Former FTC attorney: Win in Hershey/Pinnacle merger 'critically important'

By Carrie Salls | Jun 22, 2016

HARRISBURG – The Federal Trade Commission’s (FTC) attempt to block a merger between the Penn State Hershey Medical Center and PinnacleHealth System, the first of two rejected hospital merger injunction requests in as many months, will be heard next by the U.S. Court of Appeals for the Third Circuit.

Stephen Calkins a professor at Wayne State University Law School and former general counsel of the FTC from 1995 to 1997, said he expects the circuit court to decide the appeal quickly, with a ruling expected to come by the end of the summer.

On June 14, the FTC also lost a bid to stop a merger between two hospitals in Chicago. That merger has since been put on hold while a government appeal proceeds.

Calkins said the two consecutive hospital merger challenge losses is not a good sign for the FTC. He said the government lost a number of hospital merger cases in the 1990s based on geographic market definition, which was the primary issue in the challenge of the Penn State Hershey/PinnacleHealth merger. 

Calkins said he worked on some of those FTC losses in the 1990s.

“Subsequently, the FTC conducted research that helped everyone understand the competitive dynamics better, and they started to win challenges based on a more sophisticated understanding of how competition worked,” Calkins told the Pennsylvania Record. “Now we could be going back to the bad old days. But I don’t think so.”

The Penn State Hershey/PinnacleHealth ruling, entered in May by the U.S. District Court for the Middle District of Pennsylvania, marked the first defeat on an attempted federal court hospital merger challenge in more than 10 years for the FTC. Pennsylvania Attorney General Kathleen Kane joined the FTC in seeking a preliminary injunction in connection with the Penn State Hershey merger.

 The FTC argued that the merger would significantly reduce the number of options available for commercially-insured patients in the Harrisburg area that require overnight hospital stays for medical and surgical procedures. 

However, the court disagreed. Specifically, the court said the central Pennsylvania hospital market expands beyond the Harrisburg area, based on evidence showing that thousands of the two hospitals’ patients come from somewhere other than the Harrisburg area and that there are 19 other hospitals that are about 65 minutes away from Harrisburg.

“I believe that the Penn State Hershey District Court decision is appallingly bad,” Calkins said. “It would be surprising and distressing were the Third Circuit to allow the district court decision to stand.”

 The district court also said the hospitals presented “extremely compelling” proof that two major commercial insurance companies had signed agreements under which pricing at the merged facilities would be preserved for a minimum of five years.

Calkins said the FTC’s fight to block the Penn State Hershey/PinnacleHealth merger was supported by three amicus briefs, “including a very persuasive economists’ brief by an unusually impressive group of economists.” Still, he cautioned the importance of the outcome of the Third Circuit appeal for the government.

 “Especially given the setback in Chicago, it is critically important for the FTC to win the Third Circuit appeal,” Calkins said.

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