AHA tells Congress that stricter merger laws may cause economic harm

Photo: Martin Barraud/Getty Images

Congress has been mulling changes to antitrust enforcement in the U.S., but the American Hospital Association is wary of any changes to the existing legal and regulatory framework for evaluating mergers and acquisitions, telling lawmakers in a letter this week that the current framework has benefited the American economy.

"For the past forty years, this bipartisan framework has enabled rigorous competition, particularly in comparison to other parts of the world, while providing the government with the legal tools necessary to challenge transactions that could harm consumers," the AHA wrote.

The group contended that any current concerns with antitrust enforcement should be addressed by providing additional resources to enforcement agencies, and that the merger review process should remain impartial, "guided by the best interests of consumers and innovation."

The letter was also signed by a number of different agencies, including the Medical Device Manufacturers Association, the National Venture Capital Association, the Consumer Technology Association, the Center for American Entrepreneurship and the California Chamber of Commerce.

WHAT'S THE IMPACT?

According to the AHA, the government already has the power to review and challenge the few mergers and acquisitions that raise anticompetitive concerns. It utilizes antitrust agencies that are able to block transactions when needed, and the government is almost always on the winning side.

Citing data from the Federal Trade Commission, the AHA said that over the past 20 years, the federal enforcement agencies have challenged about 780 mergers, and over that time the merging parties were victorious in court just 11 times. In the remaining cases, the parties abandoned the transaction or settled with the government, typically through divestiture, or the government has won in court.

That translates to a success rate of about 98.5% for the federal government, the letter said.

What additional funding would do, the hospital group maintained, is allow antitrust agencies to scrutinize proposed mergers even more closely, tipping the advantage to the government's favor.

THE LARGER TREND

The letter is a response to President Joe Biden's executive order, unveiled in July, that targeted hospital consolidation as well as health insurance consolidations, prescription drugs and hearing aids. 

Hospital consolidation has left many areas, especially rural communities, without good options for convenient and affordable healthcare service, the order said.

"Thanks to unchecked mergers, the 10 largest healthcare systems now control a quarter of the market," the order said. "Since 2010, 139 rural hospitals have shuttered, including a high of 19 last year, in the middle of a healthcare crisis. Research shows that hospitals in consolidated markets charge far higher prices than hospitals in markets with several competitors."

The order encourages the Department of Justice and the Federal Trade Commission to enforce antitrust laws vigorously and "recognizes that the law allows them to challenge prior bad mergers that past Administrations did not previously challenge."

In the order, Biden encouraged the DOJ and FTC to review and revise their merger guidelines to ensure patients are not harmed by such mergers.

In response, FTC Chair Lina Khan and Acting Assistant Attorney General of the Justice Department Antitrust Division Richard A. Powers said they plan soon to jointly launch a review of their merger guidelines with the goal of updating them to reflect a rigorous analytical approach consistent with applicable law.

"We must ensure that the merger guidelines reflect current economic realities and empirical learning and that they guide enforcers to review mergers with the skepticism the law demands," they said. "The current guidelines deserve a hard look to determine whether they are overly permissive."

AHA President and CEO Rick Pollack responded at the time, saying hospital mergers and acquisitions "undergo an enormous amount of rigorous scrutiny from the federal antitrust agencies and state attorneys general. Finally, contrary to statements in the executive order, health systems can be a particularly important option for retaining access to hospital services in some rural communities. Mergers with larger hospital systems can also provide community hospitals the scale and resources needed to improve quality and decrease costs."

The executive order did not recognize the exceptional value and essential services health systems provide to their patients and communities each day, especially during COVID-19, he said.

"Many hospitals were also called upon to backstop an inadequate public health response by providing information, counseling and vaccinations as those became available," Pollack said.

The AHA echoed those sentiments in its most recent letter, saying M&A activity can drive capital formation, enable lower prices for consumers and lead to innovative new products and services, without limiting competition.

"Some have cast aspersions on the process and legal framework under which mergers are reviewed and suggested policies that could deeply chill mergers and acquisitions activity, economic growth, and U.S. competitiveness," according to the letter.

"Taken to an extreme, such an approach could devolve to a point where, in many cases, the government would have to grant permission to private companies to engage in routine economic activity such as mergers, rather than the current well-established rule where mergers are presumptively lawful and economically beneficial absent evidence to the contrary."

The group advised Congress to reject calls for legislation to overhaul the process and to protect the role that courts play in deciding the ultimate fate of a proposed merger.

Consolidation, among hospitals and health systems especially, has seen robust activity in recent years, and this trend will most likely continue, Moody's Investors Service found in April.

Larger health systems will pursue M&A to increase market share and to diversify, in terms of both geography and service lines, Moody's said. Smaller providers, meanwhile, have felt that the COVID-19 pandemic has exacted a toll on their financial performance and will likely pursue M&A to gain access to clinical, strategic and financial resources.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com