FTC Official Calls for More Aggressive Healthcare Merger Approach

May 16, 2019 - Antitrust enforcers should be as aggressive as possible when challenging healthcare mergers, especially deals that go beyond the traditional horizontal combination, said the Federal Trade Commissioner Rebecca Kelly Slaughter.

“It is important for parties considering mergers to know we will not shy away from challenging, for example, anticompetitive vertical organizations,” Slaughter said in a speech at the Center for American Progress on May 14. “I am sensitive to the concern that we might lose litigation, but our obligation is to identify the right outcome and fight for it.”

The FTC is responsible for enforcing antitrust laws in healthcare markets to prevent anticompetitive conduct that would increase costs, decrease care quality, and/or stifle innovation for consumers. To live up to its mission, the agency has been busy challenging several recent healthcare merger proposals such as the Penn State Hershey Medical Center-PinnacleHealth System deal in Pennsylvania and the DaVita-Renal Ventures Management LLC deal.

But the FTC could, and should, do more to preserve competition in the healthcare industry, Slaughter said.

Healthcare merger and acquisition (M&A) volume has surged in the last decade. Since 2010, the average annual hospital merger count has increased by at least 50 percent compared to the prior decade, she said citing a recent Kaufman Hall report.

And healthcare M&A activity is unlikely to slow down in the near future, the consulting firm predicted in the report.

But while healthcare M&A activity continues to increase, FTC resources and authority is doing the opposite, Slaughter said. She reported that FTC and Department of Justice (DoJ) funding stagnated from 2010 to 2016, and the number of full-time employees at the FTC declined to roughly 50 percent less than what the headcount was at the beginning of the Reagan Administration.

Resources dedicated to economic research and litigation costs have also fallen, Slaughter stated.

“Put bluntly, economic experts commanding significant fees have stretched agency resources to an alarming extent,” she said. “While the FTC has taken advantage of technological advancements and other productivity enhancements to do significantly more with less staff, just think of what we could accomplish today with 50 percent more staff.”

Slaughter also raised concerns that limitations on what the FTC can investigate in the healthcare industry stifle the agency’s ability to protect healthcare competition. For example, the FTC cannot enforce antitrust laws against any anticompetitive practices conducted by non-profit hospitals.

Non-profit hospitals account for nearly one-half (45 percent) of all US hospitals, and the entities are actively engaged in healthcare M&A activity like their for-profit peers. One recent study found that non-profit hospitals were the acquirer in 75 percent of healthcare M&A deals in 2018.

The FTC is allowed to investigate healthcare merger deals among non-profit hospitals. But the agency is “stuck on the sidelines” if the newly merged entity engages in anticompetitive behavior, Slaughter explained.

“In effect, this means that all of the healthcare industry expertise that the FTC has worked for decades to, and continues to, develop cannot be deployed alongside the DOJ and state enforcers to stop anticompetitive practices by roughly half of all hospitals nationwide. This is a significant lost opportunity,” she said.

Expanding healthcare merger investigations to smaller deals is another area of improvement for the FTC, Slaughter suggested.

Currently, relatively small transactions did not need to report their mergers and acquisitions to the FTC and DoJ. However, the cumulative scope of the small deals represented approximately $30 to $40 billion in US output since 2000, and healthcare transactions made up a disproportionate share of these exempt deals over the period, Slaughter reported.

How healthcare organizations are merging and acquiring is changing, and the FTC needs to be able to keep up to ensure consumers do not face excessive costs and declining care quality, she stated. That means increasing funding and resources for the federal agency, as well as eliminating non-profit hospital exemptions and other policies that prevent the FTC from examining the range of healthcare merger deals occurring.

“Affordable, quality healthcare is vital to American patients, and fair wages are important for all workers. We cannot deliver these goods without competitive markets, and, to secure this goal, antitrust enforcers must remain vigilant and Congress and states must outfit our antitrust law enforcers with the necessary resources, capabilities, and authority,” Slaughter concluded.