By Aimee E. DeFilippo and Toby G. Singer, Jones Day
“An ounce of prevention is worth a pound of cure.” This is an apt saying in the health care world, but it applies equally well these days in the world of health care antitrust. Given the incentives for collaboration and consolidation built into the Affordable Care Act, hospital providers may mistakenly believe that hospital mergers occurring pursuant to health care reform will receive less scrutiny from antitrust regulators. As a result, hospital executives contemplating a merger or acquisition may choose not to engage antitrust counsel at all, or may do so only after costly (but potentially preventable) problems have arisen.
An illustrative case is the hospital client whose first contact with antitrust counsel occurs after the client has received notice that its merger is being investigated by the Federal Trade Commission. FTC investigations are never welcome news for any client, but they can be particularly devastating for an ill-prepared client. First, it stands to reason in this scenario that hospital executives did not expect their transaction would receive heightened antitrust scrutiny, and thus they are unaware of the risks and costs involved at this stage. These executives may be quite dismayed to learn that FTC investigations can cost several million dollars and take many months to complete. These investigations also create substantial burden and disruption on those business executives tasked with helping attorneys answer numerous data requests and interrogatories about the relevant market, competitors, entry, efficiencies of the transaction, and other topics. And, of course, the delays caused by a prolonged antitrust investigation necessarily delay realization of any synergies and cost savings anticipated to result from the transaction itself, because parties to a merger remain competitors until closing and therefore must refrain from integrating their operations or making joint business decisions.
Antitrust practitioners, too, are at a significant disadvantage when their first client contact comes at this late stage. Even if antitrust counsel already has some familiarity with the parties and/or the geography, he or she will need to invest significant time and resources to understand the facts at issue and to formulate the antitrust defense. The following represent the five key questions antitrust counsel will ask as they begin this process:
Antitrust enforcers have been clear that they see no tension between the antitrust laws and the objectives of the Affordable Care Act, and thus will closely scrutinize hospitals mergers in an effort to preserve competition and help contain health care costs. In testimony before Congress, FTC Chairwoman Edith Ramirez has noted that “[t]he antitrust laws are very much compatible with the objectives of the [ACA,] which are to raise the quality of health care, lower costs, and increase choices for consumers…. Vigorous competition helps the aim and objectives of the [ACA].” The vast majority of proposed hospital mergers do not raise antitrust concerns. But hospital administrators and health care attorneys should expect that, in areas where there is limited hospital competition, a proposed merger will be thoroughly investigated by the FTC. Timely use of antitrust counsel can help avoid surprises and, in some cases, can avert the massive costs of a government investigation through preparation and effective presentation of fact-based evidence regarding the competitive implications and potential benefits resulting from the proposed transaction.
Aimee DeFilippo is an associate in Jones Day's Washington office. Her practice focuses on antitrust counseling, litigation, and agency practice for clients in a variety of industries, with a focus on health care and pharmaceuticals. She has experience representing clients on a number of antitrust issues, including mergers and acquisitions, joint ventures, and federal and state government investigations.
Toby G. Singer is a partner in Jones Day's Washington office, specializing in mergers and other antitrust matters in the health care industry. She has handled numerous federal and state government investigations and has defended clients in both government and private antitrust litigation. She is on the Board of Directors of the American Health Lawyers Association.
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