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Healthcare

After FTC Lawsuit, Tenet Scraps Sale of California Hospital

The Federal Trade Commission and California Attorney General's lawsuit says that the deal would eliminate competition and drive up prices in the region.
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Tenet Healthcare's Farmers Branch headquarters.

California-based John Muir Health backed off its attempted $142.5 million acquisition of Tenet Healthcare’s San Ramon Regional Medical Center after the Federal Trade Commission sued to block the move. Federal regulators said it would hurt competition in the area.

San Ramon Medical Center is a 123-bed acute care hospital in San Ramon, west of Oakland, 14 miles from another John Muir Health hospital. John Muir has 554-bed and 224-bed hospitals in the region. The federal complaint says the proposed acquisition “threatens to substantially lessen competition for critical healthcare services along the I-680 corridor, which spans portions of California’s Contra Costa and Alameda Counties.”

A NY Times article in 2020 called John Muir Health the most expensive healthcare system in the country, with private insurers paying 400 percent of what Medicare pays for the same procedures. The FTC says San Ramon is currently a lower-priced option in the area, but its acquisition would eliminate competition. Most hospitals in North Texas charge between 200 and 300 percent of Medicare to private insurance, according to a RAND Corporation study.

The FTC argues that the high prices result from a lack of competition along the I-680 corridor where John Muir’s other hospitals and San Ramon are located. If San Ramon were acquired, the complaint says the system would have even more leverage over payers to drive up regional prices. The suit says that according to discharge data, the acquisition would result in John Muir controlling more than 50 percent of inpatient general acute care services in the I-680 corridor.

Since 2013, John Muir has owned 49 percent of the hospital, with Farmers Branch-based Tenet remaining in control. Last January, Tenet and John Muir agreed to a $142.5 million purchase of the remaining stake in San Ramon Medical Center. In November, the FTC brought the suit and, together with the Attorney General of California, sought an injunction to halt the deal. John Muir has 554-bed and 224-bed hospitals in the region already.

The suit caused John Muir and Tenet to reassess and eventually terminate the deal. “We are disappointed by the FTC’s decision and are discussing our options and next steps, including challenging the decision in court,” said Mike Thomas, president and CEO of John Muir Health, in a statement last year. “We believe the proposed acquisition would benefit our community, caregivers, and patients, as well as John Muir Health, San Ramon Regional Medical Center, and Pleasanton Diagnostic Imaging.”

After Tenet and John Muir scrapped the deal, the FTC dropped its case against the health systems. “The FTC has scored another major health care win in less than a month, delivering patients in California continued access to quality, affordable health care services. John Muir’s anticompetitive hospital takeover would have driven up healthcare costs for critical services like heart surgery, spinal surgery, and maternity care. It also threatened to eliminate improvements in care driven by competition, which directly benefit patients,” said Bureau of Competition Director Henry Liu.

Studies show that hospital mergers and acquisitions drive up costs and are on the rise. According to the American Hospital Association, 1,887 hospital mergers between 1998 and 2021 reduced the number of hospitals from about 8,000 to just over 6,000. A Kaufman Hall report found that through the first three quarters of 2023, there were 53 announced hospital mergers, equalling the total for all of 2022. In 2021, there were 49 hospital deals. The Biden Administration found that the top 10 health systems control 25 percent of the nation’s market.

Despite promises from hospital CEOs to the contrary, research shows that mergers increase costs and don’t improve quality. The FTC Director of the Bureau of Economics found that when hospitals merge and face less competition, they sometimes charge 40 to 50 percent more than before the deal.

“At the California Department of Justice, ensuring that every Californian can access quality, affordable care is a top priority,” said California AG Rob Bonta. “Competitive markets help keep prices lower. We will continue to fight to ensure that Bay Area residents – and all Californians – can access the affordable healthcare they need to live healthy and happy lives.”

Tenet Healthcare did not respond to a request for comment.

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Will Maddox

Will Maddox

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Will is the senior writer for D CEO magazine and the editor of D CEO Healthcare. He's written about healthcare…

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