HARRISBURG – Penn State Hershey Medical Center and Pinnacle
Health system recently abandoned their proposed merger after the U.S. Court of Appeals
for the Third Circuit overturned a district court order denying a preliminary
injunction against the merger.
“The decision to abandon the merger is not particularly
surprising given the ruling by the Third Circuit that combinations of this
nature must consider the impact of the merger on health insurers and the
public,” said Stephen Foreman, Robert Morris University associate professor of health care
administration and nursing.
The injunction had been requested by the Federal Trade
Commission and the Pennsylvania Attorney General's Office. On appeal of an order denying
the injunction, the Third Circuit court directed the U.S. District Court for
the Middle District of Pennsylvania to grant it.
Foreman said the combination of two competitive hospitals would
have the likely result of providing substantially increased bargaining power to
the merged entity in its dealings with health insurers, and the court did not
give credence to the Harrisburg-area hospitals’ agreements with health insurers not to raise
Foreman said he thinks Penn State Hershey and Pinnacle
abandoned their proposed merger because of the prospect of substantial
additional litigation before the Federal Trade Commission, as well as because
of their assessment of the likelihood of an adverse FTC ruling on the merger.
However, Foreman said other factors may have been involved
in the hospitals’ decision to abandon the merger.
“If sufficient benefits in terms of efficiencies and
economies could be established to the satisfaction of the FTC, it might have
made sense to continue to pursue the merger,” Foreman said.
Now that the merger has been abandoned, Foreman said the
hospitals face several problems.
“The hospitals are competing for patients with other large
area hospitals that have some form of relationship with entities such as
Geisinger, the University of Pennsylvania and Johns Hopkins,” Foreman said. “Further,
these large external entities have substantial bargaining power with health
As a result, Foreman said the hospitals may seek “partners”
that can provide substantial access to capital and bargaining strength.
“In addition, if there are substantial inefficiencies that
stand in the way of more successful operations, the hospitals might do well to
look into ways to produce greater efficiencies using mechanisms other than a
merger,” he said.
In the near term, Foreman said patients in the area covered
by Penn State Hershey and Pinnacle will have access to both hospitals and the
full range of services that they offer.
In the longer term, however, he said patients might expect
some of the services of the hospitals to be curtailed and they might expect
each of these hospitals to develop relationships with large hospital
organizations outside the Harrisburg area.
Federal Trade Commission Bureau of Competition director
Debbie Feinstein said the hospitals’ decision will benefit the area by
preserving hospital competition.
“Had it been consummated, the merger would have likely led
to lower quality and higher cost health care, at the expense of Harrisburg
residents and their employers,” Feinstein said in a statement.