Hospital mergers under the FTC's antitrust radar

The Federal Trade Commission (FTC) and Antitrust Division of the US Department of Justice (DOJ) jointly released statistics of merger enforcement in annual reports to Congress under the Hart-Scott-Rodino Antitrust Improvements (HSR) Act. These reports detail merger review statistics for transactions notified pursuant to the HSR Act. Antitrust merger enforcement has recently been increasing significantly, yet HSR annual reports generally have not reflected such an increase. One exception, however, is health care merger enforcement: HSR statistics for hospital mergers demonstrate a notable increase.

According to the HSR statistics reported in 622-Hospitals, hospital transactions are significantly more likely to receive second requests than transactions in other industries. Specifically, the percentage of hospital transactions receiving second requests during fiscal year (FY) 2020 (the most recently reported year) was significantly higher than in any other year during the most recent 10-year period for which HSR statistics have been published. Given the increased attention to health care under the Biden administration (such as the 2021 executive order calling for antitrust agencies to scrutinize proposed mergers and acquisitions in sectors like health care and energy more closely), these hospital-specific health care enforcement efforts will not subside.

The FTC's recent actions to prevent the consummation of hospital transactions demonstrate their focus on hospital mergers, and it will be interesting to see how these translate to the 2021 HSR statistics. In a recent vote to challenge a health care merger involving two hospitals in Rhode Island, the Democratic commissioners wrote separately to state that they "would have supported an allegation that the effect of the proposed transaction may be to substantially lessen competition in a relevant labor market in violation of the Clayton Act." The Republican commissioners, on the other hand, stated that the evidence did not support the labor market allegations. This dichotomy demonstrates the potential future of hospital mergers. Given the Senate confirmation and swearing in of a new Democratic commissioner, Lina Khan, the FTC now has a Democratic majority and accompanying votes. These novel theories of harm in commission enforcement actions may multiply and include concepts like cross-market theories—the potential for hospital systems to exercise market power across relevant markets.

Given these developments, the 2021 HSR statistics will not offer a complete picture of merger enforcement. Numbers are reported by the government fiscal year, which runs from October 1 to September 30 annually. The 2021 fiscal year will thus not depict the full effect of Lina Khan's leadership (began in June 2021) and Assistant Attorney General Jonathan Kanter's leadership (began in November 2021). Also, HSR statistics will not demonstrate how recent administrative changes (such as the FTC's moratorium on early termination grants, its extension of time for merger review beyond the statutory HSR waiting period, and its prohibition on second request modifications until the parties provide additional information about their companies and key employees) have made investigations longer and more burdensome. Furthermore, HSR statistics will not reflect how substantive changes in the merger review process (like expanding the scope of investigation topics to include new lines of inquiry such as labor markets and cross-market effects) are likely to be considered in future hospital mergers.

As history and the HSR statistics show, the FTC has a growing interest in the application of the federal antitrust law to health care transactions. The FTC has considered (and challenged) a number of healthcare transactions already in FY 2022, including hospital transactions in New Jersey, Utah, and Rhode Island. The FTC, with its new Democratic majority, can test novel theories of harm in the review of health care mergers under antitrust law. However, the situation is not hopeless. In FY 2020, more than 78 percent of hospital transactions were not subject to protracted HSR review process. This means that, armed with careful planning and analysis, healthcare companies can confidently propose transactions, regardless of the theories the FTC may embrace.