FTC Steps Back From MA Hospital Mega-Merger

Health Highlights

Late last month the Federal Trade Commission (FTC) closed its investigation of the proposed merger of several major healthcare institutions in eastern Massachusetts. The FTC’s decision not to challenge the transaction followed the Massachusetts attorney general’s announcement of a settlement with the parties that would allow the merger to take place subject to detailed conditions related to healthcare access and the imposition of pricing caps. The FTC’s forbearance is a welcome acknowledgement of the importance of state interests in healthcare for their communities, as well as the ability of state institutions to monitor and enforce complex behavioral remedies to avoid potential price increases or other anticompetitive outcomes from a healthcare transaction.

The Transaction

The proposed transaction brings together Care Group, Inc., the parent company of Beth Israel Deaconess Medical Center, Mount Auburn Hospital and New England Baptist Hospital, with Lahey Health System, Inc., and Seacoast Regional Health System. The resulting healthcare system—called Beth Israel Lahey Health (BILH)—will be the second-largest in Massachusetts after Partners Healthcare, which operates Massachusetts General, Brigham & Women’s and several other hospitals.

The parties disclosed their intent to combine in January 2017 and signed a final agreement in July 2017. Over the past 18 months, the FTC, the Massachusetts attorney general and the Massachusetts Health Policy Commission (HPC) cooperated in conducting in-depth reviews of the eastern Massachusetts healthcare market and the potential competitive impacts of the transaction.

Results of State Reviews

In September 2018, the HPC issued its final “Cost and Market Impact Review” Report on the transaction, finding:

  • The transaction would significantly enhance BILH’s bargaining leverage to obtain higher prices from commercial insurers.
  • As a result, total healthcare spending for inpatient, outpatient and primary care services could increase by $128 million to $170 million annually.
  • Spending on specialty physician services could increase by $29.8 million to $59.7 million annually.
  • The parties’ care delivery plans and plans to shift care to lower-cost settings may result in savings, but the savings would not offset spending increases if prices increased.
  • The parties stated that internal cost savings and new revenue would allow them to invest in their plans and be successful without price increases, but did not offer commitments to limit future price increases.
  • Although the BILH system has among the lowest mix of Medicaid discharges and emergency department visits for non-white and Hispanic patients in eastern Massachusetts, and is an important provider of behavioral health services, the parties did not offer commitments to expand access for Medicaid patients.

Based on these findings, the HPC (which does not have the power to approve or deny a merger) voted to refer the transaction to the attorney general “to assess whether there are enforceable steps that the parties may take to mitigate concerns about the potential for significant price increases, and maximize the likelihood that BILH will enhance access to high quality care, particularly for underserved populations.”

Following the HPC’s report and referral, the parties entered into negotiations with the attorney general, resulting in a settlement announced on November 29, 2018. The key elements of the 55-page “Assurance of Discontinuance” filed in Massachusetts Superior Court are:

  • A cap on price increases in contracts with commercial payers and managed Medicaid payers for seven years.
  • Continued participation by all BILH facilities in the state’s Medicaid and Children’s Health Insurance Program (MassHealth) indefinitely, and commitments to have all physicians and other licensed providers apply to participate in MassHealth within three years.
  • Requirements to market and advertise the availability of BILH providers for MassHealth patients to underserved populations in specific geographies.
  • Obligation to fund and distribute at least $40.96 million to affiliated community healthcare organizations and safety net hospitals over eight years and provide an additional $8.8 million in direct financial support to those entities.
  • Obligation to fund and distribute at least $5 million in strategic investments to expand access to needed healthcare services for communities of color and low-income communities.
  • No-hire obligations with respect to primary care physicians employed by safety-net hospitals and community health centers and non-solicit provisions with respect to departments that are part of a safety-net hospital.
  • Creation of a behavioral health services program, funded through an investment of at least $16.9 million.
  • Governance commitments, including the appointment of a community healthcare leader to the BILH board of trustees.
  • Extensive, regular reporting requirements for a period of 10 years.
  • Appointment of an independent third-party monitor, paid for by BILH but approved by the attorney general, to monitor compliance with BILH’s obligations under the settlement for a period of 10 years.

The FTC’s Decision Not to Challenge

On November 29, 2018, the FTC announced that, in a “close call,” it had closed its investigation of the proposed merger. The statement noted the FTC’s many recent successes in challenging hospital transactions, implying that if a challenge had been brought along traditional antitrust lines in this case, it would likely have been successful.

The stated reason for the FTC’s decision to step back from a potential challenge to the transaction was that the settlement helped achieve the state of Massachusetts’ healthcare goals through preserving access to healthcare for underserved populations in Massachusetts and limiting price increases for Massachusetts healthcare consumers. The FTC noted that it generally does not pursue behavioral remedies such as those negotiated here, and that the transaction may present it with a good opportunity to conduct a retrospective study of merger effects to determine whether the remedies have been effective and whether the claimed efficiencies are achieved.


In light of its consistent track record of opposing healthcare mergers that it believes will likely increase prices, the FTC’s decision not to challenge the BILH transaction reflects an acknowledgement of the important role of state interests and institutions in regulating the healthcare available to a state’s citizens. Most of the FTC’s successful merger challenges have been undertaken hand-in-hand with the affected states. And even though the FTC vociferously opposed Tennessee’s and West Virginia’s grant of a Certificate of Public Advantage (COPA) to Mountain States Health Alliance and Wellmont Health System to form Ballad Health, those views were expressed in the context of state processes considering grants of approval through a COPA, which the FTC has not subsequently challenged.

The FTC’s emphasis that the decision not to challenge was a “close call” underscores its skepticism about the ability of behavioral remedies, such as price caps and commitments, to provide access to mitigate anticompetitive effects. Both the FTC and the Department of Justice have expressed a rejection of such remedies over the past several months in favor of structural remedies (i.e., divestitures) that effect lasting change in the affected market. For example, the director of the FTC’s Bureau of Competition described the FTC’s role as “antitrust enforcers … not price police.”

States, on the other hand, seem to be more prepared to act as regulators rather than limit themselves to an antitrust enforcement role. The healthcare industry already is subject to state oversight by state departments of health, insurance commissioners, attorneys general and others. Accordingly, states may be more accepting of behavioral remedies to achieve important state healthcare objectives, and more confident that they have the resources and ability to monitor and enforce such remedies effectively. The Ballad Health COPA, for example, includes detailed obligations on the part of the merged entity and extensive monitoring and enforcement provisions. The BILH settlement similarly envisages an ongoing role for the attorney general in engaging with the health system on how its obligations are to be fulfilled and in monitoring compliance.



pursuant to New York DR 2-101(f)

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