Left on the books, the lower court's decision in the Dubuque, Iowa, hospital merger case could hamper future antitrust enforcement efforts and inhibit the potential of managed care to control costs, the U.S. Justice Department said.
The department made those assertions in its appeals brief filed March 1 with the 8th U.S. Circuit Court of Appeal in St. Louis. The government is asking the appeals court to overturn last fall's decision by the U.S. District Court in Cedar Rapids, Iowa, that dismissed the department's antitrust lawsuit against the proposed merger of the only two hospitals in Dubuque.
Quashing speculation that they may scrap their deal in the face of a lengthy appeal, Mercy Health Center and Finley Hospital reaffirmed their commitment to a merger-like partnership at emergency board meetings late last week.
Under a deal unveiled in February 1994, the hospitals intend to form a partnership governed by an 18-member joint board that would oversee the operations of the two facilities. The hospitals would act like merged hospitals but maintain their separate corporate ownership and assets.
An investigation followed, and the Justice Department sued the hospitals four months later, alleging the deal would violate Section 7 of the Clayton Act, which bars acquisitions that may reduce competition, and Section 1 of the Sherman Act, which bars conspiracies that unreasonably restrain trade.
More than 10 months after the trial ended, U.S. District Judge Michael Melloy rendered a 76-page decision throwing out the government's case.
Although Melloy ruled against many of the hospitals' arguments in the case, he sided with them on the most important issue: the hospitals' geographic market. Melloy said the deal wouldn't represent an illegal concentration of market share in Dubuque because the hospitals competed with regional hospitals 70 to 100 miles away.
And, in a ruling that could play a role in other hospital merger cases, Melloy rejected the Justice Department's traditional use of historic patient origin data to determine the hospitals' geographic market. He said a market determination must be based not on where patients have gone but on where they could go after a proposed merger.
But Melloy also threw out several key positions proffered by the hospitals that could hurt hospitals in other cases. He said the hospitals failed to prove their deal would generate operating efficiencies that otherwise couldn't be accomplished. And he said there's nothing inherent about a hospital's not-for-profit status or composition of its board to stop anti-competitive behavior.
The Dubuque hospitals found Melloy's views so offensive that, despite winning the case, they appealed those two points to the 8th Circuit last December.
In its 47-page appeals brief, the Justice Department said Melloy's decision should be reversed because he erred in his market determination. It said he ignored evidence that Dubuque is a distinct market, that regional hospitals located as far as 100 miles weren't practical alternatives for basic inpatient hospital services and that the hospitals could arbitrarily raise their prices without losing business.
Twenty-four state attorneys general, one local employer, a union, and two local managed-care associations filed briefs supporting the government.