The Federal Trade Commission last week sought a preliminary injunction to block the proposed merger of the two largest hospitals in Grand Rapids, Mich.: Butterworth Hospital and Blodgett Memorial Medical Center.
A hearing was set for April 22 before U.S. District Judge David McKeague in Lansing, Mich. If the injunction is granted, the FTC will have 20 days to issue an administrative complaint detailing its charges.
The FTC alleges the merger would reduce competition in violation of Section 7 of the Clayton Act. The hospitals compete primarily with each other, the FTC said, and purchasers would not turn to other hospitals if the merged firm raised prices.
The proposed deal is unusual in that it involves two financially successful tertiary hospitals. They have about 70% of the licensed acute-care beds and are the only tertiary providers in Kent County.
Blodgett, with 515 licensed beds, and Butterworth, with 529, account for 73% of inpatient revenues in the county, said Lody Zwarensteyn, president of the Grand Rapids-based Alliance for Health.
Saint Mary's Health Services, with 250 beds, has about 17% of revenues, and 238-bed Metropolitan Hospital has about 10%, he said.
Hospital attorneys plan to offer an argument familiar in the defense of mergers: that federal regulators define market boundaries too narrowly.
The FTC contends that the market comprises Kent County and parts of adjacent counties. The hospitals claim the market extends to 13 Michigan counties from which they draw patients. Patients could drive 39 miles to Muskegon, 68 miles to Lansing or 51 miles to Kalamazoo for tertiary care, the hospitals say.
"We've talked to a number of consumers and employers who indicated a willingness to travel," said Grand Rapids attorney Richard Bouma, who represents Butterworth. He noted that the broader market argument was used in recent successful defenses of hospital mergers in Dubuque, Iowa (Nov. 6, 1995, p. 10), and Joplin, Mo. (June 19, 1995, p. 48).
Locally, reception of the proposed merger has been tepid. Butterworth and Blodgett tried to shore up community support last summer by offering a series of assurances on pricing and cost savings (June 5, 1995, p. 10). Among them was a three-year price freeze on charges, followed by four years of increases limited to the annual rate of the Consumer Price Index.
The alliance, a coalition of 200 providers, consumers and purchasers, endorsed the idea of a merger last November, but only if the hospitals address certain community and payer concerns.
One is profit margins. In 1994, Butterworth had a profit margin of 13% and Blodgett reported a margin of about 8%, Zwarensteyn said. Insurers and employers want to see margins below 7.5%.
Payers also want the hospitals to justify a plan to rebuild Blodgett on a new site, document projected savings of $170 million over five years, plan and budget community projects, and equalize prices charged to managed-care plans within two years rather than five as proposed.
The alliance's health benefits advisory group recommended that Butterworth divest its 80% equity stake in Kent County's largest HMO, Priority Health.
Groups ranging from the Urban League to the United Auto Workers have expressed concerns. "I think a lot of people want to see processes and protections spelled out," Zwarensteyn said.
The hospitals have enhanced their commitments, promising to add women, minorities and the uninsured to the governing board, to set profit margins at the average for hospitals with similar bond ratings, to triple their current annual budget for the underserved to $6 million, and to form an advisory committee on pricing.