On July 19, 2023, the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) (together, the “Agencies”) released the long-awaited redraft of the Horizontal Merger Guidelines (the “Proposed Merger Guidelines”). The Agencies originally announced their intention to revise their merger guidelines in January 2022. The Proposed Merger Guidelines are open for public comment for a 60-day period with the deadline for submitting comments being September 18, 2023.
The Horizontal Merger Guidelines, initially released in 1968 and amended several times throughout the years, describe the framework that guides the Agencies’ review of horizontal mergers and acquisitions. According to the Agencies, the guidelines are designed to assist the public, practitioners and the courts in understanding how the Agencies evaluate potential transactions and identify those which are potentially illegal. Previously, the Agencies have had separate Horizontal Merger Guidelines and Vertical Merger Guidelines, but the Proposed Merger Guidelines combine the previous guidelines for horizontal and vertical mergers, noting that changes in transaction structures make it difficult to always distinguish a merger as solely horizontal or vertical. The Agencies have been vocal in their belief that the way firms do business within the economy is evolving at a rapid pace and that the Proposed Merger Guidelines are needed to better address current market realities.
The Proposed Merger Guidelines are a significant shift from the previous Horizontal Merger Guidelines and Vertical Merger Guidelines, focusing on 13 specific points that the Agencies will now use to determine the illegality of a merger. While all 13 points in the Proposed Merger Guidelines will have a significant impact on health care transactions, here are a few of the most significant changes:
- Lowered Thresholds for Concentrated Markets. The Proposed Merger Guidelines lower the HHI thresholds for post-merger concentration levels that will trigger a structural presumption of unlawfulness. The current Horizontal Merger Guidelines consider markets with a HHI above 2500 to be “highly concentrated” and a merger that creates a change in HHI greater than 200 to be presumptively unlawful. The Proposed Merger Guidelines lowers the HHI “highly concentrated” threshold to 1800 and lowers the post-merger change in HHI that creates a presumptive unlawful merger to greater than 100. In addition, the Proposed Merger Guidelines consider any post-merger firm with a market share greater than 30% and a change in the HHI greater than 100 to be presumptively unlawful. Given the concentration in many health care markets, the Proposed Merger Guidelines suggest increased investigations and challenges of health care transactions.
- Focus on Mergers that “Entrench” or “Extend” an Already Dominant Position. The Proposed Merger Guidelines suggest mergers that “entrench” or “extend” a firm’s “dominant position” may be considered unlawful and define a “dominant position” as a firm that has a 30% market share or greater. “Entrenching” this dominant position may occur by increasing barriers to entry, increasing switching costs, interfering with the use of competitive alternatives, depriving rivals of scale economies or eliminating a nascent competitive threat. “Extending” this dominant position may occur by tying, bundling, conditioning or otherwise linking sales of two products, which would allow the merged firm to leverage its position and exclude rivals. Given the concentration in many health care markets, this low market share threshold used to define “dominant position” may give the Agencies new avenues of investigation and new theories of harm while investigating health care transactions.
- Labor Market Impacts. The Proposed Merger Guidelines focus heavily on the impact that transactions will have on labor markets, focusing on the merged firms as the buyers of labor. The Proposed Merger Guidelines state the Agencies will focus on whether a merger will substantially lessen competition for workers that might lead to lower wages or slower wage growth. Historically, reducing input costs (e.g., supply costs, administrative costs, labor costs, etc.) have been viewed as an efficiency of the merger, not a detriment of the merger. The Proposed Merger Guidelines note that mergers may be challenged if there are labor concerns even if there are no other competitive concerns and even if the merger leads to benefits on the seller side. Many health systems are the largest employers in their area, so it is likely that this new focus on labor markets will have an impact on health care transactions.
- Vertical Concerns. In June 2020, the FTC and DOJ issued revised Vertical Merger Guidelines. A little over a year later in September 2021, the FTC withdrew those revised Vertical Merger Guidelines on a 3-2 vote with a vehement dissent from the then-sitting Republican Commissioners. The Proposed Merger Guidelines incorporate vertical theories of harm, focusing primarily on concerns while bypassing a thorough discussion of the procompetitive benefits of vertical mergers, which previous versions of the Vertical Merger Guidelines have noted.
These updates, in addition to the recently proposed changes to the HSR premerger notification process, further efforts by both in the Biden Administration and Congress to increase oversight of mergers and acquisitions.
Hall Render continues to review the Proposed Merger Guidelines, as well as comments coming from the Biden Administration and Congress, and will publish a more in-depth analysis of the Proposed Merger Guidelines in the near future.
If you have any questions on how to prepare and submit a comment in the meantime, please contact:
- William Berlin at (202) 370-9582 or wberlin@hallrender.com;
- Michael Greer at (317) 977-1493 or mgreer@hallrender.com;
- John Bowen at (317) 429-3629 or jbowen@hallrender.com;
- Nathan Chubb at (202) 780-2991 or nchubb@hallrender.com;
- Abigail Kaericher at (202) 742-9674 or akaericher@hallrender.com;
- Hannah Clarke at (317) 429-3615 or hclarke@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
