Following a three-month investigation, the U.S. Justice Department has cleared the proposed merger of the only two hospitals in Manchester, N.H.
The probe was one of two antitrust investigations of proposed hospital mergers in two-hospital towns. The Federal Trade Commission is investigating the proposed merger of two hospitals in Pueblo, Colo. The results of the FTC probe are expected this week.
The simultaneous investigations of nearly identical hospital mergers by two separate federal agencies have been watched closely by legal observers as tests of the government's antitrust enforcement policies. To date, neither agency has ever challenged a merger in a two-hospital town (Dec. 6, 1993, p. 44). Unlike many of the previous transactions, however, the hospitals in Manchester and Pueblo are large, profitable and operate in geographically distinct markets.
In Manchester, 284-bed Catholic Medical Center and 286-bed Elliot Hospital announced their intention to merge last April. The hospitals filed their required pre-merger notification documents with the government on Sept. 9 and received a second request for information from the Justice Department on Oct. 11. The hospitals submitted the additional information in late December, and the Justice Department blessed the deal on Jan. 24.
"You're never sure of the outcomes of these things, but we were always hopeful because we're convinced we're doing the right thing. And both the state attorney general and Justice Department concurred," said Robert Cholette, president and chief executive officer of Fidelity Health Alliance, Catholic Medical's parent corporation.
The New Hampshire attorney general's office cleared the merger 15 days before the Justice Department took final action (Jan. 17, p. 17).
The state said it accepted the hospitals' arguments that the market served by the hospitals extends beyond Manchester and that competition would still exist. The state also accepted the hospitals' arguments that a merger would generate as much as $200 million in cost savings over 10 years and that the savings would be passed along to consumers because the hospitals are not-for-profit organizations.
The Justice Department, in line with previous practice, didn't disclose why it cleared the deal.
Mr. Cholette and Philip Ryan, president and chief executive officer of Elliot Health Systems, Elliot's parent, said they didn't know whether a personal visit in December by first lady Hillary Rodham Clinton helped their cause (Dec. 20-27, 1993, p. 34). They also met with New Hampshire's two U.S. senators and two U.S. representatives, who sent letters supporting the merger to the Justice Department.
Phillip Proger, the hospitals' attorney, credited several non-political factors for the clearance.
"I believe that other determining factors were the significant economic efficiencies, declining demand in the market and, if the hospitals chose to unreasonably raise prices, patients could go to other hospitals," he said.
Under the Justice Department's existing merger guidelines, the agency will often approve transactions in which other factors outweigh resulting high market shares. The factors include potentially wider geographic or product markets, possible cost savings that would benefit consumers and the financial viability of the organizations.
In 1992, Catholic Medical earned $16.2 million on total revenues of $109.1 million, according to figures from HCIA in Baltimore. Elliot earned $14 million on total revenues of $95.6 million, HCIA said.
The hospitals expect to complete their deal by April.