Government Scrutiny On Health-Care Deals Seen Increasing
March 26 2010 - 3:15PM
Dow Jones News
As merger-and-acquisition professionals gear up for more
activity in the health-care sector, they also expect the Obama
administration will make good on campaign promises to intensify the
government's antitrust scrutiny of deals.
M&A insiders for months have predicted that passage of
health-care overhaul legislation would lift uncertainty and relieve
pent-up deal demand. At the same time, some antitrust attorneys
already see signs the Obama administration is more closely
examining mergers--even done deals--than the previous
administration did.
"The Obama administration, even before Obama was elected
president, indicated that antitrust enforcement was going to be
significantly increased, and one area that Obama mentioned
specifically was mergers among health plans," said Jeff Miles,
health-care antitrust expert and principal at the Ober Kaler Grimes
& Shriver law firm.
"I think probably there is more pressure on the [Justice
Department's] antitrust division to examine and challenge these
mergers than in the past, so I think any health-plan merger with
any significant horizontal overlap is going to be investigated,"
and there's a greater chance they'll be challenged, predicted
Miles, a veteran of the Justice Department's antitrust
division.
Earlier this month, a Blue Cross Blue Shield of Michigan
subsidiary abandoned its attempt to acquire Physicians Health Plan
of Mid-Michigan after the Justice Department said it would file an
antitrust lawsuit to block the deal. The department said the merger
would have given Blue Cross-Michigan control of nearly 90% of the
Lansing, Mich., health-insurance market.
It was the first time in years the Justice Department had
blocked a health-plan merger. The Bush administration challenged
three health-plan mergers, ultimately allowing the transactions to
proceed, with divestitures ordered, Miles said.
Some antitrust attorneys suggest the Bush administration might
have given similar scrutiny to the Michigan merger, which they saw
as a case with clear-cut anticompetitive problems. Nonetheless, it
does indicate, Miles said, that "the [DOJ] antitrust division is
very interested in health-plan mergers."
Fiona Schaeffer, antitrust partner with Weil Gotshal &
Manges LLP, said the DOJ's action underscored the federal
government's interest in preserving competition in health-care,
even in local markets. And Steven Kaufmann, an antitrust specialist
and chair of Morrison & Foerster's global litigation
department, said the Michigan case appears to signal a more
assertive Justice Department.
In the past, the government accepted the argument that mergers
would lead to greater efficiencies and lower costs for consumers,
when instead they have resulted in escalating profits and premiums,
said David Balto of the Center for American Progress, a veteran of
the Federal Trade Commission and the Justice Department's antitrust
division.
"It's about time that the Justice Department said no to one of
these mergers," Balto said.
Schaeffer also cited a trend in the government challenging
consummated mergers. Last year, the FTC challenged as
anticompetitive Carilion Clinic's acquisition of two outpatient
clinics in Roanoke, Va., reaching a settlement requiring
divestiture. And in early March, an FTC administrative law judge
ordered Polypore International Inc. (PPO) to divest a battery
separator manufacturer it had acquired.
"The message I think is the antitrust risk does not end when
your deal has closed," Schaeffer said. That risk, while always
there, seems greater in the current administration, she said.
The FTC last year informed CVS Caremark Corp. (CVS) that it was
investigating business practices at the company, although it hasn't
publicly elaborated. The ongoing probe followed complaints by
competitors, consumers and lawmakers that the company--formed by
the 2007 merger of drug-store chain CVS and pharmacy benefit
manager Caremark Rx--was engaging in anticompetitive practices.
Attorney Miles said that, anecdotally, the FTC also seems to be
more active in investigating hospital mergers, with a number of
proposed deals currently being examined.
"The Obama administration has rattled a lot of sabers," Miles
said, "but it's still early yet," with not many public enforcement
actions. "A lot of us are waiting to see if the other shoe
drops."
Nonetheless, the regulatory hurdles don't seem to be damping
interest in mergers.
"There is an awful lot of interest in the health-care services
sector," particularly in those companies that can help reduce
costs, said Michael Neuberger, managing director and head of
health-care investment banking at BMO Capital Markets.
-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285;
dinah.brin@dowjones.com