Across many different industries, mergers, consolidation, and antitrust issues are becoming a common topic of conversation. According to Bloomberg, in the fiscal year concluding on September 30, 2022, the US Federal Trade Commission and the Justice Department’s antitrust division brought the highest number of challenges observed since the inception of mandatory pre-merger antitrust review in 1976.

The healthcare industry is not immune from these efforts, as recent guidelines from the Department of Justice and Federal Trade Commission indicate. At the end of last year, the agencies finalized stricter guidelines that have the potential to make it more difficult for healthcare companies to merge or strike deals with each other. In this piece, we will explore how and why this happened, and what the potential impact of these guidelines will be on the healthcare industry.

First, let’s delve into the reasoning for this action. Overall, this appears to be part of the Biden administration’s efforts to reduce healthcare costs. By placing stricter guidelines on mergers and acquisitions, it could be argued that the administration is attempting to reduce the effects of overconsolidation and monopolization — something that has long been proven to increase healthcare costs.

A further detail adding to the legitimacy of this idea is the recent appointment of Stacy Sanders, who is the Department of Health and Human Services’ new Chief Competition Officer. If this position sounds unfamiliar, that’s because it’s a new role created by HHS to specifically analyze consolidation and its effects on the industry. Per Healthcare Dive, this will be done by “sharing data, creating reciprocal training programs and developing new competition policy initiatives.”

A key aspect of this role is not only looking at healthcare costs, but the impact of these potential consolidations on the quality of care received by patients. This is important as, according to a study from health insurer Elevance Health, which looked at six years of hospital admissions data from affiliated commercial health plans in 20 states, “readmission rates for cardiac care patients increased up to 12% and remained elevated for three years” following an acquisition, summarizes writer Susanna Vogel.

Given this information, it’s no surprise that many specialty societies came out in favor of these guidelines soon after they were released in December of last year. For example, the American Medical Association put out a statement noting the aforementioned reduced quality of patient care post-consolidation while also noting that such efforts can negatively impact physicians. According to the AMA, heightened market consolidation affords insurers greater bargaining power to reduce the reimbursements they offer to physicians. This both diminishes competition and enables insurers to impose burdensome administrative requirements on physician practices.

Although these guidelines may be popular amongst specialists, what the guidelines will actually do in practice is an open question. However, the fact that these guidelines were laid out in the first place — and largely unchanged from their original drafts despite over 30,000 public comments — would seem to suggest that the administration is going to take a stricter approach when it comes to regulating any movement in the industry that could suggest consolidation. This is potentially evidenced by the recent ruling against the company Illumina, whose planned $7.1 billion buy of cancer test developer Grail was deemed anticompetitive; Illumina later said it would divest Grail to comply with regulators.

That said, these guidelines themselves are not legally binding, and there does not appear to be any part of these new guidelines targeting already extant health giants like UnitedHealth and CVS. Regardless, the efforts show that those in the industry must now navigate the evolving regulatory landscape with an eye towards balancing market dynamics. We will keep you updated as this regulatory framework is implemented further.