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Inside Advocate, NorthShore's FTC talks: An offer to keep a lid on prices

Advocate Health Care and NorthShore University HealthSystem offered to guarantee not to raise prices significantly if they merged, but federal regulators weren't interested, the system's leaders said Tuesday.

The pricing agreement essentially said a combined Advocate and NorthShore would charge market rates, since that was among the main concerns of the Federal Trade Commission. But apparently the FTC commissioners balked at the idea.

“They said, We will not even entertain that,” Advocate President and CEO Jim Skogsbergh said during a Crain's editorial board meeting today.

In an email, an FTC spokeswoman said the agency generally does not comment when a case is in litigation.

Downers Grove-based Advocate, the largest hospital network in the state, with 12 hospitals, and Evanston-based NorthShore, a four-hospital system, want to create a powerhouse system stretching from north suburban Libertyville to downstate Normal.

But after more than a year of back and forth with the FTC (giving regulators about 12 million documents), the federal commissioners last month said they would block the merger. Now it's in federal court, with a trial scheduled for April.

The FTC alleges that the deal would substantially reduce competition and hurt consumers by hiking prices and decreasing quality. Regulators say the marriage could increase the systems' bargaining power with insurers to get higher reimbursement rates, prompting insurers to pass on the costs to consumers through higher premiums, for example.

NorthShore and Advocate are ready for a fight, despite the FTC's successful track record in recent years against hospital mergers.

“We are the underdogs,” NorthShore President and CEO Mark Neaman acknowledged.

“We think it's worth it" to fight the case, he said.

Skogsbergh and Neaman said they plan to focus on two main points to prevail in court. They don't agree with how the FTC has defined NorthShore's geographic market, and they say it's unfair to base the decision only on inpatient care.

In its complaint, the FTC defines NorthShore's area from north suburban Waukegan to northwest suburban Arlington Heights to Chicago's Northwest Side. That's where Advocate and NorthShore would have the greatest ability to hike prices, according to the complaint.

Combined, NorthShore and Advocate would have 55 percent of that market once they merged, and consumers “strongly prefer” to go to a hospital close to where they live or work, the complaint alleges.

Neaman said the market should be defined as the six-county Chicago area, which has 95 hospitals. A merged Advocate and NorthShore would have just 22 percent of that region.

“There's vigorous competition,” Neaman said. “This is a huge marketplace with lots of hospitals, lots of doctors, and yet we have sort of this protect-the-status-quo kind of a response.”

The FTC's previous cases have focused on hospital mergers in much smaller markets, where there is less competition, he said.

Also, in its complaint the FTC considered only how a combined Advocate and NorthShore would affect competition for inpatient care. They did not look at outpatient services because private insurers and patients can't switch to outpatient care if hospital prices rise, the complaint said.

Neaman called the focus on hospital care “arcane.” Two-thirds of health care is provided in outpatient settings, such as doctors' offices and surgery centers, he said. Obamacare in particular encourages health systems to focus on preventative care, and insurers are paying doctors to keep patients away from expensive hospital stays and procedures.

Advocate and NorthShore haven't determined their outpatient market share compared with offerings such as in-pharmacy clinics and telehealth services. But their CEOs say competition in the Chicago area is much greater for outpatient services, as patients have choices outside hospital systems and traditional doctors' offices.


"Inside Advocate, NorthShore's FTC talks: An offer to keep a lid on prices" originally appeared in Crain's Chicago Business.


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