Hospital Merger Enforcement Is a Uniting Issue at FTC

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By Liz Crampton

The Federal Trade Commission’s history of opposition to some hospital mergers on competition grounds is expected to continue as a uniting issue for the short-staffed and divided commission in the Trump administration.

Hospitals need a robust case for merging, and the FTC isn’t likely to deviate from its current practice of stopping mergers of hospitals that closely compete.

“What the FTC has done is put people on notice,” Doug Ross, an antitrust and healthcare partner at Davis Wright Tremaine LLP, told Bloomberg BNA. “If you’re unable to get a merger through, and they say they’re going to sue, your odds are not good unless you have a new or creative argument that hasn’t been explored yet.”

A recent court decision in Chicago in favor of the government wrapped up a tumultuous year for the agency. New suits were not expected to be filed until this one was resolved.

Antitrust observers are now looking for clues to how the new Republican-led agency will proceed. With pending mergers on the horizon, sources told Bloomberg BNA to expect aggressive enforcement. A slew of court decisions backing the government and an agency leader who favors competition in health care gives the FTC powerful tools to use antitrust laws to prevent hospitals from combining.

“They’ve got a strong track record,” Ross said. “I can’t imagine why we would predict substantial, let alone radical, changes on the hospital front.”

Hospitals Are Bipartisan

Maureen Ohlhausen, acting chairman of the agency, generally favors lax enforcement of antitrust laws, but she takes a more aggressive approach to reviewing hospital mergers. Ohlhausen voted in favor of the FTC’s three most recent challenges to hospital mergers. Commissioner Terrell McSweeny, the commission’s lone Democrat, also supported the lawsuits against hospitals in Pennsylvania, Illinois and West Virginia.

Speaking at a Senate subcommittee hearing March 21, Ohlhausen said she has “generally been supportive of antitrust enforcement” in challenging hospital mergers in the Obama administration, even though she disagreed with other FTC antitrust decisions as a commissioner.

“I voted in favor of most of our enforcement, particularly in the pharmaceutical space, hospital mergers, challenging a wide variety of mergers,” she told the Senate Commerce Committee’s consumer protection subcommittee.

This is a longstanding viewpoint of Ohlhausen’s. In 2014, she said the agency should keep close tabs on “quickly evolving industries” such as health care and technology and watch how changes affect competition and innovation. The FTC should use its “flexible and fact-intensive approach” to investigate and challenge competitive harms in health care,” she said.

The FTC is currently short three commissioners, which has led to speculation that hospital merger enforcement could slide simply because resources are lacking. President Donald Trump has yet to name a permanent chairman or nominate people for the empty slots on what is normally a five-member body.

But Ohlhausen insists things are proceeding as usual at the agency. “We’re doing fine,” Ohlhausen told Bloomberg BNA. “We have a quorum, so we can continue to vote out cases and do government business.”

Early Test

A merger of two Pennsylvania hospital systems announced this month will be an early test of the FTC under the Trump administration.

University of Pittsburgh Medical Center and PinnacleHealth said March 14 they have signed a “letter of affiliation.” The hospitals hired powerhouse antitrust firm Jones Day as counsel, a clue they expect the FTC to take a close look at the merger.

On the state level, a spokesman for the Pennsylvania attorney general said his office is “aware” of the pending merger and “is concerned about the effect on consumers in the region and ensuring access to affordable and quality health care. We will scrutinize this transaction closely with that in mind.”

When the FTC brings a challenge against a hospital deal, it usually recruits the state attorney general from where the merger is happening to join the suit. Skepticism from the Pennsylvania attorney general, Josh Shapiro, could be another red flag for the UPMC-PinnacleHealth deal.

Big Wins

The FTC won on two major legal fronts this past year. First, the agency for the first time brought a challenge to a hospital merger in an urban setting and convinced judges to accept its narrowly-defined geographic area where the hospitals compete.

The agency’s victory in that case, Advocate Health Care-NorthShore University Health System in Chicago, was the first time the government has successfully brought a hospital merger challenge in a densely populated urban area ( Federal Trade Commission et al v. Advocate Health Care Network et al, N.D. Ill., 1:15-cv-11473, 3/7/17 ). It’s widely considered as a huge breakthrough. Usually the FTC focuses on mergers of close competitors in more rural areas where the market is sparser.

In the Chicago case, the FTC argued that the merger creating the largest hospital system in the North Shore area of Chicago would lead to increased cost of general acute care and inpatient hospital services.

“What they did in Chicago worked ... So the question becomes whether that same approach, applied to whatever data is available in another urban area, would come to the same outcome,” said Jack Rovner, an antitrust attorney and co-founder of law firm The Health Law Consultancy. “The FTC has definitely been on a roll the last several years,” he added.

Second, an appeals court agreed with the FTC’s skepticism that benefits from hospital mergers outweigh negative consequences, such as less choice for patients seeking care.

In Penn State Hershey Medical Center and PinnacleHealth system in Harrisburg, Pa., the appeals court came down hard against an argument hospitals often cite as a reason to merge: that their combination will lead to cost-saving efficiencies ( FTC, et al v. Penn State Hershey Medical Cen, et al, 3d Cir., 16-2365, 9/27/16 ).

The language from the opinion was tough: “We are skeptical that such an efficiencies defense even exists,” the court said.

To contact the reporter on this story: Liz Crampton in Washington at lcrampton@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

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