Another Scrapped Hospital Deal Pins 'Fate' on FTC

Novant Health and Community Health Systems (CHS) are calling off a planned hospital divestiture amid consistent opposition from the Federal Trade Commission.

On June 18, the 4th Circuit Court of Appeals issued a temporary injunction to block CHS from selling two North Carolina hospitals to Novant. On the same day, Novant informed CHS of its intent to “formally terminate the Purchase Agreement soon.”

Under that $320 million purchase agreement inked February 28, 2023, Novant would have acquired Lake Norman Regional Medical Center (a 123-bed hospital in Lake Norman) and Davis Regional Psychiatric Hospital (a 144-bed behavioral health hospital in Mooresville)—and CHS, one of the nation’s largest for-profit hospital operators, would have officially exited the state of North Carolina.

CHS said it is evaluating operations at both Lake Norman Regional Medical Center and Davis Regional Psychiatric Hospital, but in the meantime, patient care and service offerings will not be disrupted.

Numerous health systems have called off mergers and acquisitions in recent years, citing FTC opposition.

Getty Images

“We are steadfast in our belief that these facilities and their patients would have greatly benefited from joining Novant Health, but with the FTC’s continued roadblocks we do not see a way to finalize this transaction,” a Novant Health spokesperson told Newsweek in a June 20 statement. “The communities served by these facilities deserve better than the fate they’ve been dealt by the FTC so we will look for other ways to support patients and clinicians in these communities.”

The FTC declined Newsweek’s request for comment; CHS has not responded to a June 20 inquiry.

This wasn’t the FTC’s first push to halt the deal. In its initial complaint issued January 25, the Commission alleged that the proposed transaction was “presumptively illegal” because it would “significantly” increase inpatient general acute care concentration. Novant operates Huntersville Medical Center, which sits about 11 miles south of CHS’ Lake Norman Regional and serves more patients than any other hospital in the eastern Lake Norman area.

If the sale went through, there would be two acute care hospitals in the area not owned by Novant—Iredell Memorial Hospital and the forthcoming Atrium Health Lake Norman hospital, slated to open mid-2025. Novant would have an “eye-popping” 64 percent market share in the region, according to the FTC.

Novant pushed back in a 37-page opposition statement, alleging the FTC’s argument is based on a “distorted and artificially narrow view of health care competition in the Charlotte area,” where Atrium Health also has a substantial hold. The United States and North Carolina named Atrium the “dominant hospital system in the Charlotte area” in a separate 2018 antitrust monopolization case.

Ultimately, District Judge Kenneth Bell sided with the sale June 5, noting that if Novant did not acquire the facilities—which had already undergone service cuts—they could close, inevitably reducing competition.

But the FTC appealed Bell’s decision in the 4th Circuit, asking the court to halt the transaction. On June 18, the suspension was granted on a 2-1 vote. Circuit Judge J. Harvie Wilkinson III, who voted in favor of the deal, expressed concerns that the two cash-strapped facilities would close if Novant did not take over.

“The FTC is acting too aggressively in this case, forgetting there is such a thing as a vibrant private sector,” Wilkinson said.

FTC Chair Lina Khan has been vocal about her plans to increase oversight of health care. In recent years, numerous health systems have abandoned merger and acquisition plans after FTC interference: John Muir Health and Tenet Healthcare, Lifespan and Care New England, HCA Healthcare and Steward Health Care System.

“The Commission remains committed to stopping illegal mergers, especially in markets for health care services,” Khan said during her May 15 testimony before the House Committee on Appropriations. “Those mergers threaten patients with higher cost and lower quality care.”

Despite FTC opposition, health care mergers are gaining momentum amidst rising costs and increased competition. Small hospitals and health systems are seeking partners and purchasers in last-grab attempts to stay afloat. In 2023, 28 percent of transactions included a financially distressed partner—up from 15 percent the year prior, according to management and consulting firm KaufmanHall.

Franklin, Tennessee-based CHS currently operates 71 acute care hospitals across 15 states. Last year, the system made divestment plans for nearly a dozen hospitals and said sale proceeds would be used for “general corporate purposes,” including potential debt repayment and repurchasing. The company ended 2023 with an annual net operating revenue of $12.49 billion, up 2.3 percent from 2022.

Novant Health, based in Charlotte, North Carolina, currently operates 19 hospitals and more than 700 outpatient facilities across the Carolinas.

Update 6/21/2024, 12:25 p.m. ET: This article was updated to reflect that the FTC declined comment and that CHS has not responded to a June 20 inquiry.