Will Your Merger Pass the Smell Test?

I asked him how hospitals can avoid this costly mistake by learning from the two most recent victories by the FTC.

"Think twice if your experience tells you that your merger partner is an entity that you monitor competitively," he says. "If your patient volume goes down and you think about what that other hospital is doing because you have to meet or beat them, that's probably a pretty close competitor and you're likely to get a second request if you attempt to merge with them. That doesn't mean it's doomed, but you will hoe a tougher row."

Capps encourages hospitals and boards to hire an experienced healthcare antitrust attorney at the beginning of any merger discussions to provide upfront advice as to what the process entails so that if the merger is likely to attract FTC scrutiny, how you'll successfully defend the move.

"Every step you go in this process, the money is sunk," he says. "You need to know what your chances are and what it will cost to succeed, and what it will cost you to fail. The benefits had better be intrinsic to the rationale and planning with the deal, and not what you come up with after the FTC issues you subpoenas."

In the case of these two recent examples, it seems that leaders counted on the fact that 90% of mergers go through without a regulatory hiccup. They hoped, despite the obvious fact that they were merging with a close competitor, that they would be included in that 90% number.

But as the losses that have undoubtedly accrued from the time effort and expense of dealing with the scrutiny have demonstrated by now, it's clearer than ever that in hospital consolidation, hope is not a strategy.