Appeals Court splits in blocking Novant’s purchase of two Iredell hospitals

A split federal Appeals Court panel has blocked Novant Health’s $320 million purchase of two Iredell County hospitals. The Federal Trade Commission had asked the 4th US Circuit Court of Appeals to issue an injunction as the federal agency appeals a lower court order.

Novant seeks to buy Lake Norman Regional Medical Center and Davis Regional Psychiatric Hospital from Community Health Systems. US District Judge Kenneth Bell had issued an order earlier this month rejecting the FTC’s requested injunction.

Judges DeAndrea Gist Benjamin and Stephanie Thacker issued an order Tuesday granting the FTC’s request.

Judge Harvie Wilkinson voted to deny the FTC’s motion.

“The district court found that the proposed transaction (which the FTC seeks to block) will revitalize the Davis hospital and enhance competition between Novant and Atrium,” Wilkinson wrote. “The Davis hospital seems on its last legs, and I worry that, as the district court found, its closure may be imminent. … Indeed, the district found that, without the transaction, Lake Norman Regional’s ‘future is decidedly uncertain’ as well.”

“As the district court further noted, sending this back to the FTC and the administrative law judge is a process that ordinarily takes over two years,” Wilkinson added. “Given the evidence I am not sure any financially hard-pressed healthcare facility would have that amount of time. Hospitals such as Davis and Lake Norman Regional may not provide a full menu of advanced procedures, but they do tend to increase access to vital healthcare for underserved populations.”

“I am reluctant to place all this in jeopardy,” Wilkinson wrote. “The district court would seem to have the best view of the market concentration and conditions in the Charlotte area. I cannot find the trial court’s fact finding, reached after an exhaustive examination of the evidence, to be clearly erroneous.”

“If the proposed transaction were a merger between two behemoths, I would feel differently,” he added. “But, like the district court, I cannot see how this transaction involving these relatively small facilities would be anticompetitive. Quite the contrary.”

“The district court was not wrong to think the public interest would be facilitated by helping these hospitals find the financial infusion they need to survive,” Wilkinson explained. “Given the district court’s findings, the prospect of the FTC’s ultimate success on the merits is rather remote.”

“The trial court plainly did not want to run the risk of restricting the healthcare options available to patients in the greater Charlotte area,” Wilkinson wrote. “am concerned that an injunction could well serve to sink the hospital and visit upon the Charlotte community the detrimental anticompetitive effects that would ensue. The FTC is acting too aggressively in this case, forgetting there is such a thing as a vibrant private sector.”

Bell issued a 55-page order on June 5 explaining his decision to reject federal regulators’ request.

“Antitrust law, specifically the Clayton Act, serves the important public interest of promoting fair and robust markets by prohibiting horizontal mergers that may substantially lessen competition,” Bell wrote. “This case, however, raises an unusual question: How does that law apply when a currently profitable hospital ‘competitor’ decides, for entirely legitimate reasons independent of a challenged merger, to simply quit trying to compete? And, how are the public equities and interests affected if that hospital is not acquired?”

“The hospital market in the Charlotte metropolitan area is already heavily concentrated,” Bell explained. Of 19 hospitals in an eight-county area around the Queen City, Novant owns seven, while competitor Atrium Health owns nine. Atrium will expand again with the completion of its own Lake Norman hospital.

“The FTC argues that the merger of LNR into Novant will exceed the FTC’s ‘Merger Guidelines’ that indicate a merger is presumptively likely to have anti-competitive effects,” Bell wrote. “While the FTC is correct that in one or more ‘relevant markets’ the level of combined market share and market concentration will be outside the permitted guideline range after Novant’s purchase, this appears to be in large measure the result of Novant’s substantial current market share and the already concentrated market rather than LNR’s own competitive presence. Thus, the Court needs to look beyond the economic numbers to assess the likelihood that, considering commercial realities, the merger may in fact ‘substantially lessen’ competition.”

Under current ownership, Lake Normal Regional has bene placed in a “relatively insignificant competitive position,” Bell explained. “In other words, although LNR is profitable for now, if LNR is not sold to Novant it seems clear that – like a car that its owner can’t afford to replace – CHS plans to just continue to drive LNR down the same road until the proverbial wheels fall off. And, unfortunately for LNR, a competitive ‘wreck’ appears to be on the immediate horizon.”

“Here, the Court believes that absent the transaction 1) Davis will close; 2) there is no plausible alternative buyer for LNR or Davis; 3) LNR is unlikely in the near term to resume important services in cardiology, newborn care, and oncology because of CHS’s decision not to invest in the growth of the hospital; and 4) LNR’s external competitive challenges, particularly the opening of [Atrium Lake Norman] and the changes in the [certificate-of-need] process for outpatient facilities, likely will shortly lead to its closing in light of CHS’ difficult financial position,” Bell wrote.

“All of this, especially the closure of the hospitals, will reduce rather than enhance competition. At most, on its current and expected path, LNR can only hope to maintain its already limited competitive position for a short time,” Bell added. “Therefore, the proposed merger carries at least as much likelihood of competitive benefits as it does competitive harm and the FTC is unlikely to ultimately be successful in proving that the transaction may ‘substantially lessen competition.’”

State Treasurer Dale Folwell had filed a friend-of-the-court brief supporting the FTC’s bid to block the hospital sale. Folwell’s brief argued that Novant’s purchase of the two hospitals would entrench the company’s market power and raise costs for taxpayers who support the State Health Plan.

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