BLOG: New draft merger guidelines: Practical implications for practice transactions
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Key takeaways:
- The FTC and DOJ released a draft of new guidelines describing how they will review mergers and acquisitions.
- Providers should recognize that antitrust authorities are taking a harder look at many transactions.
President Biden’s administration has had a sharp focus on competition issues in health care mergers and acquisitions.
Its latest move was the release of new draft merger guidelines this summer, which have significant implications for the health care sector and physician practice transactions in particular.
Image: Adobe Stock
Previously, in July 2021, the President released an Executive Order on Promoting Competition in the American Economy. Two industries that featured prominently were technology and health care, with the executive order asserting that “Americans are paying too much for prescription drugs and healthcare services — far more than the prices paid in other countries.” The executive order went on to announce that the “policy of my Administration [is] to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony — especially as these issues arise in ... healthcare markets ... .”
Buyers for physician practices are often repeat players, and federal antitrust enforcers have given substantial attention to potential harms from “serial acquisitions.” In November 2022, the Federal Trade Commission (FTC) released a policy statement addressing its enforcement of Section 5 of the FTC Act, which prohibits unfair methods of competition. The FTC announced it would be expanding use of the statute for mergers that have a “tendency to ripen” into antitrust violations and “series of mergers ... that tend to bring about” antitrust harm.
Most recently, on July 19, the FTC and Department of Justice (DOJ) released a draft of new guidelines describing how they will review mergers and acquisitions. While the FTC and DOJ had historically relied upon a presumption when litigating in court to argue that a merger that creates a business with approximately 30% market share is anticompetitive, the new draft guidelines adopt that presumption at the investigation stage (rather than the litigation stage), regardless of the level of concentration in the market. Any transaction involving a party with at least 30% market share is now likely to receive significant scrutiny into whether they are entrenching or extending a “dominant” position. Moreover, the draft guidelines state that the authorities will consider whether a transaction is furthering a “trend” of vertical or horizontal consolidation and whether the current transaction accelerates that trend in some way — even if the specific transaction at issue results in only a small change in concentration itself. If a transaction is part of a buyer’s pattern or strategy of small acquisitions, the draft guidelines state that the transaction will be evaluated in that larger context and may be unlawful “even if no single acquisition on its own would risk substantially lessening competition or tending to create a monopoly.” The draft guidelines are currently subject to a public comment period and, if and when finalized, would not bind courts, but courts often use merger guidelines as persuasive authority.
So, what are the implications of this focus on health care and enforcement policy changes that have direct implications for physician practice sales?
- Diligence on buyers is important. Not all buyers are created equal when it comes to antitrust risk. As a seller, speed and closing certainty are paramount, and antitrust investigations can slow a transaction significantly. When evaluating offers from potential buyers, you should consider not just valuation but the risk that the transaction could face an in-depth antitrust review because of the acquirer’s market share or prior acquisitions. Sophisticated legal counsel will be well versed in analyzing and navigating these risks.
- A seller’s internal documents assessing competition could become a relevant factor. If a potential buyer has been engaged in multiple physician acquisitions, there is a greater likelihood that antitrust authorities will want to see ordinary course business documents from both the buyer and the seller, given authorities’ focus on “trends” in consolidation and “serial acquisition” practices. Sellers and their counsel should consider these documents when assessing the overall antitrust risk with any proposed transaction.
- Plan for more involved investigations. Health care is just one of several antitrust enforcement priorities, and the real-world impact on physician practice acquisitions remains to be seen, given the FTC’s and DOJ’s need to allocate limited enforcement resources. But health care providers should recognize that antitrust authorities are taking harder looks at many more transactions than in the past — asking more questions and reviewing more documents. Parties should take this into account when planning for a transaction — not only in developing what a timeline to closing might look like, but also by developing evidence in support of the transaction in advance of any potential antitrust inquiries so that questions can be resolved as quickly as possible.
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