Editor's note: This story has been updated with commentary from Novant Health and an antitrust legal expert.
Novant Health and Community Health Systems (CHS) will be permitted to consummate their contested $320 million hospital deal, though regulatory uncertainty would still follow the deal’s expected close.
Wednesday, U.S. District Judge Kenneth Bell denied the Federal Trade Commission’s (FTC's) bid for a preliminary injunction against the sale of two CHS hospitals in North Carolina: the 123-bed Lake Norman Regional Medical Center and the 146-bed Davis Regional Medical Center.
“Having weighed the equities and considering the [FTC]'s likelihood of ultimate success, the Court concludes that entry of an injunction pending the conclusion of the FTC’s administrative process would not be in the public interest,” Bell wrote in his order.
The health systems had announced their deal back in early 2023, though the FTC only announced its opposition in January and filed for the preliminary injunction in late March.
“We are thrilled that the federal court recognized the additional benefits Novant Health will bring to the people served by Lake Norman and Davis Regional Medical Centers,” Carl S. Armato, president and CEO of Novant Health, said in a statement.
Filings from both sides—as well as other major stakeholders—had disputed whether the purchases would decrease competition by bolstering the region’s second largest healthcare provider (behind Atrium Health), or maintain “struggling” healthcare facilities likely to face crushing competition amid Atrium Health’s plans to open a new 30-bed hospital nearby.
Bell leaned more toward the latter. In the decision, the judge challenged the FTC’s assertion that the merger would lead to combined market share and market concentration beyond its permitted guidelines. He wrote that the markets in question are already concentrated regardless of the deal and that instead the court needs to “look beyond the economic numbers” the FTC’s guidelines rely on to make its decision.
Here, the judge wrote that Novant and CHS’ “doomsday characterization” of the hospitals “is mostly inaccurate and certainly exaggerated” but acknowledged that it appeared unlikely that CHS would spend the money to support the hospitals in the face of growing competition. There is a fair chance that CHS would ultimately opt to close the hospitals without a deal, the judge wrote, an outcome that would reduce healthcare offerings and harm competition.
“Therefore, the proposed merger carries at least as much likelihood of competitive benefits as it does competitive harm and the FTC is unlikely to ultimately be successful in proving that the transaction may ‘substantially lessen competition,’” Bell wrote.
When weighing whether it would be in the public interest to allow the deal to go forward, the judge determined that the risk of losing “critically needed psychiatric medical services” and a prolonged loss of other recently closed service lines outweigh potential harms, such as higher prices or reduced tax revenues from the hospitals’ shift to nonprofit status.
“Having weighed the equities and considering the [FTC]'s likelihood of ultimate success, the Court concludes that entry of an injunction pending the conclusion of the FTC’s administrative process would not be in the public interest.”
He also acknowledged that “the court believes and accepts” a promise from Novant’s executives not to raise prices at Lake Norman Regional Medical Center for at least three years following the acquisition.
"Courts fairly often (and sometimes state AGs) accept these types of commitments, but the agencies always oppose them," Jody Boudreault, chair of the Antitrust Life Sciences and Healthcare practice at Baker Botts, told Fierce Healthcare in emailed commentary.
Boudreault also noted the heavy weight Bell placed on the tax revenue implications of a for-profit to nonprofit conversion. The antitrust lawyer also highlighted the judge's consideration of both old and new market concentration guidelines for mergers, which she said already indicates "some level of acceptance" of the tighter guidelines adopted by regulators late last year.
Though Novant and CHS have cleared the short-term barrier to their deal, they’re still queued up for an administrative review process (and potential appeal) that could last more than two years. An administrative merits hearing before an administrative law judge is scheduled for June 26.
Novant Health reported total operating revenues of $8.3 billion and an operating income of $146.8 million in fiscal 2023. It has 19 medical centers, more than 700 medical group clinics and records 6.7 million annual patient encounters.
Armato said this week's decision "is a victory for the area" and that Novant will now work toward fulfilling the care commitments made as part of the deal.
"We have always believed these communities deserve access to a rich healthcare ecosystem with robust and comprehensive care services from family physicians to pediatrics and specialty care," the executive said. "We’re eager to welcome the Lake Norman and Davis facilities into the Novant Health network and we look forward to not only restoring healthcare services the area has lost, but also bringing our renowned safety and quality excellence to the community.”