Novant Health and Community Health Systems (CHS) will be permitted to consummate their contested $320 million hospital deal, though regulatory uncertainty would still follow the deal’s expected close.
Wednesday, U.S. District Judge Kenneth Bell denied the Federal Trade Commission’s (FTC's) bid for a preliminary injunction against the sale of two CHS hospitals in North Carolina: the 123-bed Lake Norman Regional Medical Center and the 146-bed Davis Regional Medical Center.
“Having weighed the equities and considering the [FTC]'s likelihood of ultimate success, the Court concludes that entry of an injunction pending the conclusion of the FTC’s administrative process would not be in the public interest,” Bell wrote in his order.
The health systems had announced their deal back in early 2023, though the FTC only announced its opposition in January and filed for the preliminary injunction in late March.
Filings from both sides—as well as other major stakeholders—had disputed whether the purchases would decrease competition by bolstering the region’s second largest healthcare provider (behind Atrium Health), or maintain “struggling” healthcare facilities likely to face crushing competition amid Atrium Health’s plans to open a new 30-bed hospital nearby.
Bell leaned more toward the latter. In the decision, the judge challenged the FTC’s assertion that the merger would lead to combined market share and market concentration beyond its permitted guidelines. He wrote that the markets in question are already concentrated regardless to the deal, and that instead the court needs to “look beyond the economic numbers” the FTC’s guidelines rely on to make its decision.
Here, the judge wrote that Novant and CHS’ “doomsday characterization” of the hospitals “is mostly inaccurate and certainly exaggerated,” but acknowledged that it appeared unlikely that CHS would spend the money to support the hospitals in the face of growing competition. There is a fair chance that CHS would ultimately opt to close the hospitals without a deal, the judge wrote, an outcome that would reduce healthcare offerings and harm competition.
“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,’” Bell wrote.
When weighing whether it would be in the public interest to allow the deal to go forward, the judge determined that the risk of losing “critically needed psychiatric medical services” and a prolonged loss of other recently closed service lines outweigh potential harms, such as higher prices or reduced tax revenues from the hospitals’ shift to nonprofit status.
He also acknowledged that “the court believes and accepts” a promise from Novant’s executives not to raise prices at Lake Norman Regional Medical Center for at least three years following the acquisition.
“Having weighed the equities and considering the [FTC]'s likelihood of ultimate success, the Court concludes that entry of an injunction pending the conclusion of the FTC’s administrative process would not be in the public interest.”
Though Novant and CHS have cleared the short-term barrier to their deal, they’re still queued up for an administrative review process (and potential appeal) that could last over two years. An administrative merits hearing before an administrative law judge is scheduled for June 26.
Novant Health reported total operating revenues of $8.3 billion and an operating income of $146.8 million in fiscal 2023. It has 16 medical centers, more than 700 medical group clinics and records 6.7 million annual patient encounters.
Fierce Healthcare has reached out to Novant and CHS for comment on the order. The former has previously said it was committed to fighting the FTC’s block and its “flawed” view of the deal in the courts.
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