The Federal Trade Commission is investigating the competitive effects of the proposed merger of the only two hospitals in Port Huron, Mich., MODERN HEALTHCARE has learned.
The antitrust probe is believed to be the first of a merger in a two-hospital town since the FTC challenged the merger of the only two hospitals in Pueblo, Colo. (Feb. 7, p. 3). The Pueblo hospitals subsequently scrapped their plans rather than fight the agency.
The FTC's action in Pueblo was the first federal antitrust challenge of a hospital merger in a two-hospital town. Previously, the FTC and Justice Department let many similar deals go through (Dec. 6, 1993, p. 44).
The hospitals being scrutinized in the new investigation are 264-bed Port Huron Hospital and 119-bed Mercy Hospital. They're the only acute-care facilities in Port Huron, a town of about 34,000 located 60 miles northeast of Detroit. They're also the only hospitals in St. Clair County, Mich.
Port Huron is a freestanding hospital affiliated with the St. John Health System in Detroit. Mercy, meanwhile, is owned by Mercy Health Services, Farmington Hills, Mich.
The hospitals announced their merger plans in January with the goal of closing the deal within five to 12 months. They said such a consolidation would be in the best interests of area residents, who would benefit from the development of an integrated delivery system by the two hospitals.
A merger would provide "administrative and clinical efficiencies and advantages that aren't available to free-standing hospitals," executives of the hospitals said. "We expect to see improved healthcare, better access to health services and to managed care, as well as greater opportunity to control costs. This is all for the benefit of every citizen of the Blue Water and Michigan Thumb area."
However, the FTC heard about the transaction and recently requested information about the merger from the hospitals, said Gary LeRoy, a corporation consultant for Port Huron.
The hospitals had not filed any pre-merger notification documents with the agency, Mr. LeRoy said. Even so, he said, "The inquiry is something we anticipated. This is an informal inquiry, and we're happy to discuss our merger plans with them."
He said the hospitals expect to supply the requested documentation to the FTC within four to six weeks and hope to complete the merger on Aug. 1.
"We're confident that we're doing the right thing and that we can pass muster on antitrust," Mr. LeRoy said. "The driving force behind this is the substantial savings and benefits for the community that will result."
But Mr. LeRoy acknowledged that the hospitals have yet to study the potential economic efficiencies of a merger between the two facilities.
Both hospitals are profitable, according to the most recent figures from HCIA, a Baltimore, Md.-based research firm.
In 1992, Port Huron earned $619,681 on total net revenues of $57.9 million. Mercy, meanwhile, earned $2.9 million on total net revenues of $37.7 million.
Under the merger guidelines used by the FTC and Justice Department, the agencies often will overlook large market shares resulting from mergers if one or both of the merging parties are failing or if the deal will generate substantial economic savings that will be passed to consumers.