The Federal Trade Commission on Friday announced it will once again challenge a proposed merger between competing hospitals in Rockford, Ill., citing fears that the consolidation could increase costs and lower quality of care.

OSF Healthcare System had planned to acquire Rockford Health System—one of its two local hospital competitors in the northern Illinois city—in a deal the parties had hoped to close in early 2012.

The two healthcare providers said they were “extremely disappointed” by the decision, which could delay any potential deal for two years.

“OSF Healthcare System and Rockford Health System are committed to pursuing all legal options available to us and will challenge the FTC's request for a preliminary injunction to stop the affiliation,” the systems said in a joint statement.

The nine-hospital OSF Healthcare System, based in Peoria, owns 235-bed OSF St. Anthony Medical Center in Rockford. Rockford Health System owns 293-bed Rockford Memorial Hospital. The Illinois Health Facilities and Services Review Board approved the change of ownership in May. According to documents submitted to the board, the deal calls for OSF to invest $280 million over eight years in its Rockford-area operations.

In its request for a preliminary injunction to stop the merger, the FTC said the combined organization would control 64% of the local market for acute general hospital care after the deal and 37% of the market for primary-care physician services. In both service lines, the combined system would have only one remaining competitor, 312-bed SwedishAmerican Hospital.

“This significant consolidation would give OSF greater leverage to raise rates,” the FTC said in a news release, quoting allegations in its challenge of the merger. “OSF's proposed acquisition would increase the incentives and ability for the two remaining hospitals in Rockford to engage in coordinated anti-competitive behavior, including sharing confidential information, deferring competitive initiatives, or aligning managed-care contracting strategies.”

OSF St. Anthony

In 1988, a federal judge granted an injunction to block a merger between SwedishAmerican Hospital and Rockford Memorial. SwedishAmerican also explored a merger with OSF in 1997, but that deal never materialized.

“Despite the FTC's challenge, we believe combining two of Rockford's three healthcare systems into one will continue to promote healthy competition in the marketplace,” OSF and Rockford Health System said in their statement.

The FTC, however, argues in its complaint that the existence of a competitor in the market after the deal is done doesn't mean the acquisition doesn't violate the antitrust laws. “After the acquisition, the merged system will be a virtual ‘must-have' for health plans seeking to offer insurance to Rockford employers and employees,” the FTC wrote in the complaint, echoing the government's strategy in its successful case against Evanston (Ill.) Northwestern Healthcare (now NorthShore University HealthSystem).

Attorneys with the FTC have been busy this year examining hospital mergers. FTC officials filed an administrative challenge to the acquisition of St. Luke's Hospital in Maumee, Ohio, by Toledo, Ohio-based ProMedica Health System. In March, a federal judge in Toledo granted the FTC an injunction ordering ProMedica to hold St. Luke's separate pending the outcome of the challenge. An administrative law judge presiding over a bench trial that concluded in September has yet to issue a decision, which is due by Dec. 2 (Oct. 10).

The FTC also is challenging the proposed acquisition of HCA's Palmyra Park Hospital in Albany, Ga., by local competitor Phoebe Putney Health System. The FTC has appealed a federal district court's ruling allowing that sale. The 11th U.S. Circuit Court of Appeals in Atlanta granted an injunction pending the outcome of the appeal, which was argued Oct. 5.

“Healthcare competition will remain very high on the FTC's agenda,” FTC Chairman Jon Leibowitz told the Senate Commerce, Science and Transportation Committee last week in testimony regarding his nomination for a second term. “Families struggling to make it in tough economic times are particularly vulnerable to rising healthcare costs. We push back against this trend, challenging proposed hospital mergers likely to raise prices and fighting various anti-competitive restrictions on healthcare goods and services.”