It’s no secret that Democrats are traditionally trustbusters, but the Biden Administration is taking things to a whole new level, bringing novel—and arguably weak—cases that nonetheless slow or block tie-ups among healthcare entities, including hospitals, health plans, pharmaceutical and medical device companies.
And while the administration’s posturing is not new, Biden’s Federal Trade Commission and Department of Justice (“FTC”) will likely continue to grow more bellicose, according to Antitrust & Competition partner Thomas Ensign, who recently joined healthcare regulatory partner Jennifer Yoo and corporate M&A partner Victoria Lupu for a Fenwick webinar titled Antitrust Changes in the Healthcare Industry.
“I think everyone can take to the bank that both the FTC and DOJ under Biden are going to be more aggressive than what they’ve grown accustomed to over the last 20 years,” Thomas Ensign said. “During the past two years, the FTC and the DOJ have withdrawn or stripped away, depending on your perspective, a number of policy documents that folks in the industry had come to rely upon. That doesn’t change underlying law, but it certainly leaves industry participants—who have been accustomed to getting guidance from the agency—without the comfort that safe harbors have provided.”
The FTC in particular has indicated a desire to test new legal theories about why certain mergers within the healthcare industry might harm not only competition, including in upstream areas such as labor markets. For one reason or another, most of its challenges to hospital mergers have nonetheless stuck to well-trodden legal theories, but challenges to pharmaceutical companies are another story. There, the FTC has attempted to block mergers between companies that don’t compete, citing for instance the alleged negative effects a pharma tie-up might have on research and development.
Meanwhile, states like California and New York, among others, are following suit—escalating governmental oversight by subjecting healthcare transactions to new noticing requirements. “There is this set of states who are following the federal regime in trying to oversee and regulate healthcare transactions that may be viewed as anticompetitive, but also could be viewed as increasing healthcare costs to the detriment of the state and residents,” Yoo said.
Practical deal considerations:
- Start regulatory diligence early. Companies exploring a merger can’t wait until the end of the process to kick off regulatory diligence. You’ll need more runway to navigate mounting enforcement and to react to new challenges that may not have existed under prior regimes. “People are focused on the business or the commercial terms and getting a handshake on that, and then they deal with the regulatory piece later. And I think what we’re seeing is that increasingly can’t be the case going forward,” Lupu said.
- Intentional budgeting. You cannot simply bundle the cost of the regulatory analysis and filing process with the rest of the deal anymore. Break it out early, and take into consideration potentially unforeseen roadblocks.
- Allocate risk early. Speak with deal and regulatory counsel about allocating antitrust risk at an earlier stage than you might otherwise have. There’s always risk—it’s a matter of who takes it on. And in most cases, that will be the seller by default. “If the seller is not comfortable with that, they’re going to want to press the issue early and often with the buyer in terms of assuming a fair share of that risk,” Ensign said.