Mergers and acquisitions in the healthcare industry have dramatically increased, and there are a number of steps hospitals and health systems can take to avoid being challenged by the Federal Trade Commission.
In a webinar hosted by GE Capital, Healthcare Financial Services-Equipment Finance, Alexis Gilman, assistant director at the FTC, discussed the parameters the FTC evaluates when considering the economic validity of healthcare mergers.
In response to payment reform, nonprofit hospital merger and acquisition activity levels are high, in part because well-managed M&A activity may allow hospitals to gain and improve efficiencies and eliminate duplicative expenses.
Although the FTC recognizes the benefits of healthcare mergers and understands why providers are merging, by looking at retrospective studies and investigations, the commission knows these transactions can lead to price increases and a lower incentive to improve quality, explained Mr. Gilman.
The FTC and the Antitrust Division of the U.S. Department of Justice enforce the Clayton Act, which forbids mergers that harm competition. In a provider merger, the FTC looks at two areas of competition: Price competition and reimbursement rating competition with health plans; and providers competing on non-price terms to attract patients, such as offering better amenities and increasing convenience.
"We look at a full range of evidence in our investigations," said Mr. Gilman, including the relevant geographic market. Under the horizontal merger guidelines, the hypothetical monopolist test is used to determine if a market is properly defined before determining whether a provider has monopoly power in the market that violates antitrust laws. In performing the test, the FTC looks at concrete evidence, such as party documents, how far away competitors are, and discharge and claims data. The FTC also looks at the geography of a particular area to determine if there are any real or psychological patterns that dictate travel.
Market share and market concentration is also examined. "This is important, but this is not all we care about," said Mr. Gilman. "We're not going to bring a challenge to a merger simply because shares are high."
In addition, the FTC won't challenge a merger if the efficiencies outweigh the competitive harm. However, a cognizable efficiency has to be merger specific. This means the efficiency generated by the deal is unlikely to be achieved by another deal or another means. The efficiencies have to be substantiated so they can be verified. "We want to have confidence that there is a real plan and there is a timeline for achieving them," said Mr. Gilman. The efficiencies cannot be vague or speculative, and "the more potential competitive harm, the greater the efficiencies must be," he said.
If the FTC decides to oppose a merger, the commission's strong preference is for structural relief, such as an injunction to prevent the parties from merging or a divesture. Conduct remedies, which are not favored, include obligations by the merging parties, but they do not restore the pre-merger competitive dynamic, said Mr. Gilman.
Although there has been a focus on consolidation in healthcare, according to Mr. Gilman, the FTC challenges very few provider mergers. Over the last 10 years, the commission has challenged less than 1 percent of hospital deals.
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University of Virginia Medical Center, Culpeper Regional Health finalize merger