A trio of recent judicial rulings involving antitrust challenges has been welcomed by healthcare organizations as a positive sign for future healthcare business arrangements. On closer examination, however, the decisions pose a significant challenge for not-for-profit healthcare governance.
In separate decisions during the past year and a half, federal district court judges have thrown out separate federal antitrust challenges of not-for-profit hospital mergers in Grand Rapids, Mich.; Dubuque, Iowa; and Joplin, Mo. In each case, the judge's faith in the hospitals' community-minded boards and not-for-profit missions appeared to be the deciding factor in approving the deal.
The decisions are encouraging for hospitals trying to decide whether to push forward with merger plans rather than buckle under threats from the Justice Department or the Federal Trade Commission. The rulings also may affect how hospitals view state settlements that involve regulatory restrictions on business practices in exchange for state antitrust clearance.
But the rulings also place a responsibility on leaders of merging not-for-profit institutions to avoid using their new market power to arbitrarily raise prices and engage in other anticompetitive behavior. Not just because they are not-for-profit institutions, but because the board of community, consumer and business leaders represents constituencies that foot the healthcare bills.
In the Grand Rapids merger case, Judge David McKeague came to this conclusion, even though he agreed with the FTC's conclusion that the deal would violate Section 7 of the Clayton Act. The federal law bars mergers and acquisitions that may reduce competition or create a monopoly.
He also cast a skeptical eye on the hospitals' claims of economic efficiencies resulting from the merger, calling them "self-serving assertions." The deciding factor for him seemed to be that the hospitals' healthy profit margins and below-average prices were maintained not through exercise of market power but through what he characterized as "responsible stewardship."
This conclusion may not be an altogether clear reading of the cost-containment pressures buffeting healthcare organizations. Regardless, hospitals and their governing boards are on notice that safeguarding the community trust is as important as ensuring the fiduciary soundness of their institutions. MODERN HEALTHCARE will be watching to see that they meet this challenge.