4 FTC-challenged hospital mergers of 2012

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Some of the biggest hospitals had plans of becoming even bigger this year, but the Federal Trade Commission continued to block four deals in 2012, arguing that healthcare consolidation was too much for one area.

Aiming to preserve competition in the marketplace, the FTC last year challenged 17 of the 1,450 merger transactions, the commission said in June. Among the recent healthcare targets were ProMedica and St. Luke's Hospital in Ohio, Reading Health System and Surgical Institute of Reading in Pennsylvania, OSF HealthCare and Rockford Health System in Illinois, and Phoebe Putney Health System and Palmyra Park Hospital in Georgia.

ProMedica and St. Luke's Hospital

In August 2010, ProMedica, headquartered in Toledo, Ohio, acquired St. Luke's Hospital in Maumee, Ohio, under an agreement that St. Luke's would remain independent. ProMedica also agreed it wouldn't terminate St. Luke's health plan contracts or eliminate, transfer or consolidate its clinical services.

FTC investigated the potential anticompetitive effects of the transaction and, in January 2011, filed a complaint that alleged the deal threatened services in Lucas County, giving ProMedia a market share of 60 percent in general acute care inpatient hospital services and 80 percent in inpatient obstetrical services.

The nonprofit health system, however, said the deal allowed the financially distressed St. Luke's to continue its mission of providing care for the community.  

In a December 2011 decision, an administrative judge found the deal did, in fact, eliminate competition in the area and thus strengthened ProMedica's bargaining power with commercial plans that could lead to higher reimbursements and higher costs for members. The judge ordered ProMedica to divest St. Luke's.

In March of this year, the FTC issued a final order, which affirmed the earlier decision. However, the judge redefined the general acute care inpatient hospital services by excluding "tertiary" services.

By whichever way you slice it, Commissioner Julie Brill in the opinion statement said, "Whether we accept Complaint Counsel's or Respondent's definition of the relevant markets does not affect our analysis of this transaction's likely competitive effects. As the ALJ found, regardless of which market definition is used, market shares and concentration levels exceed the thresholds for presumptive illegality provided in the 2010 Horizontal Merger Guidelines and the case law."

The FTC found a supporter in America's Health Insurance Plans (AHIP) when the trade association last month backed the antitrust group, stating in an amicus brief that the anticompetitive merger would drive up costs for consumers. AHIP said increased consolidation gave hospitals greater negotiating strength.

The American Hospital Association, nevertheless, supported the consolidation deal in September, arguing that mergers are the only way stand-alone hospitals can stay viable.

"[H]ospitals' ability to compete turns on their ability to keep pace with these trends … requires significant capital investments and economies of scale," AHA said in the amicus brief.