OSF Healthcare, Rockford Health call off merger with FTC block

OSF Healthcare System and Rockford (Ill.) Health System yesterday called off plans to merge rather than face the challenge from the Federal Trade Commission that would be too lengthy and costly, Dow Jones Newswires reported.

The FTC said the merger between the two Rockford, Ill., hospitals would create a monopoly in the area and the called-off merger will benefit consumers.

"Healthcare consumers in Rockford and the employers they work for will both benefit," FTC Bureau of Competition Director Richard Feinstein said in the Dow Jones article. "This deal would have caused significant consolidation among healthcare providers in Rockford, giving OSF greater leverage to raise prices, which ultimately would have been passed on to consumers."

Last week, a federal judge put a temporary hold on the merger between OSF Healthcare and Rockford Health. But when the legal battle could easily have lasted more than two years, the two parties pulled out.

The decision wasn't an easy one for OSF Healthcare and Rockford Health, as the governing boards and leadership "with great reluctance, decided to end efforts to merge our two organizations," according to a hospital statement. "Despite the FTC's challenge, we remain convinced that combining two of Rockford's three healthcare systems into one is consistent with the mandate presented by healthcare reform. In our view, it was and is the best means to promote and ensure healthy competition in the market place."

This isn't the first hospital merger the FTC has challenged. Among recent FTC targets are ProMedica and St. Luke's Hospital in Ohio, as well as Phoebe Putney Health System and Palmyra Park Hospital in Albany, Ga.

Although the FTC won this time, OSF Healthcare System said it would continue to do what it does best--provide coordinated care at reduced costs, particularly through its Pioneer ACO program to partner with providers, payer and patients.

OSF Healthcare CEO of OSF Ambulatory Services Bob Sehring told FierceHealthcare in an exclusive interview that the regulatory agencies of the FTC and the Justice Department don't seem to share the same views on collaborative care as the Centers for Medicare & Medicaid Services. "Unfortunately, the FTC and the U.S. Justice Department, they don't appear as convinced that is an appropriate avenue to go down. ... [T]hey are preventing us from merging two facilities that really would benefit (and certainly we believe the citizens of Rockford would benefit) by being able to combine efforts, reduce some of the duplication or excess costs and improve care that's delivered to the population," he said.

Sehring suggested the FTC's views on competition are counterproductive to the care of the community.

"But unfortunately, the FTC is viewing that more as a negative impact on competition. We view it as critical to produce results of better care and reduced costs (which is just what the FTC is looking for) for the community of Rockford. ... [T]he FTC and we are on clearly different pages. But I would also suggest the FTC and other parts of the administration are on different pages," he said.

Both OSF Healthcare and Rockford Health also said they will continue to "explore other avenues to achieve efficiencies and cost savings and to improve the quality and accessibility of the health care," they said.

This failed deal between OSF Health and Rockford, however, could signal a huge challenge to future hospital mergers, Dow Jones noted. From 1994 to 2000, regulatory agencies have litigated seven attempts to block hospital mergers; they lost all seven.

For more information:
- read the Dow Jones Newswires article via The Wall Street Journal (subscription required)
- see the hospital statement
- here's the Fierce exclusive interview

Related Articles:
Fierce Q&A Part II: ACO results are worth the challenges at OSF Healthcare
Fierce Exclusive Part I: OSF HealthCare exec on the Pioneer ACO journey