New FTC, DOJ guidelines could hinder health care mergers

The Federal Trade Commission and U.S. Justice Department’s proposed merger guidelines could slow the rapid pace of acquisitions and consolidations in the health care industry, antitrust lawyers said this week.

The draft guidelines, released in July, are designed to ensure acquisitions do not harm competition in the market, reflecting the Biden administration’s stated goal of aggressive oversight of planned corporate mergers.

Specific proposals in the guidelines that call for regulatory review of serial mergers, or roll-ups—as well as consideration of the acquisitions’ effect on labor—could hinder mergers within the health care industry, attorneys said.

But such a hindrance might be part of the agencies’ plan.

FTC Chair Lina Khan has used health care as an example of an industry that has reduced competition through mergers.

“At the end of the day, which mergers go through and which ones do not can be hugely consequential for people’s lives,” Khan said at a virtual event hosted by the American Economic Liberties Project last week.

“In a day-to-day sense, it can mean that whereas you previously had to drive five miles to access a hospital now, after a merger, you might have to instead drive 50 miles,” Khan added. “Particularly in health care, for example, we’ve heard a lot about these types of roll-up strategies or serial acquisitions relating to physician practices or other types of services.”

The proposed guidelines would also require that more detail be included on the Hart-Scott-Rodino Act forms merging companies must provide the FTC and DOJ regarding the businesses’ stock purchases and their effect on competition.

“The guidelines will catch more transactions and complicate more transactions in the health care industry,” said antitrust attorney Bruce Sokler, citing the focus on roll-ups and changes to the HSR form that would require more information. “You end up with a new world.”

Private equity firms, in particular, have been active in physician group roll-ups—and have attracted regulators’ attention, Sokler added.

“The FTC has looked with some skepticism if not hostility on private equity deals,” said Sokler, of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. “There’s a lot of private equity deals that have been going on … in the health care industry, and these guidelines will be applied to them.”

Joseph Miller, also of Mintz Levin, said the proposed HSR changes are intended to catch roll-ups.

The agencies are “trying to figure out a way to capture the roll ups in the HSR notification process, such that they can be investigated before they happen,” Miller said.

The FTC said it will extend the comment period on the proposed HSR changes to Sept. 27.

The guidelines also call for greater regulatory review of “vertical mergers,” those involving acquisitions between companies in the same supply chain and which are common in the health care industry.

For example, a vertical merger in health care could be a hospital merging with a physician group or health insurer.

The proposed guidelines have an underlying notion that “the FTC and DOJ would prefer people to build rather than buy, which can be viewed as an anti-merger bias,” Sokler said.

Michelle Mantine, a partner at Reed Smith, said the proposed guidelines’ focus on labor is relevant to the health care industry, which has been experiencing labor shortages.

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Health care companies seeking to merge “are going to need to consider what is the impact on those employees,” Mantine said. “Is there any chance that this transaction could result in a decrease in wages or provide the employer with more power? I think, based on the draft guidelines, that will certainly be a consideration for authorities in reviewing a transaction.”

Stephen Wu, an antitrust attorney at McDermott Will & Emery, agreed that the effect a proposed health care merger would have on labor would be of special concern to regulators because available employees with the industry’s specialized skills, training or licensure are limited.

“Health care is frequently cited as an example of where that new focus on potential labor market concerns would apply,” Wu said.

The FTC does not have a winning record in court when challenging mergers, specifically in big tech.

“This is a real period of uncertainty” for health care mergers until the agencies bring a few cases and see how the courts rule, said Miller, of Mintz Levin.

“My prediction is this will be really tough for the agencies if they are serious about bringing cases to flesh out these guidelines,” Miller added. “These are very, very tough theories.”