BOSTON — Hospitals considering mergers should articulate goals beyond cost controls to avoid running into potential regulatory measures aimed at curbing anti-competitive practices, according to panelists yesterday at The Bond Buyer’s Sixth Health Care Finance Conference.
The Federal Trade Commission on Oct. 21 succeeded in its 2004 legal challenge to Illinois-based Evanston Northwestern Healthcare’s acquisition of Highland Park Hospital largely because the merger plan gave the system too much control over a single market, said FTC associate director Chul Pak, who was lead attorney on case.
In his ruling, Administrative Law Judge Stephen J. McGuire of the FTC agreed with the commission’s complaint in finding that the acquisition of Highland Park by Evanston Northwestern “substantially lessened competition,” thereby driving up costs, as evidenced in the health system’s rate hikes for managed-care companies in 2002 and 2003. McGuire ordered ENH to sell one of its three hospitals. ENH is appealing that decision.
Pak said that the federal government had come into the ENH case “0-for-7” over the past 15 years in trying to block hospital mergers. However, he said that the Evanston case possessed qualities that differentiated it from the rest.
McGuire found that the Highland Park acquisition gave ENH too much control over medical payors, forcing them to accept the billing terms the system laid out, said Pak, who added that the testimony of payors was likely a sizable part of the judge’s decision in the two-month long trial.
Fernando LaGuarda, a partner at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo PC who deals with antitrust counseling, said that ENH had been too obvious that the main merger motivation was to “receive superior prices.”
“When you say you want to raise prices, you raise prices, and then celebrate that you raise prices, it’s not a good idea,” LaGuarda said, borrowing language from McGuire, who cited ENH as “celebrating” price increases in his ruling.
LaGuarda said that hospitals contemplating mergers should look beyond only savings and cautioned that when they “talk about strategic planning, be more robust and not create documents that present caricatures. Be more realistic about goals.”
Concerning how this ruling would impact future cases, LaGuarda brought to attention the North Texas Specialty Physicians case, in which the formation of a network of 600 doctors in Fort Worth was prospectively challenged by the FTC, which conducted a poll that found the network refused to submit payor offers to physicians unless the terms of the contracts met the group’s minimum fee standards and discouraged physicians from negotiating directly with the payors.
The staff at FTC found that it was illegal conduct and created the ability to raise prices. Rather than settling, the network appealed, and the case is now before the full commission. The decision, LaGuarda commented, may contain some signs of how the FTC looks at prospective challenges.
Discussion at the panel turned to managed care mergers, as well.
Maureen Spivack, a managing director at Merrill Lynch & Co., said that over the past ten years 20 national managed care companies has been whittled to eight through “aggressive acquisitions” that saw publicly-traded for profit insurance companies grow in membership from 73 million in 1998 to over 95 million in 2004 — roughly a 4.6% annual growth rate, almost all through mergers, save for 0.1% in organic growth.
In response to this, Pak, who commented that he has been asked this before, said the FTC does look at managed care mergers, and “applies the same kind of scrutiny.” He said that if the factors of a merger deal fit the commission’s review criteria, FTC staff would “potentially challenge it.”
