Dive Brief:
- The Federal Trade Commission has sued to halt John Muir Health’s proposed $142.5 million deal to buy San Ramon Regional Medical Center from current majority owner Tenet Healthcare.
- The administrative complaint, filed jointly on Friday with the California Attorney General’s office, alleges the acquisition would further reduce competition in the state’s I-680 corridor, drive up costs and disincentivize the hospitals from focusing on quality improvements.
- Walnut Creek, California-based John Muir is discussing next steps, including challenging the court’s decision, according to a statement from president and CEO Mike Thomas.
Dive Insight:
The lawsuit comes after nonprofit John Muir announced it entered into a definitive agreement with Tenet in January to become the sole owner of San Ramon Regional Medical Center.
John Muir, which currently operates two hospitals that provide inpatient general acute care along the I-680 corridor, currently holds a 49% stake in the San Ramon center, while Tenet owns a controlling 51% share.
The San Ramon facility is a lower-priced competitor to John Muir’s facilities in the area, which includes Contra Costa and Alameda Counties in the San Francisco Bay Area, according to regulators.
The deal would eliminate head-to-head competition between lower-cost San Ramon and John Muir. Additionally, if the deal were to go through, John Muir would control more than half of inpatient general acute care services — like neuro or cardiac surgery, childbirth, serious illness and infection treatment, and some emergency care — offered in the corridor, according to the complaint.
John Muir is the largest provider of these services in the region, and competition is already slim, which allows the system to receive high prices from insurers who need its hospitals in their networks to market to locals, the FTC alleged.
“San Ramon Regional Medical Center has played an important role in ensuring Californians in the I-680 corridor have access to quality, affordable care for critical health care services, such as cardiac surgery and childbirth,” Henry Liu, director of the FTC’s Bureau of Competition, said in a statement.
John Muir argues the deal, which also includes Pleasanton Diagnostic Imaging, would improve care in the region by bringing the facilities onto its version of the electronic health record Epic, expanding the health system’s quality and population health programs, and making investments in San Ramon’s facilities and services to reduce the number of patients going outside the community for care.
The latest challenge from the FTC comes as regulators are scrutinizing the increasingly consolidated hospital sector. Research has shown hospital consolidation leads to higher prices, without clear evidence it improves quality of care.
Over the summer, the agency signaled it may challenge more healthcare deals when it withdrew two antitrust policy statements on merger enforcement, which outlined when consolidation was usually safe from antitrust scrutiny. Regulators said the statements were outdated given changes in the market.
Hospital lobbies pushed back against the policy withdrawals, with the American Hospital Association arguing the move was “unnecessary and reckless,” adding that hospitals need consolidation to brace themselves against financial pressures exacerbated by the COVID-19 pandemic.
The FTC and the Department of Justice have also proposed updated merger guidelines that could allow regulators to target vertical and cross-market healthcare deals.