Court denies FTC's attempt to stop Novant's purchase of two CHS hospitals
The acquisition is likely to increase competition against Atrium Health, which is building a new hospital, judge says.
Photo: Rich Legg/Getty Images
A federal judge has ruled against the Federal Trade Commission's efforts to stop Novant Health from buying two Community Health Systems hospitals in North Carolina.
In March, the FTC had sued to block Novant's $320 million purchase of CHS hospitals, Lake Norman Regional Medical Center and Davis Regional Psychiatric Hospital.
U.S. District Court Judge Kenneth Bell on Wednesday denied the injunction, saying the purchase would likely increase competition against another large hospital system in the area, Atrium Health.
Bell said the benefits of the purchase - including avoiding the immediate closure of Davis Regional Psychiatric Hospital and the addition of medical services at Lake Norman Regional Medical Center (LNR) - outweigh the benefits of an injunction, including the loss of tax revenue from turning two for-profit CHS hospitals to nonprofit status when they would be owned by Novant.
"Overall, the public interest is best served by Novant being permitted to own and operate LNR and Davis, pending the conclusion of the FTC administrative process," Bell said in his order.
WHY THIS MATTERS
The FTC will continue to review the transactions, which comes with regulatory risk for Novant and CHS in proceeding with the deal.
The FTC had argued that the merger of Lake Norman Regional Medical Center into Novant would exceed the FTC's merger anticompetitive guidelines.
The court said that, while the FTC is correct that the combined market share and market concentration would be outside the permitted guideline range after Novant's purchase, this appears to be in large measure the result of Novant's substantial current market share and the already concentrated market.
The hospital market in the Charlotte, North Carolina, metropolitan area is already heavily concentrated, with 16 of the 19 hospitals in the surrounding eight-county area either owned by Atrium Health, the dominant, largest hospital system, or Novant, the second largest, Bell said.
Significantly, Atrium is in the process of building a new hospital, Atrium Lake Norman (ALN) in Cornelius, North Carolina. Initially, the hospital will be licensed as a 30-bed hospital, but it is being constructed with an additional floor to allow it to expand quickly to 54 beds. It is located on a planned hospital campus already zoned for 140 beds, according to the court ruling.
Atrium's new hospital is planned to open in mid-2025. CHS and third-party evaluators conservatively believe that ALN will cut LNR's revenue by 20% to 30%, to the point where CHS will need to incur additional debt to keep the hospital running.
CHS has limited investment in LNR, including in nursing salaries, which has led to staffing shortages. It's currently in a noncompetitive position, Bell said.
It has lost service lines, including the ability to regularly treat heart attacks in its emergency room, staff a higher level Neonatal Intensive Care Unit and treat certain oncology patients.
"If LNR is not sold to Novant it seems clear that – like a car that its owner can't afford to replace – CHS plans to just continue to drive LNR down the same road until the proverbial wheels fall off," Bell said. "It seems obvious that the presence of two Novant hospitals on either side of ALN will provide more competitive balance than the combination of NH (Novant Health) and LNR operated separately."
Novant's purchase of LNR is likely to promote added competition with Atrium, Bell said.
THE LARGER TREND
In March, the Federal Trade Commission sued to block Novant Health's $320 million acquisition of the two North Carolina hospitals from Community Health Systems, saying the proposal would likely increase annual healthcare costs by several million dollars. The deal threatens to raise prices and reduce incentives to invest in quality and innovative care that would benefit patients, the FTC said.
In April, Novant Health and Community Health Systems filed their opposition to the FTC's attempt to block the deal. They asked the court to deny the FTC's request for a preliminary injunction.
Email the writer: SMorse@himss.org
