The only two hospitals in Dubuque, Iowa, said they will fight a U.S. Justice Department effort to block their partnership agreement.
The Justice Department filed the suit June 9 in U.S. District Court in Cedar Rapids, Iowa, in an effort to prevent 320-bed Mercy Health Center and 124-bed Finley Hospital from forming what they call a "fully integrated delivery system." The hospitals insist the combination doesn't constitute a merger.
In its suit, the Justice Department asked the court to issue preliminary and permanent orders barring the consolidation.
"This is a transaction the community brought about, and they aren't prepared to give it up," David Ettinger, a Detroit attorney representing Mercy and Finley, told MODERN HEALTHCARE.
The lawsuit is only the fourth Justice Department antitrust challenge of a not-for-profit hospital merger, the second since 1988. The most recent was filed last month in western Florida when the federal and state governments both sued Morton Plant Health System in Clearwater, Fla., and Mease Health Care in nearby Dunedin, Fla. (May 9, p. 3).
The other two Justice Department challenges came six years ago in deals in Roanoke, Va., and Rockford, Ill. The government won the Rockford case but lost in Roanoke.
In Dubuque, a partnership agreement was signed in February by the parent corporations, Sisters of Mercy Health Corp. of Farmington Hills, Mich., and the Finley Tri-States Health Group of Dubuque, that would allow each hospital to maintain its own assets and individual identity (March 7, p. 14). At that time, lawyers for the hospitals described the Justice Department review of the case as routine and predicted the government would clear the agreement.
"We think this transaction is going to lower prices, and we estimate it will save $24 million," Mr. Ettinger said. "Those cost savings are going to benefit the purchasers of healthcare services. The purchasers of the community and the people on the boards, who include major business and labor, want this to happen."
But the Justice Department's suit said the government views the partnership as a merger that would violate Section 7 of the Clayton Act, which bans acquisitions that may reduce competition.
More than 90% of Dubuque-area residents who were hospitalized in the first half of 1993 were admitted to Finley or Mercy, the government said. Dubuque is a city of 86,000 people on the Mississippi River in northeast Iowa (See map).
"The cost of this loss of competition to the Dubuque area dwarfs any possible short-term cost savings that can be achieved only through the combination, assuming that a hospital monopolist would choose to pass on any such savings to consumers," the government said in its suit.
Finley and Mercy had combined assets of more than $128 million in 1992, according to HCIA, the Baltimore-based healthcare research firm.
The proposed venture, known as Dubuque Regional Health System, would create a new board with 18 members, consisting of board members from both hospitals as well as physicians and community leaders. A formula would be used to calculate how to share future profits or losses.
Both hospitals have been profitable. In 1993, Mercy had a net income of $4.1 million on net revenues of $72.8 million, while Finley reported a net income of $3.5 million on net revenues of $55.7 million, HCIA said.