Judge rejects FTC plan to block Novant’s purchase of NC hospitals

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  • A judge has rejected the Federal Trade Commission's request for an injunction blocking Novant Health from buying two hospitals in Iredell County.
  • US District Judge Kenneth Bell questioned FTC's arguments that the sale would have anticompetive impacts on healthcare services in the region.
  • Without the sale, one of the two targeted hospitals would close soon and the other likely would close eventually, Bell concluded.

A federal judge has refused to issue an injunction blocking Novant Health’s $320 million purchase of two hospitals in Iredell County. The Federal Trade Commission had requested the injunction as part of a federal antitrust action.

State Treasurer Dale Folwell had filed a friend-of-the-court brief supporting the FTC’s bid to block the hospital sale.

Novant seeks to buy Lake Norman Regional Medical Center and Davis Regional Psychiatric Hospital from Community Health Systems.

US District Judge Kenneth Bell issued a 55-page order Wednesday explaining his decision to reject federal regulators’ request.

“Antitrust law, specifically the Clayton Act, serves the important public interest of promoting fair and robust markets by prohibiting horizontal mergers that may substantially lessen competition,” Bell wrote. “This case, however, raises an unusual question: How does that law apply when a currently profitable hospital ‘competitor’ decides, for entirely legitimate reasons independent of a challenged merger, to simply quit trying to compete? And, how are the public equities and interests affected if that hospital is not acquired?”

“The hospital market in the Charlotte metropolitan area is already heavily concentrated,” Bell explained. Of 19 hospitals in an eight-county area around the Queen City, Novant owns seven, while competitor Atrium Health owns nine. Atrium will expand again with the completion of its own Lake Norman hospital.

“The FTC argues that the merger of LNR into Novant will exceed the FTC’s ‘Merger Guidelines’ that indicate a merger is presumptively likely to have anti-competitive effects,” Bell wrote. “While the FTC is correct that in one or more ‘relevant markets’ the level of combined market share and market concentration will be outside the permitted guideline range after Novant’s purchase, this appears to be in large measure the result of Novant’s substantial current market share and the already concentrated market rather than LNR’s own competitive presence. Thus, the Court needs to look beyond the economic numbers to assess the likelihood that, considering commercial realities, the merger may in fact ‘substantially lessen’ competition.”

Under current ownership, Lake Normal Regional has bene placed in a “relatively insignificant competitive position,” Bell explained. “In other words, although LNR is profitable for now, if LNR is not sold to Novant it seems clear that – like a car that its owner can’t afford to replace – CHS plans to just continue to drive LNR down the same road until the proverbial wheels fall off. And, unfortunately for LNR, a competitive ‘wreck’ appears to be on the immediate horizon.”

“Here, the Court believes that absent the transaction 1) Davis will close; 2) there is no plausible alternative buyer for LNR or Davis; 3) LNR is unlikely in the near term to resume important services in cardiology, newborn care, and oncology because of CHS’s decision not to invest in the growth of the hospital; and 4) LNR’s external competitive challenges, particularly the opening of [Atrium Lake Norman] and the changes in the [certificate-of-need] process for outpatient facilities, likely will shortly lead to its closing in light of CHS’ difficult financial position,” Bell wrote.

“All of this, especially the closure of the hospitals, will reduce rather than enhance competition. At most, on its current and expected path, LNR can only hope to maintain its already limited competitive position for a short time,” Bell added. “Therefore, the proposed merger carries at least as much likelihood of competitive benefits as it does competitive harm and the FTC is unlikely to ultimately be successful in proving that the transaction may ‘substantially lessen competition.’”

Folwell’s brief had argued that Novant’s purchase of the two hospitals would entrench the company’s market power and raise costs for taxpayers who support the State Health Plan.