New Brunswick, NJ–A proposed merger between RWJBarnabas Health (RWJBH) and Saint Peter’s Healthcare System was, following federal action, recently abandoned by the two rivals.

The parties’ plans to combine unraveled quickly this month; The Federal Trade Commission (FTC) on June 2 authorized an administrative complaint and lawsuit in federal court to block the deal, saying it was “anticompetitive” and “should never have been proposed” in the first place.

To boot, FTC wants the blocked merger to send a signal to other hospital systems throughout the country.

[We] will not hesitate to take action in enforcing the antitrust laws to protect healthcare consumers faced with unlawful hospital consolidation,” said the agency.  

There is overwhelming evidence that this acquisition would be bad for patients, because the parties would no longer have to compete to provide the lowest prices and the best quality and service,” FTC Bureau of Competition Director Holly Vedova, said of the deal in early June. That’s when FTC sued to block the acquisition by RWJBH.

Saint Peter’s University Hospital and RWJ University Hospital New Brunswick are less than a mile from each other. The pair is included among the three largest hospitals in Middlesex County, yet the only two in New Brunswick.  

The FTC said that Saint Peter’s Healthcare began considering whether to partner with a larger health system in 2015.

In February 2018, Saint Peter’s Healthcare decided to proceed further and, by November 2018, had issued a Request for Indicative Proposal to 40 entities. Four entities responded to the request, including RWJ,” said court papers. “Saint Peter’s Healthcare narrowed its potential merger partners down to RWJ and one other entity before ultimately selecting RWJ. [In the fall of 2020] RWJ and Saint Peter’s Healthcare entered into a Member Substitution and Merger Agreement setting forth the terms of the Acquisition.”

The commission said a combined healthcare system would have given it at least half the market for general acute care services in Middlesex County — easily creating “a presumption of harm under the antitrust laws.”

RWJBH and Saint Peter’s Healthcare are direct competitors and both systems routinely identify the other as the most significant competitor when assessing competition and strategizing on providing general acute care services in Middlesex County, according to the commission.

This competition incentivizes RWJ and Saint Peter’s Healthcare to improve quality, technology, amenities, equipment, access to care, and service offerings,” added the commission.

The entry of other health providers into the general acute care services market in Middlesex County will not be timely, likely, or sufficient to counteract the anticompetitive effects of the acquisition, said the FTC, explaining that it issues an administrative complaint when it has “reason to believe” that the law has been or is being violated and it appears to the [agency] that a proceeding is in the public interest.

The issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge, added the commission.

RWJBH has 614 licensed beds and did $6.6 billion in revenue in 2021, while Saint Peter’s Healthcare (478 beds) recorded $579 million in revenue for the same period. RWJBH is headquartered in West Orange, New Jersey, while Saint Peter’s Healthcare is headquartered in New Brunswick.

The FTC vote to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction was 5-0. The federal court complaint and request for preliminary relief was filed in the US District Court for the District of New Jersey to halt the transaction pending an administrative proceeding. The administrative trial was scheduled to begin on November 29, 2022. 

In Utah, on June 16 another deal also was called off by two healthcare systems seeking to combine.

Had this transaction been allowed to proceed, it would have combined the second and fourth largest healthcare systems in Salt Lake City and the Wasatch Front region of Utah, resulting in higher prices, less innovation, and lower quality care for patients,” said Vedova, adding that it “should be a lesson learned to hospital systems all over the country.” 

I am glad that patients and healthcare providers will not have to endure any more uncertainty while waiting for courts to rule on the FTC’s legal challenges.”

This difficult decision was not reached lightly,” RWJBH CEO Barry Ostrowsky said in a statement. “We are disappointed in the termination of the proposed transaction, which we believe would have transformed quality, increased access and decreased the overall cost of care for the people of this state through the creation of a premier academic medical center.”

Saint Peter’s Healthcare said the decision to call off the deal was shared between the two organizations.

We are now assessing the best way to move forward as we consider potential options to ensure Saint Peter’s longstanding Catholic healthcare mission,” Saint Peter’s Healthcare President and Chief Executive Leslie D. Hirsch said.

Watchdog Agency to Update Merger Guidelines

The FTC and Department of Justice (DOJ) review more than a thousand merger filings per year.

And since certain deals like the proposed merger in New Brunswick require in-depth investigation, the FTC relied on its toolbox of best practices to help identify combinations that present competitive problems.

While the FTC has said that for some deals it’s possible to resolve concerns by consent agreement with the parties, in a few cases the stakeholders cannot agree on a way to fix competitive problems – so the federal government goes to federal court to prevent the merger in the first place. (Pending an administrative trial on the merits of the deal.)

The FTC and the DOJ are currently revising the existing merger guidelines.

This is basically our enforcement manual for how we identify unlawful deals,” said FTC Chair Lina Khan, recently.

The watchdog agency also is “stepping back and doing a bigger reset,” added Khan.

The commission hopes to publish its final guidelines by the end of the year.

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