On December 18, 2023, the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) (collectively, the “Agencies”) released the 2023 Merger Guidelines (the “Guidelines”), which are the result of a two-year process that involved the Agencies soliciting feedback from the public and staff, including responses to draft merger guidelines, and public outreach efforts such as workshops and listening forums. The Guidelines are intended to “reflect modern market realities, advances in economics and law, and the lived experiences of a diverse array of market participants.”
These are non-binding statements that identify factors and frameworks used by the Agencies when reviewing mergers and acquisitions for compliance with federal antitrust laws. Guidelines 1 through 6 set forth the analytic frameworks and Guidelines 7 through 11 explain how to apply the frameworks within a specific setting. The Agencies will also consider rebuttal and defense evidence of failing firms, entry and repositioning and pro-competitive efficiencies. The Guidelines are meant to provide transparency, and do not predetermine enforcement actions. Rather, they are flexible and allow the Agencies to exercise discretion and judgment based upon the law and facts applicable to each case.
- Guideline 1. Mergers raise a presumption of illegality when they significantly increase concentration in a highly concentrated market. The Agencies lowered the threshold presumption based on market shares and the Herfindahl-Hirshman Index (“HHI”). A highly concentrated market exists when the HHI is greater than 1,800 and a merger will be found to further consolidate an already highly concentrated market when there is an increase in HHI of more than 100 points.
- Guideline 2. Mergers can violate the law when they eliminate substantial competition between firms. Substantial competition exists when the merging parties have shaped the behaviors of each other and have affected sales, profits, valuations, or other drivers of behavior. For example, the FTC sued to block John Muir Health’s proposed $142.5 million deal to acquire sole ownership of San Ramon Regional Medical Center, LLC from current majority owner Tenet Healthcare Corporation, alleging that the deal would drive up health care costs. In the complaint, the FTC emphasized the existing competitive relationship between the two entities, in which the parties competed with one another other by seeking to improve their respective quality, service and facilities, which would presumably cease upon consummation of the transaction.
- Guideline 3. Mergers can violate the law when they increase the risk of coordination. When rivals coordinate various dimensions of competition, such as price, product features, customers, wage, benefits or geography, the competition is reduced, regardless of whether it occurs explicitly through collusive agreements not to compete or tacitly through observation and response.
- Guideline 4. Mergers can violate the law when they eliminate a potential entrant in a concentrated market. The Agencies will review both actual and perceived potential competition.
- Guideline 5. Mergers can violate the law when they create a firm that may limit access to products or services that its rivals use to compete. In assessing access to products and services, the Agencies will consider: 1) the availability of substitutes; 2) competitive significance of the product; 3) the effects on competition within the relevant market and between the merged and dependent firms; 4) the structure of the relevant markets; 5) the nature and purpose of the merger; and 6) the trend towards vertical integration.
- Guideline 6. Mergers can violate the law when they entrench or extend a dominant position. To determine the dominance of a firm’s position, the Agencies assess evidence or market shares that demonstrate durable market power by focusing on the sources of the dominance and the extent to which the merger relates to, reinforces, or supplements the sources. The degree of scrutiny will increase in proportion to the strength and durability of the dominant firm’s market power. The Agencies will be concerned if the merger raises barriers to entry or competition by eliminating “a firm that could grow into a significant rival, facilitate other rivals’ growth, or otherwise lead to a reduction in its power,” which the Agencies deem to be a “nascent competitive threat.”
- Guideline 7. When an industry undergoes a trend toward consolidation, the agencies consider whether it increases the risk a merger may substantially lessen competition or tend to create a monopoly. The Agencies will evaluate the recent history and future trajectory of an industry. A merger that occurs within an industry that is undergoing “a trend toward consolidation,” will receive heightened scrutiny. For instance, mergers among health care providers may be subject to such heightened scrutiny, as many have recently consolidated.
- Guideline 8. When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series. Specifically, the Agencies will consider whether multiple acquisitions can be deemed an industry trend or in the alternative, constitute a “pattern of serial acquisitions.” For example, in September of 2023, the FTC filed suit against U.S. Anesthesia Partners, Inc. and private equity firm Welsh, Carson, Anderson & Stowe, which we covered in a previous post, claiming that “the two executed a multi-year anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients, and boost their own profits.” The complaint alleged that both parties engaged in a “roll-up” and bought “nearly every large anesthesia practice in Texas.”
- Guideline 9. When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform. When evaluating multi-sided platforms, the Agencies increase scrutiny when the platform operator is also a platform participant because of the conflict of interest that arises due to the operator’s diverging incentives.
- Guideline 10. When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers, creators, suppliers, or other providers. Labor markets are important buyer markets in which employers buy, and workers sell, labor and services. The Agencies assess a merger for its impact on workers, specifically its ability to lower wages, slow wage growth, and worsen benefits, working conditions, or workplace quality.
- Guideline 11. When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition. The Agencies will focus on three principal effects on competition: 1) the ability to influence the competitive conduct of the target firm; 2) the reduction in the acquiring firm’s incentive to compete; and 3) coordination.
Conclusion: While some of the Guidelines are not new to the health care industry, as demonstrated by recent Agency action, the industry should expect intense scrutiny and aggressive enforcement actions on behalf of the Agencies in 2024. The Agencies are committed to promoting competition within critical markets such as health care, as the Agencies seek to protect patients and health care workers by not only lowering health care costs, but also by improving the quality and availability of health care. To help lead these efforts, the Agencies, in conjunction with the Department of Health and Human Services (“HHS”), plan to appoint health care competition officers, and the FTC plans to appoint a Counsel for Health Care to lead interagency and policy efforts on health care competition. Additionally, the FTC is working with the HHS and DOJ to engage in data-sharing to identify potentially anticompetitive transactions that might otherwise evade review.
 The HHI is the sum of the squares of the market shares and “is small when there are many small firms and grows larger as the market becomes more concentrated, reaching 10,000 in a market with a single firm.”