May 14—A leader of federal antitrust enforcement touted a continuation of “aggressive” enforcement against hospital deals, even as the share of independent hospitals shrank to a historic low.
“We need to continue our program of aggressive enforcement,” Rebecca Kelly Slaughter,, a commissioner in the Federal Trade Commission, said in a May 14 address. “We should push the envelope and not be afraid to bring cases, especially with these creative new structures” of mergers and acquisitions (M&As).
Speaking at the left-leaning Center for American Progress in Washington, D.C., Slaughter laid a range of problems at the feet of the ongoing wave of hospital M&A deals, including:
- Healthcare price increases
- Lower wages for healthcare workers such as nurses
- Lack of quality improvement
- Little progress in efficiency
Kyle Arnone, deputy director at the American Federation of Teachers, which represents healthcare workers, said that even as healthcare union membership has increased to include one in five workers, consolidation with nonunionized hospitals has diluted unions’ bargaining power. Additionally, reconfiguration through consolidation frequently moves inpatient work to outpatient ambulatory care settings, which “almost always” pays workers less.
Furthermore, new jobs being created as part of the push toward value-based care — such as patient care navigators and coordinators — are not represented by the bargaining unit.
“The challenge for us is that as the healthcare system changes and reconfigures, we need to represent the highest number of workers,” Arnone said.
M&A trend leads to vast reduction in independent hospitals
A recent analysis by Hammond Hanlon Camp, an investment banking and strategic advisory firm, found that the share of independent hospitals steadily shrank from 46% of the total in 2005 to 34% in 2017.
Additionally, hospital M&A trends have remained generally stable. There were 25 transactions in the first quarter of 2019, compared with 27 in the first quarter of 2018.
“The challenges faced by independent hospitals — particularly rural hospitals — continue to mount, as evidenced by the very active first quarter of 2019,” the Hammond report said. “Over half of the transactions announced in the first quarter of 2019 involved targets with less than $100 million in revenue.”
How FTC may accelerate enforcement
Issues that historically have limited the number of cases the FTC could bring against hospital deals, Slaughter said, include:
- Funding limitations
- Limits on premerger reporting
- Legal shield for post-merger not-for-profit entities
- High evidentiary burdens
- Lack of public data
“The fundamental problem we have is that these things are moving in opposite directions — merger activity is increasing, resources are decreasing,” Slaughter said.
Specifically, she said that since 2010 hospitals’ average annual merger volume increased 50% compared to the prior decade. Meanwhile, from 2010 to 2016, FTC funding stagnated.
Steps needed to increase enforcement against hospital deals, Slaughter said, include:
- Gain congressional funding to increase FTC staffing to the level of the early Reagan administration
- Increase merger-filing fees
- Peg FTC funding to merger volume
- Expand premerger reporting
- Shift legal burden and assumptions
The last option would shift the regulatory approach from allowing some deals that violate merger rules while pursuing a limited number of deals to flagging some non-violators while reviewing a larger number of deals.
“I’m comfortable with shifting that error risk, particularly in the case of hospitals,” Slaughter said.
Slaughter also anticipates greater state cooperation against “anti-competitive hospital mergers.” In April, representatives from 40 states attended the FTC’s first healthcare litigation workshop.
Slaughter urged an increase in state-level premerger reporting requirements and a reassessment of state laws that conflict with federal antitrust goals, such as “certificate of public advantage” laws.
With more hospital care moving to outpatient settings, Slaughter said the FTC is looking at all services hospitals provide “for overlaps or inefficiencies, and not just inpatient” settings.
The FTC also has begun to study the increasing tendency of private-equity investors to buy hospitals and take on large amounts of debt before they “make a profitable exit.”