Too Little, Too Late
Congress immediately kicked in $175 billion with the signing of The CARES Act on March 27, 2020, to be spread out across the entire health care industry, not just hospitals.
But the hospitals’ lawyers and lobbyists said it was not enough. Tim McCrystal, health practice co-chair at Ropes & Gray LLP, told Law360 that “the payments…for many hospital systems do not come close to covering the costs and lost revenue that those systems have incurred in connection with COVID-19.”
Congress is considering another $3 trillion relief bill, which would add another $100 billion for hospitals, but early bipartisan support has quickly vanished. Republicans have withheld support. “Right now, we’re kind of on a precipice,” Iseman told Law360. “We don’t know how much more money the government is going to be willing to print to bail out the health care industry.”
Looking for a Financial Angel
If more bailouts aren’t on the way, stressed hospitals will run out of cash and start looking for partners. David Dahlquist, health group co-chair at Winston & Strawn LLP, said he expects “a greater push for consolidation” in the aftermath of COVID-19’s earnings earthquake. “That is an element that we’re seeing in a lot of phone calls.”
“We think that there’s going to be a lot of tendency for standalone hospitals to think that they can no longer be standalone,” said Jim Boswell, health team leader at King & Spalding LLP.
Will Certain Hospital Mergers be Outlawed?
But, like epidemiologists responding to the initial virus, anti-trust regulators, politicians, and purchasers of health care services are ringing alarm bells.
A California Senate committee has already forwarded legislation to outlaw certain mergers. U.S. Senate Democratic senators wrote to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell urging them to “restrict large corporations that receive bailout funds from engaging in potentially harmful mergers and acquisitions.”
The Federal Trade Commission’s (FTC) Mergers IV division, which investigates health care provider transactions, is keeping their thinking private for now on pandemic-inspired M&As.
Some lawyers who spoke to Law360 pinned any hope of FTC M&A sympathy on a legal theory called the “failing firm” defense. This argument says it’s better to allow a questionable merger than to let one of the entities die. Others argue that over-enforcement of mergers by the FTC in the past created a situation where there are now too many unsound hospitals.
There have been no FTC decisions since COVID-19 regarding hospital mergers, but the commission blocked a merger between two Pennsylvania hospitals in February, on the grounds that consolidation would mean the systems would have fewer incentives to keep costs down.
Not only are regulators skeptical of allowing more hospital consolidation, some industry giants have expressed fears.
