Maddie Gilmore, Class of 2023, Belmont Law
On July 9, 2021 President Joe Biden issued an Executive Order with seventy-two new initiatives for the purpose of promoting competition in the American economy while simultaneously reducing the trend of corporate consolidation and control. Among these initiatives, he called on the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) to “enforce antitrust laws vigorously.” President Biden’s executive order demonstrates his concern that lack of competition in the healthcare market often leads to price increases without improving quality of care. Furthermore, while consolidating hospitals and other large healthcare facilities benefits the industry by reducing costs, it provides an access barrier and leaves many communities, “especially rural communities, without good options for convenient and affordable healthcare service.” The White House said it is urging antitrust regulators to recognize that “the law allows them to challenge prior bad mergers that past Administrations did not previously challenge.”
The executive order was prompted by the “tidal wave” of premerger filings suggesting rapidly increasing hospital consolidation. Indeed, the FTC received 343 premerger filings in the month of July, more than three times the amount from July of last year, when 112 transactions were submitted for review. The size and number of deals were only accelerated by the COVID-19 pandemic which caused smaller companies to go out of business and become an acquisition target. However, the order alone was not enough. “Thanks to unchecked mergers, the ten largest healthcare systems now control a quarter of the market,” said the White House in its release.
Attempts to rein in the industry have either been met with resistance or not effectively policed. For example, the Trump Administration’s price transparency rule, which was upheld by the U.S. Court of Appeals for D.C., requires hospitals to act transparently and post two lists of prices: “(1) A comprehensive, “machine-readable” list of various charges for all items and services. (2) A consumer-friendly list of prices for a smaller set of “shoppable” services.” Biden’s executive order specifically “directs HHS to support existing hospital price transparency rules,” indicating that the new administration intends to police transparency more rigorously. However, a substantial majority of hospitals are not following the price transparency protocol.
Subsequent crack-down measures on behalf of the FTC are being taken in response to a trend of noncompliance in the industry. Such measures include working on legislation to address and punish ‘surprise’ hospital billing; expanding the applicability of premerger notice requirements; and even, in its latest attempt to regulate, sending letters to monitoring entities informing them that if mergers are not properly investigated or investigated at all, the FTC retains the ability to investigate later. This means that companies who go forward with intended mergers which cannot get investigated in a timely manner, through no fault of their own, run the risk of the merger later being declared unlawful.
This has a significant, and potentially adverse impact on the healthcare industry in its mergers and acquisitions. This impact has already been felt by various entities and has spurred one of the nation’s most influential lobbyist groups to call for more freedom in hospital mergers. The American Hospital Association (“AHA”) sent a letter on August 18, 2021 to the White House which included a study. Although many challengers are saying that the data contained in the accompanying study is cherry-picked, the study tends to show that contemporary hospital mergers result in cost savings and quality improvements, without a corresponding increase in revenue consistent with the acquisition of market power.
Considering the competing interests of the White House and healthcare entities, as well as the competing bases for support of these interests, the arguments raised by the AHA’s August 18th letter may well become of vital importance for ensuing litigation. Consider the case of Hackensack Meridian Health, the largest health system in New Jersey. Hackensack attempted to acquire a close competitor, but the deal was blocked by a preliminary injunction on the ground that the deal is harmful and would reduce competition and quality of care, while making it more costly for patients. Indeed, the merger, if successful, would put Hackensack in control of half of the county’s acute care hospitals, which leaves insurers with very few options. FTC administrative proceedings are set to begin on October 12, 2021.
While the agency’s directives from the White House are clear, the FTC might yet be persuaded by arguments raised in the August 18th AHA letter, which ultimately implores the FTC to switch its focus to commercial health plans themselves, rather than providers.