Before Minneapolis Children's Medical Center and Children's Hospital in St. Paul, Minn., recently consummated their merger, they agreed to a number of restrictions on their business dealings to avoid an antitrust challenge by the Minnesota attorney general's office.
The agreement is the latest example of a growing trend in which states are taking the antitrust enforcement lead from federal agents in many hospital merger cases and reaching settlements with hospitals to avoid litigation.
Whether merging hospitals are getting off too easy in this scenario, though, is open to debate.
"I always think we let hospitals off too easy. I'm never happy with compromises," said Thomas Pursell, deputy attorney general in the law enforcement section of the Minnesota attorney general's office. "There's always a tension between your litigation instincts and the desire to resolve an issue as soon as possible."
In a complaint filed on June 13 in U.S. District Court in Minneapolis, the state said the merger between Minneapolis Children's and Children's Hospital in St. Paul would violate Section 7 of the Clayton Act, which bars acquisitions that may reduce competition.
The deal also would constitute an unreasonable restraint of trade and attempted monopolization by giving the hospitals control of about 88% of the inpatient pediatric-care market in Minneapolis-St. Paul, the state alleged in its complaint.
And, the hospitals already were profitable. According to the complaint, 159-bed Minneapolis Children's earned $1.3 million in 1992 on total revenues of $124.6 million. Children's Hospital, with 109 staffed beds, earned $3.3 million on total revenues of $54.6 million in 1992.
But all that became moot June 30, when the state filed a consent judgment settling the case.
Under the settlement, the hospitals could merge as long as they met certain conditions. With some exceptions, the hospitals:
Can't merge with or acquire another hospital.
Can't be acquired by another hospital.
Can't manage inpatient pediatric services at another hospital.
Can't enter into a contract with physicians that bars them from practicing at another hospital.
Can't engage in any predatory or exclusionary acts.
Mr. Pursell said the two sides used a third-party mediator to resolve the antitrust issues and agree on the terms.
After the settlement was entered in federal court, the hospitals completed their deal (See related story, p. 102).
In a statement released following the merger, the hospitals said they are "confident that the merger is pro-competitive, and that the commitments to the state are entirely consistent with the hospitals' mission and operating philosophy. The merger will reduce the costs of, improve access to and improve the quality of healthcare delivery to children throughout the state."
In placing such conditions on the hospitals, the state focused on the key issue in the case, which was market concentration, Mr. Pursell said.
"If the hospitals affiliated with anyone else in the pediatric area, the market concentration would be much too high," he said.
The agreement is the latest in a series of antitrust settlements between merging hospitals and state law enforcement agencies.
In May, the Pennsylvania attorney general's office permitted the merger of three of the four hospitals in Lycoming County, Pa., in exchange for the hospitals promising to generate $40 million in savings that would be passed along to patients and payers (June 27, p. 18).
And in December, the Washington attorney general's office allowed the merger of the only two hospitals in Everett, Wash., in return for the hospitals limiting their price increases to the level of changes in the government's Producer Price Index for acute-care hospitals (March 7, p. 32).