On January 25, 2024 the Federal Trade Commission (FTC) sued to block Novant Health (Novant) from acquiring two North Carolina hospitals, Lake Norman Regional Medical Center and Davis Regional Medical Center from Community Health Systems (CHS). The FTC alleges that the proposed $320 million transaction—which was first announced in February 2023— would threaten to substantially lessen competition for healthcare services in an area it defines as the “Eastern Lake Norman Area” of North Carolina. This is the first hospital merger challenge brought by the FTC under the new Merger Guidelines that it published jointly with the Department of Justice (DOJ) in December 2023.1

In its complaint,² the FTC alleges that the deal is unlawful because it would:

• Significantly increase concentration in the “already highly concentrated” market for inpatient general acute care (“GAC”) services sold to commercial insurers and their health plan members in the Eastern Lake Norman Area³, and allow Novant to control a significant percentage of the Eastern Lake Normal Area market;

• Lead to the elimination of price competition between CHS and Novant, giving insurers fewer competing alternatives for inpatient GAC services in the Eastern Lake Norman Area; and

• Eliminate head-to-head non-price competition between CHS’s Lake Norman Regional and Novant Huntersville, which the complaint alleges are “significant competitors” and “good substitutes.”

The FTC cites a number internal documents from the parties as evidence of the alleged head-to-head competition. The FTC’s extensive redactions of that evidence, however, makes it impossible to independently assess the strength of the FTC’s claims.

FTC’s proposed presumption of illegality

The complaint cites to the recently lowered structural presumptions published in the recently finalized 2023 Merger Guidelines,⁴ which have yet to be adopted by courts, stating that a merger is presumptively illegal if it increases the Herfindahl-Hirschman Index (HHI) of a relevant market by more than 100 points and results in either a post-merger HHI greater than 1,800 or a post-merged firm market share of greater than 30%. Notably, the FTC also alleges that the proposed transaction would result in a post-acquisition HHI of above 3,500 points and a change in HHI over 1,000, and that Novant would control nearly 65% of the market for inpatient GAC services in the Eastern Lake Norman Area of North Carolina. Based on these allegations, the transaction also would have met the thresholds for a structural presumption under the 2010 Horizonal Merger Guidelines, which have been largely adopted by courts. In addition, the FTC alleges that the transaction would reduce the number of health care providers offering inpatient GAC services in the Eastern Lake Norman Area from four to three.

Next steps

The FTC’s complaint and request for preliminary relief was filed in the U.S. District Court for the Western District of North Carolina. If the litigation moves forward, this case could be indicative of how, and to what extent, courts adopt the lowered presumptions published by the federal antitrust agencies in the 2023 Merger Guidelines.

References

1 FTC press release, “FTC Sues to Block Novant Health’s Acquisition of Two Hospitals from Community Health Systems” (Jan. 25, 2024) available here.

2 FTC v. Novant Health, Inc. et al., No. 24-cv-00028 (W.D. N.C.).

3 The FTC’s complaint defines the relevant geographic market “The Eastern Lake Norman Area,” which includes Iredell County and northern Mecklenburg County, North Carolina.

4 Hogan Lovells, “FTC and DOJ publish long-awaited draft of proposed merger guidelines” (Dec. 20, 2023) available here.

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