Novant Health called off its plans to acquire two struggling North Carolina-based hospitals from Community Health Systems on Tuesday, after an appellate court granted federal regulators more time to challenge the deal.
It’s an abrupt end for the proposed $320 million deal, which previously seemed days away from closing.
The Federal Trade Commission, which sued to block the deal in January, argued the sale would harm competition and drive up prices in the Greater Lake Norman, North Carolina area. A district court didn’t agree and ruled twice in Novant’s favor, arguing the CHS-owned hospitals — Lake Norman Regional Medical Center and Davis Regional Medical Center — were likely to close without the buy.
The FTC appealed. In a 2-1 ruling on Tuesday, the 4th U.S. Circuit Court of Appeals granted the antitrust agency more time to plead its case pending appeal, and blocked the deal from moving forward in the meantime.
Novant said it would abandon its merger given the ruling, telling Healthcare Dive in an email it didn’t see a path forward.
“Despite our vision to restore services the area has lost and deliver high quality, remarkable care, we have been met with opposition from the Federal Trade Commission at every step,” a Novant spokesperson said. “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.”
CHS is in the process of “evaluating the current operations” at Lake Norman regional and Davis Regional, the system said in a press release on Wednesday. There are no immediate plans for changes to patient services at the facilities, according to CHS.
Should the facilities close, North Carolina law would require CHS to provide notice to the state health department prior to shuttering.
The outcome shouldn’t be viewed as a full win for the FTC, according to Nathan Ray, lead of healthcare M&A at consultancy West Monroe.
"If this is winning, the FTC should be cognizant of their own approach. The most recent judgment was not in their favor prior to this appeal and injunction,” Ray said. “[By] creating a deal slowdown and more motivation to walk away instead of winning on their grounds, the FTC [is creating] more uncertainty, which is not a positive outcome for anyone."
U.S. Circuit Judge J. Harvie Wilkinson III, who dissented on the appellate court ruling, said he worried about whether the hospitals could remain open through a two-year appeal.
“Given the evidence I am not sure any financially hard-pressed healthcare facility would have that amount of time,” Wilkinson wrote.
The judge added that he would feel differently about the matter if it concerns a tie-up between “two behemoths.” However, he could not “see how this transaction involving these relatively small facilities would be anticompetitive.”
