Novant axes hospital deal after FTC pressure

The head of the competition division at the Federal Trade Commission took a victory lap this week by announcing that Novant Health has voluntarily withdrawn its offer to purchase several facilities in North Carolina from Community Health Systems, after an appeals court agreed with the agency to enjoin the deal pending appeal.

“With this deal off the table, Novant and Community Health Systems will continue to compete against one another, delivering better outcomes for patients in both quality of care and price,” FTC Bureau of Competition Director Henry Liu said Monday.

But the agency could end up regretting its win, critics say, because there’s a good chance the two hospitals Novant was going to buy will go out of business.

Davis Regional Psychiatric Hospital and Lake Norman Regional Medical Center, both near Charlotte, which Novant would have acquired along with other healthcare-related assets for $320 million, are both in financial trouble, according to findings by a federal district court in North Carolina, which examined the deal earlier this year.

The court found, and the FTC didn’t dispute, that the Davis hospital is likely to go out of business immediately if it’s not sold. The Lake Norman facility faces financial trouble that also puts its future in doubt.

“Absent the transaction … Davis will close (and Lake Norman’s) external competitive challenges … likely will shortly lead to its closing,” Judge Kenneth Bell of the western district of North Carolina said in June. He rejected the FTC’s request for an injunctionbut his was overruled last month by the 4th Circuit in a split decision.

Market concentration

The FTC argued before the district court and again before the circuit court that Novant would amass too much market share in the Charlotte area if the deal were to go through.

“There is overwhelming evidence that Novant’s deal with Community Health Systems will be detrimental to patients in the Eastern Lake Norman Area, including leading to higher out-of-pocket costs for critical health care services,” the agency said.

Novant rose to control nearly 65% ​​of the market for inpatient general acute care services in the area, the agency argued.

But Bell said the agency was putting its focus on the wrong part of the competitive landscape by targeting the deal.

“The Court needs to look beyond the economic numbers to assess the likelihood that, considering commercial realities, the merger may in fact ‘substantially lessen’ competition,” he said.

Among other things, he said, the hospital market in the Charlotte metropolitan area is already concentrated, with Novant and a competitor owning almost all of them, rendering the Lake Norman acquisition for all practical purposes, especially since its owner can’t give it resources to compete.

“How does (federal antitrust) law apply when a currently profitable hospital ‘competitor’ decides, for entirely legitimate reasons independent of a challenged merger, to simply quit trying to compete?” Bell said. “And, how are the public equities and interests affected if that hospital is not acquired?”

Bell described the hospital as a car whose owner can no longer afford to maintain it, so it will be driven until its wheels fall off. “A competitive ‘wreck’ appears to be on the immediate horizon,” he said.

That mirrors Novant’s position, the company indicated when it announced it was nixing the deal rather than spending two years appealing the injunction.

“We are steadfast in our belief that these facilities and their patients would have greatly benefited from joining Novant Health, but with the FTC’s continued roadblocks we do not see a way to finalize this transaction,” the company said in a statement statement to Fierce Healthcare. “The communities served by these facilities deserve better than the fate they’ve been dealt by the FTC so we will look for other ways to support patients and clinicians in these communities.”

Whatever the outcome ends up being for the hospitals, Novant’s decision to scrap the deal is a win for the agency that has made the healthcare space one of its primary targets for curbing consolidation.

“The FTC’s opposition to the transaction has been vindicated,” Liu said. “Novant’s and CHS’s decision to abandon their anticompetitive transaction after this ruling is a win for consumers.”