The merger of the only two hospitals in Everett, Wash., may have escaped federal antitrust problems, but the facilities' consolidation caught the eye of state antitrust officials, MODERN HEALTHCARE has learned.
According to a previously unpublicized settlement agreement, the hospitals made concessions to the state so that it wouldn't charge the facilities with violations of state and federal antitrust laws.
The hospitals are 188-bed Providence Hospital and 179-bed General Hospital Medical Center. They're the only two hospitals in Everett, a town of 85,000 about 20 miles north of Seattle.
The hospitals proposed their merger last October, and the Justice Department cleared the deal in November after a brief investigation.
In January, the Justice Department also cleared the merger of the only two hospitals in Manchester, N.H., prompting some healthcare antitrust observers to suggest that the agency has become more lenient on providers since Anne Bingaman took over as the new assistant attorney general of the Justice Department's antitrust division.
A week after the New Hampshire decision, the Federal Trade Commission challenged the proposed merger of the only two hospitals in Pueblo, Colo. (Feb. 7, p. 3). The FTC's challenge was the first against a merger in a two-hospital town by either agency.
Although federal authorities bypassed the Everett deal, the Washington attorney general's office didn't. It launched a detailed antitrust probe of the transaction, and the office's effort culminated in a Dec. 16, 1993, agreement.
The situation should remind hospitals that they face many layers of antitrust review, said Douglas Ross, an attorney with the Seattle office of Davis Wright Tremaine. The firm represented the hospitals.
The state said it "believes that, without execu tion of this settle ment agreement, the consolidation would raise sig nificant anticom petitive concerns under state and federal antitrust laws because it may lessen ac tual and potential competition between the Sisters of Providence and General Hospital and lessen competition generally in relevant lines of commerce in the Snohomish County, Wash., area."
The Seattle-based Sisters of Providence Health System operates Providence, and the merged hospitals will be owned by the system.
Under the seven-year agreement, the hospitals admitted no violation of antitrust laws, but they agreed to several conditions to allow the deal to proceed. The conditions included:
Increases in the merged hospitals' net inpatient revenues per adjusted admission must be limited to increases in the government's producer price index for acute-care hospitals. The PPI measures changes in prices for single episodes of care at hospitals.
If the hospitals' rate increases exceed the PPI in one year, they must be lower than the PPI the following year to compensate for the excess revenues.
The Sisters of Providence must honor General Hospital's managed-care contracts and offer the same prices to other plans.
The hospitals can't refuse a managed-care contract solely because that contract would pay the hospitals capitated rates.
The Sisters of Providence can't acquire another hospital in Snohomish County without prior state approval.
The hospitals must submit annual reports to the state that demonstrate their compliance with the settlement terms.
The hospitals pay the state $10,000 to cover the costs of its investigation.
With the state settlement in hand, the hospitals completed their merger last week but not without another twist.
The merger meant that both hospital administrators, who had strongly advocated the deal, worked themselves out of jobs. The new 10-member board passed over Providence Administrator Scott Bond and General Hospital's President and Chief Executive Officer, Mark Judy, for the new top spot.
Instead, the board selected John P. Rinset, who recently led the merger of two Sacramento, Calif., hospitals. Mr. Rinset, senior vice president and administrator for Mercy Healthcare Sacramento, will begin his new job in Everett in early April.
Mercy Healthcare was formed through the merger of Mercy San Juan Hospital and American River Hospital into a 416-bed system.
"That's just a feature of business life today," said Mr. Bond about the board's decision. "I'm going to take a little bit of time and look for a new position." He said he had no regrets about advocating the merger, which he believes is best for the community.