4 FTC-challenged hospital mergers of 2012

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.

Reading Health System and Surgical Institute of Reading

In May of this year, Reading (Pa.) Health System agreed to acquire the Surgical Institute of Reading in Wyomissing, Pa.

Although the Surgical Institute isn't  a full-service general acute hospital, as a physician-owned specialty hospital, the FTC said the deal would reduce competition in four markets (inpatient orthopedic/spine surgical services, outpatient orthopedic/spine services, outpatient ENT surgical services, outpatient general surgical services). With a market share of 49 percent to 71 percent, the FTC said the merger would lead to higher prices. The FTC and Pennsylvania Attorney General blocked the acquisition last month.

The two called of the deal rather than face the FTC suit.

OSF Healthcare and Rockford Health System

Similarly, another partnership abandoned the merger under FTC scrutiny.

In November 2011, the FTC filed a complaint saying that OSF Healthcare's proposed acquisition of Rockford (Ill.) Health System would consolidate general acute care inpatient services, as well as primary care services, controlling 99 percent and 60 percent of the market, respectively.

In April, the two parties forfeited the deal, saying a battle with the FTC would be too lengthy and costly.

Although the FTC dismissed the complaint against the two, it also said it "will not hesitate to challenge deals in the healthcare sector that are likely to decrease competition and lead to higher prices or fewer services."

Phoebe Putney Health System and Palmyra Park Hospital

In October 2010, Phoebe Putney Health System planned to acquire Palmyra Park Hospital from rival HCA in Albany, Ga. According to the FTC, Phoebe didn't offer to make a direct buy, but rather, the health system devised a plan in which the Hospital Authority of Albany-Dougherty County would acquire Palmyra to evade antitrust scrutiny.

In December 2010, Phoebe gained control over Palmyra. The FTC and the Attorney General alleged the Hospital Authority didn't adequately review the $195 million deal or its potential effects on healthcare prices and didn't supervise Palmyra, thus debunking the "state-action" defense, according to the complaint.

In April 2011, the FTC filed an administrative complaint, saying the deal would reduce competition and allow the merged health system to raise prices for general acute care hospital services charged to commercial health plans, and as a result, would harm patients, local employers and employees.

The FTC challenge proves to be an important case for action-action immunity, as the FTC vs. Phoebe Putney Health System case is argued in the Supreme Court this month. The outcome could set a precedent for other nonprofit mega-mergers that are or are not subject to federal scrutiny.