Two North Carolina hospitals have become the first hospitals in the country to, in effect, merge under a state antitrust exemption law.
In exchange for immunizing their merger-like partnership from state antitrust scrutiny, the hospitals agreed to adhere to an extensive set of regulatory requirements that, from the state's standpoint, prevents them from engaging in anti-competitive behavior.
The hospitals inked the deal with the state on the signing deadline of Dec. 29, 1995, despite expressing some trepidation about the extent of the state regulation. Last December, the hospitals' executives declined to say whether they would sign the deal and refused to release a copy of the proposed agreement (Jan. 1, p. 6).
The hospitals are 418-bed Memorial Mission Medical Center and 292-bed St. Joseph's Hospital. They're the only two private acute-care facilities in Asheville, a city of 64,000 in western North Carolina.
The hospitals signed a letter of intent to form a partnership in March 1994 and notified the Justice Department of their plans. The department launched an antitrust investigation of the hospitals four months later.
To insulate them from federal antitrust scrutiny, the hospitals lobbied for an expansion of North Carolina's hospital antitrust exemption law. The law, passed in 1993, applied only to hospital joint ventures. The amended law, which took effect last June, applied to mergers and partnerships.
Under the law, hospital joint ventures, mergers and partnerships are exempt from state antitrust scrutiny if they provide demonstrable benefits to the community such as lowering costs or improving quality or access.
In theory, the law also would protect such deals from federal antitrust scrutiny under the "state-action immunity" doctrine. Under the doctrine, which has developed through case law, activities that are permitted and monitored by a state are exempt from federal antitrust laws.
The two Asheville hospitals applied for their exemption last July and, after numerous document submissions and a public hearing last August, received approval from the state last December. They agreed to the state's terms about three weeks later.
The agreement places a number of conditions on the hospitals, including limits on cost increases and profitability. They're also required to generate at least $74.2 million in economic efficiencies and savings over the first five years of the partnership and pass those savings along to consumers in the form of low- or no-cost healthcare services, or revenue or price reductions or freezes. The hospitals would be required to pay any amount short of that goal into a special fund for community-based healthcare programs.
The hospitals, known as the Mission-St. Joseph's Health System, are governed by a 17-member board. They retained their separate assets and ownership, but they will function as one corporation with the board controlling all operations.