What healthcare executives need to know

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The Federal Trade Commission is faced this year with a “tidal wave” of merger cases that are straining the agency’s resources and causing problems for some merged entities.

In a recent case, Southfield, Michigan-based Beaumont Health and Grand Rapids, Michigan-based Spectrum Health said the FTC would take longer to review their plan to merge into a 22-hospital system with 64 000 team members, in part because of the increased volume of merger files at the agency.

The two healthcare systems are not alone, as several other merging entities have suffered delays this year.

In an average fiscal year, the FTC sees approximately 2,000 merger cases. However, for fiscal year 2021, the agency recorded nearly 3,500 deposits, Haidee Schwartz, JD, Akin Gump’s antitrust partner, said Becker’s hospital examination.

“In modern times, you have never seen such high deposits,” Ms. Schwartz said.

Why are more merging organizations experiencing delays?

While the increasing number of merger cases poses workflow challenges for the FTC, that’s not the only reason merger reviews are taking longer, Ms Schwartz said.

The Biden administration and the FTC have said they are very concerned about consolidation in many industries, including healthcare. This was made clear earlier this year when President Joe Biden sign an executive decree of 72 initiatives aimed at consolidation in all economic sectors. The order encourages the Department of Justice and the FTC to “vigorously” enforce antitrust laws, even on past mergers that previous administrations have not challenged. He also calls on antitrust services to review and revise their guidelines on hospital mergers to limit harm to patients.

“Healthcare and hospital systems should expect the agency to examine theories of harm that they have not yet pursued,” Ms. Schwartz said. “In the past, hospital merger reviews have been very focused on the question, ‘Do they overlap and compete in geographies? “Now, even though there’s no direct geographic overlap, they’re looking at other things.”

Ms Schwartz said the current FTC is examining different facets of market competition, including how the deal may affect labor markets and the cross-market effects of a transaction. This may mean that the FTC will talk to more clinicians or economists to better understand the potential impact, she said.

What are the implications of the influx of mergers?

Due to the influx of merger cases and increased merger control in general, there have been several notable changes at the FTC.

Under the Hart-Scott-Rodino Act, the FTC has 30 days to review a merger case. At the end of the 30 days, the FTC must issue a second request for additional information, or the parties are allowed to enter into their agreement.

Merging entities obtained an “early termination” from the FTC for agreements that did not raise any competition concerns or for agreements in which the merging entities answered all of the agency’s questions before the review window expired. initial 30 days. However, the FTC suspended early terminations in February, and they are still suspended, Ms Schwartz said.

“Partly they said the suspension was due to the volume of cases, but part of it I think is also because they want to take a closer look and have the opportunity to look at them all,” Ms. Schwartz.

Ms Schwartz said this year, with the influx, merging parties or their legal advisers often receive calls and questions about the FTC merger later in the 30-day review period than in the past. .

“If you get a call this late in the initial period, you probably won’t have time to answer questions from FTC staff, even if there are only a few,” Ms. Schwartz said. . “It’s really hard to get a full answer before the 30 days have expired if you get a call on the 25th or 26th day.”

One of the ways that some parties to the merger are adjusting to the timing of these issues is to do a “pull and reclassify,” Ms. Schwartz said. This pull and refile gives merging companies more time to answer FTC questions and re-launches the 30-day review period. This is a common strategy and one of the reasons the merger review period is longer for some organizations. Ms Schwartz added that for the first pull and refile, businesses don’t need to pay filing fees again, but they must update documents and provide answers to FTC questions.

Despite the pull-and-refile tactic, Ms Schwartz said merging entities are at somewhat higher risk of getting a second FTC request, in part because there isn’t enough time. to answer lingering questions from the FTC in the initial review window. with the influx of filings and because the agency wants to see more documentation than in the past.

Complying with a second request means the review process will be longer and more costly for an organization, Ms. Schwartz said.

“Complying with the second request can represent millions of dollars for a company, and the average time between the announcement of the deal and the commission’s action is currently around 10 to 11 months,” Ms. Schwartz.

Other FTC changes you should know about

The FTC also announced in August that it would send letters to merging companies that do not receive a second request that it is unable to complete a review of their transactions within 30 days, as required by law. HSR. The FTC has said it will send letters to companies indicating that their deal may still be declared illegal in the future. That doesn’t stop the companies from closing the deal, however, Schwartz said.

While the FTC has always had the right to reverse mergers, companies have often assumed that, if the FTC did not try to block the merger within 30 days, it found the deal to be generally in accordance with the laws. antitrust. However, the letters give the FTC additional language to quash the deal if there is a problem and want to open an investigation into the anti-competitive effects of the merger, Ms Schwartz said.

“It gives them a little more to go to court and say, ‘We didn’t really clear it up, we still had questions,” “Ms. Schwartz said.

What can merging entities do when preparing to file with the FTC?

1. Understand the new priorities of the FTC. There are shifting priorities at the FTC under President Biden. This FTC is more likely to issue a second claim with the combination of large healthcare systems. He’s also looking at different theories of harm that he may not even have addressed in the past, Ms Schwartz said.

2. Perform a risk assessment. Ms Schwartz recommends asking your antitrust attorney to do a full risk assessment of either extracting and re-filing or a second request issued by the FTC. “Make sure they take into account the new priorities of the FTC,” Ms. Schwartz said.

3. Call the agency if you think a transaction might raise questions. With the influx of merger cases, it may be beneficial to take the initiative to call the FTC rather than waiting for the agency to call to ask questions, Ms. Schwartz said. This gives your organization more time to answer your questions. “Some people think, ‘Well, we might not need to call’. This may not be the bet you want to take, ”Ms. Schwartz said.

4. Be prepared to answer questions from FTC staff as quickly as possible. “If you have good antitrust advice, they know the questions you’re likely to have about a transaction; be prepared to answer those questions,” Ms. Schwartz said. “Prepare a presentation as a draft.”

5. Quickly complete the voluntary letter of access. During the first 30 days, the merging entities will receive a voluntary letter of access from the FTC that requests certain information about your organization. Ms. Schwartz recommends responding quickly to this request and completing it.

6. Make the frames available. Another thing that merging entities can do is ensure that their leaders are available to speak to the FTC as soon as possible after the case is submitted so that they can answer questions and provide data early on. Ms Schwartz said.

Conclusion

There are two main reasons merger cases are taking a little longer to review this year, including closer merger scrutiny at the federal level and an influx of deals to the agency.

While more and more businesses are receiving a second request from the FTC, there are steps entities can take to help reduce the possibility of getting a second request.

Ms. Schwartz, who won the Global Competition Review’s Women in Antitrust Award in 2021, has also served as Deputy Director at the FTC and advised private companies under investigation into the FTC and the Ministry of Justice.


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