The Justice Department’s failed attempt to block UnitedHealth’s $13 billion health-tech turnaround could bode well for other mega-deals as the nation moves through the pandemic and health industry players tighten their growth plans.
The big picture: The decision comes after a Federal Trade Commission administrative judge rejected an effort by life sciences company Illumina to block its acquisition of cancer research company Grail. As President Biden’s antitrust team wraps up reviews and litigation in earnest, it underscores that the bark may be worse than the bite. Dan Primack of Axios writes.
Meanwhile, Large healthcare systems are transitioning to a world where more digital care is focused on the consumer experience. Under pressure from staffing and supply costs, systems are evaluating where they can increase profitability, sometimes by investing in satellite clinics and providing care outside hospital walls.
- “The art of better, cheaper and faster healthcare is now in focus,” Anu Singh, a partner in Kaufman Hall’s M&A group, told Axios.
Between the lines; Antitrust regulators have vowed to make health care a major target this year and are going to court to block deals to satisfy competition concerns.
- But they lack the resources to go toe-to-toe with powerful corporate legal interests.
- And efforts in Congress to give the DOJ and FTC more power also appear to be stalling.
- “They’re willing to bring cases and lose because they believe it increases the pressure on Congress to change antitrust laws,” Raymond James analyst Chris Meekins told Axios.
Be smart. Meekins found that UnitedHealth’s case shows that companies should expect to go to court, but they can still win, at least in vertically integrated deals where one company’s product is a component or complement of another.
Yes, but: The exception may be the integration of the hospital system, which is hindered by the courts.
- The FTC sued this summer to block a merger between two New Jersey hospital systems, which the systems abandoned.
- Following threats of legal action, HCA Healthcare has halted plans to buy five hospitals in Utah.
- Two Rhode Island hospital systems have scrapped merger plans after the FTC sued to block the deal.
While smaller discounts Still, horizontal integration of large health care systems could be challenging under the current regime, Meakins said.
Between the lines; Tech companies that offer ways to streamline business will be attractive targets for health systems with cash on hand, Singh said.
- Big Tech is looking for large health system partners, especially those with broad patient bases and diverse geographic footprints, Singh said.
- But it is still difficult to accurately assess when inflation and the overall market will stabilize.
- So far In 2022, the number of transactions will not be at the level they were before the pandemic, but there will be an increase in “mega” deals, with the Q2 Kaufman Hall report showing that deal values reached a historic high of $19.2 billion.
Context: Studies have shown that consolidation results in higher costs in the system without significant changes in the quality of care or access to care.
- There is now a body of scholarship showing that hospitals charge insurance companies higher prices when they have fewer competitors.
- The merger of the largest tax-exempt hospital systems is analyzed in a new way Jama Research It has led to a reduction in charity services in all the hospitals concerned.
- Hospital mergers can lead to lower wages and benefits for health care workers, ultimately hurting consumers.
- Experts suggest improving competitiveness in the marketplace, preventing large health systems from engaging in unfair contracting practices, and strengthening antitrust enforcement.
The main point is: With recent acquisition announcements like CVS-Signify Health and Amazon-One Medical, vertical health deals are showing no signs of slowing down.
- As the DOJ and FTC continue to target the health care sector, the success of the negotiations will depend on who tries to reach out to whom and how strong a legal team they can assemble.
