Doctor team treatment plan discussion

Why you need a better antitrust approach in health care M&A diligence


Blending business strategy and antitrust economics in health care mergers and acquisitions (M&A) can uncover dealbreakers and promote value.


In brief
  • Greater regulatory pre-merger notification requirements, under Hart-Scott-Rodino (HSR) Act updates, could stall ill-planned health care M&A.
  • Early in M&A due diligence, combining antitrust concerns with cohesive analyses of business and financial synergies can mean more sustainable deal outcomes.
  • Health care organizations and consumers can benefit when corporate development and strategy leaders control the early deal narrative.

New pre-merger regulatory reporting requirements mean that blending antitrust scenario modeling with early M&A due diligence is essential for dealmakers pursuing consolidation, especially in the highly fragmented and complex US health care market.

Regulators want to analyze the complex competition matrix early. A buyer’s failure to consider antitrust issues early in the M&A due diligence cycle can result in delays, hefty breakup fees or deal abandonment. Both sides of qualifying deals of more than $126m must independently provide the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division with a competition assessment and synergy analysis, if prepared, and other upfront details before a deal can proceed.1

 

Forward thinking investors, however, can take control of the deal narrative with an approach that blends business strategy diligence with economic antitrust scenario modeling to uncover synergies and divestment scenarios. This approach can help buyers not only avoid deals being blocked but also accelerate the strategic plan during M&A integration, helping to build shareholder value.

 

Persistent regulatory scrutiny comes as the US M&A climate appears to be warming. The EY-Parthenon Deal Barometer projects a 10% increase in US M&A activity in 2025; deals are likely among US hospitals, doctor practices, post-acute, home health, ambulatory surgery and pharmacies.2 Of the 1,735 deals that met the HSR reporting threshold in 2023, 73 were in health care and of those, six were flagged for a second review, an EY-Parthenon analysis shows.3 However, the number of deals likely subject to secondary review at the federal level understates the issue since US health systems are overwhelmingly not for profit and these organizations’ deals need to navigate state reviews.

 

Regulators may block a transaction if it could incentivize the merged enterprise to raise prices or lessen quality for patients and members. Regarding labor, regulators also can block deals that decrease salaries or quality of care delivery. However, in the evolving landscape for health care M&A, economic antitrust considerations can be an opportunity for health care leaders to be prepared for likely regulatory negotiations and respond quickly to regulators’ red flags.

What you get with a combo: M&A diligence and economic antitrust modeling

Key considerations of M&A due diligence incorporating health care antitrust scenarios include the impact of a potential deal on:

Like M&A due diligence, antitrust modeling demands a sound understanding of business strategy, objectives, synergies and future investment goals. With interdependent M&A commercial and synergy due diligence and antitrust scenario modeling, common priorities can:

  • Align deal synergies, operational efficiencies, culture and asset optimization, creating deal efficiencies
  • Calibrate organizational strategy to the long-term, consumer-driven competitive market considerations important to regulators
  • Avoid unnecessary advisor fees
  • Shorten deal timetables for buyer organizations
  • Help secure financing
  • Achieve more sustainable and value-creating mergers
  • Exceed shareholder expectations

Figure 1: M&A due diligence and economic antitrust modeling

2503-10758-CS_Antitrust_Healthchart_v2

Source: EY-Parthenon

Three ways to think about antitrust economics in health care M&A

Key components of economic antitrust assessments include horizontal competition analysis to understand how two merging parties directly compete against each other in terms of pricing, products and geography. Additionally, in vertical competition analysis, regulators scrutinize how a company’s power in one market may raise prices in another related market. Finally, pro-competitive synergies identified in M&A diligence can demonstrate that the deal improves outcomes for consumers and especially for patients. See table:

Key assessment factor

What it is

Double-click

Health care examples

Horizontal competition analysis

A detailed understanding of how the two merging parties directly compete in terms of pricing, products and geography.

Antitrust regulators generally assess horizontal concerns by measuring the substitutability of the buyer’s product with the target’s product. If the merger joins two companies with highly substitutable products, regulators may find that the merger creates the incentive to raise prices, decrease wages or decrease quality to save costs.

If major hospital systems in the same geographic region merge, regulators may be concerned that the combined entity would dominate the market and reduce competition for patients needing hospital care, which may then result in decreased quality of care, higher prices and/or reduced wages.

Vertical competition analysis

When a merger allows the company to use its market power in one market to raise prices in another related market.

Antitrust regulators are likely to scrutinize proposed M&A where one company might have a market share of over 50% of one market and is acquiring a supplier or customer it services. This acquisition may allow the company to prevent other competitors in those markets from selling or receiving products they would otherwise need.

If a large health insurance company acquires a major hospital chain, regulators may be concerned that the insurer would favor its own hospitals, steering patients there by offering lower copays or better coverage, while limiting reimbursements or imposing higher costs on competing hospitals.

Pro-competitive synergy assessment

Synergies identified in M&A diligence can illustrate that the deal improves outcomes for consumers.

Potential value created, with supporting detail, should be presented as part of antitrust arguments for regulatory tests. For these synergies to be considered “cognizable efficiencies” by the courts, they must be quantifiable, verifiable, accrue to the benefits of consumers and be specific to the merger. Prior history of realized synergies can provide a compelling narrative to regulators.

More than 80% of payer and provider deals and more than 70% of distributor and health care services deals achieved or overachieved synergy targets within an average of two years post close, exhibiting that substantial value can be realized, according to an EY-Parthenon team analysis.

Source: EY-Parthenon analysis

Conclusion

Health care M&A can be nuanced and complex in today’s regulatory environment. A holistic approach that combines economic antitrust scenario modeling and M&A commercial and synergy due diligence requires foresight, strategic planning and ongoing management. By anticipating regulatory challenges and preparing accordingly, health care organizations can not only smooth the path to merger approval but also help realize the full value of their acquisition through effective integration. Furthermore, by considering the pro-competitive benefits of a transaction, in conjunction with an assessment of the competitive landscape and antitrust economics, health care organizations can comply with antitrust requirements without losing sight of the strategic value of a deal. This dual-focus approach is essential in today's regulatory environment, where mergers must satisfy both competitive and operational imperatives.

With thanks to Isabel Anderson, Nathan Evans and Gabriel Iatarola, who contributed to this article.

The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.


Summary 

In the evolving landscape of health care M&A, blending antitrust economics with business strategy is paramount. Early antitrust considerations can mitigate regulatory delays and prevent hefty breakup fees. The combination of antitrust scenario modeling with M&A due diligence can lead to more sustainable and value-creating mergers in complex US health care market, where regulatory scrutiny is persistent. Forward-thinking investors can take control of the deal narrative so that mergers not only comply with antitrust requirements but also enhance value.

About this article

Authors

Related articles

M&A activity insights: April 2025

Read the latest Merger Monthly, with insights on recent US M&A activity insights and what M&A trends to expect as we look ahead.

EY Firepower report: life sciences dealmaking – trends in 2025

Learn how smaller, smarter deals will shape a confident future for life sciences.

M&A outlook shows firming US 2025 deal market activity

Based on economic and market indicators, the EY-P Deal Barometer — our M&A outlook — forecasts a steady boost in deal volume.