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Healthcare Mergers May Face New Federal Rules Under SMARTER Act

The House Judiciary Committee approved a bill that would change how the FTC can challenge healthcare mergers and acquisitions and similar actions across industries.

A proposed bill would standardize how federal antitrust agencies challenge healthcare mergers and acquisitions

Source: Thinkstock

- In a 16 to 20 vote earlier this week, the House Judiciary Committee passed the Standard Merger and Acquisition Reviews Through Equal Rules Act (SMARTER Act), which could affect how federal antitrust agencies evaluate healthcare mergers and acquisitions.

The proposed legislation aims to standardize how the Federal Trade Commission (FTC) and the Department of Justice (DoJ) challenge merger and acquisition activities across industries.

Under a regulation from 1914, entities looking to acquire or merge must notify both antitrust agencies of the proposed action, House Judiciary Committee Chairman Bob Goodlatte (R-VA) explained during the act’s markup session. Then, the agencies decide who reviews the merger and acquisition proposal, but there are no clear guidelines for making the decision. He described the final decision as being based on the “flip of a coin.”

Once a federal antitrust agency takes on the merger and acquisition review, entities follow one of two paths. While both agencies must challenge an action by issuing a preliminary injunction in federal court, the FTC and DoJ abide by different legal standards for a preliminary injunction request.

In addition, the FTC also follows different rules than the DoJ for preventing a merger and acquisition from proceeding. Even if a court rejects the preliminary injunction request, the FTC can pursue an administrative litigation against the entities proposing the action.

READ MORE: How Do Hospital Mergers Lower Costs, Drive Quality Improvement?

The DoJ does not have the authority to launch an administration litigation once a court denies their initial injunction.

Through the SMARTER Act, lawmakers intend to make the federal guidelines for both antitrust agencies more consistent to ensure the process is fair. The federal court system would have more final say under the proposed bill.

Healthcare merger and acquisition activity has recently been a top priority for the FTC. The federal watchdog attempted to stop two major hospital mergers last year.

The agency argued that the Advocate Healthcare and NorthShore University Health System merger in Illinois and the Penn State Hersey Medical Center and PinnacleHealth System merger in Pennsylvania would reduce competition in their respective markets. With reduced competition, the agency expressed concerns that the merged entities would increase healthcare costs and lower care quality.

“The latest empirical research continues to consistently find that provider competition results in the greatest price and quality benefits for consumers, justifying the FTC’s continued vigilance in healthcare provider markets,” Edith Ramirez, FTC Chair, said at the Antitrust in Healthcare Conference in May 2016.

READ MORE: How to Improve Healthcare Mergers and Acquisitions Strategies

On the other side, many healthcare organizations and industry groups have supported more robust healthcare merger and acquisition activity for value-based reimbursement success.

“For hospitals and hospital systems, developing a network of outpatient and ambulatory care facilities and alternatives is an essential part of building the infrastructure necessary to support population health and better manage care in this changing environment,” stated the American Hospital Association in August 2016.

The value-based reimbursement push will also continue the healthcare consolidation trend. A Deloitte study projected that only one-half of health systems operating in 2014 will remain independent by 2024. Researchers predicted that the healthcare industry would reorganize into larger national systems, regional systems with clinical integration across the care continuum, and specialist organizations.

The Healthcare Financial Management Association (HFMA) claimed that the healthcare merger and acquisition trend was in response to value-based reimbursement implementation.

“The transition from volume to value and the corresponding move to population health management require major capital investments and sophisticated management expertise of the sort that may prompt even the most independent-minded hospitals and health systems to consider their consolidation options,” the organization wrote.

READ MORE: What Is Healthcare Revenue Cycle Management?

Some healthcare stakeholders view the recent SMARTER Act as a fairer standard for healthcare merger and acquisition evaluation.

“Requiring both antitrust agencies to prove their case before a judge in the federal courts and not just internal proceedings in which the agency has an advantage protects due process and promotes efficiency,” Thomas P. Nickels, AHA Executive Vice President, recently wrote in a letter to the House committee. “The SMARTER Act ensures a neutral judge makes a decision on the merits of each merger and leads to a quicker resolution so parties have certainty about their case.”

However, SMARTER Act critics fear that the legislation would weaken the FTC’s authority to protect consumers from anti-competitive behaviors stemming from mergers and acquisitions.

This is the second time the SMARTER Act has reached the House Judiciary Committee. House representatives first introduced the bill in 2015, but after passing the House, the SMARTER Act did not go to vote in the Senate.

The National Law Review noted last year that the legislation was unlikely to pass under the Obama administration because more Democrats opposed the bill.

However, the presidency and Congress are now led by Republicans, which could impact the most recent SMARTER Act’s future.

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