FTC Increases Action on Hospital Mergers

The Federal Trade Commission is attempting to block three hospital merger proposals in IL, PA, and WV. A growing body of evidence links healthcare costs and hospital market share.

The Federal Trade Commission's recent efforts to block three hospital merger proposals in Illinois, Pennsylvania, and West Virginia are under a challenge by the affected healthcare systems in those three states.

On Friday, Chicagoland's Advocate Health Care and NorthShore University HealthSystem jointly announced that they will fight the FTC, shortly after the commission announced that it was taking action to block the merger.

"We remain steadfast in our commitment to come together for the betterment of the patients and communities we serve," Mark Neaman, NorthShore president and CEO said in a written statement. "We believe that by bringing together our two organizations, we will lower costs, enhance care, and expand access while driving innovation."

Neaman's comments came one day after Pennsylvania's PinnacleHealth System and Penn State Hershey Medical Center said they will fight efforts by the FTC's and Pennsylvania Attorney General to block their merger under Penn State Health.

"The integration of the Milton S. Hershey Medical Center and PinnacleHealth makes good sense for patients, employers and our community and we intend to prove it in federal court," A. Craig Hillemeier, MD, CEO of Penn State Health, said in prepared remarks. "As one health system, we can better provide patients with the highest quality care, in the most appropriate setting at the lowest possible cost. Our integration also provides a powerful platform to produce future generations of healthcare providers and make discoveries that improve health."

The FTC said in its administrative complaint filed earlier this month that the Penn State Hershey/PinnacleHealth merger would create a dominant provider of general acute care inpatient services sold to commercial health plans in a four-county region of south-central Pennsylvania. The merged health system would control 64% of this market, which the FTC said would lead to increased healthcare costs and reduced quality of care for more than 500,000 regional residents.

On Friday, the FTC used the same line of reasoning to block the Advocate/NorthShore merger. In that administrative complaint, the FTC said the proposed merger would create the largest hospital system in the North Shore Chicago area that would control more than 50% of the general acute care inpatient hospital services.

"Advocate is one of the largest health systems in the Chicago area, and it competes directly with NorthShore in the northern suburbs of Chicago," Deborah Feinstein, director of the FTC's Bureau of Competition, said in a media release. "This merger is likely to significantly increase the combined system's bargaining power with health plans, which in turn will harm consumers by bringing about higher prices and lower quality."

The FTC authorized staff to seek a temporary restraining order and a preliminary injunction in federal court to prevent consummation of the Advocate/NorthShore merger pending an administrative hearing.

Advocate President and CEO Jim Skogsbergh challenged the FTC version of events and said the two health systems had done their homework in the 15 months that led up to the merger agreement.

"We laid out a detailed roadmap with the FTC on our plans to advance the delivery of care, improve quality, and reduce cost," he says. "Our commitment to elevate the model of care with new thinking requires an openness to new approaches in this fast and evolving marketplace."

The action against Advocate and NorthShore marks the FTC's third challenge to a proposed hospital merger in the past six weeks. In early November, the commission raised objections to Cabell Huntington Hospital's acquisition of St. Mary's Medical Center in Huntington, W.Va.

CHH President and CEO Kevin N. Fowler said the FTC action "misreads the highly competitive landscape in our Tri-State region and overlooks the enormous community benefits that would result from the combination of CHH and SMMC."

"Despite the FTC's decision, we remain committed to this acquisition as we believe it assures quality medical care for the residents of our region," Fowler said.

It is not clear if the FTC is intensifying its review of hospital mergers because these combinations are inherently problematic, or simply because more hospital M&A occurring right now.

Generalizations are difficult because each healthcare M&A is unique and "fact-specific," Jay Levine, an antitrust attorney with Porter Wright's Washington, DC, office, told HealthLeaders Media. "There are more mergers being put in front of the FTC and DOJ, and there are probably more strategic mergers put before them because the thought process is that these types of strategic combinations will cause the types of efficiencies and cost reductions the parties are trying to achieve. At the same time they also can produce the kind of anticompetitive effects that the enforcement agencies are worried about."

However, a growing body of evidence links healthcare costs and hospital market share.