The Federal Trade Commission’s skepticism of tech-fueled healthcare mergers could spell trouble for Amazon and One Medical, experts say.
For years, the FTC has tried to thwart mergers between large hospital systems. Recent action reveals its focus could be widening to include mergers involving digital health providers and big tech companies.
Erik Gordon, an assistant professor at the University of Michigan's Ross School of Business, said the FTC may look at companies sharing patient data with third parties as an anti-competitive practice and use it as a reason to stop these proposed mergers.
“There’s a lot of uncertainty about what kinds of combinations you can do in healthcare,” Gordon said. “If you're trying to build a new kind of healthcare provider, how certain can you be that the government will allow it? If I was advising one of these companies, I’d tell them to include a big breakup fee in the contract in case the deal is blocked.”
In September, the FTC began investigating tech giant Amazon’s planned $3.9 billion merger of One Medical, a hybrid primary care company.
Earlier this month, The Wall Street Journal reported the FTC was preparing a possible antitrust suit against Amazon. A separate report from DealReporter said the agency was hiring outside economists to review the Amazon-One Medical proposed merger. If the deal isn't approved by federal regulators, $195 million will be owed to One Medical.
An Amazon spokesperson declined to comment. Spokespeople from One Medical and FTC did not respond to requests for comment.
The federal government has taken a look at several high-profile healthcare mergers in the last year, particularly those that include vertical integration. In June, the FTC asked for more information on UnitedHealth Group’s proposed $5.4 billion acquisition of home health provider LHC Group. In October, the Department of Justice probed CVS Health’s potential $8 billion acquisition of Signify Health, a tech company that provides home health risk assessments.
“These combinations are going to bring up a whole new host of antitrust questions,” Gordon said.
Experts are unsure if Amazon's One Medical planned acquisition will be at the center of a potential antitrust lawsuit. But what’s clear is regulators have taken an increasingly close look at all tech companies’ use of health data. Earlier this month, the FTC alleged GoodRx shared consumers’ personal health information to Facebook, Google and other third parties.
For big tech companies, the scrutiny will be even higher and could have an effect on any planned mergers, said Robert Miller, a partner at law firm, Hooper, Lundy & Bookman.
"The [Biden] administration has signaled that it's not only very interested in healthcare, but it's very interested in scrutinizing the role of big tech in the American economy,” Miller said. “This isn’t just a merger between two companies operating in healthcare...the FTC may see this is an example of big tech’s interest in healthcare.
Gordon said that FTC Chair Lina Khan is likely going to interpret antitrust law differently than her predecessors at the agency, which could mean a more stringent review of Amazon and One Medical. Khan wrote a legal paper in 2017 making an antitrust case against Amazon.
“[Khan] has made it clear that she has a much more expansive view of what merger law is, or what merger law should be,” Gordon said. "She has put folks on notice that she is going to enforce the law the way she thinks it reads. And she's willing to lose court cases to try and do this.”
Beyond Amazon’s intent to acquire One Medical, Miller said the interest in large scale deals could create a downstream effect for smaller companies.
“Anytime there’s antitrust enforcement action I would say that it has outside effect on the market,” Miller said. “For every deal that is an Amazon and a One Medical, you have many smaller deals that are still subject to antitrust review.”
According to Miller, large deals are unlikely to be derailed by the costs of defending them. The benefits of smaller mergers could be consumed by legal fees, especially those that require multiple phases.
“Anyone who is considering one of those smaller deals is probably factoring that in, so I wonder if it is going to either reduce the flow of capital into healthcare or if it’s going to have any kind of chilling effect on healthcare transactions,” Miller said.