Last February, New York-based Northwell Health and Connecticut-based Nuvance Health announced that they had entered into an agreement under which the health systems would merge.
Thereafter, the New York State Office of Attorney General and the Connecticut Office of Attorney General (AGs) each commenced an investigation concerning the competitive implications of the proposed affiliation.
On Aug. 23, the AGs announced that they had entered in an Agreement of Assurances (Agreement) with the Health Systems pursuant to which the AGs will discontinue their investigations in exchange for the Health Systems assuring the AGs that following their merger:
- There will be the preservation, strengthening and expansion of women’s health services, including maternity and labor and delivery services, and the recruitment of providers at Sharon Hospital, one of Nuvance’s hospitals in Western Connecticut, for a specified period
- There will be preservation of services and staffing levels at Putnam Hospital, another of Nuvance’s hospitals, for a period of one year after the closing of the merger and consistent with clinical judgment and a safe, evidence-based care model and subject to any directives from the New York Department of Health
- The Health Systems, once combined, will negotiate rates for reimbursement of services with payors and plan sponsors independently for both the Connecticut and New York facilities such that no payor or plan sponsor seeking to contract for hospital services in one state will be required to include in its contract any of the combined entity’s hospitals in the other state, and otherwise comply with the terms of Connecticut’s Antitrust Statute
These conduct-type agreements have generally been disfavored by regulators in recent years. The willingness of the AGs in this case to agree to end their investigation in exchange for these assurances principally results from the fact that this is fundamentally a “cross-market” merger. There is currently limited geographic overlap between the primary service areas of Northwell and Nuvance for general acute care services (apparently only three ZIP codes in Putnam County, New York).
Further, with regard to concerns as to anticompetitive effects, the Agreement recites the fact that the merger will add Northwell as a competitor in Western Connecticut and in the Hudson Valley of New York. (Due to its deteriorating financial condition, Nuvance is not presently acting as such.) Moreover, given Nuvance’s precarious financial situation, the closure or further reduction in care at Nuvance’s hospitals could substantially harm patient access to quality local health care in those areas.
The Agreement recites the fact that Nuvance has been suffering large operating losses and liquidity constraints notwithstanding that it “has made serious and ongoing efforts to address its financial challenges including by attempting to implement a Performance Improvement Plan, preserve cash, defer capital maintenance, and reduce capital expenditure as a result of financial decline, limiting its ability to hire and retain physicians and other critical staff.”
Based on these conditions and the assurances, the AGs conclude that any potential anticompetitive effect of the merger will be minimal and is likely to be outweighed by “substantial pro-competitive benefits.”
Note: In the past several years, there has been an increase in the number of cross-market mergers. With this has come increasing concern and scrutiny among regulators. It is interesting to note that the Health Systems’ post-combination commitments with respect to contracting with payors and plan sponsors likely address a concern of regulators in this regard.
The concern here involves the risk that, where the merger is of two provider systems operating in two separate markets and there is a common payor in each market, if one of the systems is a “must-have” system in one of the markets pre-merger, the merger may enable the merged firm through post-merger combined contracting to leverage its “must-have” status in the one market to its contracting advantage in the separate market where it would not otherwise be a “must-have” provider.
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