This year has been an unusual one in many ways. But a federal regulator’s to attempt to block a hospital merger in the nation’s most densely populated state, so close to New York City, left many within the industry scratching their heads.
On Dec. 3, the Federal Trade Commission said it would try to block the proposed merger between Hackensack Meridian Health and the Englewood Hospital and Medical Center, arguing that the big health care system could monopolize the Bergen County market and drive up consumer prices. “This acquisition would give the combined hospital system increased bargaining leverage, likely leading to increased prices,” Ian Conner, head of the FTC’s Bureau of Competition, said in the announcement.
Connor warned that should the deal go through, HMH would control three of the six acute care hospitals in Bergen County. HMH could then “demand higher rates from insurers for the combined entity’s services, which, in turn, may lead to higher insurance premiums, co-pays, deductibles, or other out-of-pocket costs for plan members.”
The FTC voted unanimously to seek a temporary restraining order, and the administrative trial is scheduled to begin on June 15, 2021, according to the agency.
Hospital consolidation, exemplified by the HMH-Englewood deal, has driven an ongoing debate about how to control mounting health care costs. “This has been the national trend for a long time now, going toward consolidation,” said Darrell West, a political scientist at the Brookings Institution, a think tank based in Washington D.C. “Many of the states … are really down to one or two hospital systems.”
In New Jersey, hospital M&A has been churning for years, producing two large system chains: HMH and RWJBarnabas Health.
HMH expanded its footprint to JFK Medical Center in Edison in 2018. In September, RWJBarnabas announced that it finalized a deal to purchase Saint Peter’s University Healthcare System in New Brunswick, followed by a November announcement that it finalized a deal to purchase Trinitas Regional Medical Center in Elizabeth. Elsewhere, in September Morristown-based Atlantic Health System said it would acquire a majority stake in CentraState Healthcare System, which operates along the shore.
“[T]his basically saying to New Jersey, ‘listen, you’ve done a lot, you’ve consolidated, you’ve got the benefits of it, and now we’re going to look a bit more closely,’” said Michael Schaff, an attorney who co-chairs the corporate and health law practice groups at Wilentz, Goldman & Spitzer, P.A.
Representatives from RWJBarnabas, Saint Peter’s, Trinitas, CentraState and Atlantic all said they plan to pursue their deals.
“The Federal Trade Commission’s opposition to the Hackensack Meridian Health-Englewood merger reinforces CentraState’s decision to partner with a strong health system that does not compete with us,” said David DeSimone, CentraState’s chief legal officer. “Our antitrust analysis, completed prior to entering into the co-member arrangement, confirmed that the CentraState and Atlantic Health markets do not overlap.”
Saint Peter’s president and chief executive officer Leslie Hirsch maintained that “[w]hile some may inevitably want to make comparisons between the two proposed transactions, there are significant differences.”
“Moreover, the core rationale for the integration of Saint Peter’s Healthcare System with RWJBarnabas Health is to create a premier multi-campus academic medical center of national distinction.”
But John Fanburg, managing partner and chair of the health care group at the Roseland law firm Brach Eichler, said the FTC’s move should get the attention of the state’s health care industry. “Clearly it’s a potential sign of the times, as some of the systems continue to get larger,” he said in an interview. “I’m sure the FTC announcement last week, they’re watching, they’re paying close attention to the FTC’s actions. … The FTC has rarely challenged the consolidations that have occurred in New Jersey over the years, maybe New Jersey is at a tipping point.”
Some antitrust experts suggest the incoming Biden administration will strengthen enforcement. “We should care too about under-enforcement because it’s led to growing concentration in many markets, think agriculture, telecom, wireless, travel, pharma and beer,” Bill Baer, a member of Biden’s transition team for the FTC, said during a recent American Bar Association conference, according to a November report by Reuters.
Ron Knox, a senior researcher at the Washington think tank the Institute for Local Self-Reliance, noted the 5-0 vote by the FTC’s Republican-led board of commissioners authorizing the opposition to the Hackensack-Englewood merger. “The Democrats tend to be slightly more aggressive on antitrust enforcement than Republicans,” Knox explained. “When this kind of case gets approved 5-0 by a Republican-led commission, you can expect this kind of enforcement action is going to be a priority for a Democrat-led commission.
“The FTC is not in the business of bringing bad lawsuits that are likely to lose in court. It has every reason to bring lawsuits that it thinks will be successful based on the facts of the lawsuits.”
But Michael Kades, who spent two decades as an antitrust attorney at the FTC and then served as antitrust counsel for Minnesota Democratic Sen. Amy Klobuchar, was more skeptical of a potential paradigm shift in the FTC. “They began blocking hospital mergers in 2008 and 2009,” Kades, who is now the director for markets and competition policy at the Washington Center for Equitable Growth think tank, said in an interview. “Whether it’s an Obama administration, Biden administration, Trump administration, Bush administration, they will continue.”
Officials from Englewood and Hackensack Meridian disputed the FTC’s claims, saying in a joint statement following the announcement that the merger would result in cost savings and greater affordability. “We continue to firmly believe that this merger is in the best interest of our patients and the communities at large,” the statement reads. “As a result, we plan to vigorously defend the merger in court, which will give us the opportunity to further demonstrate the benefits Hackensack Meridian Health and Englewood Health will achieve together.”
Schaff said some mergers are actually beneficial. “It’s very hard and very costly to have several hospitals that invest a lot of money” in virtually the same exact programs, he said. “What it does is it limits the ability to have a broader scope of services.”
Rather than “reinvent the wheel in two different hospitals, which are very close,” a merger would mean that “you don’t have double investment and capital facilities with respect to that specialty,” he added.
“That opens up dollars to be able to put into other specialties. It enhances potential services, maybe competition is reduced.”
Critics like Kades and Knox are not convinced.
“The research here is really quite clear that hospital consolidation, particularly between close competitors, almost certainly raises prices and either has no impact on quality, or lowers it,” Kades said.
“We should be really skeptical of hospital mergers,” he added. “We have more evidence of hospital consolidations than arguably any other types of consolidation – it hurts the pocketbook, it likely hurts healthcare, increases mortality and now there’s evidence that it hurts wages for skilled employees like nurses.”