DOJ, FTC Seek to Modify Merger Guidelines to Foster Competition

The Federal Trade Commission (FTC) and the Justice Department’s Antitrust Division announced plans to modify current merger guidelines across all industries to prevent anticompetitive deals.

“Our country depends on competition to drive progress, innovation, and prosperity,”  Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division said in the announcement. We need to understand why so many industries have too few competitors, and to think carefully about how to ensure our merger enforcement tools are fit for purpose in the modern economy.”    

Along with the announcement, the agency asked for the public’s input on how to modernize enforcement of the antitrust laws regarding mergers.

Specifically, regulators are interested in seeking information regarding the distinction between horizontal and vertical guidelines, how to define markets in merger analysis to account for non-price competition, the impact of buyer power, and how to strength enforcement against mergers that eliminate competitors. The regulators are also looking for comments regarding the presumption that horizontal transaction are anticompetitive.

“Illegal mergers can inflict a host of harms, from higher prices and lower wages to diminished opportunity, reduced innovation, and less resiliency,” FTC Chair Lina M. Khan said in a public statement.

“This inquiry launched by the FTC and DOJ is designed to ensure that our merger guidelines accurately reflect modern market realities and equip us to forcefully enforce the law against unlawful deals. Hearing from a broad set of market participants, especially those who have experienced first-hand the effects of mergers and acquisitions, will be critical to our efforts.”

The effort to modify guidelines is to address new markets such as, the tech industry. However, guideline changes are a big threat to the healthcare industry.

In a letter, the American Hospital Association (AHA), the US Chamber of Commerce, and 20 other organizations urged Congress to not rewrite current merger and acquisition guidelines stating that it could potentially threaten consumers and markets.

“The government already has the power it needs to review and challenge the comparatively few mergers and acquisitions that raise competitive concerns, while still allowing our markets to serve as the engine that determines economic efficiency,” they wrote in the letter.

“When and where the government needs to and does intervene, the antitrust agencies already have demonstrated that they have the power to achieve the results necessary to keep the market both free and fair.”

AHA and its fellow authors noted that federal antitrust agencies have the capabilities to block transactions when necessary. Among the 780 mergers that the agencies have challenged over the last 20 years, they have seen a success rate of 98.5 percent

“Mergers and acquisitions play a vital role within our competitive economy. When companies choose to merge, that activity often adds to our economic vibrancy,” the organizations stated in the letter.

“Such activity can drive capital formation, enable lower prices for consumers, and lead to innovative new products and services – all without any harm to competition. Mergers also provide acquired companies with critical financing, sometimes ensuring their survival, and allow acquiring companies to bring new products to consumers faster and cheaper.”

The agency’s recent efforts to tighten enforcement aligns with Biden’s recent executive order to boost competition and lower prices for consumers across industries.

Biden specifically called out the healthcare sector in the latest executive order by stating a lack of industry competition is rising prescription drug and medical device prices.

“Hospital consolidation has left many areas, especially rural communities, without good options for convenient and affordable healthcare service,” the Biden-Harris Administration wrote in a fact sheet on the EO.

“Thanks to unchecked mergers, the ten largest healthcare systems now control a quarter of the market. Since 2010, 139 rural hospitals have shuttered, including a high of 19 last year, in the middle of a healthcare crisis. Research shows that hospitals in consolidated markets charge far higher prices than hospitals in markets with several competitors,” the fact sheet continued.

Research shows that mergers can benefit help hospitals that are struggling financially.

An AHA report indicated that annual operating experience and revenues per admissions both declined after hospitals were acquired. For example, the report showed that mergers were associated with a 2.3 percent reduction in annual operating expenses and a 3.5 percent decline in revenues per admission at acquired hospitals.

The report also linked hospital mergers and acquisitions to improved patient outcomes and care quality.