Jun 26, 2023 - Health

States look to crack down on health care mergers

Illustration: Annelise Capossela/Axios

California and New York are among the states that are heightening scrutiny of health care mergers, by giving attorneys general the ability to block deals or creating new processes to review whether certain acquisitions could drive up costs or lead to the elimination of services.

Why it matters: The activity could augment the work of the Justice Department and Federal Trade Commission, which are increasingly focused on anticompetitive behavior in the sector but usually limits merger reviews to deals valued at more than $101 million.

Driving the news: Starting in January, California companies will have to give a state entity created last year called the Office of Health Care Affordability 90 days notice of deals projected to be finalized on or after April 1, 2024.

  • If the proposed deal is found to have negative consequences on the market, the office can then ask the attorney general to intervene.
  • The change is prompting some corporate attorneys in the state to encourage clients to speed up impending M&A plans, to avoid the state reviews.
  • If hospitals are considering mergers or deals in the next year or so, the advice is, "you might want to give serious consideration to getting it done this year," Paul Gomez, a Los Angeles-based attorney at Polsinelli, told Axios.
  • The review process includes a preliminary report, comment period and final report could take months. The law is written broadly enough to potentially apply to a wide spectrum of health interests, from insurers to provider groups as well as hospitals, Gomez said.

Zoom out: Other states, like New York, are also upping their scrutiny of health care mergers.

  • New York passed a law earlier this year that requires health care entities to give the state a 30-day notice before closing any deal.
  • Maine repealed a law that exempted some health system and provider deals from antitrust laws — a move the FTC praised.
  • While most states require advanced notice of health care mergers, only Connecticut, Massachusetts, Oregon and Washington mandate "notice of all transactions between health entities, including hospitals, provider groups and insurers," researchers at the Center for American Progress write.

The big picture: States are providing another layer of scrutiny behind the FTC, which some experts say hasn't kept up with rapid consolidation in health care.

  • "If you look at FTC's funding over the years it's not keeping pace with what they need," said Emily Gee, senior vice president at Center for American Progress.

Yes, but: Some states are taking steps to encourage more consolidation, especially with hospitals.

  • The FTC recently sent a warning letter to North Carolina lawmakers considering a bill to exempt the University of North Carolina from antitrust laws.
  • Previously, California has not shied away from challenging anticompetitive behavior, albeit in a lengthy, drawn out court process like the one then-state Attorney General Xavier Becerra brought against Sutter Health.

What's next: California's Office of Health Care Affordability is planning to release draft regulations that clarify the new merger review process this summer, Vishaal Pegany, deputy director of the office, said in a statement.

  • The new office's goals include increasing transparency in the health market and assessing how deals affect affordability for residents. While it can't actually stop a health care deal, the office can enlist the attorney general or Department of Managed Health to further review anticompetitive behavior.
Go deeper