FTC, DOJ finalize new merger guidelines

In July, FTC and DOJ released draft merger guidelines that aimed to limit certain types of consolidation. Under the guidelines, organizations would not be allowed to merge if doing so prevents a potential competitor from entering the market or reduces incentives for organizations to pay higher wages.

The agencies held four public forums and received around 30,000 comments from industry stakeholders as they developed the final version of the guidelines.

On Monday, FTC and DOJ released the final merger guidelines, which the agencies say account for "modern market realities," including vertical and horizontal integration, platform competition, and conditions of employment. Although the guidelines are not legally binding, they are a framework FTC and DOJ can use when reviewing proposed deals and that courts can reference during challenges.

"Fair, open, competitive markets have been essential to America's dynamic, thriving economy, and policing unlawful mergers is our front line of defense against harmful corporate consolidation," said FTC Chair Lina Khan. "The 2023 Merger Guidelines reflect the new realities of how firms do business in the modern economy and ensure fidelity to statutory text and precedent."

According to Alexis Gilman, a partner at Crowell & Moring who focuses on antitrust issues, the final guidelines are largely similar to the draft version, with changes taking into account feedback about the original language being too broad.

However, Gilman noted that "[i]t is still a more aggressive approach than many parties contemplating mergers would like."

"The agencies have been promising us more aggressive, less deferential standards, and these guidelines deliver," said Jeane Thomas, a partner at Crowell & Moring who focuses on antitrust policy.

How will these guidelines impact healthcare?

According to Gilman, a measure in the new guidelines that targets market concentration will likely have the biggest impact on potential hospital transactions in the future.

Both antitrust agencies and economists use the Herfindahl-Hirschman Index to measure market concentration and estimate the potential competitive impact of a transaction. Under previous guidelines, FTC might have evaluated deals that had an index of at least 2,500 or increased the index between 100 and 200 in highly concentrated markets.

However, the new guidelines expand the scope of FTC's regulatory review by lowering the necessary threshold to a market index of at least 1,800 or an increase of at least 100 in a highly concentrated market.

"Clients are thinking earlier, longer and harder about antitrust risk, baking in a longer potential timeline, more scrutiny and risk in deals being cleared," Gilman said. "For deals that are in the new threshold of what is now called highly concentrated markets, those are the deals that are likely to cause a lot more second thoughts."

A provision that targets companies using mergers to "bundle" the sale of two products could also impact cross-market health system mergers, which have generally avoided antitrust scrutiny. Research suggests that hospitals in different service areas may be able to negotiate higher rates with insurers because they share a common customer base, such as large employers with employees in different regions.

Nathan Ray, a partner at West Monroe who leads the healthcare mergers and acquisitions practice, said the new guidelines could affect health systems that want to acquire physician groups. Currently, it's not clear what FTC and DOJ consider potentially anticompetitive transactions, and specific examples would be helpful for organizations looking to merge or acquire others.

"As far as payers and vertical integration, this is where some examples would benefit," Ray said. "Economic reasoning is great, but the translation to what went wrong [in completed transactions] and what [types of deals] they are trying to stop is lacking." (AHA News, 12/18; Kacik, Modern Healthcare, 12/20; Pifer, Healthcare Dive, 12/19; Muoio, Fierce Healthcare, 12/19)

Health system mergers and acquisitions are slowly returning to their pre-pandemic numbers — but many of these transactions are being driven by "financial distress," despite an overall trend toward margin recovery. Advisory Board experts explain that while financially challenged systems may pursue partnerships with high-performing partners, the success of these deals relies on whether — and how — both parties can truly unlock performance gains.