FTC chal­lenges Illi­nois hos­pi­tal deal

Merger raises an­titrust con­cerns for com­bined sys­tem, com­mis­sion says

Modern Healthcare - - LATE NEWS - Joe Carl­son and Gregg Blesch

The Fed­eral Trade Com­mis­sion on Fri­day an­nounced it will once again chal­lenge a pro­posed merger be­tween com­pet­ing hos­pi­tals in Rock­ford, Ill., cit­ing fears that the con­sol­i­da­tion could in­crease costs and lower qual­ity of care.

OSF Health­care Sys­tem had planned to ac­quire Rock­ford Health Sys­tem—one of its two lo­cal hos­pi­tal com­peti­tors in the north­ern Illi­nois city—in a deal the par­ties had hoped to close in early 2012.

The two health­care providers said they were “ex­tremely dis­ap­pointed” by the de­ci­sion, which could de­lay any po­ten­tial deal for two years.

“OSF Health­care Sys­tem and Rock­ford Health Sys­tem are com­mit­ted to pur­su­ing all le­gal op­tions avail­able to us and will chal­lenge the FTC’S re­quest for a pre­lim­i­nary in­junc­tion to stop the af­fil­i­a­tion,” the sys­tems said in a joint state­ment.

The nine-hos­pi­tal OSF Health­care Sys­tem, based in Peo­ria, owns 235-bed OSF St. An­thony Med­i­cal Cen­ter in Rock­ford. Rock­ford Health Sys­tem owns 293-bed Rock­ford Me­mo­rial Hos­pi­tal. The Illi­nois Health Fa­cil­i­ties and Ser­vices Re­view Board ap­proved the change of own­er­ship in May. Ac­cord­ing to doc­u­ments sub­mit­ted to the board, the deal calls for OSF to in­vest $280 mil­lion over eight years in its Rock­ford-area op­er­a­tions.

In its re­quest for a pre­lim­i­nary in­junc­tion to stop the merger, the FTC said the com­bined or­ga­ni­za­tion would con­trol 64% of the lo­cal mar­ket for acute gen­eral hos­pi­tal care af­ter the deal and 37% of the mar­ket for pri­mary-care physi­cian ser­vices. In both ser­vice lines, the com­bined sys­tem would have only one re­main­ing com­peti­tor, 312-bed Swedish amer­i­can Hos­pi­tal.

“This sig­nif­i­cant con­sol­i­da­tion would give OSF greater lever­age to raise rates,” the FTC said in a news re­lease, quot­ing al­le­ga­tions in its chal­lenge of the merger. “OSF’S pro­posed ac­qui­si­tion would in­crease the in­cen­tives and abil­ity for the two re­main­ing hos­pi­tals in Rock­ford to en­gage in co­or­di­nated anti-com­pet­i­tive be­hav­ior, in­clud­ing shar­ing confidential in­for­ma­tion, de­fer­ring com­pet­i­tive ini­tia­tives, or align­ing man­aged-care con­tract­ing strate­gies.”

In 1988, a fed­eral judge granted an in­junc­tion to block a merger be­tween Swedish amer­i­can Hos­pi­tal and Rock­ford Me­mo­rial. Swedish amer­i­can also ex­plored a merger with OSF in 1997, but that deal never ma­te­ri­al­ized.

“De­spite the FTC’S chal­lenge, we be­lieve com­bin­ing two of Rock­ford’s three health­care sys­tems into one will con­tinue to pro­mote healthy com­pe­ti­tion in the mar­ket­place,” OSF and Rock­ford Health Sys­tem said in their state­ment.

The FTC, how­ever, ar­gues in its com­plaint that the ex­is­tence of a com­peti­tor in the mar­ket af­ter the deal is done doesn’t mean the ac­qui­si­tion doesn’t vi­o­late the an­titrust laws. “Af­ter the ac­qui­si­tion, the merged sys­tem will be a vir­tual ‘must-have’ for health plans seek­ing to of­fer in­sur­ance to Rock­ford em­ploy­ers and em­ploy­ees,” the FTC wrote in the com­plaint, echo­ing the govern­ment’s strat­egy in its suc­cess­ful case against Evanston (Ill.) North­west­ern Health­care (now Northshore Univer­sity Healthsys­tem).

At­tor­neys with the FTC have been busy this year ex­am­in­ing hos­pi­tal merg­ers. FTC of­fi­cials filed an ad­min­is­tra­tive chal­lenge to the ac­qui­si­tion of St. Luke’s Hos­pi­tal in Maumee, Ohio, by Toledo, Ohio-based Promed­ica Health Sys­tem. In March, a fed­eral judge in Toledo granted the FTC an in­junc­tion or­der­ing Promed­ica to hold St. Luke’s sep­a­rate pend­ing the out­come of the chal­lenge. An ad­min­is­tra­tive law judge pre­sid­ing over a bench trial that con­cluded in Septem­ber has yet to is­sue a de­ci­sion, which is due by Dec. 2 (Oct. 10, p. 16).

The FTC also is chal­leng­ing the pro­posed ac­qui­si­tion of HCA’S Palmyra Park Hos­pi­tal in Al­bany, Ga., by lo­cal com­peti­tor Phoebe Put­ney Health Sys­tem. The FTC has ap­pealed a fed­eral district court’s rul­ing al­low­ing that sale. The 11th U.S. Cir­cuit Court of Ap­peals in At­lanta granted an in­junc­tion pend­ing the out­come of the ap­peal, which was ar­gued Oct. 5.

“Health­care com­pe­ti­tion will re­main very high on the FTC’S agenda,” FTC Chair­man Jon Lei­bowitz told the Se­nate Com­merce, Sci­ence and Trans­porta­tion Com­mit­tee last week in tes­ti­mony re­gard­ing his nom­i­na­tion for a sec­ond term. “Fam­i­lies strug­gling to make it in tough eco­nomic times are par­tic­u­larly vul­ner­a­ble to ris­ing health­care costs. We push back against this trend, chal­leng­ing pro­posed hos­pi­tal merg­ers likely to raise prices and fight­ing var­i­ous anti-com­pet­i­tive re­stric­tions on health­care goods and ser­vices.”

The merger of Rock­ford Me­mo­rial, top, and OSF St. An­thony, above, would leave just one com­peti­tor: Swedishamer­i­can Hos­pi­tal.

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