FTC Cannot Block $320M Novant, CHS Deal

Dive Brief:

• A federal judge ruled Wednesday Novant Health can move forward with its plans to purchase two North Carolina hospitals from Community Health Systems, despite a request from the Federal Trade Commission to stall the deal.
• The antitrust agency sued to block the deal in January, claiming it would decrease competition and drive up consumer prices in the greater Lake Norman, North Carolina, area by allotting Novant more than 65% control of the region’s inpatient market.
• U.S. district judge Kenneth Bell denied the FTC’s request for an injunction, saying the hospitals are likely to shutter absent a deal.

Dive Insight:

Since Novant first proposed to purchase Lake Norman Regional Medical Center and Davis Regional Medical Center for $320 million early last year, the FTC has heavily scrutinized the transaction.

“Hospital consolidations often lead to worse outcomes for nurses and doctors, result in higher prices, and can have life and death consequences for patients,” Henry Liu, director of the FTC’s Bureau of Competition, said in a January statement. “There is overwhelming evidence that Novant’s deal with Community Health Systems will be detrimental to patients in the Eastern Lake Norman Area, including leading to higher out-of-pocket costs for critical health care services.”

However, Bell said in Wednesday’s ruling that the deal had more possible benefits than detriments for competition and patient care. 

The judge said the Charlotte hospital market is already concentrated without the proposed deal. Of the region’s 19 hospitals, Atrium Health owns nine and Novant has seven. It “seems obvious” that increasing Novant’s market position would allow it to better compete with Atrium, the dominant player in the region, Bell wrote in the order.

Further, the judge believed there are no alternative buyers for the hospitals, which provide fundamental services in the area, including cardiology and oncology services, but face an uncertain future under CHS.

Under current ownership, Lake Norman Regional, for example, has lost critical service lines, including the ability to regularly treat heart attacks in its emergency rooms or appropriately staff its higher level Neonatal Intensive Care Unit, the judge said. 

Bell attributed these downgrades to CHS decisions including limiting investments in the hospital, such as offering comparatively low nursing salaries, which has resulted in turnover.

Without the deal, “it seems clear that – like a car that its owner can’t afford to replace – CHS plans to just continue to drive [Lake Norman Regional] down the same road until the proverbial wheels fall off. And, unfortunately for [the hospital], a competitive ‘wreck’ appears to be on the immediate horizon,” Bell wrote.

The judge concluded that given current circumstances, “the proposed merger carries at least as much likelihood of competitive benefits as it does competitive harm.” 

Novant called the ruling a “triumph” in a press release issued Wednesday, with CEO Carl Armato adding that the health system is “thrilled” with the outcome.

 “This outcome is a victory for the area, and our plan to deliver on the commitments we’ve made begins now,” Armato said. “We have always believed these communities deserve access to a rich healthcare ecosystem with robust and comprehensive care services from family physicians to pediatrics and specialty care.”

The ruling is a blow to the FTC, which has prioritized reviewing healthcare mergers in recent months. 

Regulators have had some success in preventing deals they deem anticompetitive. In December, a proposed transaction between Tenet Healthcare and John Muir Health fell apart following an FTC lawsuit.

Since that time, the FTC has attempted to further increase its oversight by announcing a new portal that would allow anyone to submit potentially anticompetitive practices for review. And in December the agency, in partnership with the Department of Justice, overhauled merger guidance in an effort to increase regulatory oversight over proposed transactions.