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An Unfair Fight

Philip Betbeze, Senior Editor, Finance, December 17, 2007

A word of warning to other hospitals contemplating acquisitions that might bring into their orbit a hospital perceived to be located in an affluent area. Think twice. Do it anyway. Just be ready for a fight. I wrote in the December issue of HealthLeaders magazine about a merger the feds hoped to make an example of.

Essentially, they failed in that attempt, but they caused a lot of grief and headache for that system's CEO and the rest of the management team.

First, a little background. Evanston Northwestern Healthcare is one of Chicago's top hospital systems and saw an acquisition of the city's Highland Park Hospital as a way to eliminate the unnecessary duplication of services and the duplication of executive teams. But ENH drew the unwanted attention of the Federal Trade Commission several years ago--after the acquisition had already closed--for buying Highland Park. The feds had charged that the merger was anti-competitive to area health plans, and threatened to make ENH unwind the merger--a merger that is eight years old, included a $150 million investment in Highland Park, and involved untold hours of work on the part of the hospitals' administrative staffs to integrate.

The FTC got involved in the case because a few insurance companies complained that the merger would drive up healthcare costs. That's where things got interesting. I talked to the system's CEO, Mark Neaman, about the case, which was just recently settled through a remedy that ENH itself suggested. Essentially, the agreement says that as long as the health system is willing to set up a separate negotiating team for managed care plans that wanted to negotiate with the hospitals separately, Highland Park could remain with ENH. The ruling allowed the FTC to save face and avoid a long battle that ENH was clearly in for the long haul. Read the above-mentioned story for the details.

But the apparent unfairness of the initial FTC complaint is mind-boggling. News flash--in a place like Chicago, where BlueCross controls more than 50 percent of the managed care business, says Neaman, the whole market is sewn up in a very small cadre of payers that are very powerful. The hospitals are clearly at a negotiating disadvantage, as they are in most other areas of the country. In fact, the largest hospital system in Chicago, Advocate Health Care, has about 10-15 percent of the market by comparison.

So, you tell me: Which group is behaving in an anticompetitive way here?

"It's not a fair fight to begin with from our perspective," Neaman says. "This ruling provides another threat that the managed care companies will be able to use in negotiations, saying 'If we don't like what you're negotiating here, we're going to call the FTC and say you better look into this.' We really view this as a negative ruling for the industry as a whole."

My take: It's fine to kick around a couple of nonprofit hospitals, but try to apply the retroactive principle to other businesses and industries. "It would create chaos in the marketplace if you went to GE or Microsoft and got them to unwind years-old mergers," Neaman says, taking the analogy and running with it. "It would be untenable."

Business entities can't deal with the level of insecurity that such retrospective reviews entail. The caution is to others to recognize that the FTC is trying to establish an expanded review front where they can come back after the fact and demand unreasonable actions, Neaman says.

Neaman seems happy with the ruling, in a way, although he remains combative.

"The insurers have abilities to get around some of these [antitrust] requirements in that they fall under the supervision of the Justice Department rather than the FTC, says Neaman. "There doesn't seem to be anyone asking the question of whether they're too big or too powerful."

Indeed.

Signs, signs, everywhere signs
The rest of HealthLeaders Media's weekly e-zine writers and I were meeting the other day about how to improve our newsletters--specifically, how we can increase the participation of you, the 45,000 or so people who have been so kind as to sign up to receive HealthLeaders Media Finance each week. In case you don't know, we also have newsletters for leadership, marketing, physicians, IT, and community and rural hospitals.

One way people can contribute on our newly redesigned Web site is through comments. Say what you want. Mock me or praise me. The most important thing is that you contribute. That option occurs at the end of all our original content. Just register and away you go.

If you have something more to say, consider writing a contributed column. With this HealthLeaders Media Finance newsletter, you see such columns each week in the "Finance Forum" section. Why make a plea directly to you in this space? Well, we get lots of submissions over the transom, but sometimes they are highly self-promotional, as you might imagine, or they are off-topic and are thus unusable. The best ones we get are not from consultants or those with an agenda, but from our readers.

For instance, I'd love to have an opinion piece from a hospital CEO, CFO or COO. The topics are innumerable. Perhaps you'd like to write about how much money you're losing on Medicaid. Maybe you'd like to describe the recent success you've had cutting your AR days. What about capital planning? Do you have strategies that have worked for your organization? How are you increasing staffing efficiency? What are you doing to cut waste in supplies or medical devices? Those are just a few ideas. I'm sure you have many more.

So back to the original question. How can we increase our submissions from our readers? Well, that's where we get back to our little ole meeting here at HLM.

"How about an ad?" I said, not believing those words had just come out of my mouth. We editors have a friendly tug-of-war with our advertising salespeople. They would be overjoyed if we were to write something about one of their clients, but we generally try to avoid consciously doing so for credibility reasons. A number of times, I've gotten thank you e-mails from PR people and even our own sales staff thanking me for writing about their clients. I'm always happy when I realize I had no idea they were a client in the first place. That's all to say that if our sales staff had been in the room when I spoke those damnable words, I might have received a rousing cheer.

But kidding aside, the point is this: advertising works. And even though I don't know how to design an ad, I'm hoping that running an ad for column submissions will pay off in that some of you will contact me with your ideas for a relevant healthcare finance guest column.

As for where to find that ad, well, you just read it.


Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.

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