A Semi-Victory for Evanston Northwestern

Ruling requires separate negotiations but no divestiture in lengthy Illinois merger case.

The government's recent message to Evanston Northwestern Healthcare: You don't have to unwind your costly and complicated seven-year-old merger, but you can't take advantage of the combined entity's market share.

Thus it was that ENH President and Chief Executive Officer Mark Neaman got a partial victory in his three-hospital system's dispute with the Federal Trade Commission-but he's still not happy, and may appeal. The FTC's ruling for the Chicago health system allowed the system to set up a separate team for negotiating commercial insurance rates for Highland Park Hospital, which ENH acquired seven years ago, but avoids a more draconian possible outcome that would have required the system to divest itself of Highland Park Hospital.

"It's a very positive outcome for us and the community," Neaman says. "If you want to characterize that as a victory for us, we would very much agree. But we totally disagree with the liability ruling and may still appeal that part of the ruling at some point in the future."

The FTC-ENH saga started several years ago (see HealthLeaders, February 2006), when the agency charged that the merger could hinder competition and challenged it. Standard & Poor's, which rates about $222 million in ENH bonds at AA+, largely yawned at the ruling. Although the agency reserved the right to a full review of ENH's creditworthiness once ENH develops a plan to comply with the FTC's concerns, it doesn't seem worried that the ruling will hurt the system's business. Neaman, who originally proposed the separate negotiation plan as a possible remedy, agrees. "What it requires is having two different groups of people independently negotiate those contracts should any insurance company express an interest in bidding them separately."

Despite the feeling that ENH prevailed in its long battle against the FTC, however, Neaman fears that the separate negotiation solution is a weapon insurers will be able to use to win the larger war against other hospitals.

"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."

-Philip Betbeze