The Board should be mindful of the current public discourse on matters of “scale” and post-closing pricing in health care mergers.
A recent “Special Report” from Fitch Investors notes that “one of the age-old reasons to merge—to gain leverage with the payors—remains alive and well today,” and that hospital mergers often serve to lower overall costs. However, a newly published article in The New York Timeschallenges the presumption that hospital mergers benefit consumers with cheaper prices from coordinated services and other savings. Indeed, analysis conducted for the newspaper suggests the opposite to be true in many cases; i.e., that “mergers have essentially banished competition and raised prices for hospital admissions in most cases.”
The Board should understand that its consideration of “scale” and “leverage” in the context of M&A evaluation is fraught with material Clayton Act Section 7 risks. From an antitrust perspective, they are best applied as a basis to move the discussion to matters of “stakeholder value”; e.g., improved care, less costly care, greater access, etc. Focusing on the establishment (and achievement) of post-closing goals intended to lower costs, improve quality and increase access to care will be a more productive use of board oversight as it relates to transaction antitrust feasibility.
These factors are of special relevance given the Federal Trade Commission’s (FTC) November 27 announcement that it would not challenge a merger between two Massachusetts hospitals, based on a settlement agreement between the hospitals and the Massachusetts Attorney General addressing issues related to health care access, including certain price caps over a period of seven years.