Dive Brief:

• The Federal Trade Commission is suing to block Rhode Island’s two largest health systems from merging, alleging the tie-up between Lifespan and Care New England would increase prices and diminish the quality of care.
• In the state’s own review, Rhode Island’s attorney general said the union would result in “extraordinary market power” and denied the merger application under state law that requires a review of such tie-ups. Rhode Island’s attorney general will join FTC’s federal lawsuit seeking to block the deal.
• The FTC alleges that, together, Lifespan and Care New England would control at least 70% of Rhode Island’s market for inpatient hospital services and also reduce competition in several nearby Massachusetts communities.

Dive Insight:

The union between Lifespan, the state’s largest health system, and Care New England, the second largest, quickly raised alarms in Rhode Island.

A 25-page report from the state’s insurance department found that the merger would “significantly alter” the state’s healthcare market, which currently enjoys a “relatively competitive” market. State regulators were also concerned about the control the new system would have over physician services. Given these risks, the state insurance commissioner proposed a set of conditions on the deal including price caps. Health system executives were open to working under certain conditions.

However, executives seemed surprise by Thursday’s announcement that the deal to create an integrated academic medical system with Brown University at the forefront would be blocked.

“On four separate occasions in prior years, the FTC reviewed the same proposed merger and allowed it to proceed,” a joint statement released Thursday said. The management teams said they offered up 30 conditions to regulators to satisfy antitrust concerns about the merger, “but neither the FTC or the AG ever discussed these conditions or others with the two systems prior to today’s decisions,” according to the statement.

After flirting with the idea of combining the systems for years, Lifespan and Care New England inked a deal to merge last February after the coronavirus pandemic revived talks.

The two touted the deal as a way to create an integrated academic health system with Brown University’s medical school in a central role. Brown University committed $125 million to the creation of the new system.

However, FTC commissioners voted unanimously to block the union over concerns it would extinguish competition between the two.

And although regulators have long leaned on the argument that hospital mergers lead to higher prices, a joint letter from FTC Chair Lina Khan and Commissioner Rebecca Kelly Slaughter points to the harmful effects consolidation has on labor markets, an argument growing in importance within the agency. 

“Just as we want firms to compete with each other to sell goods and services to their customers, we want employers to compete with each other to attract and retain workers,” the letter states. “Indeed, there is a growing body of empirical research about the potential for competitive harm to labor markets from consolidation and concentration.”

The news follows reports that the Department of Justice is preparing to sue to stop UnitedHealth Group’s blockbuster acquisition of Change Healthcare, a healthcare technology firm. Concerned about the “massive consolidation” of healthcare data, the American Hospital Association urged antitrust regulators to thoroughly examine the proposed transaction in a letter sent to DOJ last spring.

After taking office, President Joe Biden has signaled his administration would take an aggressive antitrust stance, including getting tough on hospital mergers. Last summer, the president issued an executive order that called on antitrust regulators to “review and revise” merger guidelines to ensure patients are not harmed by proposed deals.

Biden specifically called out the healthcare industry, rife with consolidation and accompanying research that shows hospital unions lead to higher prices.

“Thanks to unchecked mergers, the ten largest healthcare systems now control a quarter of the market,” the release from the White House said.

Still, the FTC has become overwhelmed by the sheer number of proposed transactions. In August, the agency said it was hit by a “tidal wave” of merger filings and warned applicants it may not vet all submissions before the applicable deadlines. But in letters sent to merging companies, the FTC warned the delay should not be interpreted as a green light for any deal.

“Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk,” the regulator said in a statement.