Federal investigators from the U.S. Justice Department have launched an intensive antitrust probe of the proposed partnership of three of South Carolina's largest hospital systems.
If the investigation leads to an antitrust challenge, the case could break new legal ground because the systems, while dominant providers in their immediate geographic areas, don't compete with one another on a regional basis. How the Justice Department defines the systems' market could affect regional networking strategies of hospitals in other states.
The three systems under investigation are Spartanburg (S.C.) Regional Healthcare System, Greenville (S.C.) Hospital System and Anderson (S.C.) Area Medical Center. The systems are the largest acute-care providers in northwest South Carolina's three largest cities (See map).
Under an agreement the three systems completed in February, they would operate as a single, merged organization yet maintain separate ownership and assets. They would be overseen by an 11-member board comprising three representatives from each system and two community appointees.
The systems' governing boards approved a final partnership agreement in late June and earlier this month after several issues regarding local control were resolved (July 8, p. 20).
At that time, executives of the systems said they hoped to file their required pre-merger notification documents with federal antitrust officials shortly, but investigators from the Justice Department jumped the gun and launched their probe without formal notification from the hospitals.
By not waiting for formal notification, the agency gave itself unlimited time to review the impact of the three-way deal on hospital competition in northwest, or upstate, South Carolina. Typically, the department as well as the Federal Trade Commission would have 30 days from the formal notification of a pending merger or acquisition to approve the deal, challenge it or seek additional information.
A spokesman for the systems expressed confidence that the deal would be cleared of any antitrust problems.
"We wouldn't have taken things this far if we didn't think it was legal," said Dan Corrigan, a spokesman for Anderson Area Medical Center.
Specifically, the systems don't believe their deal is anti-competitive because they say each system competes in distinct geographic areas and their service markets don't overlap.
According to the latest available figures from the American Hospital Association, the three systems combined would control three of the five acute-care facilities in Anderson, Greenville and Spartanburg and nearly 80% of the staffed beds in those three cities.
They also would control five of the eight hospitals in Anderson, Greenville and Spartanburg counties and more than 80% of the staffed beds there.
Federal investigators began interviewing the systems' competitors, local managed-care plans and businesses, and other interested individuals in mid-July, MODERN HEALTHCARE*has learned.
For example, investigators contacted executives at St. Francis Health System in Greenville the week of July 8 regarding the three-way partnership.
St. Francis and Mary Black Memorial Hospital in Spartanburg are part of a coalition that's been formed by competing providers, local businesses and insurers, and several state legislators to oppose the deal.
They say the partnership would create a virtual healthcare monopoly in upstate South Carolina, which would lead to higher prices and reduced services.
The coalition has mounted a public relations campaign against the deal and has filed two lawsuits in state court to stop it (June 3, p. 20).
Executives from the partnering systems have called the coalition a smokescreen created by St. Francis and Mary Black, which they say fear greater competition from the three systems. They point to the opposition from St. Francis and Mary Black as evidence that the deal would increase rather than decrease competition upstate.
Carolyn Bobo, a spokeswoman for St. Francis Health System, said investigators from the Justice Department interviewed the system's chief executive officer and vice president of managed care July 11 regarding their views on the partnership.
"They were doing basic fact-finding about the market," Bobo said.
Justice Department officials did not respond to an interview request.
Greenville's Corrigan said the systems anticipated the investigation and had set no closing date for the partnership.
The agreement calls for the partnership to close after all legal and regulatory approvals are obtained.
The systems had hoped to close the deal by late fall, but the federal investigation and state litigation may push the transaction's completion into next year.