Increased FTC scrutiny of hospital deals coming, commissioner says

• The FTC plans to challenge several pending hospital deals and is considering expanded enforcement of hospital mergers.
• Hospital deal volume either remained steady in 2019 or dipped somewhat, based on tracking-firm reports.
• “Financially distressed” hospitals were the target in one-fifth of the 2019 deals.

Federal regulators plan to challenge “a number” of ongoing hospital deals and are considering widening their net to include more such transactions, a commissioner said this week.

Christine Wilson, a member of the Federal Trade Commission (FTC), said at a Jan. 16 healthcare policy event in Washington, D.C., that the agency is focused on hospital deals and has reexamined its past approaches.

“We are intent on challenging every hospital merger that’s going to produce anti-competitive effects,” Wilson said at the gathering of the Council for Affordable Health Coverage. “We have a number in the pipeline right now that we are looking at.”

The agency also may increase the scope of hospital mergers and acquisitions (M&A) that it challenges in federal court if an ongoing review of data indicates completed transactions have reduced consumer choice.

“We’re conducing more retrospectives to make sure that we are making the right calls,” Wilson said. “And if we sort of need to change the threshold at which we challenge those deals to preserve competition for consumers, we will do that, absolutely.”

The change in approach has been driven by an FTC review of how it tackles M&A. The previous approach was initiated in 2001 after the agency and the U.S. Department of Justice repeatedly lost court cases involving their challenges of hospital deals.

“The agencies were willing to challenge these deals, and the courts were saying, ‘You don’t have a case for challenging these deals,’” Wilson said.

The recent FTC strategic review included examining how the deals it failed to block affected competition and identifying “a way to operationalize those learnings and to develop an analytical framework that we could use to successfully challenge hospital mergers in federal court,” she said.

She also expressed concern that some states, such as West Virginia, have enacted laws to shield some hospital deals from FTC scrutiny.

Hospital M&A continues

The increased FTC scrutiny comes amid continued hospital transactions. The pace of those deals is somewhat unclear given that prominent tracking companies differ on their assessment of 2019 deal volume, possibly because they use different definitions of transactions.

For instance, Kaufman Hall found total announced deals remained steady in 2019, with 92 transactions, compared with 90 in 2018.

In contrast, Ponder & Co. concluded that announced transactions plummeted to 85, or almost 25% fewer than the 116 it found in 2018.

Ponder’s finding was its second-lowest annual total since 2009 but similar to 2016 (85 announced transactions), 2014 (93) and 2010 (88).

Who made the deals?

Other key 2019 hospital M&A findings from Kaufman Hall included:

• $278 million average annual revenue for sellers
• 3 “mega mergers” where the smaller party had more than $1 billion in annual revenue
• 11 transactions where the smaller party had annual revenue between $500 million and $1 billion
• 20% of sellers categorized as “financially distressed”
• 19 announced divestiture transactions by for-profit operators

Details identified by Ponder for 2019 included:

• 18 transactions that involved a for-profit acquirer
• 10 deals called off during due diligence
• 0 acquisitions of publicly traded hospital operators
• 50% decline in deals where the target was a large independent hospital or small system
• 8 transactions in California
• 6 transactions in Pennsylvania