Two merging hospitals in North Carolina hope to be the first providers in the state to obtain a "certificate of public advantage" that would exempt them from state antitrust scrutiny and, in theory, from federal scrutiny as well.
The hospitals will make their case at an Aug. 24 hearing before the state health department, arguing that the benefits of their proposed consolidation far outweigh any threats to competition.
If the state grants the certificate, the matter may become a test case of the ability of state hospital antitrust exemption laws to protect providers from federal antitrust investigators.
By statute, the department generally must grant or deny the hospitals' exemption application within 90 days after the application filing, which occurred on July 7.
The hospitals are 381-bed Memorial Mission Medical Center and 285-bed St. Joseph's Hospital. They're the only private acute-care institutions in Asheville, N.C., a town of 64,000 in the western part of the state.
The hospitals want to form a partnership in which the operations of the two facilities would be governed by a new not-for-profit corporation headed by a 17-member board of directors. Like other hospital partnerships being formed across the country, Memorial Mission and St. Joseph's intend to retain separate ownership and not merge assets, but they'll act as merged facilities (April 17, p. 26).
A partnership would give the hospitals a monopoly in Asheville, and the deal has been under Justice Department review since last September. The hospitals voluntarily notified the department of their plans and have given the government documents pertaining to the deal, but they have yet to file formal pre-merger notification documents with federal officials. That filing would start the clock ticking on the government investigation.
But in June, the hospitals hedged their bet by successfully lobbying for an amendment that extended an existing state hospital antitrust exemption law to hospital mergers and partnerships (June 12, p. 20). The original 1993 law applied only to hospital joint ventures.
In its July 7 application, the hospitals argue that their partnership would meet the criteria of the new state law in several ways:
It would help control costs by generating more than $80 million in economic efficiencies over the first five years. About $37 million would come from avoiding duplicative capital projects; about $30 million would come from reduced staffing levels; and about $15 million would come from reduced operating costs.
It would enhance quality of care by making those savings available for improvements in clinical services and allowing the hospitals to share their medical expertise.
And it would improve access by increasing the hospitals' ability to affiliate with other North Carolina hospitals and build a regional delivery system.