FTC rules against Promed­ica

Promed­ica to test merger guide­lines in fed­eral court

Modern Healthcare - - FRONT PAGE - Me­lanie Evans

An an­titrust bat­tle in Ohio ap­pears poised to test the Fed­eral Trade Com­mis­sion’s mo­men­tum in hospi­tal merger cases. Promed­ica, based in Toledo, said last week that it would turn to the 6th U.S. Cir­cuit Court of Ap­peals to chal­lenge an or­der that Promed­ica di­vest a hospi­tal ac­quired in 2010. The FTC voted 4-0 last week to up­hold an ad­min­is­tra­tive law judge’s rul­ing that Promed­ica gained too much mar­ket clout with the ad­di­tional hospi­tal. Com­mis­sion­ers said Promed­ica had six months to di­vest 216-bed St. Luke’s Hospi­tal of Maumee, Ohio.

The case would be the first in years to move be­yond the ad­min­is­tra­tive process to the courts on the mer­its of a chal­lenge. The FTC’S suc­cess­ful an­titrust chal­lenge of Evanston (Ill.) North­west­ern Health­care in 2004 was re­solved in 2007 through the ad­min­is­tra­tive process.

The Evanston North­west­ern win in­vig­o­rated an­titrust reg­u­la­tors’ hospi­tal merger en­force­ment, and the FTC would be fur­ther em­bold­ened if the court up­holds the Promed­ica or­der, said health­care lawyer Charles Wright, a part­ner in Davis Wright Tre­maine in Seat­tle.

Jeff Miles, a for­mer FTC trial at­tor­ney now with the health law group of Ober Kaler in Washington, said hos­pi­tals are sen­si­tive to the com­mis­sion’s height­ened en­force­ment of an­titrust laws and re­vised merger guide­lines that fa­vor reg­u­la­tors com­pared with the ones in ef­fect when the FTC lost a se­ries of cases in the 1990s. “The en­vi­ron­ment is some­thing that hos­pi­tals think­ing about merg­ing con­sider,” he said.

Miles said the Promed­ica case would be the first test in a fed­eral ap­peals court of the merger guide­lines, which were up­dated in 2010. Courts of­ten look to them as a frame­work for in­ter­pret­ing the law, although the guide­lines are in­tended to ex­plain the gov­ern­ment’s ap­proach to the in­dus­try and don’t bind judges (April 26, 2010, p. 14).

Promed­ica ac­quired St. Luke’s Hospi­tal in May 2010 but agreed in Au­gust that year, af­ter the FTC be­gan an in­ves­ti­ga­tion, to freeze some ef­forts to in­te­grate. A fed­eral judge in Toledo is­sued a pre­lim­i­nary in­junc­tion ex­tend­ing that freeze. Last De­cem­ber, an ad­min­is­tra­tive law judge ruled that the deal would sub­stan­tially lessen com­pe­ti­tion.

Notably, the FTC re­jected Promed­ica’s ar­gu­ment that St. Luke’s weak op­er­a­tions jus­ti­fied the ac­qui­si­tion be­cause the stand-alone hospi­tal of­fered limited com­pe­ti­tion for the health sys­tem and St. Luke’s lacked cap­i­tal and scale needed to be more ef­fi­cient, Wright said.

St. Luke’s fi­nan­cial con­di­tion im­proved and it gained mar­ket share ahead of its ac­qui­si­tion by Promed­ica. It also op­er­ated in an af­flu­ent and grow­ing sub­urb and had a rep­u­ta­tion for high qual­ity, which would have al­lowed the hospi­tal to ne­go­ti­ate for higher re­im­burse­ment rates with­out join­ing Promed­ica, the opin­ion said.

“What they have made clear” by re­ject­ing Promed­ica’s ar­gu­ment, Wright said, is that “health­care re­form is not go­ing to be a fig leaf” for con­sol­i­da­tion that will re­duce com­pe­ti­tion.

Jef­frey Kuhn, chief le­gal of­fi­cer and gen­eral coun­sel for Promed­ica, said the sys­tem’s of­fi­cials were “not thrilled” with their sit­u­a­tion, but they be­lieve an ap­peal to fed­eral courts is “the right thing to do.”

Promed­ica has 60 days from March 22 to file its ap­peal.

Kuhn dis­puted the com­mis­sion’s con­clu- sion that the St. Luke’s ac­qui­si­tion would be anti-com­pet­i­tive. “We have a for­mi­da­ble com­peti­tor in the mar­ket in Mercy Health Sys­tem,” he said, in ref­er­ence to an­other player in Toledo’s health­care mar­ket.

The FTC con­cluded in the opin­ion, how­ever, that re­duc­ing the num­ber of Toledo hospi­tal com­peti­tors to three from four would re­sult in “higher health­care costs for pa­tients, em­ploy­ers and em­ploy­ees in the Toledo area.”

The ac­qui­si­tion gives Promed­ica 58.3% of the gen­eral acute-care in­pa­tient hospi­tal mar­kets share based on pa­tient days, ac­cord­ing to the opin­ion. For in­pa­tient ob­stet­ri­cal ser­vices, Promed­ica holds 80.5% of the mar­ket share based on pa­tient days af­ter the ac­qui­si­tion.

Promed­ica has six months to spin off or sell the hospi­tal un­der the or­der. The FTC may ap­point a trustee to sell St. Luke’s if Promed­ica fails to di­vest the hospi­tal by the dead­line.

Un­der the or­der, Promed­ica must meet cer­tain con­di­tions when it sells the hospi­tal, in­clud­ing pro­vide tran­si­tional ser­vices for up to one year af­ter the sale and al­low a new buyer to re­cruit St. Luke’s em­ploy­ees “so it can es­tab­lish an in­de­pen­dent, com­plete, full-ser­vice med­i­cal and hospi­tal staff,” the FTC said.

Kuhn said he be­lieves the sys­tem should not be forced to di­vest the hospi­tal, even if courts ul­ti­mately side with an­titrust reg­u­la­tors. Promed­ica has in­vested in St. Luke’s in­for­ma­tion tech­nol­ogy, as agreed un­der the merger agree­ment, even if broader in­te­gra­tion has been on hold dur­ing le­gal pro­ceed­ings. “We treat them as part of the fam­ily,” he said. “It would be very painful to do a sepa­ra­tion.”

Kuhn said a re­quire­ment that Promed­ica and St. Luke’s ne­go­ti­ate with in­sur­ers sep­a­rately, as was re­quired to re­solve the Evanston North­west­ern an­titrust chal­lenge, would be ap­pro­pri­ate and ad­dress FTC fears that prices would rise.

The FTC is em­broiled in other le­gal chal­lenges over hospi­tal deals. The FTC filed an ap­peal last month to the U.S. Supreme Court in its case against Phoebe Put­ney Health Sys­tem’s ac­qui­si­tion of Palmyra Med­i­cal Cen­ter—the par­ties closed the deal in De­cem­ber af­ter the 11th U.S. Cir­cuit Court of Ap­peals sided with the Al­bany, Ga., hos­pi­tals. The FTC also is at­tempt­ing to block the ac­qui­si­tion of 305-bed Rock­ford (Ill.) Me­mo­rial Hospi­tal by OSF Health­care Sys­tem, Peo­ria, Ill., and is await­ing a dis­trict judge’s decision on a pre­lim­i­nary in­junc­tion.

Promed­ica has been or­dered to di­vest St. Luke’s, above, be­cause, the FTC says, the ac­qui­si­tion will hurt com­pe­ti­tion and raise prices.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.