Wellmont, Mountain States Merger Clears Key Hurdle

Tennessee officials said they approved the proposal after the two systems demonstrated that they would create a public benefit to Northeast Tennessee that would outweigh any downsides of a monopoly of services.

The proposed merger between Mountain States Health Alliance and Wellmont Health System took a big step forward on Tuesday when Tennessee officials approved the health systems’ Certificate of Public Advantage application.

“We believe this merger will result in sustaining high-quality health care for our region, will reduce the growth in costs and will create one of the nation’s leading health systems,” said Mountain States President/CEO Alan Levine, who would be executive chairman and president of the combined systems if the merger is finalized.

The new system, to be called Ballad Health, still requires approval from Virginia, but executives at Johnson City, TN-based Wellmont and Kingsport, TN-based Mountain States said they expect the merger to be approved by the end of the month.

For Tennessee to approve the merger, the systems agreed through the legislative process and in a series of public meetings to demonstrate that their merger would create a public benefit to Northeast Tennessee that would outweigh any downsides of a monopoly of services, Tennessee officials said.

“We appreciated how Wellmont and Mountain States assisted our office and the department during this process and certainly want to acknowledge the commitment of the community leaders to reach this point,” said Tennessee Attorney General Herbert H. Slatery III. “Everyone’s objective is to employ a new idea, a new structure to fundamentally improve the health of the region. We wish them great success.”

According to the terms of the COPA, the systems have 90 days to complete the merger, when they will complete the legal work to form Ballad health. Virginia officials are expected to issue their decision by the end of the month. With approval from Virginia, the merger is expected to be finalized in early 2018.

Ballad Health said it will “make significant investments to improve the health of our region, to advance academics and research, to improve children’s healthcare, and to strengthen and better align rural healthcare offerings.”

Tennessee Department of Health Commission John Dreyzehner, MD, said state officials worked with the healthcare systems to create an index of benchmarks to improving key health outcomes in the region. The index includes recommendations from the COPA Index Advisory Group, which was comprised of 16 people from the region. The group held five listening sessions and subsequent working meetings in the spring of 2016.  

FTC Opposition

Tennessee approved the deal despite the longstanding opposition by the Federal Trade Commission, which sees the merger as anti-competitive. In several comments submitted to Virginia and Tennessee, FTC staff have repeatedly stated that “the lost competition from the proposed merger of Mountain States and Wellmont would significantly harm residents of northeast Tennessee and southwest Virginia.

“The staff emphasizes that the two hospital systems have failed to show that the consumer harm from the proposed merger would be outweighed by its purported benefits, or offset by the applicants’ proposed commitments,” the FTC said in a media release.

“FTC staff conclude that the applicants’ consultants’ reports “fail to provide sufficient additional information or analysis to demonstrate by clear and convincing evidence that the purported benefits of this merger would outweigh the serious competitive harm that would likely result from creating a near-monopoly.”

Jay Levine, an anti-trust attorney with Porter Wright Morris & Arthur LLP, said there might not be much the FTC can do to block the deal at this point.

“Depending on how the COPA law and approval process is structured, the parties may be entitled to state action immunity,” Levine said. “In that case, the FTC can’t do anything, even if they think the merger is anticompetitive.”

“Absent an immunity, merely because state officials cleared the merger under one set of regulations, which focus on things that are not necessarily antitrust-related, the FTC can still argue that the merger substantially reduces competition,” he said. “Given state approval, though, the FTC may need a bit more evidence than usual to decide to challenge the merger.”

Wellmont and Mountain States provided this statement when asked Tuesday about the ongoing FTC opposition:

"We have pursued a robust state approval process in Tennessee and Virginia for two and a half years. Should both states approve our applications, both will play an active role in supervising the new health system. Under longstanding U.S. Supreme Court legal doctrine, state approval of the kind obtained in Tennessee and under consideration by Virginia protects the merger from such an FTC challenge."

"The FTC staff submitted written comments to the Tennessee Department of Health on various occasions, urging the Department to deny the parties’ application to merge. We cannot speculate on what the FTC might do. We respect the role they play, but we believe our merger is lawful and we would vigorously defend it if any action is taken to challenge it."