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FTC hails ‘win for consumers’ after planned $320M hospital deal is dropped

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The Federal Trade Commission made its first comments after Novant Health dropped plans to buy two hospitals from Community Health Systems. Regulators have spurred several hospitals to abandon planned mergers.

Federal regulators have succeeded in deterring a number of planned hospital deals over the last few years, and they are touting another victory.

Image credit: ©Roman Babakin - stock.adobe.com

The Federal Trade Commission secured an injunction to delay Novant Health's plans to buy two hospitals from Community Health Systems. Novant has dropped its plans in light of the injunction.

The Federal Trade Commission has offered its first comments after Novant Health decided to drop its planned $320 million purchase of two North Carolina hospitals from Community Health Systems. Novant Health made the decision June 19, the same day a federal appeals court granted the FTC’s petition for an injunction delaying the deal.

Federal regulators said that the Novant purchase would lead to higher prices and the potential for reduced services due to less competition in the market. Henry Liu, the FTC’s bureau of competition director, pointed to similar themes in a statement Monday.

“Hospital consolidation diminishes quality of care and increases costs for critical services,” Liu said in the statement. “Novant’s deal with Community Health Systems would have followed this same trend to the detriment of North Carolinians.”

“The FTC’s opposition to the transaction has been vindicated by the injunction pending appeal, granted by the Fourth Circuit Court of Appeals,” he added. “In ruling on the injunction, the Fourth Circuit examined the FTC’s likelihood of success on appeal, among other factors. Novant’s and CHS’s decision to abandon their anticompetitive transaction after this ruling is a win for consumers.”

Steep opposition

Novant had planned to buy Lake Norman Regional Medical Center and Davis Regional Medical Center from Community Health Systems.

Regulators said the deal would give Novant nearly 65% of the market for inpatient acute care in North Carolina’s Eastern Lake Norman area. The FTC argued that the Novant-CHS deal would result in less competition, and thus less incentive to maintain services and keep prices affordable.

“With this deal off the table, Novant and Community Health Systems will continue to compete against one another, delivering better outcomes for patients in both quality of care and price,” Liu said in the statement.

Novant pledged to make substantial investments in the facilities. When Novant announced it would no longer pursue the deal last month, the system also delivered sharp criticism of the FTC.

“Despite our vision to restore services the area has lost and deliver high quality, remarkable care, we have been met with opposition from the Federal Trade Commission at every step,” Novant said in a statement. “We are steadfast in our belief that these facilities and their patients would have greatly benefited from joining Novant Health, but with the FTC’s continued roadblocks we do not see a way to finalize this transaction.”

The appeals court delivered a 2-1 ruling that narrowly granted the FTC’s petition for an injunction.

In his dissenting opinion, Judge J. Harvie Wilkinson III wrote that he agreed with a federal district judge’s argument that the deal would benefit the public. Wilkinson cited concerns that if the deal doesn’t go through, that Davis Regional Medical Center could possibly close. CHS closed the hospital in 2022 for financial reasons and converted it into a behavioral health facility.

Wilkinson also chastised federal regulators in his dissent, writing, “The FTC is acting too aggressively in this case, forgetting there is such a thing as a vibrant private sector.”

In his ruling in June in favor of Novant’s plans, U.S. District Judge Kenneth Bell wrote that there would be sufficient competition in the region. Bell noted that Atrium Health, part of Advocate Health, is building a new hospital near Lake Norman, a fast-growing area in the Charlotte region.

The FTC secured the injunction just two weeks after Novant secured what appeared to be a key legal victory to move the deal forward, when a federal judge in North Carolina rejected the commission’s bid to block Novant’s purchase of the two hospitals.

Novant, which operates 19 medical centers and more than 850 healthcare sites, fared more successfully with another recent deal. In February, Novant completed the $2.4 billion purchase of three South Carolina hospitals from Tenet Healthcare Corp.

Other stalled deals

As the planned Novant-CHS deal shows, the FTC is willing to move aggressively to block deals if the commission finds there will be reduced competition, particularly for deals involving systems in the same region.

Kevin Holloran, senior director for Fitch Ratings, noted the heightened attention from regulators in a recent interview with Chief Healthcare Executive®.

“We're still living in an environment right now, at a federal and even a state level … that is kind of anti-merger, if you will,” Holloran said. “And I'm not saying it's good or bad, just that it is what we're operating under.”

John Muir Health had planned to purchase San Ramon Regional Medical Center from Tenet Healthcare Corp. last year. But after the FTC sued to block the deal, the systems dropped their plans.

In addition, SUNY Upstate Medical University dropped its plans to acquire Crouse Health System in Syracuse, N.Y. last year, following the FTC’s objections to the deal.

Two Rhode Island hospital systems, Lifespan and Care New England, had planned a merger, but they dropped those plans due to opposition from regulators.

Lifespan recently announced an extension of its partnership with Brown University, which will involve taking a new brand: Brown University Health. But in this new venture announced in June, Lifespan said it will remain a separate organization from Brown University. Officials stressed that Lifespan and Brown aren’t merging and aren’t gaining any ownership stake in each other.

Moody’s Investors Services also pointed to regulators’ skepticism of some hospital mergers in its 2024 outlook. “The rate of consolidation among health systems may slow due to increased scrutiny of mergers by federal and state governments, potentially depriving distressed systems of exit strategies and slowing the growth of larger systems active in the M&A space,” Moody’s stated.

There were 65 announced hospital mergers and acquisitions in 2023, up from 53 in 2022. And there were 20 announced hospital mergers and acquisitions in the first quarter of 2024, the most since 2020, according to a report by Kaufman Hall, a healthcare consulting firm.

So plenty of deals are happening, but hospitals and health systems are seeing that a planned merger or acquisitions may not be an easy sell to regulators.


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