Published in Health Care

Federal merger review backlog continues to stall Spectrum-Beaumont deal

BY Sunday, November 07, 2021 06:40pm

The regulatory review of the proposed merger between  Spectrum Health and Beaumont Health has taken longer than expected as the Federal Trade Commission examines a recent flood of deals.

Also, a July executive order from President Biden to encourage competition in the U.S. economy may have the FTC looking even harder at such deals, experts say. The Spectrum-Beaumont proposal would create the largest in-state  health system in Michigan.

Jeff LaBine, the leader of the Corporate and Transactions Group at law firm Miller, Canfield, Paddock and Stone PLC, said federal regulators under the Biden administration have taken a “far, far, far more aggressive approach to merger review.”

As a result, the Spectrum-Beaumont deal likely won’t close this fall as health system executives had hoped, as mergers of all types take longer to review under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976. The federal law requires companies in certain transactions to file pre-merger notifications with the FTC and the U.S. Department of Justice’s Antitrust Division to determine whether the proposed merger threatens competition.

As filings this year under Hart-Scott-Rodino went “through the roof compared to what they used to be,” the FTC “is moving a lot slower than ever before” on preliminary merger reviews, LaBine said.

LaBine said it’s unclear whether the FTC backlog stems from the administration taking a tougher stance or because the number of filings for pre-merger review doubled since September 2020. However, FTC Chairperson Lina Khan, who was sworn into the position in June, “has been clear that she didn’t like the way it was done before,” LaBine said.

“That slowness you can debate. There are different people who think it’s because they are really busy. Other people think this is a purposeful way to address challenges that they are not quite ready to make, but think they may want to, based on the guidance out of the White House,” LaBine said.

On Feb. 8, the FTC temporarily suspended granting early terminations to Hart-Scott-Rodino reviews that typically occurred within 30 days “if you had no anti-competitive issues,” LaBine noted. When issuing the suspension, the acting FTC chairperson cited a “historically unprecedented volume of filings during a leadership transition amid a pandemic.”

Months later, the FTC then said it planned to send out “warning letters” to inform parties to a proposed merger that pre-merger reviews could extend beyond 30 days, LaBine said.

“The rule is kind of: ‘Silence is a plus.’ If you send in all of your paperwork, do everything right, pay your fee, 30 days pass and you don’t get anything from the FTC or the DOJ, you could close your deal,” LaBine said. “Now, as of August, they’re sending letters that say, ‘We are reviewing, but we’re not done. Close at your own risk.’ It literally says ‘at your own risk.’”

Plans pushed back

Spectrum and Beaumont publicly announced their deal in June. They announced a formal integration agreement in early September while still hoping to close the merger and launch their new health system this fall.

Weeks later, the health systems said the deal would not close this fall because of a “surge in (FTC) filings across all industries” and that it “will take longer than originally anticipated to review.” The Sept. 24 statement said the two health systems “are currently responding to a request for additional information from the FTC, which the organizations understand has become increasingly common.”

In a statement to MiBiz, Spectrum Health reiterated the view that merging with Beaumont Health to create the new BHSH System was not anti-competitive. The new system would have 22 hospitals, more than 300 outpatient locations and operating revenues of $13 billion. Spectrum Health’s statement did not indicate when the two companies now expect to close the merger.

“We are continuing to cooperate with state and federal agencies throughout the regulatory review processes and are confident our proposed new health system follows and aligns with all antitrust laws, regulations and other legal obligations of the parties. ... It is clear that the service areas between the two health systems are not contiguous and that coming together would in no way decrease choice or competition,” Spectrum said in the statement. 

‘Cautiously optimistic’

As the federal review drags on, talk within the Grand Rapids business community about the merger has largely waned after initially high interest.

Some of the only local opposition came from Mike Freed, Spectrum Health’s former chief financial officer who issued an open letter to the health system’s directors in June that doubted whether the plan would achieve the intended goals. Freed, who retired in 2013 but no longer lives in Michigan, wrote that he only sees “the potential for massive financial loss, both historically and an undetermined amount going forward, to the region that produced all of Spectrum Health.” 

Meanwhile, directors at the Grand Rapids Area Chamber of Commerce and its Public Policy Council met with Spectrum Health executives in late August “to learn more about the impact this will have for payers as health care affordability remains a top issue for our business community,” said Vice President of Government Affairs Andy Johnston.

Directors opted against taking a formal position on the deal, but the Grand Rapids Chamber is “cautiously optimistic about the benefits of the merger and urges the Spectrum Health Board to remain laser-focused on providing affordable, high-quality care for consumers and payers as this merger moves forward,” Johnston said.

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