2018 Year in Preview

Hospital Consolidation

Richard Mark Kirkner
Contributing Editor

In an administration that seems to relish blowing up bureaucracies, leaving chaos and uncertainty in its wake, the fact that no one foresees any great disruption in how the understaffed Federal Trade Commission views health system and hospital mergers makes it an outlier in Trump World.

That won’t mean a whole lot in 2018 for possible mergers like the CVS–Aetna deal. Health insurance antitrust is pretty much the purview of the Department of Justice.

But in the case of Sanford Health’s acquisition of Mid Dakota Clinic in North Dakota, the FTC still holds sway. In June, the agency challenged the deal, claiming that the merged entity would control 75% or more of primary care and other health services in the Bismarck–Mandan metropolitan area. Sanford Health is a 39-hospital system with 1,300 physicians in nine states; Mid Dakota Clinic is a multidisciplinary practice of 90 practitioners in Bismarck–Mandan. The FTC sought an injunction to block the merger until it could hold a hearing in Washington near the end of November.

The FTC can have up to five commissioners. They’re nominated by the president and confirmed by the Senate to serve seven-year terms. But at the moment, the commission has only two members, the acting chair, Maureen Ohlhausen, a Republican, and Terrell McSweeny, a Democrat who worked for Joe Biden when he was a Senator and then for the Obama White House. Their terms end in 2018 and 2021, respectively.

Joseph J. Simons

Joseph J. Simons, FTC Chair nominee

The Trump administration has said it will nominate Joseph J. Simons as FTC chairman. Simons, a partner in the Washington office of the New York law firm Paul, Weiss, Rifkind, Wharton & Garrison and co-chair of its antitrust group, was director of the FTC’s Bureau of Competition during the George W. Bush administration from 2001 to 2003. (Three other names have been floated for the other two open seats—one Democrat, one Republican—but the White House hadn’t acted on them by the time we went to press.) A confirmation of Simons might not bode well for health system executives eyeing mergers.

It was during Simons’ FTC years that the agency “resurrected its hospital merger enforcement program by doing its retroactive study of consummated mergers and bringing the Evanston case against one of those mergers, which it won,” says Bruce Sokler, antitrust chair in Mintz, Levin, Cohn, Ferris, Glovsky and Popeo’s Washington office. The Evanston case ended with an FTC order that required what was then known as Evanston Northwestern Heathcare to negotiate managed care contracts separately from Highland Park Hospital, which it had acquired.

Acquisitive appetite: Hospital are gobbling up other hospitals

Number of acquired hospitals

Source: Irving Levin Associates, Health Care M&A News, 2008–2016

2017 has seen plenty of mergers and acquisitions: Kaufman Hall, the consulting firm, counted 87 deals through the third quarter, so by the end of the year the total may exceed the 102 deals made in 2016. And there’s really no question that the overall trend is toward bigger and bigger health care systems.

Respondents noted several areas of quality improvement after an acquisition

Source: Deloitte, “Hospital M&A: When Done Well, M&A Can Achieve Valuable Outcomes,” 2017

Regulatory layer

Some of the notable deals this year include Steward Health Care’s acquisition of Iasis Healthcare, which will make Steward the largest for-profit system in the country; Partners Healthcare’s proposed acquisitions of the Care New England system in Rhode Island and the Massachusetts Eye and Ear Hospital in Boston (both were pending as we went to press); the merger of Greenville Health System and Palmetto in South Carolina; and the partnership of the Carolinas HealthCare System and UNC Health Care of Chapel Hill in North Carolina.

When it comes to hospital and health system mergers, there is another regulatory layer beside the FTC. States (attorneys general, health and insurance departments, legislatures) also play a major role, notes Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University in Pittsburgh. In the Sanford Health case in North Dakota, the state attorney general has joined the FTC in challenging the merger. The North Carolina attorney general, Josh Stein, is reviewing the Carolinas–UNC Health Care deal.

Another case worth watching is the pending merger of Mountain States Health Alliance and Wellmont Health System in Virginia and Tennessee. The FTC filed challenges with health departments in both states, although, interestingly, both state health departments approved the merger this fall.

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