FTC case against Penn. health systems merger appears to be strong, antitrust legal expert says

By Karen Kidd | Apr 20, 2016

HARRISBURG – The Federal Trade Commission's efforts to block a proposed merger between two hospitals in Hershey and Harrisburg is a rare case of FTC intervention, but the commission appears to have a strong case, an antitrust health care law authority says.

"The FTC actually challenges a very small percentage of all hospital mergers," said John J. Miles, an authority on antitrust law - particularly antitrust issues in health care - at Ober Kaler's Washington, D.C., office.

"It does so when the evidence leads it to believe that the newly merged hospitals would be able to significantly increase their bargaining power with health plans, raising prices and possibly lowering quality and the benefits of the merger to patients and health plans are unlikely to offset these adverse effects."

The FTC alleges that the proposed merger between Penn State Hershey Medical Center and PinnacleHealth System in Harrisburg would dramatically and substantially reduce competition in greater Harrisburg. That, the FTC claims, could impact patients and employers in reduced quality and higher health care costs for the area’s employers and residents.

For their part, spokespersons for Penn State Hershey and PinnacleHealth maintain the merger will keep costs down while broader access to healthcare for patients in greater Harrisburg.

"The hospitals’ primary arguments are that (1) the FTC misdefined the geographic market and their market share after the merger will not be as large as the FTC claims; and (2) the efficiency effects from the merger (i.e., benefits to patients and health plans) are sufficient to offset any adverse effects from any increase in market power," Miles said.

The FTC opposition to the merger began Dec. 8 when the commission issued an administrative complaint against the merger.

The action alleged that the two health care providers merged would become the dominant general acute care inpatient provider in Dauphin, Cumberland, Perry and Lebanon counties, the FTC said.

That, the FTC said, would get the combined healthcare service providers control of 64 percent of that market for about 500,000 residents in greater Harrisburg.

All of that, the FTC claims, would violate Section 5 of the Federal Trade Commission Act, Section 7 of the Clayton Act and Section 5 of the FTC Act.

An evidentiary hearing is scheduled for May 17.

The FTC soon was joined by Pennsylvania's Attorney General Office in its challenge of the merger.

With the merger on hold, U.S. District Court Judge John E. Jones III granted the FTC request that the complaint be filed under seal because it contained confidential hospital business information.

Meanwhile, the case has progressed steadily over the last few months as the evidentiary hearing date approaches. On March 21, the commission denied the health care service providers' motion to stay the evidentiary hearing.

"It’s impossible to predict the outcome without knowing all the facts, which I don’t," Miles said. "But based on the FTC’s allegations - many of which the hospitals will dispute - the FTC appears to have a strong case.

"The interesting questions are (1) whether the federal court preliminarily enjoins the merger, the hospitals will abandon the transaction or fight on; and (2) whether the federal court denies the preliminary injunction, the FTC will give up or fight on."

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