FTC Hospital Merger Challenge Signals Future Labor Market Enforcement Actions

Introduction

On February 17, 2022, the US Federal Trade Commission (FTC) unanimously authorized an administrative complaint and a lawsuit in US District Court for the District of Rhode Island to block the proposed merger of Lifespan Corporation (Lifespan) and Care New England. The FTC’s complaint asserts that the transaction would combine two of Rhode Island’s largest healthcare providers and allegedly would lead to higher prices and a lower quality of care for patients in violation of Section 7 of the Clayton Act.¹

The FTC’s challenge to a transaction that, according to the agency, would result in one entity controlling “at least 70 percent of the Rhode Island market for inpatient general acute care hospital services and at least 70 percent of the market for inpatient behavioral health services”² represents a traditional Section 7 theory in a hospital merger case, albeit with the FTC alleging a transaction harmed competition in the “inpatient behavioral health services” market for the first time. In this case, however, the two Democratic Commissioners also would have brought a Section 7 claim based on a substantial lessening of competition in a relevant labor market. That claim was not supported by the two Republicans on the Commission, and thus was not included in the FTC’s complaint. Nonetheless, the Democrats statement is an important reminder of the current Administration’s focus on antitrust enforcement in labor markets.

Recent FTC Statements in Lifespan-Care New England

In their statement concurring in the decision to authorize a complaint to challenge the Lifespan-Care New England transaction, FTC Chair Lina Khan and Commissioner Rebecca Kelly Slaughter noted that they “would have supported an allegation that the effect of the proposed transaction may be to substantially lessen competition in a relevant labor market in violation of the Clayton Act.”³ Section 7 of the Clayton Act, 15 U.S.C. § 18, prohibits transactions in which the effect “may be substantially to lessen competition, or to tend to create a monopoly.”⁴ The antitrust agencies have long recognized that “[e]nhancement of market power by buyers, sometimes called ‘monopsony power,’ has adverse effects comparable to enhancement of market power by sellers.”⁵ In a labor market, greater buyer power may have the potential to depress wages and lower other benefits.

Here, Chair Khan and Commissioner Slaughter stressed that “[j]ust as consumers are worse off when mergers diminish competition for goods and services…workers suffer when mergers diminish competition for their labor and employers are insulated from competition….”⁶ They argued that the skilled medical professionals market may be “uniquely” limited to their employer options in a local geographic market. Although the specific allegations regarding the alleged reduction of competition in the labor market in this case were redacted, Chair Khan and Commissioner Slaughter cited multiple empirical studies suggesting that increasing the employer buyer-side labor market power via hospital mergers can contribute to wage stagnation for skilled healthcare professionals.⁷

In response to Chair Khan and Commissioner Slaughter’s statement, Republican Commissioners Noah Phillips and Christine Wilson issued a statement disagreeing with the Democrats’ assessment that the evidence supported a labor market claim in this case.⁸ Importantly, while Commissioners Phillips and Wilson’s statement recognized that monopsony claims have their place, they concluded that the evidence would not support such a theory in this case.⁹ In addition, they believed that adding a labor theory would add complexity to the case without changing the relief that the Commission could obtain or improving the Commission’s odds of blocking the transaction.¹⁰

A Renewed Focus on Competition for Labor

Chair Khan and Commissioner Slaughter’s statement in the Lifespan-Care New England matter is just the latest evidence of the Biden Administration’s continuing focus on antitrust enforcement in labor markets.

In President Biden’s July 2021 Executive Order on Promoting Competition in the American Economy, he specifically affirmed that “it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony — especially as these issues arise in labor markets. . . .”¹¹

Since then, Chair Khan has written several times about the steps that the FTC is taking to “root out unfair methods of competition and unfair or deceptive practices in the economy, a mission that protects all Americans, including workers.”¹² In her comments to the House of Representative’s Subcommittee on Antitrust, Commercial, and Administrative Law, she highlighted that the FTC “must scrutinize mergers that may substantially lessen competition in labor markets” and that it “will work with the Department of Justice to update the agencies’ merger guidelines, looking to provide guidance on how to analyze a merger’s impact on labor markets.”¹³

In January 2022, the Department of Justice, Antitrust Division (DOJ) and FTC announced a public inquiry seeking information as they update their merger guidelines, in which they featured labor market issues prominently. In her remarks at the announcement, Chair Khan spotlighted the issue of merger analysis and labor markets. She posed several questions, including whether “the guidelines adequately assess whether mergers may lessen competition in labor markets, thereby harming workers?¹⁴ Are there factors beyond wages, salaries, and financial compensation that the guidelines should consider when determining anticompetitive effects?¹⁵ And when a merger is expected to generate cost savings through layoffs or reduction of capacity, should the guidelines treat this elimination of jobs or capacity as cognizable “efficiencies?”¹⁶ The agencies’ request for information specifically seeks input on how to address the issue of buyer power in labor markets.¹⁷

Even before the antitrust agencies officially update their merger guidelines, the FTC has taken some concrete steps to explore labor market issues in their merger reviews. In September 2021, the FTC announced that it was taking steps to ensure its “merger reviews are more comprehensive and analytically rigorous.” Specifically, the FTC’s “second requests may factor in additional facets of market competition that may be impacted[,]” including “how a proposed merger will affect labor markets . . . .”¹⁸ Second Requests now frequently require parties to produce documents discussing the parties’ efforts to hire, recruit, compete for employees, including related to compensation, work schedule flexibility, or other terms of employment.

The DOJ is also taking steps to bolster antitrust enforcement in labor markets. For example, Assistant Attorney General Jonathan Kanter recently appointed Doha Mekki as Principal Deputy Assistant Attorney General of the Antitrust Division. Prior to taking this position, PDAAG Mekki focused on antitrust and labor issues as a Counsel to the Assistant Attorney General of the Antitrust Division. In that role, Mekki testified to the House of Representatives’ Subcommittee on Antitrust, Commercial, and Administrative Law that “there is no faithful reading of the…antitrust laws that exclude competition for the American worker.”¹⁹ She described how “Division staff assess whether a proposed transaction would allow the merged firm to reduce competition substantially in a labor market and use its enhanced bargaining power to depress workers’ wages and benefits, including salary, commissions, and reimbursements,” including through the use of new Second Request specifications “to determine whether a transaction will create or enhance labor monopsony.”²⁰

The DOJ’s focus on labor market issues in merger reviews supplements its active criminal antitrust enforcement activities in this area. Currently, the DOJ is actively pursuing criminal antitrust charges against defendants accused of engaging in a scheme to fix the wages paid to physical therapists and physical therapist assistants in the Dallas-Fort Worth area,²¹ as well as defendants accused of restricting the hiring and recruiting of engineers and other skilled workers in the aerospace and engineering industries.²²

Takeaways

Chair Khan and Commissioner Slaughter’s statement in the Lifespan-Care New England matter contains an important reminder that parties contemplating a transaction should be aware of the impacts of their transactions on labor markets. Parties should consider the extent to which they compete for talent and whether their transaction may reduce competition to hire workers, even where the parties may not compete in a downstream market for products or services. This concern may be elevated in concentrated industries, where labor may be specialized or limited to a few employers. Parties should also ensure that their antitrust compliance programs, particularly with respect to human resource issues, are robust since the antitrust agencies now request documents related to labor issues (not limited to the specific transaction under review).

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.