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FTC's merger filing influx: What healthcare execs should know

The Federal Trade Commission is facing a "tidal wave" of merger filings this year that are straining agency resources and causing hiccups for some merging entities.

​​In one recent instance, Southfield, Mich.-based Beaumont Health and Grand Rapids, Mich.-based Spectrum Health said the FTC would take longer to review their plan to combine into a 22-hospital system with 64,000 team members partly because of the increased volume of merger filings at the agency.

The two health systems are not alone, as several other merging entities have faced delays this year.

In an average fiscal year, the FTC sees about 2,000 merger filings. However, for fiscal year 2021, the agency saw closer to 3,500 filings, Haidee Schwartz, JD, Akin Gump's antitrust partner, told Becker's Hospital Review. 

"Not in any of the modern times have you seen filings that high," Ms. Schwartz said. 

Why are more merging organizations seeing delays?

Although the surge in merger filings is causing workflow challenges at the FTC, it is not the only reason merger reviews are taking longer, Ms. Schwartz said. 

The Biden administration and the FTC have said they are very concerned about consolidation in many sectors, including healthcare. This was made clear earlier this year when President Joe Biden signed a 72-initiative executive order targeting consolidation across economic sectors. The order encourages the Justice Department and FTC to "vigorously" enforce antitrust laws, even on past mergers that previous administrations haven't challenged. It also calls on the antitrust departments to review and revise their guidelines on hospital mergers to limit harm to patients.

"Healthcare and hospital systems have to expect that the agency will look at theories of harm they haven't previously pursued," Ms. Schwartz said. "In the past, hospital merger reviews were very much focused on, 'Are they overlapping and competing in geographic areas?' Now, even if there's not a direct geographic overlap, they are looking at other things."

Ms. Schwartz said the current FTC is looking at different facets of market competition, including how the deal may affect labor markets and the cross-market effects of a transaction. This may mean the FTC will be talking to more clinicians or economists to better understand the potential impact, she said.

What are the implications of the merger influx?

Because of the influx of merger filings and increased scrutiny of mergers in general, there have been several notable changes at the FTC. 

Under the Hart-Scott-Rodino Act, the FTC has 30 days to review a merger filing. At the end of the 30 days, the FTC must issue a second request for more information, or parties are allowed to close their deal.

Merging entities used to get "early termination" from the FTC for deals that didn't raise any competitive issues or for deals in which merging entities answered all of the agency's questions before the initial 30-day review window expired. However, the FTC suspended early terminations in February, and they are still suspended, Ms. Schwartz said. 

"In part they've said the suspension is because of the volume of filings, but in part I think it's also because they want to look more closely and have a chance to review them all," Ms. Schwartz said.

Ms. Schwartz said that this year with the influx, merging parties or their legal counsels often get calls and questions about the merger from the FTC later in the 30-day review period than in the past.

"If you get a call that late in the initial period, you're likely not going to have the time to answer FTC staff questions, even if there's only a few," Ms. Schwartz said. "It's really hard to get them fully answered before the 30 days expire if you get a call on the 25th or 26th day."

One way that some merging parties are adjusting to the timing of these questions is by completing a "pull and refile," Ms. Schwartz said. This pull and refile gives the merging companies more time to answer the FTC's questions and restarts the 30-day review period. This is a common strategy and one reason the merger review period is longer for some organizations. Ms. Schwartz added that for the first pull and refile, companies do not need to pay a filing fee again, but they have to update documents and provide answers to the FTC's questions.

Despite the pull-and-refile tactic, Ms. Schwartz said that merging entities have somewhat of a greater risk of getting a second request from the FTC, partially because there isn't enough time to answer the FTC's lingering questions in the initial review window with the influx of filings and because the agency wants to see more documentation than in the past.

Complying with a second request means there will be a longer review process and it will be more expensive for an organization, Ms. Schwartz said. 

"Complying with the second request can be millions of dollars for a company, and the average time from deal announcement to an action by the commission is around 10 to 11 months right now," Ms. Schwartz said. 

Other FTC changes to know

The FTC also announced in August it would send letters to merging companies that don't get a second request that it is unable to complete a review of their deals in 30 days as laid out in the HSR Act. The FTC said it will send letters to companies that their deal may still be declared unlawful down the road. This, however, does not prevent companies from closing the deal, Ms. Schwartz said.

While the FTC always has had a right to undo mergers, companies often assumed that, if the FTC didn't try to block the merger within 30 days, it had deemed the deal to generally be compliant with antitrust laws. However, the letters give the FTC additional language to undo the deal down the road should they find a problem and want to open an investigation into the merger's anticompetitive effects, Ms. Schwartz said. 

"It gives them a little bit more to go into court and say, 'We didn't really clear it, we still had questions,'" Ms. Schwartz said. 

What can merging entities do as they prepare to file with the FTC?

1. Understand the new priorities of the FTC. There are changed priorities at the FTC under President Biden. This FTC is more likely to issue a second request with large health systems combining. It is also looking at different theories of harm that it may not have even touched in the past, Ms. Schwartz said. 

2. Complete a risk assessment. Ms. Schwartz recommends having your antitrust counsel do a full risk assessment of doing a pull and refile or having a second request issued by the FTC. "Make sure they are taking into account the new priorities at the FTC," Ms. Schwartz said.

3. Call the agency if you think a transaction could raise questions. With the influx in merger filings, it may be beneficial to take the initiative to call the FTC rather than wait for the agency to call with questions, Ms. Schwartz said. This gives your organization more time to answer any questions. "Some people think, 'well we may not need to call.' That may not be the gamble you want to take," Ms. Schwartz said.

4. Be prepared to answer FTC staff questions as quickly as possible. "If you have good antitrust counsel, they know the questions you are likely to get on a transaction; be prepared for those questions," Ms. Schwartz said. "Have a presentation in draft form ready."

5. Complete the voluntary access letter quickly. In the first 30 days, merging entities will get a voluntary access letter from the FTC that requests certain information about your organization. Ms. Schwartz recommends quickly responding to this request and completing it.

6. Make executives available. One other thing merging entities can do is ensure their executives are available to speak to the FTC as early as possible once the filing is submitted so they can address questions and provide data early on, Ms. Schwartz said.

Conclusion

There are two key reasons merger filings are taking a bit longer to review this year, including increased scrutiny of mergers at the federal level and an influx of deals at the agency. 

Although more companies are getting second requests from the FTC, there are steps entities can take to help reduce the possibility of getting a second request.

Ms. Schwartz, who won Global Competition Review's Women in Antitrust award in 2021, has also held positions as a deputy director at the FTC and in private practice advising companies subject to FTC and Justice Department merger investigations. 

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