The governing boards of two Florida hospital systems have decided to fight the U.S. Justice Department's antitrust challenge of their proposed merger.
Leaders of the Morton Plant Health System in Clearwater, Fla., and Mease Health Care in nearby Dunedin, Fla., were unanimous in their resolve to battle the government, the systems said in a written statement.
"We cannot let a Justice Department decision based on faulty premises derail the model healthcare reform we are moving toward here in Florida," the systems said.
Morton Plant operates 672-bed Morton Plant Hospital in Clearwater. Mease operates two hospitals, a 278-bed facility in Dunedin and a 100-bed facility in Safety Harbor, Fla.
A merger between the two systems would give them control of three of the 15 acute-care hospitals and more than 30% of the staffed beds in Pinellas County on Florida's west coast.
But, in their lawsuit filed against the systems on May 5, the Justice Department and the state of Florida said the relevant market is smaller-just northern Pinellas County. A merger would give them control of three of that market's seven hospitals as well as nearly 60% of the staffed beds. Such a deal, the suit said, would violate Section 7 of the Clayton Act, which bars acquisitions that may reduce competition (May 9, p. 3).
Philip Beauchamp, Mease's president and chief executive officer, called the government's market "artificially established," saying the systems compete in a larger market that's at least as big as the entire county, which has a population of 851,600.
The government filed its antitrust lawsuit in U.S. District Court in Tampa. A trial date hasn't been set, but the case has been assigned to U.S. District Judge Steven Merryday.
In May 1993, Judge Merryday issued a preliminary injunction blocking a proposed hospital swap between then Columbia Hospital Corp. and Adventist Health System/Sunbelt (May 10, 1993, p. 4). The Federal Trade Commission, which sought the injunction, said the swap would violate Section 7 of the Clayton Act. Columbia and Adventist then called off the deal.
Mr. Beauchamp said Mease and Morton Plant have put their merger on hold pending the outcome of the government's motion for a preliminary injunction blocking the deal. He said the systems would re-evaluate their position depending on the outcome of each step in the legal process.
Meanwhile, the systems continued to defend their merger plans last week, saying the deal would be in the best interest of the community, which would benefit from the cost savings that the consolidation would generate.
The hospitals contend they have widespread support for the deal, including among local businesses.
The systems have said that a merger would generate more than $80 million in savings over the first five years of the transaction. Some of the $30 million in capital savings likely would come from scaling back Morton Plant's expansion and renovation plans, according to Frank Murphy, the hospital's president and CEO. Operating efficiencies are estimated to save $10 million annually over the first five years.
If the deal goes through, Morton Plant would re-examine its recently approved master building plan that calls for extensive renovation of the hospital's campus, Mr. Murphy said. The building plan's price tag hasn't been calculated, but the plan includes cancer and heart treatment centers, he said.
Both systems are profitable, according to the most recent data available from the Florida Agency for Health Care Administration.
Morton Plant Hospital earned $5.2 million on total revenues of about $283.9 million in 1992, the state said. Mease's facility in Dunedin lost $2.9 million on total revenues of about $97.7 million that year, but the system's hospital in Safety Harbor made $3.6 million on total revenues of about $55.4 million, the state said.
Under the merger guidelines used by the Justice Department and FTC, 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.