CHICAGO — The Federal Trade Commission’s success so far in challenging two high-profile hospital mergers could signal fresh pressure on the sector, which is in the midst of a transforming consolidation trend.
Last week, two providers in Rockford, Ill., announced they would abandon a plan to merge, after losing an initial court ruling, in order to avoid a costly and lengthy battle with the FTC.
The Toledo, Ohio-based provider Promedica Health System, however, has said it will continue to fight the commission’s challenge to its proposed consolidation despite a string of adverse court rulings. Promedica’s fight with the FTC is now in its second year.
Mergers are becoming increasingly common across the sector as smaller, stand-alone facilities that are suffering financially look to partner with stronger credits. Several larger providers, such as Ascension Health, are actively looking to acquire smaller, distressed facilities.
Many systems also believe that mergers will help them deal with the rollout and implementation of the new federal health care law. At a press conference last week announcing the decision to halt their merger, officials from the two systems, OSF Healthcare System and Rockford Health System, complained that the new law encourages consolidation.
“We have half the federal government telling us to consolidate, collaborate, combine, and the other half of the government saying, 'Oh no, you can’t,’ ” David Schertz, president and chief executive officer of OSF St. Anthony, part of OSF Healthcare, told local reporters. “That’s been a real frustration.”
While the FTC has traditionally kept a strict eye on hospital mergers, its recent wins mark a shift, as the commission has historically lost most of its challenges, according to Lisa Jose Fales, chairwoman of the antitrust practice group at law firm Venable LLP.
“This is not a change from where the FTC has been in the past — it has always been focused on health care because it hits the consumers’ pocketbooks,” Fales said. “The difference is, they’re starting to win.”
That is partly because the commission is getting savvier and better at litigation, she said. With mergers increasing across the sector, it also has more cases to review and challenge.
Promedica officials said they were not surprised by their most recent loss.
“Still, we are very disappointed,” a spokesman said. The system will file its appeal to the United States Court of Appeals for the Sixth Circuit, in Cincinnati, “where we have always believed we have the best opportunity to get a fair and impartial review of our case.”
The Promedica merger would reduce the number of competitor hospitals in the county to three from four. The number of competitors in a market after a proposed merger is a key criteria when the FTC reviews a case, market participants say.
In Rockford, the merger would have reduced the number of local competing providers to two from three, a figure that is almost an automatic challenge trigger. “That’s a pretty straightforward case for an antitrust,” Fales said.
“You’re going to continue to see active agency enforcement in this area,” Fales predicted. “This is a high priority for the FTC.”