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According to a survey conducted by McDermott Will and Emery's "Hospitals and Health Systems 2023 Outlook," more 'megamerger' deals are expected to close as large systems pursue further economies of scale amid difficult financial times.
As the economy demands more from these big names, more consolidation is often a primary solution. Multiple mergers between health systems in different states closed last year solidify this notion.
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What if a proposed merger lacks traditional horizontal consolidation? This is typically due to complications with systems operating in different states or regions. If this is the case, stakeholders may need to consider whether antitrust enforcement agencies will implement a 'cross-market' theory of competitive harm, according to the international law firm's report.
Where does a 'Cross-market' merger come about? Cross-market mergers are created between health systems that operate in separate geographic areas and do not eliminate each others' competition. Instead, they attempt to attract patients to both forms, since the systems provide services based upon distinct patient populations.
For health system mergers that cross state lines, the same payer would need to operate and seek treatment in multiple states, or the systems would have to create yet another contract with payers for material national contracts.
These types of deals can lead to competitive effects when the merging systems have common payer and employer customers and compete to be in the same payer and employer networks.
As mergers happen, the Federal Trade Commission appears to be serious about cracking down. The commission has recently added cross-market theory questions to second requests in merger investigations, perhaps in a preventative measure.
But this was just a portion of the new measures the FTC is employing. In November, the FTC announced that it will expand its interpretation of a 1914 statute. This could potentially allow the agency to increase its interceptive powers and legal challenges against what it deems anticompetitive corporate behavior.
That being said, it has yet to formally challenge a hospital or health system transaction based on a cross-market theory of competitive harm, according to the study done by McDermott Will and Emery.
The Federal Trade Commission has some hurdles to jump. To challenge this type of merger, the FTC would likely need to show evidence that the health systems had overlapping payer customers, says the report.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
