Hospital Consolidations Raise Federal Trade Commission Concerns
Since 1999 the FTC has won (or favorably settled) challenges with respect to six hospital mergers and two physician practice mergers. The FTC challenged three hospital mergers in less than two months at the end of 2015. There has been an increased focus initiated by the FTC on hospital mergers in multiple states as evidenced by its continuing enforcement actions with varying degrees of success.
Federal Trade Commission et al. v. Advocate Health Care Network et al.
Advocate Health Care (“Advocate”) based in Downers Grove, Illinois and NorthShore University Health System (“NorthShore”) based in Evanston, Illinois proposed a $2.2 billion merger to create the largest healthcare delivery system in Illinois. Advocate operates more than 250 sites of care, including ten acute care hospitals, the largest integrated children’s network in Illinois, five Level I trauma centers, two Level II trauma centers, one of the area’s largest home health care companies and one of the region’s largest medical groups. NorthShore operates four Illinois hospitals located in Evanston, Glenbrook, Highland Park and Skokie. Its multispecialty physician practice, NorthShore Medical Group is comprised of approximately 900 primary and specialty care physicians which are located in 100-plus offices across Chicago and many of the Northern Suburbs of Illinois.
Advocate President and Chief Executive Officer Jim Skogsbergh and NorthShore President and Chief Executive Officer Mark Neaman both stated that the merger would help meet the demands of the Affordable Care Act and provide integrated quality healthcare at a lower cost.
The FTC requested an order to block the merger between Advocate and Northshore. On June 14, 2016, Judge Jorge L. Alonso refused to issue an injunction against the merger. Following this injunction, the FTC appealed the decision and on June 17, 2016, Judge Alonso granted an injunction request from the FTC which has paused the merger until the appeals court hears the case. The FTC claimed that the merger would cause an anti-competitive environment and higher prices for insured customers. In addition, the FTC claimed that insurers would struggle to create marketable networks due to the merger of Advocate and NorthShore.
The case is currently under review by the appeals court and a decision is expected in approximately six months. The case would go back to the lower court if the appeals court sides with the FTC.
Federal Trade Commission et al. v. Penn State Hershey Medical Center et al.
Penn State Health Milton S. Hershey Medical Center (“Hershey Medical Center”) based in Hersey, Pennsylvania and PinnacleHealth System (“Pinnacle”) based in Harrisburg, Pennsylvania approved a proposal to merge on March 20, 2015 to create a new organization called Penn State Health. Hershey Medical Center was founded in 1963 through a gift from The Milton S. Hershey Foundation and is one of the leading teaching and research hospitals in the country. Pinnacle has been dedicated to providing and improving the health and quality of life for the people of Central Pennsylvania since 1873.
On December 8, 2015 the FTC and the Pennsylvania Office of Attorney General filed a joint complaint in Federal court asking for a preliminary injunction to block the merger between Hershey Medical Center and Pinnacle. Hershey Medical Center and Pinnacle proceeded to fight the FTC’s attempts to block the merger. On May 9, 2016, district court Judge John Jones, III refused to issue the preliminary injunction sought by the FTC. The FTC challenged the merger based on its potential impact of general acute case inpatient hospital services in the Harrisburg area. Judge Jones initially sided with the hospitals in this case citing that the merger did not create a hypothetical monopolist and impose an increase in prices for healthcare services.
The FTC appealed the decision of Judge Jones and on May 24, 2016, at the FTC’s request, a Federal appeals court granted an injunction to prevent the merger of Hershey Medical Center and Pinnacle. On September 27, 2016, the U.S. Court of Appeals for the Third Circuit reversed the lower court decisions and ruled in favor of the FTC and stopped the merger between Hershey Medical Center and Pinnacle. The Third Circuit overturned the lower court’s decision because it “failed to properly define the relevant geographic market in light of the healthcare industry’s commercial realities.” The Third Circuit reasoned that “Patients are largely insensitive to healthcare prices because they utilize insurance… (and so the) analysis must focus, at least in part, on the payors who will feel the impact of any price increase.”
As in the Advocate case, Hershey Medical Center and Pinnacle felt the merger would have helped provide better quality healthcare services to the communities they serve at a lower cost. Following the ruling by the Third Circuit, Hershey Medical Center and Pinnacle discontinued integration efforts.
Conclusion
The FTC and the U.S. Department of Justice have continued to increase their focus on alleged anticompetitive conduct in the healthcare industry. As hospital and healthcare system mergers and consolidations continue to be prevalent across the industry and as providers continue to attempt to provide patients better quality healthcare services at lower costs, the FTC will have a continued focus on and will continue to closely monitor these proposed transactions.
Ask Our Experts
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.
