Becker's Hospital Review

Hospital Transactions & Consolidation 62 quarter of 2013 alone, 15 hospital mergers and acquisitions were announced, according to a report from Irving Levin Associates. Mr. Paul of White & Case agrees the FTC must take the dramatically shifting healthcare landscape into account when calibrating its enforcement efforts. As healthcare reform progresses, hospitals will see more Medicaid beneficiaries while simultaneously coping with Medicare payments shifting from feefor-service to pay-for-performance, changes that will significantly change the way hospitals interact with patients and payers alike, he says. dustry. "If it results in reduced reimbursement rates, it may put more hospitals — especially smaller hospitals — under economic pressure," Mr. Simowitz says. "On the other hand, if the ACA increases the number of insured patients on the market, it could make hospitals economically stronger." Avoiding an FTC faceoff: What hospitals need to know "The Affordable Care Act poses some real challenges for the FTC," he says. "It fundamentally changes the competitive landscape. What most everybody agrees is that the law is leading hospitals and most others in the healthcare industry to consolidate and integrate. If the FTC fails to take that into account and understand the increased pressures on hospitals, it's going to be overly aggressive." Hospitals and health systems that want to carry out mergers but are wary of the FTC can adopt various strategies to mitigate antitrust concerns, says Mr. Simowitz of Baker & Hostetler. First of all, if the deal involves head-to-head competitors, the companies should get an antitrust lawyer and potentially an economist involved early on. Before moving forward, Mr. Simowitz says hospitals should analyze market conditions and shares, as well as gauge how health plans will react to the transaction. However, the potential effects of the PPACA alone are unlikely to sway the FTC, Mr. Simowitz of Baker & Hostetler says. However, he says a good reason behind the acquisition is the most crucial factor. Improving quality of care is a persuasive motivator, for example. "You don't get very far with the FTC just by invoking the ACA and saying, 'You've got to look at this differently,'" he says. "What you're going to hear from the FTC staff is, 'Fine, we hear you. What other arguments do you have?' The FTC is going to look at the markets as it finds them and will take into account market changes." "Often what's most important is the rationale for a transaction that is there from the beginning, even before an antitrust lawyer or economist gets involved," Mr. Simowitz says. "The FTC places most importance on ordinary course documents created by business people even before they started thinking about antitrust." Furthermore, it's difficult to predict how the reform law will actually affect the hospital in- Ms. Freerks also says analyzing the market is crucial to predicting and avoiding antitrust issues. "If you're not even in the same market, there shouldn't be an issue, which is what Vanguard and Tenet came into," she says. "However if you're looking at the neighbor next door, the concern is how you might leverage yourself to drive up prices by cutting out the competition." If the merger raises concerns about price hikes, hospitals can mitigate those worries by involving payers from the beginning of the transaction process and discussing price negotiations, she says. Hospitals and health systems can also meet with managed care companies to get input on how the merging entities can collaborate to provide better services for lower costs to alleviate concern that the merger will lead to increased prices. Conclusion: The future hospital-FTC dynamic The PPACA still poses many unknowns for hospitals, and the pressure to rein in out-of-control healthcare costs while simultaneously providing higher quality care isn't going away anytime soon. The economic fate of hospitals and the state of the industry depends on providers and antitrust law enforcers coming together to reach an understanding, Mr. Paul of White & Case says. Healthcare providers will have to help the FTC see why consolidation must take place as a necessary way to reduce costs, he says. "What companies are going to have to do is really work with the FTC so the FTC will adjust the current thinking it has," he says. "It's going to have to take into account what the competitive marketplace is going to look like over the next two years." n Phoebe Putney Won't Have to Sell Palmyra Hospital in FTC Settlement By Molly Gamble  T he Hospital Authority of Albany Dougherty County in Georgia and Albany, Ga.-based Phoebe Putney Health System have agreed to a settlement with the Federal Trade Commission, resolving charges that the parties' acquisition of Palmyra Park Hospital harmed competition. Under the deal, the Hospital Authority and Phoebe Putney are required to give the FTC advanced notice of future transactions that involve not only hospitals, but also outpatient facilities or physician practice groups. The parties will also be barred from opposing potential competitors' certificate of need applications for acute-care hospitals in a six-county area.   The settlement involves some unique circumstances, however. The FTC prefers divestiture to restore any competition that was lost due to an improper merger, but CON laws in Georgia complicated this traditional remedy. If Phoebe Putney sold back Palmyra Park, it would trigger a CON review. "Unfortunately, Albany is deemed 'over-bedded' by Georgia's strict need assessment criteria," according to the FTC. This makes it unlikely that any possible buyer after divestiture would obtain the necessary CON approval to operate Palmyra Park as an independent hospital.   This has been one of the more closely watched and most complicated antitrust cases in the hospital sector. It stems from an FTC administrative complaint in April 2011. The FTC alleged the Hospital Authority and Phoebe Putney's $195 million acquisition of Palmyra Park, now Phoebe Putney's north campus, was essentially a monopolistic merger that would allow Phoebe Putney to raise its prices for general acute-care hospital services to commercial payers. The FTC also alleged Phoebe Putney structured the transaction so the Hospital Authority would deter federal antitrust scrutiny under Georgia's state action doctrine, which gives local government entities power to acquire hospitals. The case made it to the Supreme Court, where in February, justices sided with the FTC in a unanimous ruling that lower courts had improperly dismissed the antitrust complaint. The court said "because Georgia's grant of general corporate powers to hospital authorities does not include permission to use those powers anti-competitively, we hold that the clear-articulation test is not satisfied and state-action immunity does not apply." The clear-articulation test refers to an assessment of whether the state clearly articulated and affirmatively expressed permission for hospital authorities to make acquisitions that would substantially lessen competition. n

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