FAH Requests Hospital Merger Guideline Consistency from DOJ, FTC

The Federation of American Hospitals (FAH) has asked the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) to maintain certain aspects of the hospital merger guidelines but modernize the enforcement of antitrust laws.

In response to a Request for Information (RFI) on merger enforcement, FAH recommended that the federal agencies retain continuity in the hospital and health system merger guidelines. The organization stated that its members rely on the consistent and transparent guidelines the agencies use to analyze merger and acquisition activity.

“This consistency leads to better decision-making, reduced costs, and more efficient merger review processes. Significant revisions to the guidelines would risk eroding these efficiencies by introducing uncertainty,” the letter said. “In short, the guidelines work, and the FAH urges the agencies to leave the guidelines substantively intact, making only surgical amendments that are necessary and targeted to particular circumstances.”

Specifically, FAH asked FTC and DOJ to maintain their guidance around defining product and geographic markets. The RFI asked whether it was necessary to define the market in every case, and FAH emphasized that it was.

The letter stated that clear market definition rules could help maintain the connection between health systems and their local communities. Additionally, market definition rules can improve the evaluation of potential transactions, help avoid wasting resources on mergers that are likely to be challenged, and can enhance the efficiency of transaction reviews.

Determining precise product and geographic markets is critical to assessing hospital mergers as they are subject to regulations that impose geographic and scope limitations on hospitals and health systems, FAH wrote. Without specific market definitions, merger activity could lead to inconsistent outcomes and increased costs, the letter noted.

Regarding changes to guidelines, FAH urged the agencies to revise guidance on diversion ratios, which measure consumer choice and preference.

The current guidelines do not account for the two-stage competition model in the hospital industry that gives payers the responsibility of negotiating prices rather than patients. Under this model, hospitals do not directly control the costs typically paid for their in-network services.

“Given the importance that the agencies sometimes place on diversion ratios, consideration should be given to industries, such as hospitals and health systems, where the diversion ratio does not accurately capture relevant preferences in a two-stage competition model—in this case the preferences of insurers and other third-party payers,” FAH wrote.

“To alleviate this concern, the agencies should refine the guidelines to expressly recognize circumstances, such [as] hospital and health systems, where the diversion ratio may not be as reliable.”

The letter urged FTC and DOJ to modify the merger guidelines to include recognition and credit for the improvements in quality that can result from hospital mergers. The current guidelines mainly focus on financial or price efficiencies, even though hospital mergers may prompt significant improvements in quality of care, according to FAH. 

In addition, FAH requested the agencies offer more transparency into how they quantify and confirm pro-competitive efficiencies, such as patient outcomes, operational costs, or readmission rates. Greater transparency would benefit all parties involved in a transaction by providing enhanced accuracy in their merger decision-making, the organization said.

FAH also urged the agencies to update the merger guidelines to include more flexible efficiency standards for smaller, independent, or rural hospitals merging into integrated health systems with more sophisticated models of care delivery.

Finally, the letter requested that FTC and DOJ adjust the guidelines that address “flailing” firms in hospital mergers. A firm is considered flailing if it is in a weakened financial state and cannot effectively compete in the market.

The current guidelines recognize that a merger would not improve market power if failure from one of the merging parties would lead to assets leaving the relevant market.

FAH urged the agencies to expand this guidance to include flailing firms where the firm’s survival would benefit the public. For example, suppose a weakened hospital or health system could not invest in quality improvements, but the hospital’s closure would impact access to care for the community. In that case, a potential merger with a more stable health system may benefit the public.

Aside from the targeted revisions, maintaining the current merger guidelines would provide the consistency that marketplace participants rely on, the letter concluded.