Dive Brief:

• The Federal Trade Commission says Novant Health’s proposed purchase of two Community Health Systems hospitals would “irreversibly consolidate” the hospital market in the northern suburbs of Charlotte, North Carolina, stifling competition and driving up prices.
• The proposed $320 million transaction would add Lake Norman Regional and Davis Regional Medical Center to Novant’s portfolio. The antitrust agency sued to block the deal in January. 
• In a court memo filed publicly Monday, the FTC sought a preliminary injunction to bar the sale from continuing. The agency alleged the deal would grant Novant an “eye-popping” 64% share of the market and was thus “presumptively unlawful.” The Supreme Court previously held mergers that resulted in a single entity controlling 30% of the market, according to the filing.

Dive Insight:

Novant Health is one of the largest health systems in the southeastern U.S., with 19 medical centers and over 850 outpatient locations across the Carolinas. Six of its hospitals are in the greater Charlotte market, according to the court documents. 

Its total revenue was $7.6 billion in 2022, according to documents filed by the FTC.

The nonprofit health system has grown through a series of mergers, according to the court documents filed Monday. Last month the health system closed its most recent deal to purchase three South Carolina hospitals from Tenet Healthcare for approximately $2.4 billion.

Novant now seeks to purchase Davis Regional and Lake Norman Regional —  the latter of which sits just 12 miles down the road from Novant’s Huntersville facility. Novant and CHS executives consider the Lake Norman and Huntersville hospitals to be “close competitors,” according to the preliminary injunction. 

The proposed deal would “immediately wipe out this competition, reducing defendants’ incentives to invest in quality care and leaving fewer options for patients,” warned the FTC. 

The antitrust agency argued the deal could also increase Novant’s leverage over insurers, allowing the system to negotiate higher rates. In turn, individual health plan members could experience higher premiums and out-of-pocket costs as a result of the deal. The FTC estimated the proposed transaction would increase consumer prices by approximately 18% at Lake Norman Regional and 4% at Novant Huntersville.

In a statement to Healthcare Dive last month, a Novant spokesperson said the health system planned to defend the deal and “pursue available legal responses to the FTC’s flawed position.”

Novant has pointed to Atrium Health’s planned 2025 opening of a 30-bed hospital in Cornelius, North Carolina, as evidence that competition will remain in the region after the deal. However, the FTC slammed that assertion, stating, “defendants cannot come close to demonstrating new hospital entry or expansion in the relevant geographic market would offset the overwhelming evidence of this deal’s anticompetitive effects.”

The agency added that Novant’s purported quality improvements at the hospitals amounted to unspecific “hand-waved aspirations,” that could be achieved without a merger.

An evidentiary hearing in the case is slated for April 29.

Hospital mergers and acquisition activity increased in 2023,  with an average deal size — measured by the size of the smaller party — of $591 million, according to a January report from Kaufman Hall. 

Regulator scrutiny of deals rose as well. 

In December, the Department of Justice and the FTC issued the first meaningful update to merger guidance in more than a decade to give regulators more power to review vertical and cross-market deals, as well as private equity “roll-ups” of multiple companies.

John Muir Health’s proposed $142.5 million purchase of Tenet Healthcare’s San Ramon Regional Medical Center fell apart in December after the FTC sued to block the transaction, citing antitrust concerns.

Experts predict that more health system tie-ups will face FTC review and possible litigation this year.

However, Peter Blau, managing partner of healthcare services and solutions at DHR Global, said health systems are unlikely to be dissuaded from pursuing mergers and acquisitions.

“They're having difficulty recruiting staff, both clinical and nonclinical executives. They are experiencing reimbursement challenges,” Blau said. “So for a lot of these facilities, it’s a very challenging time. It’s very attractive for them to go out and find partners that will allow them to continue to exist and serve the community.”

He called regulators’ renewed efforts to regulate such deals a catch-up effort, akin to trying to stop a “ball that’s already rolling downhill.”