The head of a Pueblo, Colo.-based managed-care company that opposed the merger of the town's only hospitals said he'll be keeping a close eye on the hospitals now that they've scrapped their plans in the face of an antitrust challenge.
"The hospitals will work closely together, but they just won't call it a merger," said Malik Hassan, M.D., president of QualMed, which recently merged with Health Net in Woodland Hills, Calif. "If they act in concert, we'll tell the Federal Trade Commission."
The governing boards of the hospitals, 326-bed St. Mary-Corwin Medical Center and 229-bed Parkview Episcopal Medical Center, called off the proposed merger of their institutions on Feb. 7-seven days after the five FTC commissioners voted unanimously to file an antitrust lawsuit against the hospitals (Feb. 7, p. 3).
The vote followed a four-month investigation of the transaction, which was closely watched by the hospital industry because neither the FTC nor the Justice Department had ever challenged a hospital merger or acquisition in a two-hospital town.
Also, a week before the vote, the Justice Department cleared the merger of the only two hospitals in Manchester, N.H. But in that case, the government agreed that the Manchester market extended to four other towns and included as many as seven hospitals.
According to FTC officials, the Pueblo market was limited to the city and its two hospitals, with the closest hospitals located about 40 miles away in Canon City and Colorado Springs. The officials also said they rejected the hospitals' claims that the market, with about 100,000 residents, couldn't sustain two hospitals and that a merger would generate millions of dollars in operating efficiencies that would be passed along to consumers.
However, in a statement disclosing the breakup of their merger plans, the hospitals adopted the often-heard refrain by the hospital industry that says the government doesn't provide enough guidance on why it challenges some deals and not others.
"Because the FTC is not required to explain its decision, it is unclear why they decided to oppose the consolidation," they said.
"Under the circumstances, it was not in the best interest of the community to expend the resources that would be required to litigate with the FTC."
The hospitals also said they "plan to carefully review all available options that may produce at least some of the savings, better access and higher quality healthcare that the proposed consolidation would have achieved."
It's that possibility of working together in the future that worries Dr. Hassan. The plan contracts with both hospitals and uses the competition between the two to get the best prices possible for services, Dr. Hassan said.
"The elimination of competition is not good for anyone," he said. "Without competition, you would see complacency on the development of services."
QualMed expressed its concerns to the FTC and, in fact, told the agency that it would be willing to acquire Parkview-an offer that was part of a strategy to thwart the transaction.
It was not known how much QualMed was willing to pay for Parkview.
Healthcare antitrust experts said QualMed's involvement in the case likely played a key role in the agency's decision to challenge the deal because it traditionally has been sympathetic to the concerns of payers and, as a guardian of competition, would prefer an alternate buyer to a merger.
"The most effective counter to the argument that Parkview would fail without a merger was offering to buy it," Dr. Hassan said. "We put our money where our mouth was."
Now that the case is over, however, he said QualMed is not "eager" to buy Parkview but would consider it if it put itself up for sale.
At deadline, the FTC had not yet filed a motion in federal court for an injunction that would have blocked the merger pending the outcome of the antitrust case. A spokesman for the FTC's Denver office, which conducted the investigation, said it's typical for the agency not to initiate court action after parties withdraw from a transaction.
