Healthcare providers need to take off their rose-colored glasses when considering a merger or acquisition.
When Sanford Health proposed the acquisition of Mid-Dakota Clinic in North Dakota, it sounded like a good idea. Sanford Health is the largest health care provider in the Dakotas. Gosh, they’re even the largest employer in the Dakotas! Mid-Dakota Clinic is a large multi-specialty group with 90 providers and 400 staff in five locations, with nine clinics in the Bismarck area alone. Such a large merger would undoubtedly bring increased efficiencies and lower health care costs to a population center of 125,000, or so thought the folks from Sanford Health.
The Federal Trade Commission didn’t quite see it that way. In fact, the FTC, along with the State of North Dakota, moved to block the merger on the grounds that it would significantly limit competition for health care in the region. While Sanford claimed to be “shocked” by the FTC’s move, the matter has now wound its way up to the federal Eighth Circuit Court of Appeals (only a step away from the US Supreme Court). And, what is undoubtedly even more shocking to Sanford, the Eighth Circuit upheld the FTC challenge of the transaction.
While Sanford may be reeling from this outcome and the proposed merger may need to be re-examined, there are good lessons to be learned for other health care providers:
- Health care transactions are subject to anti-competition review and the government believes that competition drives innovation and lower costs.
- Even when a health care system is the largest or one of the largest employers in the region (which is not unusual), the government can still challenge a deal.
While we don’t know the advice that Sanford sought prior to the merger attempt with Mid-Dakota Clinic, third party reviews of any health care merger must address possible antitrust implications. A third party would objectively review whether the post-merger organization has the possibility of limiting competition for health care choice, diminishing pricing competition for third party payor contracts and reducing competition for physicians. If an antitrust issue is possible, the merger team consisting of in-house resources, the transaction consultant, outside legal counsel, and the outside accounting firm can perform an in-depth review of the transaction to advise on the potential risks of the merger being reviewed and blocked by antitrust concerns.
An old English proverb says the “the optimist looks at the world through rose-tinted spectacles.” Ann Landers observed that “rose-colored glasses are never made in bifocals.” Those involved in healthcare M&A may want to check their prescription.
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