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The FTC could come for 'cross-market' hospital mergers next

Several mergers between health systems in different states closed in the last year, with more "megamergers" anticipated to come as large systems pursue further economies of scale amid challenging financial headwinds, according to McDermott Will and Emery's "Hospitals and Health Systems 2023 Outlook."

If a proposed merger does not have traditional horizontal consolidation concerns because the systems operate in different states or regions, stakeholders should consider whether antitrust enforcement agencies may assert a "cross-market" theory of competitive harm, according to the international law firm's report 

"Cross-market" mergers are between health systems that operate in separate geographic areas and do not eliminate competition to attract patients since the systems provide services to distinct patient populations. 

However, these types of deals can lead to competitive effects when the merging systems have common payer and employer customers and are competing to be in the same payer and employer networks.

The Federal Trade Commission has added cross-market theory questions to second requests in merger investigations, but it has not formally challenged a hospital or health system transaction based on a cross-market theory of competitive harm, according to McDermott Will and Emery.

To challenge this type of merger, the FTC would likely need to show that the health systems had overlapping payer customers, according to the report. For health system mergers across state lines, the same payer would have to operate in multiple states or the systems would have to contract with payers for material national contracts.

In November, the FTC announced that 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. 

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