans, announced in September 2021, to acquire five Utah hospitals from Dallas-based Steward Health Care. The FTC alleged the acquisition would eliminate the second and fourth largest healthcare systems in Utah's Wasatch Front region, where approximately 80 percent of the state's residents live. The FTC said Steward and HCA "keep costs down for consumers by competing vigorously with each other," and that competition would be lost under the proposed acquisition.

In August, the FTC issued a 20-page policy paper on the "pitfalls" of certificates of public advantage, or COPAs, which are in use in 19 states and allow merging hospitals to enter an agreement with the state instead of facing FTC regulations. The agency contends that hospitals' claims about the effectiveness of COPAs are exaggerated. The vote to issue the paper was unanimous. 

"Despite hospital claims that COPAs will result in lower costs and improved population health outcomes, we are not aware of any proven benefits of COPAs," FTC Director of Policy Planning Elizabeth Wilkins said. "We urge state lawmakers to consult local health insurers, employers, and workers regarding the potential impact of COPA legislation."

The FTC is not only active, but also embracing the gray. In November, the agency announced it will expand its interpretation of a 1914 statute that could allow the agency to increase its intervention and legal challenges against what it deems anticompetitive corporate behavior. The move essentially makes it easier to challenge conduct that, under other federal laws, might not be illegal on its face. 

The change stems back to 2015, when the FTC issued a statement declaring that it would apply Section 5 using the Sherman Act "rule of reason" test, which restricted the agency's oversight to a narrower set of circumstances. The November update from the FTC restores the full use of Section 5 and makes it easier for the agency to challenge an array behavior in the market that "has a tendency to generate negative consequences," such as raising prices, reducing output, limiting choice, lowering quality, reducing innovation, impairing other market participants or reducing the likelihood of potential competition. 

Enforcement around mergers and acquisitions is especially relevant as hospitals continue to struggle with labor shortages and near the end of an exceptionally difficult year for finances. An industry report based on data from more than 900 hospitals found the median operating margin was -0.5 percent through October, the most recent month analyzed. While expenses continued to outpace revenues, capacity was also a problem. Hospitals struggled to discharge patients in October due to shortages of labor both internally and in post-acute settings, which resulted in a 3 percent increase in length of stay that did not translate to additional revenue. 

While the FTC is poised for another active year ahead, lawmakers are looking to another governmental agency — HHS — to gauge its involvement in hospital closures and consolidation. A group of Massachusetts lawmakers requested information from HHS by January on the role it plays in monitoring or interfering with less accessible medical care driven by hospital closures, mergers and acquisitions.

"Despite health care systems operating over capacity and receiving substantial financial support from federal, state and local government in recent years, hospitals across the country are closing their doors, reducing their services, or consolidating," the lawmakers wrote. "We are concerned that this pattern will result in communities facing increasingly significant barriers to health care, and seek your assistance in ensuring those communities have sufficient hospital resources to guarantee access to a full continuum of high-quality care."

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