ILLINOIS: An Introduction to Healthcare

Why Hospital Mergers Fail Antitrust Scrutiny 

Service Line Integration 

A merger of two hospitals in the same or overlapping service area, will fail unless the hospitals involved go through the development of a Service Line Integration Plan (“SLP”) including examining opportunities for joint service line performance improvement; quantification of cost-reduction and quality improvement, process for implementation of SLP; market, payer, and value-based care strategy development. This is critical as the Federal Trade Commission (“FTC”) has successfully stopped numerous hospital mergers and more recently the Department of Justice (“DOJ”) has publicly announced its increased scrutiny of various anticompetitive activities, including mergers.

An SLP provides two distinct advantages:

1. Service Line Integration does not require a merger: both hospitals can reduce cost and improve quality without merging as they would be considered “clinically integrated,” a modern strategy for independent health systems to relate to each other without merger, with a focus on quality, efficiency, and collaborative population health management - even to the point of joint contracting.
2. It provides merger partners with specific plans to reduce cost and improve quality, as described in the FTC adopted process for examining hospital mergers cited below.

The FTC Looks at Hospital Mergers  

The FTC developed their analytic framework in 2004 when they brought legal action to retrospectively challenge the 2000 acquisition of Highland Park Hospital by Evanston Northwestern Healthcare in Evanston, Illinois. A major issue was whether the merger had resulted in improved clinical quality at Highland Park. They examined numerous quantitative measures of clinical quality and found little evidence that the merger improved quality. They also describe the conceptual framework in which they evaluated the case-specific evidence, as well as the applicability of that framework to the prospective analysis of unconsummated hospital mergers which resulted in the ruling:

“. . . on the basis of these findings, the Administrative Law Judge found “no evidence of improvement in overall quality of care relative to other hospitals.” We believe that our basic framework for analyzing the clinical quality effect of mergers will be applicable to future cases, including prospective ones. ”

The FTC and others cite several studies supporting the belief that hospital mergers do not necessarily improve quality. The Washington Policy Center found that although hospital mergers or acquisitions may provide financial support to struggling facilities, hospitals create monopolies and increase costs following the deals. The Kaiser Family Foundation (KFF) reinforced this notion with data showing that horizontal and vertical consolidation among physicians led to higher prices. The National Bureau of Economic Research (NBER) has published several analyses over the last few years that highlight how hospital mergers actually increase healthcare costs. One analysis by Harvard and Princeton researchers looked at data between 1996 and 2012 and found that cross-market, within-state hospital mergers lead to cost increases between seven and nine percent. For these reasons, the FTC is active in disrupting hospital mergers as witnessed by:

1. In 2008, the Inova Health Foundation abandoned its proposed acquisition of Prince William Medical Center in northern Virginia after the FTC moved for preliminary injunction to block the transaction.
2. Reading Health System in 2012 abandoned its proposed acquisition of the Surgical Institute of Reading considering an FTC challenge.
3. In December 2021, FTC Chair Lina Khan said the agency would scrutinize how proposed mergers might affect not only prices but also workers in the labor market. “Robust antitrust enforcement can help ensure that workers have the freedom to seek higher pay and better working conditions,” she said.
4. In 2013, Capella Healthcare abandoned its proposed acquisition of Mercy Hot Springs in Arkansas when informed the FTC would sue to block it, and in matters that went to trial, the Northern District of Illinois, in 2012, blocked OSF Healthcare's proposed acquisition of St. Anthony Medical Center in Rockford, Illinois.
5. Recently, Advocate Health Care and the NorthShore Health System withdrew their plans for merger after a successful FTC challenge.
6. In March, a federal appeals court upheld a lower court’s injunction that blocked a merger between Hackensack Meridian Health and Englewood Healthcare Foundation in Bergen County, New Jersey. The FTC said it would have raised prices. 
7.  In February, a proposed merger between Rhode Island’s two largest hospital systems, Lifespan and Care New England Health System, was called off after the FTC and the Rhode Island attorney general sued to stop the deal.
8. The FTC successfully stopped the announced merger between HCA Healthcare and Steward Health Care System (Utah) because it would lead to higher prices and reduced quality. FTC successfully stopped RWJ Barnabas Health and Saint Peter’s Healthcare System (N.J.) also because it would lead to higher prices and reduced quality.

Since 2020 several hospital systems cancelled mergers, for reasons not related to the FTC:

Norfolk, Va. based Sentara Healthcare and Greensboro, N.C.-based Cone Health abandoned their plans to merge into an USD11.5 billion system, the organizations said in a joint statement. Sioux Falls, S.D. based Sanford Health said March 15 is no longer pursuing a merger with Salt Lake City-based Intermountain Healthcare. County officials overseeing Ventura (Calif.) County Medical Center ended merger talks with San Francisco-based Dignity Health in July after leaders from both parties deemed an affiliation too risky.

California Non-Profit Hospital Merger Oversight 

While the FTC remains active in its oversight of hospital mergers even greater government scrutiny exists in California, where any transaction involving the sale or transfer of control of a nonprofit hospital must secure the approval of the Attorney General. The Attorney General reviews the proposed transaction, and determines whether it is in the public interest and whether it may affect the accessibility and availability of healthcare services in the affected communities In the class action of UEBT v. Sutter Health filed in California state court in San Francisco on April 7, 2014, employers and labor unions accused the Northern California health system of abusing its market power charging inflated prices, in violation of California’s antitrust law. The court granted UEBT’s motion for class certification in August 2017. On March 29, 2018, the California Attorney General filed a similar antitrust suit against Sutter Health, alleging similar accusations of anticompetitive behavior and overcharging consumers and employers. The California Superior Court consolidated the two cases, with this case as the lead case. The final settlement was approved on August 30th, 2021 with sanctions against Sutter, including:

• USD575 million in damages to compensate self-funded employers and union trusts and pay for attorney fees, specifically:

1. USD600,000 for settlement administration;
2. USD152.3 million (26.5%) in fees + USD13 million in expenses for class counsel;
3. USD11.5 million in fees + USD11.5 million in expenses for the AG's office;

• Injunctions against anticompetitive contract terms, including:

1.  all-or-nothing contracts;
2. anti-steering and anti-tiering provisions;
3. price secrecy or gag clauses;

• Limit to annual increases on out-of-network charges;

• Compliance monitor for 10 years by Affiliated Monitors in Boston

Conclusion   

Service line integration represents clinical integration among health systems and other health care facilities and reflects a modern strategy for independent health systems to relate to each other without merger, with a focus on quality, efficiency, and collaborative population health management - even to the point of joint contracting. Many health care experts believe that health system consolidation is necessary to prepare for population health, secure referrals from other communities, and provide the best care in the most appropriate setting. An SLP, as mentioned above will support a hospital merger or obviate the need for actual merger and allow joint contracting as the parties can demonstrate that they are “Clinically Integrated” as articulated in the Joint Statements8 . The first step is to develop collaborative goals:

• Improve and demonstrate the highest quality outcomes based upon national standards using data collection systems.

• Improve access to locally provided care.

• Reduce the negative impacts to the community by way of:

1. Earlier disease detection.
2. Locally delivered services. 
3.  Information for patient care via availability of EMR data.
4. Supporting mechanisms of each health system’s programs.

The writers participated in these integration efforts to oversee and facilitate legal compliance; preserve attorney-client privilege and offer their collective expertise gained through working with the FTC on policy development; defense of challenges to alleged antitrust violations and constructing hundreds of clinically integrated networks.