The antitrust settlement between two Florida hospital systems and the U.S. Justice Department may make it tougher for hospitals to get their mergers cleared by law enforcement agencies.
That's the view of many private antitrust attorneys and others interviewed by MODERN HEALTHCARE in the wake of the settlement, unveiled at a June 17 press conference in Washington.
The settlement bars the two systems from merging, but it permits them to form a joint venture to operate specific clinical and administrative services.
Both sides hailed the settlement as a trend-setting agreement that protects competition while promoting cost-cutting collaborative activities. Others, however, viewed the deal as a sellout by both parties that planted a mine for other hospital mergers passing the Justice Department's way.
"With all due respect to my colleagues, my responsibility is to do what's best for my community. Their responsibility is to do what's best for theirs," Frank Murphy, president and chief executive officer of Morton Plant Health System in Clearwater, Fla., told MODERN HEALTHCARE last week.
"If others have a good case to make for a merger, then make it. Everyone has to pursue their own strategy," added Philip Beauchamp, president and CEO of Mease Health Care in Dunedin, Fla.
The settlement resolves the antitrust lawsuit filed May 5 by the Justice Department and the state of Florida against the proposed merger of Morton Plant and Mease. The suit contended that by giving the systems control over 60% of the inpatient market in northern Pinellas County on Florida's west coast, the merger would have violated Section 7 of the Clayton Act. Section 7 bars acquisitions that may reduce competition.
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.
The systems, which announced their intentions to merge last October, said a consolidation would improve healthcare delivery in the market and generate $80 million in economic efficiencies over the first five years of the deal. Some $50 million would come from operating efficiencies of about $10 million per year. The balance would come from the elimination of planned duplicative capital expenditures.
Four days after the lawsuit was filed, U.S. District Judge Steven Merryday in Tampa, Fla., issued a temporary restraining order that barred the merger until he could rule on the government's motion for a preliminary injunction in the case. The injunction would have delayed the consolidation until the merits of the antitrust claims were resolved.
However, the systems and the two government agencies entered into settlement negotiations, and Judge Merryday never scheduled a hearing on the government's injunction motion.
Under the settlement, the two systems are prohibited from merging but are allowed to form partnerships or joint ventures to operate specific clinical and administrative services.
The clinical services include:
All outpatient services.
Open-heart surgery programs.
Inpatient and outpatient diagnostic and therapeutic radiology services.
All laboratory services.
All psychiatric services.
Ancillary services such as home healthcare, home medical equipment, skilled-nursing and long-term care.
The administrative services include:
Medical staff development.
Accounting, billing and collection.
Housekeeping and laundry.
Charitable support services.
The list of what the systems can't do is much smaller. They can't collaborate or jointly set prices for routine inpatient services. They also can't collaborate or jointly set prices in the pursuit of managed-care contracts.
The five-year agreement allows the systems to petition the government to permit a merger at a later date if federal and state healthcare reforms would allow such a consolidation.
In announcing the settlement, the Justice Department characterized the agreement as a "trend-setting," first-of-its-kind deal to resolve a hospital antitrust dispute.
"The agreement provides an innovative way to enable the hospitals to achieve cost savings without endangering competition," said Anne Bing-aman, assistant attorney general in charge of the Justice Department's antitrust division.
In a written statement, Mr. Beauchamp said, "The settlement reached with the Justice Department is a sincere effort to allow the community to realize the benefits of cost savings, quality enhancement and improved access, which will come from our two institutions working together."
Mr. Murphy said the systems still would realize 90% of the estimated $80 million in cost savings through the clinical and administrative ventures.
"It's a wonderful solution for these hospitals," said Toby Singer, the antitrust attorney with Jones, Day, Reavis & Pogue in Washington who represented the hospital systems.
But not everyone was so chipper.
Several private antitrust attorneys interviewed by MODERN HEALTHCARE questioned the hospitals' efficiency claims, asking how a joint venture could save almost as much as a merger.
Antitrust enforcement officials long have been skeptical of hospitals' efficiency claims. Such skepticism, for example, recently led to another hospital antitrust settlement that essentially fines the participating hospitals if they don't meet the cost-savings target (See related story, p. 18).
Mr. Beauchamp said the hospitals' efficiency study was conducted by the Hunter Group, a healthcare consulting firm based in St. Petersburg, Fla. He said the firm reviewed its earlier study in light of the proposed settlement and told the systems they could meet 90% of their original goal.
That finding could work against other hospitals proposing similar mergers, antitrust attorneys said. They anticipate that the government will seek the same concessions from them.
"The settlement will make it tougher for the next guy," said one attorney. "The Justice Department will say, `They did this, why can't you?"'
"It can't possibly help, but I don't know if it will hurt," said William Kopit, an antitrust attorney with Epstein, Becker & Green in Washington. He's also the American Hospital Association's special antitrust counsel.
Mr. Kopit said the government has floated the joint venture idea for years to settle hospital antitrust disputes. But, he said, hospitals until now have rejected the idea because it's too difficult for two hospitals to compete and cooperate at the same time. But, like others, he expects that the new settlement will encourage the Justice Department to push the idea in upcoming hospital merger cases.
Given the publicity surrounding the settlement, such fears may be realized. The government announced the settlement with unusual fanfare and notice to news organizations, indicating it wants to reach similar deals in the future (See related story, p. 136).
For example, a week before the government announced its deal with the Florida systems, the Justice Department filed suit to block the proposed merger of the only two hospitals in Dubuque, Iowa (June 20, p. 3). The suit reportedly followed the hospitals' rejection of a settlement similar to the Florida pact.
Ms. Singer acknowledged that some hospital acquisitions and mergers may not lend themselves to the same approach used in Florida.
For example, Morton Plant and Mease intend to maintain three separate acute-care campuses. Others may not be able to realize significant cost savings unless they physically merge their operations at one site, she said.
Judge Merryday is expected to approve the settlement, and the pact will be subject to a 60-day public comment period before becoming final.