FTC taking a close look at hospital mergers

With the Federal Trade Commission moving to block HCA Healthcare’s plans to buy five Utah hospitals from Steward Health Care, regulators are indicating that the Biden administration is taking a close look at hospital consolidation.

The FTC announced earlier this month it was going to federal court to block the HCA-Steward deal. In a statement, the commission said “the deal would eliminate the second and fourth largest healthcare systems in the Wasatch Front region, where approximately 80 percent of Utah’s residents live.”

HCA Healthcare, based in Nashville, Tenn., is looking to add Steward’s five Utah hospitals to HCA’s Mountain Division, which includes 11 hospitals in Utah, Idaho and Alaska.

FTC Bureau of Competition Director Holly Vedova said HCA’s competition with Steward in the Utah market helps to ensure consumers get lower prices and more innovative services.

The commission said it is wary of what would happen if the deal is completed.

“If these companies merge, this competition will be lost, and Steward will no longer be available to patients as a low-cost provider in this region,” Vedova said in a statement.

The FTC’s action in the planned HCA-Steward deal marks the third time the commission has opposed a hospital consolidation or merger in recent months.

Concerns of cost and quality

The commission authorized a suit earlier this month to block RWJBarnabas Health’s planned acquisition of Saint Peter’s Healthcare System in New Jersey. The FTC argues the proposed merger would hurt competition and prices for acute care services in Middlesex County, New Jersey.

“There is overwhelming evidence that this acquisition would be bad for patients, because the parties would no longer have to compete to provide the lowest prices and the best quality and service,” Vedova said in a statement announcing the opposition to the New Jersey deal.

The FTC’s action came after New Jersey state officials had signed off on the deal.

The trade commission also signaled objections in February to the planned merger of Care New England and Lifespan, Rhode Island’s two biggest healthcare providers. Rhode Island Attorney General Peter Neronha also opposed the merger.

When Care New England and Lifespan announced in March they were abandoning the deal, Vedova said, “Had the FTC and the Rhode Island Attorney General not challenged the proposed transaction, it would have combined the two largest healthcare providers in Rhode Island and created a dominant entity that would have led to higher prices and lower quality care for Rhode Islanders.”

Even though the Lifespan deal collapsed, Care New England is still looking for another merger partner.

Last July, President Joe Biden issued an executive order directing federal agencies to look closely at healthcare mergers, including hospital consolidations, to promote competition and guard against higher costs and lower wages.

“Hospital consolidation has left many areas, especially rural communities, without good options for convenient and affordable healthcare service,” the White House said. “Thanks to unchecked mergers, the ten largest healthcare systems now control a quarter of the market.”

In addition, the White House statement said, “Research shows that hospitals in consolidated markets charge far higher prices than hospitals in markets with several competitors.”

Ross Nelson, KPMG principal and national healthcare strategy leader, told Chief Healthcare Executive in January that the FTC is expressing “a much more critical tone” when it comes to hospital mergers.

More mergers expected

Some hospital mergers are passing muster with federal regulators. Piedmont Healthcare completed the merger of University Health Care and its three hospitals in northern Georgia in March.

Intermountain Healthcare, based in Utah, completed its merger with Colorado-based SCL Health in April. The Intermountain system now operates 33 hospitals, making it the 11th largest nonprofit hospital system in the United States.

• Related story: Intermountain Healthcare CEO Marc Harrison talks about SCL Health Merger

In the Intermountain-SCL Health deal, the two systems weren’t operating in overlapping markets.

HCA’s interest in expanding its presence in Utah reflects the company’s strong interest in building a greater presence in fast-growing states. Utah was the fastest-growing state in America in the 2020 Census. HCA has previously announced plans to build five new hospitals in Texas and three new hospitals in Florida.

HCA operates 187 hospitals in the United States and the United Kingdom. Steward, based in Dallas, Texas, operates 44 hospitals around the world.

So far in 2022, only a handful of hospital mergers have been announced. There were only 12 announced hospital mergers or acquisitions in the first three months of 2022, the fewest in any first quarter since 2016, according to a Kaufman Hall report.

Ash Shehata, KPMG’s national sector leader for healthcare and life sciences, told Chief Healthcare Executive in April there will be opportunities for mergers involving healthcare providers, including hospitals. Some hospitals aren’t faring as well financially, and he said some may need partners to survive.

“The strong will remain stronger,” Shehata said. “Those that struggle will likely be targets for acquisition."

Atrium Health and Advocate Aurora Health announced plans last month to merge and form a system with $27 billion in annual revenue. The merged company would operate 67 hospitals, more than 1,000 ambulatory sites, and it would employ nearly 150,000 workers.

The two systems don’t operate in overlapping markets. Atrium Health, based in Charlotte, N.C., serves North Carolina, South Carolina, Georgia, and Alabama, while Advocate Aurora operates in Illinois and Wisconsin.

Analysts project the Atrium and Advocate Aurora merger could spur other hospital mergers, but regulators must first approve the deal.