A key chapter in one of the more bizarre healthcare antitrust disputes closed last week when the Federal Trade Commission issued a final consent agreement absolving Catholic Healthcare West of any wrongdoing stemming from a hospital acquisition in Santa Cruz, Calif.
Although several commissioners said they were convinced the San Francisco-based not-for-profit system broke the law, they said they were outfoxed by the religious group and could do little about it.
Meanwhile, a private suit against CHW's hospital in Santa Cruz that says the acquisition is anti-competitive is pending. The suit, filed by a clinic affiliated with Sutter Health, seeks to do what the FTC couldn't: force CHW to divest the acquired facility.
The dispute started in March 1990, when CHW bought 180-bed AMI Community Hospital of Santa Cruz from American Medical International, a Dallas-based investor-owned hospital chain, for $11.3 million. CHW already owned the city's other acute-care facility, Do-minican Santa Cruz Hospital. At that time, Dominican Santa Cruz staffed 228 acute-care beds.
The only other acute-care hospital in Santa Cruz County is 112-bed Watsonville (Calif.) Community Hospital.
CHW didn't tell the FTC about the deal, but the agency launched an antitrust probe shortly thereafter.
The FTC asked CHW to hold off consolidating the facilities because it thought the deal might pose antitrust problems. But the system ignored the threat, consolidated acute-care services at Dominican Santa Cruz and converted the AMI hospital into a long-term-care facility.
The agency went ahead with its investigation, and in March 1993 issued an antitrust complaint against the acquisition and a proposed consent agreement settling the charges.
The agreement would allow the deal to stand but bar CHW or Dominican Santa Cruz from acquiring another hospital in the county for 10 years without FTC approval (March 15, 1993, p. 2). The FTC made the agreement final last week after the five commissioners approved the pact by a 3-2 vote on Aug. 18.
In a statement accompanying the final agreement, FTC Chairwoman Janet Steiger, who voted to approve the settlement, said the agency should have challenged the acquisition under Section 7 of the Clayton Act, which bars acquisitions that may reduce competition. However, she said the FTC never had the chance because it didn't know about the sale until it was too late.
And, Ms. Steiger said, moving ahead with litigation after the sale would have been too complicated because the former AMI hospital already had been converted to another use.
"Divestiture of the acquired hospital is not an appealing remedy," she said. "The costs of conversion back to a hospital would, even under the best of circumstances, be substantial."
Ms. Steiger said the prohibition on future acquisitions in the market by CHW was the best available remedy.
The two dissenting commissioners, Mary Azcuenaga and Dennis Yao, said they would have preferred earlier legal action to block the acquisition or harsher prohibitions in the settlement.
Pending against CHW is a private antitrust lawsuit filed by a medical clinic affiliated with Sutter Health, CHW's Sacramento, Calif.-based competitor.
In a complaint filed in U.S. District Court in San Jose, Calif., Santa Cruz Medical Clinic says the acquisition will lead to anti-competitive behavior by Do-minican Santa Cruz (Aug. 30, 1993, p. 12). No trial date has been set.
Sutter, meanwhile, intends to increase competition in the market by building a 30-bed, $11 million women and children's hospital in Santa Cruz less than three blocks away from Dominican Santa Cruz. The new hospital will open next fall.
Until that happens, Dominican Santa Cruz Hospital appears to be enjoying its monopoly in Santa Cruz and control of 70% of beds in the county.
In 1990, the last year the hospital had acute-care competition in Santa Cruz, the hospital earned $2.9 million on revenues of $72.5 million, said HCIA, a Baltimore-based healthcare information company.
In 1993, three years after the hospital absorbed the acute-care operations from the former AMI hospital, Dominican Santa Cruz earned $6.6 million on total revenues of $103.8 million, HCIA said.