stare down the Justice Department.
In March 1994, Memorial Mission Medical Center and St. Joseph's Hospital, both in Asheville, signed a letter of intent to pursue their deal and voluntarily notified the Justice Department. The department responded five months later with a civil investigative demand for documents related to the transaction. The probe is ongoing.
The hospitals are the only acute-care facilities in Asheville, a town of 64,000 in western North Carolina. They want to form a new not-for-profit corporation that would "guide and coordinate the work of the two hospitals."
A 17-member board of directors would run the corporation, with six seats going to community representatives. Memorial Mission would have six seats; St. Joseph's would have five.
The responsibilities of the new corporation would include strategic, operational and financial planning as well as budgeting for both hospitals. The corporation also would coordinate existing services and the development of new ones.
The hospitals won't merge assets and will retain separate ownership.
Executives of the hospitals didn't respond to several interview requests.
But in a number of past statements, in press releases and published reports, they've indicated that mismatched ownership barred a merger.
"St. Joseph's leadership and ownership have not been receptive to offers to sell the hospital," said Robert Burgin, president and chief executive officer of Memorial Mission.
"This partnership allows St. Joseph's to continue its mission and values as a Catholic hospital," said J. Lewis Daniels, St. Joseph's president and CEO.
The hospitals' antitrust strategy isn't known, but they've hired high-profile antitrust attorney William Kopit of Epstein, Becker & Green in Washington to make their case.
Executives also may try to take advantage of a 1993 North Carolina law that exempts hospitals from state antitrust laws for certain cooperative ventures.
And they hired Arthur Andersen, a national accounting and consulting firm, to conduct a study on how much the deal could save. The study indicated a partnership could save as much as $75 million over the first five years of the deal.
Partnership arrangements raise two distinct antitrust issues, legal experts say.
First and most obvious is market share. The issue is whether the hospitals, through their partnerships, control too much of a market.
How much is too much varies by individual transactions and market delineations, but deals that confer upward of two-thirds of the market to one party historically have been investigated and sometimes challenged.
Central to answering the first question is whether the partnership is a partnership in name only, and the hospitals function as merged entities.
"The most important thing is how the hospitals negotiate with payers," said Pasqua Scibelli, an assistant attorney general in Massachusetts. "If they negotiate jointly, it seems like a de facto merger to me."
Scibelli's office has become aware of a proposed hospital partnership in Massachusetts that she said smells like a merger. She declined to identify the hospitals but said her office intends to look into the matter shortly.
"What we look at to determine whether a partnership is tantamount to a merger is how integrated the enterprise is through the partnership arrangement," said Mark Horoschak, assistant director of the FTC's bureau of competition.
The FTC will examine the extent of the hospitals' integration of clinical services, administrative services, marketing activities and financial arrangements, such as joint contracting with managed-care plans on a risk-sharing basis, he said.
The greater the integration, the closer the partnership is to a merger, he said.
And in cases where partnerships are tantamount to mergers, the FTC would apply a traditional merger analysis.
The analysis would focus on the hospitals' market power and whether they had the capacity to arbitrarily raise prices above competitive levels, he said. The analysis also would consider mitigating factors, such as economic efficiencies or wider markets, that could outweigh anti-competitive effects, he said.
The Justice Department takes the same approach to analyzing partnerships, said Gail Kursh, chief of the healthcare section of the department's antitrust division.
That was the case when the department investigated and then challenged a proposed partnership between the only two hospitals in Dubuque, Iowa.
The hospitals, Mercy Health Center and Finley Hospital, claimed their transaction was a partnership, not a merger, and shouldn't be judged under a traditional merger analysis.
The Justice Department ignored the hospitals' characterization of the deal, considered it a de facto merger and sued the hospitals last June, alleging violation of Section 7 of the Clayton Act. The law bars acquisitions that may reduce competition.
The case is pending in U.S. District Court in Cedar Rapids, Iowa.
Mergers welcome.Ironically, many
hospitals want their partnerships considered as mergers because they're in urban areas where market share isn't an issue.
Still others want their partnerships viewed as mergers because they'd
`WHAT WE LOOK AT IS HOW INTEGRATED THE ENTERPRISE IS THROUGH THE PARTNERSHIP.' --FTC's mark Horoschak