The FTC is suing to block John Muir Health’s acquisition of Tenet Hospital

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Brief description of the dive:

  • The Federal Trade Commission has filed a lawsuit to stop John Muir Health’s proposed $142.5 million deal to buy San Ramon Regional Medical Center from current majority owner Tenet Healthcare.
  • The administrative complaint, filed Friday jointly with the California attorney general’s office, alleges the acquisition would further reduce competition in the state’s I-680 corridor, increase costs and disincentivize hospitals from focusing on quality improvement.
  • Walnut Creek, Calif.-based John Muir is discussing next steps, including challenging the court’s decision, according to a statement from President and CEO Mike Thomas.

Dive Insight:

The lawsuit comes after the nonprofit John Muir announced it had entered into a definitive agreement with Tenet in January to become the sole owner of San Ramon Regional Medical Center.

John Muir, which currently operates two hospitals that provide hospital-based general emergency care along the I-680 corridor, currently holds a 49% interest in the San Ramon center, while Tenet owns a controlling interest of 51%.

The San Ramon facility is a lower-cost competitor to John Muir’s facilities in the area, which includes Contra Costa and Alameda counties in the San Francisco Bay Area, according to regulators.

The deal will eliminate direct competition between the cheaper San Ramon and John Muir. Additionally, if the deal goes through, John Muir would control more than half of the general emergency inpatient services — such as neuro or cardiac surgery, childbirth, treatment of serious illnesses and infections, and some urgent care — offered in the corridor, according to the complaint.

John Muir is the largest provider of these services in the region, and competition is already thin, allowing the system to command high prices from insurers who need their hospitals in their networks to sell to local residents, the FTC alleged.

“San Ramon Regional Medical Center has played an important role in providing Californians in the I-680 corridor with access to quality and affordable care for critical health services such as cardiac surgery and childbirth,” Henry Liu, director of the FTC’s Bureau of Competition, said in statement.

John Muir said the deal, which also includes Pleasanton Diagnostic Imaging, will improve care in the region by bringing the facilities into its version of the Epic electronic health record, expanding the health system’s quality and population health programs and investing in San facilities. Ramon and services to reduce the number of patients going outside the community for care.

The latest challenge from the Federal Trade Commission (FTC) comes as regulators scrutinize the increasingly consolidated hospital sector. Research shows that hospital consolidation leads to higher prices, but without clear evidence it improves the quality of care.

The agency signaled in the summer that it may challenge more health care deals when it withdrew two antitrust policy statements on merger enforcement that outlined when a consolidation is typically safe from antitrust scrutiny. Regulators said the statements were out of date given changes in the market.

Hospital lobbies opposed the rollback of the rules, with the American Hospital Association saying the move was “unnecessary and reckless,” adding that hospitals needed consolidation to brace themselves against financial pressures exacerbated by the COVID-19 pandemic.

The FTC and DOJ also proposed updated merger guidelines that could allow regulators to target vertical and cross-market healthcare deals.

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