Lifespan, Care New England health care system merger blocked by federal and state regulators

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Federal and state regulators will take legal action to block Lifespan and Care New England Health System’s proposed merger, which officials say would raise prices, reduce quality and stifle wages.

Rhode Island’s two largest providers would control at least 70% of the general acute care and inpatient behavioral health markets, the Rhode Island Attorney General’s Office and the Federal Trade Commission said. The two regulators will file a lawsuit in federal court seeking a temporary restraining order and preliminary injunction to terminate the agreement, which Providence-based nonprofit Systems originally proposed in September 2020.

“If this extraordinary and unprecedented level of control and consolidation were allowed to go forward, nearly all Rhode Islanders would see their health care costs escalate for lower-quality, harder-to-access health care, and Rhode Island healthcare workers would be harmed,” Rhode Island Attorney General Peter Neronha wrote in a 150-page article. report.

While some mergers and acquisitions experts say state borders are too narrow to gauge competition, the combined health care system would still have dominant market shares after wrapping up in surrounding Massachusetts cities, according to analysis from the FTC. The merged system would still control at least 60% of the inpatient market and 50% of the inpatient behavioral health market.

Commissioner Rebecca Kelly Slaughter and Chair Lina Khan focused on the labor market impact.

“Just as consumers are worse off when mergers lessen competition for goods and services based on price, quality and innovation, workers suffer when mergers lessen competition for their labor and that employers are insulated from competition, resulting in improved wages, benefits, working conditions and other conditions of employment,” they wrote in a concurring statement. “We take concerns about competition in labor markets seriously and will be vigilant in examining the effects mergers may have on competition for workers’ jobs.”

Executives from Lifespan, Care New England and Brown University – which would be affiliated with the new system – said in statements they were disappointed with the decision.

“We thought it was the right thing to do, but now we will have to take a new path,” said CNE CEO Dr James Fanale. “There is always a way forward, and we will explore all options to find the best possible solution – and acceptable to regulators – for access to affordable, quality health care.”

Care New England and Lifespan have been partners for decades but have been unable to formalize merger talks.

Boston-based Mass Gen. Brigham pulled out of his planned merger with the CNE last June after Rhode Island’s governor signaled his strong desire for Providence’s health care system to retain local control. The partners’ decision came in response to Governor Gina Raimondo’s request that CNE, Lifespan and Brown University resume their own merger talks. Brown is affiliated with both Lifespan and CNE.

Lifespan and Care New England are unlikely to be able to salvage their proposal, mergers and acquisitions experts have said.

“Given the manner in which the AG made this decision, I don’t think an appeal to overturn this is likely to succeed,” said Robert Hackey, professor of health policy and management at Providence College. “The arguments the AG raises about market power are consistent with the FTC’s historical approach – we’re talking about (concentration levels) that are off the charts compared to other mergers.”

Each of the hospital mergers challenged by the FTC since 2004 involved smaller concentrations of market power than the Lifespan-CNE deal, according to the AG report.

Even if CNE’s Kent Hospital, which competes directly with Lifespan’s Rhode Island and Miriam Hospitals, were divested, there would be significant competitive impacts on the behavioral health, ambulatory care, primary care and labor markets. work, regulators said. Health system CEOs have been reluctant to control costs, push for quality improvements and ensure sufficient oversight, they said.

Lifespan and CNE could seek judicial review of the decision to block the merger, but that doesn’t look promising, said Beth Vessel, a partner at Waller Lansden Dortch & Davis who focuses on antitrust issues.

“I would bet they would eventually give it up,” she said.

Rhode Island unions had approved the merger, but “the meaningful concessions and protections” they were able to negotiate were “not sufficient to address the risks and harms of this proposed transaction,” the attorney general wrote.

“If you look at Lina Kahn’s statements, the FTC is laying down the gauntlet here that the federal government needs to take a more active role in promoting competition and protecting against anti-competitive transactions,” Hackey said.

Lifespan and the CNE were an odd couple, said Hackey, noting that there probably wouldn’t be much efficiency associated with integrating the psychiatric hospital and tertiary care facilities for women and infants. with community hospitals. Lifespan and CNE didn’t give enough details about how they would save money, the Rhode Island attorney general’s office said.

Care New England will likely seek to merge with another entity or pursue a more informal venture, experts said.

“Instead of transferring ownership, they could pursue a clinically integrated network, which would allow them to coordinate clinical services and jointly negotiate with payers, as long as they assume substantial financial risk,” said Joe Lupica, president. of Newpoint Healthcare Advisors. “I don’t know if a merger is necessary.”

Lifetime reported operating income of $89.1 million on revenue of $2.6 billion in 2021, compared to $55.1 million in operating revenue on $2.3 billion in revenue in 2020. It has received $266.9 million in COVID-19 relief grants as of September 30.

Lifespan posted an operating margin of 3.4% in 2021, which was its “best operating margin in more than a decade,” a spokesperson said, noting the increase in relief funding.

CNE has operated with thin or negative margins for years, which partly motivated its search for a merger partner. This reported an operating profit of $16.2 million on $1.3 billion in operating revenue in 2021, compared to an operating loss of $28.1 million on $1.1 billion in operating revenue operating in 2020. CNE was supported by the $142.2 million in COVID-19 relief grants it received late last year.

Lifespan and CNE submitted their revised application to the Rhode Island Department of Health and Attorney General in November, which began their formal review process. The FTC’s review also began in November, after the parties submitted their updated information request. Neronha had until March 16 to approve or reject the merger.

Although this transaction likely would have been challenged under most circumstances, regulators are investigating deals they may not have entered into in the past, Vessel said.

“For deals where there is a significant concentration of market share, hospitals will try to anticipate issues in advance and prepare their efficiency arguments,” she said.

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