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 prices.
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 insurers.”
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.