Financial integration involves parties sharing the financial performance risk of the merger or collaboration. Sharing the risks associated with clinical integration can involve documented procedures to oversee and control costs while also maintaining quality of care, contractually requiring physicians to implement clinical practice guidelines, and having in place monitoring mechanisms to evaluate compliance. The FTC and DOJ have issued guidelines and policy statements that define certain “safety zones” for provider collaborations that the agencies will not challenge under the antitrust laws other than in unusual circumstances. Falling within a safety zone allows a greater degree of comfort that the transaction will not be deemed to violate antitrust laws. However, do not assume you have sufficient integration. This should be evaluated with the advice of legal counsel.
Explore This IssueApril 2015
Generally, the more integrated the parties will be from an operational and financial perspective, the lower the risk of an antitrust violation, although you still have to consider potential market concentration issues. Antitrust laws prohibit healthcare providers from having impermissibly high market share or creating a monopoly. You need to be aware of whether the potential transaction could result in a monopoly or other prohibited market concentration in a particular service and geographic market.
In many recent cases, healthcare mergers have been challenged by federal and state government agencies, as well as competitors of the merging entities. These cases provide insight into both the criteria under which transactions will be analyzed and challenged, as well as the consequences if the deal is found in violation of the state and federal antitrust laws.
Example: In 2012, the largest health system in Idaho, St. Luke’s Health
System, acquired Saltzer Medical Group, which was the largest independent physician group. The FTC, the state of Idaho, and two competitors of the health system challenged the acquisition on state and federal antitrust grounds. In February 2015, a U.S. Circuit Court of Appeals affirmed a district judge’s order for the unwinding of the acquisition. The appeals court found that St. Luke’s claim that the acquisition would improve patient care was not enough and that the health system failed to show that the acquisition would have a positive effect on competition. The appeals court ruling also emphasized that although St. Luke’s may have demonstrated certain efficiencies that would result from the merger, the health system did not show how those efficiencies would have a positive effect on competition.
Even acquisitions associated with financially distressed healthcare entities are at risk of violating antitrust laws. The acquisition of a hospital that had consistently experienced losses prior to the acquisition by ProMedica Health System was ordered to be unwound. In this case, the court found that the acquired hospital had somewhat improved financials prior to the acquisition and was, therefore, essentially not distressed enough.