The healthcare industry continues to become more consolidated, especially as health systems and hospitals form larger, more integrated health systems through mergers and acquisitions. While the Affordable Care Act has encouraged this trend, the Federal Trade Commission has put the brakes on consolidation plans, particularly deals that threaten prices and competition. And though the FTC has been the primary spoiler of M&A deals, state regulators and attorney generals have played a role as well.
State agencies are inserting themselves more into consolidation proposals, foiling deals that would likely raise questions from the FTC. Within the last six months, regulators and attorney generals in California, Connecticut, and Massachusetts have questioned how proposed consolidation deals would impact consumers and competition. Prime Healthcare Services, Tenet Healthcare, and Partners HealthCare are examples of large organizations that have been pursuing acquisitions but withdrew their proposals instead of facing the often lengthy and costly court process to win approval for the deals. Below is a targeted look at each of these three examples.
California's Prime Healthcare Services had been pursuing the purchase of Daughters of Charity Health System, a financially troubled organization also based in California. From the beginning, Daughters of Charity struggled to garner support from employees for the deal, which was approved by the state. However, Prime Healthcare faced a long list of stipulations that had to be followed for the deal to close and chose to withdraw instead. Daughters of Charity continues to look for a new buyer.
In Connecticut, stakeholders had been receptive to for-profit Vanguard Health purchasing several hospitals in the state and becoming the first for-profit health system in the state. This was prior to Tenet's acquisition of Vanguard. Since Vanguard became part of Tenet in 2013, state stakeholders, legislators, and regulators have challenged Tenet's attempts to acquire local nonprofit hospitals and turn them into for-profits. Tenet was approved to purchase the hospitals after a multiyear process, but like Prime Healthcare, faced a laundry list of stipulations that would have to be met, or the deal would be blocked. The state and Tenet approached talks several times before Tenet officially walked away from its planned acquisitions.
In the Boston market, Partners HealthCare has been on a buying spree in recent years, drawing the attention of regulators and several Massachusetts attorney generals. The health system had proposed purchasing South Shore Hospital and Hallmark Health System, giving Partners an even greater market share in the Boston health system sector. However, state Attorney General Maura Healey stated she would sue the health system in an effort to block Partners? expansion plans, citing higher prices that would likely result from the acquisition. The health system has since halted progress on the Hallmark Health System deal. Partners did complete the acquisition of a large physician organization, but that is likely to be challenged by the FTC and state.
Expect the battle between health systems and regulatory agencies to heat up as health systems continue to pursue greater market shares and larger footprints. Some of the proposed transactions would drastically change market dynamics and could lead to a surge in states or the federal government blocking these deals. For example, the possible merger of WellStar Health System and Emory Healthcare would create the largest health system in the Atlanta market and in Georgia, but could invite regulatory scrutiny given the size and status the combined health system would possess.
Health systems that are proposing a merger or acquisition may take extra time to complete their due diligence in an effort to ease the regulatory review process. However, other health systems may view the recent rise in regulatory scrutiny as reason to forgo mergers and acquisitions in favor of partnerships and affiliations.
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