New Developments Affecting Hospital Merger Enforcement

Two recent important developments affecting hospital antitrust merger enforcement deserve serious consideration.

1. FTC intensifies scrutiny of the “failing firm” defense

The first development relates to the failing firm defense. This defense is increasingly common in hospital mergers, given the significant financial problems faced by many hospitals. However, parties face numerous hurdles in raising this defense, including the requirement that the seller conduct adequate search for a “less anticompetitive” buyer.

On September 2, 2026, Federal Trade Commission (FTC) Chairman Andrew Ferguson (joined by Commissioner Mark Meador) issued a statement concerning a transaction between Fairfield Medical Center and Adena Health, which occurred after abandonment of a transaction between Fairfield and OhioHealth. Fairfield raised the “failing company” defense in connection with its proposed sale to OhioHealth. In response, the FTC argued that Fairfield should seek out a less anticompetitive buyer than OhioHealth. Fairfield did so, and eventually agreed to sell to Adena Health, a buyer without a hospital in the same geographic market.

In his statement, Commissioner Ferguson emphasized the importance of a “comprehensive” process to eliminate the possibility that another, less anticompetitive buyer would be willing to acquire the distressed hospital. According to Ferguson, FTC will consider the following factors when assessing the sufficiency of a shop process: “whether the search solicited interest from the full set of potential buyers”; “whether potential buyers were given sufficient time to evaluate a potential transaction”; “whether potential buyers received sufficient and equal access to information necessary to evaluate a potential transaction”; “whether the seller engaged with interested potential buyers in good faith”; and “whether the seller appropriately considered offers from buyers that did not present competitive concerns.”

This concern is not new, and this is an issue that Honigman has addressed successfully in several merger defenses. But the FTC’s recent practice and its recent action in the Fairfield-Adena Health transaction indicate that it is taking a much more active role in the search for alternative buyers. Indeed, in several cases of which we are aware, the FTC has gone out and done its own search for possible alternative buyers for a failing hospital.

Practical implications

Planning the shop process for a distressed hospital should occur well before the parties agree to a transaction that may face FTC scrutiny. For this reason, among others, hospitals considering merging should seek antitrust counsel at the very beginning of their review of their strategic alternatives. They need to consider a broad search for merger partners, as well as the criteria they may apply in deciding whether or not particular suitors are acceptable. Sellers of distressed businesses should carefully document these sales efforts so they can be readily explained to antitrust enforcers.

Of course, mergers involving competitors with high combined market shares can often be defended on grounds other than the failing company defense. For example, even if a hospital does not technically qualify as a “failing” under FTC guidance, if it is competitively weak, and can be expected to be even weaker in the future absent the merger, that can be a significant factor in deciding whether the transaction causes undue antitrust concerns. We have successfully defended several transactions where we did not rely on the technical “failing company” defense, but did defend the transaction based on the increasing competitive and financial weakness of the selling hospital.

2. CMS phase-out of the inpatient-only list and potential effects on antitrust market definition

The second development concerns CMS’s ongoing plan to eliminate the requirement that certain procedures be reimbursed only if performed on an inpatient basis. In January 2026, 285 procedures were removed from the Medicare In Patient Only List, with 638 additional procedures slated to be eliminated in early 2027. If (as has been true in the past) commercial payors follow CMS’s lead, this may “open the floodgates” to a wider variety of procedures being performed on an outpatient basis.

Such a change could have significant implications for hospital merger analysis. That is because the government’s focus has for decades been on inpatient hospital services. Such services have been defined as a separate market on the theory that patients who use such services cannot receive care on an outpatient basis, and therefore outpatient competitors are not reasonable substitutes for inpatient hospitals. Therefore, market shares have been calculated based only on the hospital’s inpatient competitors.

Many services have been moving from inpatient to outpatient in recent years, and the pending CMS decision may accelerate that trend. Whether it will be significant enough to eliminate inpatient services as a separate antitrust market, and allow merging parties to assess their competition much more broadly, remains to be seen. But this is another issue that merging hospitals should consider as they assess their antitrust risks.

For further information, contact Herb Allen at hallen@honigman.com or David Ettinger at dettinger@honigman.com.