U.S. antitrust agencies’ actions in the healthcare sector is raising eyebrows, and contributing to a slowdown in deals, according to several antitrust experts, in part due to the uncertainty that’s been created.
Buyers have grown more cautious and everyone is more cognizant of compliance, says Anjana Patel, an antitrust expert at law firm Epstein Becker & Green. Deals are going through, though they may take longer.
In February, Amazon closed on its $3.9 billion acquisition of One Medical, a primary care network that extends the reach of the online retail giant in health services and gives it a wealth of company and customer data.
The FTC failed to block the transaction but said it would continue to investigate the acquisition for possible harm to consumers.
Nathan Ray, an M&A partner at West Monroe, cites this deal as what he calls a “head fake” by the agency, calling its attention “empty threats of intervention.”
Patel has a slightly different interpretation, seeing it as a warning “to close at your own peril.” The agency could, in fact, roll back a merger, although it is a more difficult call after the deal has been terminated.
The FTC did flex its muscles in April, telling Illumina to roll back its $7.1 billion deal to acquire Grail, which makes a multi-cancer early detection test. In ordering the divestiture, the commission reversed a September ruling by an administrative law judge allowing the acquisition to go ahead.
The FTC found that Illumina’s acquisition of Grail would reduce the scope for innovation in the cutting-edge development of liquid biopsy tests while increasing prices and decreasing choice. The commission’s vote was unanimous, including departing Republican commissioner Christine Wilson, who resigned March 31.
Illumina quickly announced it will appeal the FTC decision in federal court, which will delay execution of the order. The San Diego company has also appealed a decision by EU antitrust authorities to unwind the deal.
In May of this year, the FTC struck again, seeking a court injunction to keep Amgen‘s $27.8 billion acquisition of Horizon Therapeutics from closing, on the grounds that it would entrench Horizon’s monopoly on eye and gout treatments.
Patel says the current antitrust environment is forcing buyers and sellers to do more planning.
“Healthcare M&A was out of control,” she says of the period before the current slowdown. “There was a frenzy of acquiring companies.”
The slowdown has yielded some benefits. Kate Festle, a healthcare M&A director at West Monroe, says the pause has made companies and private equity investors more thoughtful.
“It has given them a bit more time to go back to the full gamut of their growth goals,” she says. Instead of a one to two-year roadmap, companies are now looking ahead five to seven years.
Antitrust rules for healthcare, meanwhile, are in flux. “These are difficult concepts to measure,” says West Monroe’s Ray. “Where do you draw the line?”
The merger between Advocate Aurora Health and Atrium Health, creating a 67-hospital network with a combined revenue of $27 billion, closed last December after North Carolina Attorney General Josh Stein found that there was no legal basis to block the deal merging the two networks in six states.
The FTC did not block the deal, which avoided geographic overlap in a way that made it more difficult to challenge than mergers between direct competitors.
The FTC itself has been roiled with controversy under the leadership of its chairwoman Lina Khan. In February, when Wilson announced her resignation, she blasted Khan in a Wall Street Journal op-ed.
While many commission staffers agree with Khan’s tougher approach on antitrust, Wilson wrote, “less has been said about her disregard for the rule of law and due process and the way senior FTC officials enable her.” Wilson called her resignation her “noisy exit,” saying she refused “to give their endeavor any further hint of legitimacy by remaining.”
Wilson’s resignation not only reduced the FTC to three Democratic commissioners, but prompted a letter from the U.S. Chamber of Commerce to the relevant congressional committees expressing its concern over FTC management and urging hearings to investigate the agency. President Joe Biden, meanwhile, must eventually appoint two Republican commissioners.
The FTC and the Justice Department have launched a joint inquiry regarding guidelines on how government enforcers interpret antitrust law. While this revision of guidelines, last reviewed in 2010, seems to be aimed primarily at tech mergers, it has unsettled the M&A market in general.
“All of a sudden, guidance is being looked at,” Patel says. Freshfields partner Jamillia Ferris describes it as a “sea change.”
The agencies generally have focused on the big healthcare mergers, or links between hospital networks that might reduce accessibility to healthcare, especially in rural areas. Private equity investors have concentrated on acquiring physicians’ practices as a relatively low-level investment that attracts little antitrust attention.
The FTC’s recent rule proposal to ban noncompete clauses in contracts has created a new controversy which also hits healthcare M&A. “It’s influencing a shift in compensation,” says West Monroe’s Festle. “Now it’s a question of how do we retain you?”
What lies in store for the future in healthcare M&A is another question. How will government regulators deal with artificial intelligence in healthcare, for instance?
“Healthcare is a prime use case for artificial intelligence,” says Festle. The question is to what extent AI can maximize health outcomes. “It’s impossible to know the truth.”
