What health systems should know about President Biden’s Executive Order Promoting Competition

Hogan Lovells

Hogan Lovells

On 9 July 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy (“EO”) that takes aim, in part, at the healthcare industry. Although the EO is intended to promote competition across several industries, it affirms the Biden Administration’s policy of vigorous antitrust enforcement in insurer, hospital, and prescription drug markets. The EO addresses hospital and health system transactions directly, and states that “hospital consolidation has left many areas, particularly rural communities, with inadequate or more expensive healthcare options.” Separately, and not limited to healthcare, the EO targets non-competition agreements that may impact workers by encouraging the Federal Trade Commission (“FTC”) to consider exercising the FTC’s statutory rulemaking authority to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

The EO follows a year of active antitrust enforcement in the hospital merger space, but it signals that hospital (and other provider) M&A will face even closer scrutiny going forward. Health systems considering transactions with another health system, an insurer, or a large physician group, should therefore be prepared to engage with federal and state antitrust enforcers and to explain in detail the competitive landscape in their region and how the transaction will benefit patients, employers, and insurers in their area.

Even before the EO, health system M&A has been a focus of the FTC, as well as State Attorneys General. In 2020, the FTC challenged three hospital mergers after conducting lengthy investigations: Thomas Jefferson University’s health system acquisition of Einstein Healthcare Network in the Philadelphia area; Methodist Le Bonheur Healthcare’s proposed acquisition of two hospitals, known as Saint Francis, from Tenet in Memphis, Tennessee; and Hackensack Meridian Health’s proposed acquisition of Englewood Healthcare in Bergen County, New Jersey. Methodist Le Bonheur and Tenet abandoned their transaction shortly after the FTC’s challenge, and litigation is ongoing in the Hackensack Meridian/Englewood transaction. Einstein (represented by Hogan Lovells) and Jefferson Health defeated the FTC’s bid the block the transaction and plan to close in 2021.[1]

In spite of the FTC’s loss in the Jefferson/Einstein litigation, the Acting Assistant Director for the FTC’s Mergers IV Division and lead FTC lawyer for the case stated that it would be a mistake to assume the case would lead the FTC to scale back hospital merger enforcement.[2] Similarly in 2020, Commissioner Rebecca Slaughter specifically named healthcare as one of a few key industries where “[t]he American public wants the antitrust agencies . . . to combat market power” and that “now [the FTC] has the opportunity to take its demand to the next level.”[3] The FTC also initiated a retrospective study on the impacts of physician group and healthcare facility consolidation from 2015 to 2020.[4] Furthermore, the FTC held an open meeting of the Commissioners on 1 July 2021, signaling that “today’s FTC is ready to take on the challenge of the modern economy” and including healthcare businesses and hospitals on its list of enforcement priorities.[5]

Congress has also shown bipartisan support for further antitrust scrutiny in the healthcare industry. For example, on 21 May 2021, the Senate Judiciary Committee’s Subcommittee on Competition, Policy, Antitrust and Consumer Rights held a hearing titled “Antitrust Applied: Hospital Consolidation Concerns and Solutions,” with Senators on both sides of the aisle indicating that they are concerned about the loss of competition and impact on patients from healthcare provider consolidation.

While recent history shows the FTC has had an active antitrust enforcement program with respect to hospital mergers, the EO underscores the attention that the federal executive and legislative branches will be paying to provider consolidation in the months and years to come. It also makes clear that the FTC, now under the leadership of Biden-appointee and Chair Lina Khan, will be taking an even closer look at the hospital transactions under the agency’s review. Further, the EO directs the U.S. Department of Justice (“DOJ”) and FTC to review the horizontal and vertical merger guidelines and consider whether to revise those guidelines. This review and potential revision of the guidelines could significantly shift the framework the antitrust agencies apply during an investigation or challenge to a transaction.

Now more than ever, hospitals and health systems that are considering mergers and acquisitions – whether with another health system, an insurer, or a large physician group – should assess the potential antitrust risk associated with a proposed transaction early in the negotiations and develop a strategy for engaging with federal and state antitrust enforcers. It is also critically important for health systems to be able to explain their rationale for the transaction and the pro-competitive benefits associated with the deal and to build into their transaction timeline enough time to engage with antitrust enforcers and comply with voluntary requests for information and Second Requests. In some instances, it may be necessary for the parties to undertake detailed integration planning in order to clearly demonstrate the potential benefits of the deal to enforcers. Ultimately, engaging antitrust counsel early in the transaction process can help health systems plan for and manage a potential investigation by federal and state antitrust enforcement agencies.

Non-compete agreements – sometimes referred to as “no poach agreements” – have also recently been under the microscope of the federal antitrust enforcers. In 2021, DOJ has brought criminal cases against at least three healthcare entities and their executives related to alleged no poach agreements. But the antitrust agencies are not just concerned about alleged naked agreements between companies not to compete for workers, they are likely to extend their concern to restrictions on competition for workers that have previously been considered permissible under both federal and state law. The EO, which states that “consolidation has increased power of corporate employers, making it harder for workers to bargain for higher wages and better work conditions,” confirms that the antitrust agencies under the Biden Administration will continue to make existing non-compete agreements and other restrictive provisions enforcement priorities. At this point it is unclear how the antitrust enforcement agencies might view clauses common in physician employment contracts: relatively short-term non-compete clauses that are restricted to a small local area and bargained for in exchange for guaranteed compensation. Therefore, employers in the healthcare space should continue to evaluate whether their existing employment contracts or contract templates include non-compete clauses and how those clauses might affect competition for employees. Employers should consider incorporating this assessment into their compliance programs and consult with antitrust counsel regarding non-compete agreements going forward.

[1] Jefferson Health Press Release, Einstein Healthcare Network and Jefferson Health Merger Clears Final Hurdle, Mar. 1, 2021, available at https://hospitals.jefferson.edu/news/2021/03/einstein-jefferson-health-merger.html.

[2] Mucchetti, P., Braun, C., Oliver, L., Seidman, M., Welsh, E. (Mar. 24, 2021). Hospitals Under the Microscope. American Bar Association Antitrust Law Section 69th Antitrust Law Spring Meeting.

[3] Antitrust at a Precipice: Remarks of Commissioner Rebecca Kelly Slaughter As Prepared for Delivery, Nov. 17, 2021, available at https://www.ftc.gov/system/files/documents/public_statements/1583714/slaughter_remarks_at_gcr_interactive_women_in_antitrust.pdf.

[4] FTC Press Release, FTC to Study the Impact of Physician Group and Healthcare Facility Mergers (Jan. 14, 2021), available at https://www.ftc.gov/news-events/press-releases/2021/01/ftc-study-impact-physician-group-healthcare-facility-mergers.

[5] FTC Open Commission Meeting (July 1, 2021) and FTC Press Release, FTC Authorizes Investigations into Key Enforcement Priorities (July 1, 2021), available at https://www.ftc.gov/news-events/press-releases/2021/07/ftc-authorizes-investigations-key-enforcement-priorities.


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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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