The push and pull of increasing hospital consolidation

As the number of deals in the healthcare sector continue to pile up, so do the concerns about whether the deals benefit its participants and satisfy regulators, one prominent attorney says.

Lisl J. Dunlop of Manatt Phelps & Phillips LLP notes in Lexology that in 2009, the year before the Affordable Care Act (ACA) passed, there were 52 transactions involving 80 hospitals. That number had more than doubled three years later, and the numbers continue to rise. All the while, both federal and state regulators have increased their scrutiny in search of potential anti-competitive transactions. One such example is the ongoing divestment of the St. Luke's-Salzer Medical Group deal in Idaho. Another is the acquisition by ProMedica of St. Luke's Hospital in Maumee, Ohio--part of a strategy of the Federal Trade Commission (FTC) to prospectively unwind consummated deals.

"This has led many providers to feel conflicted between their desire to meet the ACA's goals of economic efficiencies through mergers and consolidations, and concern that antitrust regulators are being unduly harsh," Dunlop writes.

 She says that providers should take to heart the following lessons:

  • If your deal creates efficiencies, it should also address any antitrust concerns as well.

  • Despite the use of more sophisticated equations to evaluate a deal, regulators are still using traditional tools to analyze mergers. "Transactions that result in aggregation of market power through high combined shares and could be expected to lead to increased reimbursement rates are presumptively suspect," according to Dunlop, and will lead to legal challenges.

  • Reviews by state regulators are just as important as a federal review, and may make the FTC more flexible. "The FTC has recognized states' interest in crafting solutions that serve local needs, even if they might not meet the FTC's standards for merger remedies," Dunlop writes.

  • Conversely, some state laws, such as Certificate of Need, can also hamper federal regulation because they can prohibit the divestiture of some properties--a remedy that is commonplace for the FTC.

To learn more:
- read the Lexology article

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