New Merger Guidelines in Action

Last month, we provided an overview of increased antitrust scrutiny. The Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) continue to increase their scrutiny of health care transactions, and it doesn’t seem to be slowing down any time soon. The two agencies work together to review and contest mergers and acquisitions they believe are likely to reduce competition and lead to higher prices, lower quality goods or services, or less innovation. If it is determined that an acquisition will “substantially lessen competition,” then either agency can take legal action to block or unwind the deal.  While this authority is not new, health care merger enforcement activity has significantly increased in recent years, and the government has been more successful in its challenge of health care transactions.

Earlier this year, the FTC sued to block a transaction involving Novant Health, Inc. (Novant) and Community Health Systems, Inc. (“CHS”).  Novant planned to buy two facilities from CHS in a $320 million deal.  After review, the FTC alleged that the transaction was likely to raise prices and reduce incentives to invest in quality and innovative care that would benefit patients. In the FTC’s statement, it was noted that controlling too much of the market results in fewer alternatives for certain services, resulting in Novant being able to “demand higher rates for its services.”  The FTC petitioned for a preliminary injunction to halt the transaction. 

Surprisingly, the district court denied the FTC’s petition. The court recognized that the preliminary injunction could impact the longevity of the CHS facilities. However, in an effort to mitigate concerns raised by the FTC, Novant committed to not raise prices and to pursue immediate improvements of the to-be acquired facilities and services, as well as increasing compensation for workers, re-opening previously closed service lines, and upgrading the electronic medical records systems.  

After the denial, the FTC swiftly filed an appeal. On June 18, 2024, in a split 2-1 decision, the Fourth Circuit Court of Appeals decided in favor of the FTC, preventing Novant from proceeding with the acquisition of CHS assets until the merits of the FTC’s claims have been litigated—a process that can take years. Following the Fourth Circuit’s ruling, Novant announced that it would be abandoning the $320 million deal citing the FTC’s continued roadblocks as the driving force behind the result.

The failed Novant transaction is yet another example of the increased antitrust scrutiny in the health care space. It also demonstrates that even when providers make concessions in an effort to ameliorate anti-competitive concerns, those efforts may have little to no impact on the government’s decision to contest a transaction.  Given the time and resources invested when seeking a potential transaction, health care boards and executives should consider antitrust ramifications sooner rather than later to avoid the high cost and resources associated with a failed transaction.

Kristin N. Lindgren
Dane Hansen, Summer Associate