When a hospital starts lobbying for a state antitrust exemption law, a big deal can't be far behind. That's the case in Maine, where the state's largest hospital is seeking state protection for mergers with two other hospitals.
And in a related matter, Florida is considering a bill that would make it the first state to create an advisory legal opinion system for hospitals looking for state antitrust protection for their mergers and acquisitions.
The two developments are the latest evidence that large-scale transactions being pursued by hospitals are pushing the limits of existing antitrust laws and, subsequently, have hospitals running for legal cover.
To date, at least 19 states have laws that immunize various collaborative arrangements among hospitals from state antitrust statutes.
In 1992, Maine was the first state to pass such a law, but it applied only to hospital joint ventures. Maine Medical Center in Portland, though, wants the law expanded to include hospital mergers. The 598-bed hospital has two merger deals pending.
"I don't think we have an antitrust problem, but it's always good to have the law available if we need it," said Donald McDowell, president and chief executive officer of Maine Medical.
Two hospitals have signed letters of intent to merge with Maine Medical under the hospital's parent corporation, the Maine Medical Center Foundation. The first is 150-bed Southern Maine Medical Center in Biddeford, about 16 miles southwest of Portland. The second is 30-bed Miles Memorial Hospital in Damariscotta, about 47 miles northeast of Portland.
The transactions would give Maine Medical control of just four of the 10 acute-care hospitals in Cumberland, York and Lincoln counties along the state's coastline. But it is the state's largest hospital and, following last year's merger with 110-bed Brighton Medical Center, already controls more than 80% of the staffed inpatient beds in Portland (March 20, p. 17).
Maine Medical also is sensitive to antitrust concerns because an earlier merger proposal involving Brighton and Portland's third hospital, 158-bed Mercy Hospital, was the subject of a Federal Trade Commission investigation. The inquiry prompted the hospitals to seek a merger amendment to the state's antitrust exemption law, but they dropped their effort after Mercy dropped out of the deal in 1994 (March 28, 1994, p. 6). A year later, the FTC blessed the two-way deal between Maine Medical and Brighton.
With two new mergers in the works, Maine Medical is back in the state Legislature looking for help.
In addition to expanding the law to cover mergers, the legislation, introduced Feb. 26, would permit the attorney general's office to hold a public hearing on a hospital's exemption application; add medical education to the list of collaborative benefits recognized by the law; and require merged hospitals to file a compliance report with the state no later than 39 months after the antitrust exemption was granted.
The original law has no reporting requirement. It was added, according to McDowell, to help hospitals gain federal antitrust protection as well.
Under the "state action immunity" doctrine, activities that are permitted and actively monitored by states are exempt from federal antitrust scrutiny.
In Florida, the state wants to avoid getting involved with monitoring hospital behavior yet wants to give hospitals some help on the antitrust front. Consequently, the state is considering the Florida Health Care Community Antitrust Guidance Act.
"The legislation is seen as a compromise among insurers, government and providers," said Bill Bell, the Florida Hospital Association's general counsel. The FHA supports the legislation.
Under the proposed law, hospitals and other providers could seek what's called a "no action" letter from the Florida attorney general's office regarding their proposed transaction. After reviewing a deal, the attorney general's office would issue a letter stating its opinion that the transaction wasn't anti-competitive and not in violation of state law. If the deal was deemed anti-competitive and illegal, the attorney general would issue no letter.
If the bill passes, Florida would become the first state to adopt an advisory antitrust opinion approach to hospital mergers and acquisitions. The FTC and the U.S. Justice Department have longstanding advisory opinion programs for all corporations in all industries.
Bell said the legislation was based on a recommendation from a task force convened by the Florida Agency for Health Care Administration, which examined the state's existing healthcare antitrust exemption law. The 1993 law covers only rural providers. The task force recommended against expanding the law to cover all providers and instead opted for the advisory opinion approach, Bell said.