FTC Sues to Block Methodist Le Bonheur-St. Francis Transaction

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On November 12, 2020, the Federal Trade Commission (FTC) sued to block the acquisition of two Memphis-area hospitals by Methodist Le Bonheur Healthcare. Eleven months earlier, on December 12, 2019, Methodist entered into an agreement with Dallas-based Tenet Healthcare Corporation to purchase Saint Francis-Memphis and St. Francis-Bartlett (along with their associated physician practices, urgent care centers, and other ancillary care providers) for $350 million. In the administrative complaint, the FTC alleges that successful consummation of this transaction would result in substantially lessened competition in the market for inpatient general acute care (GAC) services in Memphis, ultimately harming patients.

Methodist is the largest healthcare provider in Memphis, operating four inpatient GAC hospitals and one children’s hospital in southwestern Tennessee. All told, Methodist, which also operates a hospital in Mississippi just 23 miles from Memphis, has over 1,700 licensed beds, 84 outpatient centers, and almost 500 employed or affiliated physicians in the Memphis Metropolitan Statistical Area.

Post-transaction, Methodist would be one of only three GAC providers in Memphis and, as alleged by the FTC, one of only two GAC providers of any competitive significance. Baptist Memorial Healthcare is the second largest healthcare provider in the Memphis area, operating four hospitals; Regional One Health also operates a single GAC hospital, but provides a more limited set of services and primarily serves patients without commercial insurance. As such, the acquisition of Tenet’s St. Francis hospitals would result in Methodist operating seven of the 12 GAC hospitals in Memphis, or an almost 60% share of licensed beds.

The FTC’s complaint alleges that Methodist and St. Francis compete closely with one another. Each system’s internal documents and strategy plans directly reference the other as one of its closest competitors. Moreover, each system tracks quality scores, brand recognition, and advertising of the other, as well as regularly opposes Certificate of Need applications made by the rival system and competes for physician recruitment. The FTC posits that the transaction would eliminate this head-to-head competition that has historically led to technological investment and higher quality for patients.

The FTC also alleges that the proposed acquisition would increase Methodist’s bargaining leverage with insurers: Methodist would be able to increase reimbursement rates, where competition with St. Francis had previously served as a competitive check, as well as decrease insurers’ ability to exclude Methodist from narrow network insurance products in a region where narrow networks are prevalent.

FTC’s suit to block this acquisition continues a trend of aggressive enforcement actions on behalf of the agency, despite the unique operational and financial challenges facing healthcare providers due to the COVID-19 pandemic. In January 2020, FTC Commissioner Christine Wilson vowed that the FTC “is intent on challenging every hospital merger that's going to produce anti-competitive effects"[1] and this suit represents yet another transaction being intensively investigated at this time. It follows the FTC’s similar challenge of Thomas Jefferson University Hospital’s proposed acquisition of Einstein Healthcare Network in the Philadelphia area and suggests that the FTC’s close monitoring of industry consolidation will continue.

[1] These comments were made at a Jan. 16 healthcare policy event in Washington, D.C., hosted by the Council for Affordable Healthcare Coverage.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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