Regulators are pumping the brakes on Novant Health’s deal to buy two North Carolina hospitals from Community Health Systems (CHS), citing concerns of higher healthcare costs and little incentive for quality improvements.
The Federal Trade Commission (FTC) announced Thursday that it has issued an administrative complaint and authorized a federal court lawsuit to block the transaction.
“Hospital consolidations often lead to worse outcomes for nurses and doctors, result in higher prices, and can have life and death consequences for patients,” Henry Liu, director of the FTC’s Bureau of Competition, said in the announcement. “There is overwhelming evidence that Novant’s deal with Community Health Systems will be detrimental to patients in the Eastern Lake Norman Area, including leading to higher out-of-pocket costs for critical health care services.”
The deal involves the 123-bed Lake Norman Regional Medical Center in Mooresville and the 146-bed Davis Regional Medical Center in Statesville, which in 2022 was closed for a transition into a behavioral healthcare facility. Also included is a physician group of 24 doctors employed by Lake Norman Regional, a majority interest in a Mooresville endoscopy center, and an entity that holds a Certificate of Need (CoN) to build an ambulatory surgery center in Mooresville.
Novant and CHS had unveiled the $320 million transaction in February 2023. A spokesperson for Novant Health told Fierce Healthcare that the Winston-Salem, North Carolina-based nonprofit “will pursue available legal responses to the FTC’s flawed position.”
The Commission voted 3-0 to issue the complaint and authorize its staff to seek a temporary restraining order and preliminary injunction. A public version of the FTC’s complaint, to be filed in the U.S. District Court for the Western District of North Carolina, is not yet available.
In its announcement, the regulator pointed to Novant’s Huntersville Medical Center, which is 11 miles away from Lake Norman Regional and “serves more patients than any other hospital in the Eastern Lake Norman Area.”
Consummating the deal with CHS would give Novant control of almost 65% of the area’s inpatient general acute care services market, the FTC said. This would allow Novant to demand higher rates and “would likely increase annual healthcare costs by several million dollars,” the FTC said.
“These higher costs would then be passed on to patients,” the regulator wrote in its announcement. “The deal would also reduce Novant’s incentive to compete to attract patients by improving its facilities, service offerings and quality of care.”
The FTC’s announced described Novant as one of North Carolina and the southeast’s largest hospital systems, as well as one of its most expensive. Novant Health reported nearly $7.6 billion in total operating revenues and other support in 2022 and, as of early January, projected about $8 billion in revenue for 2023. It has 16 medical centers, over 700 medical group clinics and records 6.7 million annual patient encounters.
The health systems’ spokesperson pushed back on regulators’ claim that the deal could impact care quality.
“As a nationally recognized leader in quality and patient safety, Novant Health is committed to delivering the highest-quality, patient-centered, physician-directed care to the communities served by Lake Norman and Davis Regional Medical Centers,” the spokesperson told Fierce Healthcare in an email statement.
“As we keep that commitment across North Carolina, including throughout the Greater Charlotte area, we will pursue available legal responses to the FTC’s flawed position announced today. We remain confident that Novant Health can bring exceptional care, leading-edge innovation and long-term stability to Lake Norman and Davis Regional Medical Centers,” they said.
Earlier this month Novant Health CEO Carl Armato touted the definitive agreement for Lake Norman and Davis Regional to potential investors and other 2024 J.P. Morgan Healthcare Conference attendees as an example of the system’s growth trajectory.
Headlining that pitch was another $2.4 billion agreement with Tenet Healthcare for three hospitals and related operations in South Carolina, announced in November, and plans to grow its networks in both states via ambulatory care expansions. The latter strategy is being accelerated by changes in each state’s CoN requirements which, broadly, lower the regulatory hurdle for establishing new ambulatory services, executives told attendees.
CHS’ operations have been on the ropes in recent quarters. The 77-hospital for-profit logged a $91 million net loss for Q3 2023 and a $180 million year-to-date net loss. Last month it closed a $294 million sale of three Florida hospitals to Tampa General Hospital