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FTC's Stance Toward Hospital Mergers Grows More Aggressive

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Mergers and acquisitions among healthcare providers have picked up in recent years, driven largely by challenging operating environments and reimbursement levels that restrict capital required for upkeep and growth. At the same time, strong systems are increasingly willing to acquire facilities as a way to grow market share and/or better coordinate care. According to Irving Levin Associates, 86 hospital and health system transactions took place in 2011, up 12 percent from 2010, and deal volume is expected to remain steady.

Perhaps because of the increased M&A activity within the healthcare services sector, the Federal Trade Commission seems to have renewed its interest in closely monitoring these deals, says Angelo Russo, JD, a partner in McGuireWoods' Chicago office.

Most notably, the FTC recently challenged the 2010 merger of St. Luke's Hospital in Maumee, Ohio, with Toledo, Ohio-based ProMedica Health System, claiming the deal reduced competition and would contribute to higher prices.[1] Specifically, the FTC argued the deal could increase hospital rates by more than 56 percent at St. Luke's and roughly 11 percent at other ProMedica hospitals. St. Luke's, formerly a competitor to ProMedica, had offered lower rates than the larger system, according to the challenge. ProMedica has argued the FTC's challenge goes against calls for integration supported by healthcare reform and that the FTC's model used to calculate price increases is flawed, according to the report.

The FTC is ultimately seeking that ProMedica divest the St. Luke's facility. In December, an administrative law judged sided with the FTC, agreeing that the merger was anti-competitive. An appeal hearing between ProMedica and the FTC has been scheduled for February. If ProMedica is unsuccessful in that appeal to the FTC, it has said it will appeal to the 6th Circuit Court of Appeals.

This case serves as a cautionary tale for systems looking to acquire competitors, including facilities that may be struggling in the market. "It's not just a question of whether the FTC will let a deal go forward," says Richard Greenberg, JD, who is also a partner in McGuireWoods' Chicago office. "The FTC could carve pieces out of the deal so an acquiring entity isn't quite getting what it hoped to get."

Mr. Russo cautions any system that is entering into a merger or acquisition carefully analyze the deal to determine its potential impact on the competitive landscape of the market. The FTC does examine both the pros and cons of any deal, however, so increased scrutiny doesn't necessarily mean all deals that result in the growth of a dominant system will be challenged.

"There are benefits such as economies of scale or keeping a struggling hospital open that the FTC would consider," says Mr. Greenberg. "How any case turns out will depend on evidence and counterarguments."

Footnotes:

[1] FTC v. ProMedica Health System, No. 3:11 CV 47 (N.D. Ohio Mar. 29, 2011)

More Articles on Antitrust Issues:

FTC Announces Changes to Premerger Filing Requirements
FTC Investigates Fine Line Between Hospital Consolidation and Anti-Competition

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