The recent breakup of an Iowa hospital deal challenges the validity of arguments often used to justify small-town hospital mergers.
The only two hospitals in Dubuque, Iowa, fought the U.S. Justice Department for three years because they were convinced of the benefits of their proposed mergerlike partnership. But earlier this month, 158-bed Finley Hospital pulled out of the deal with 415-bed Mercy Health Center after a unanimous vote of its board (Jan. 20, p. 4).
Despite ditching Mercy, Finley won't go it alone. Seven days after announcing the split, Finley announced it is entering 90 to 120 days of partnership discussions with the largest hospital system in the state: six-hospital Iowa Health System of Des Moines.
Pairing Finley and Mercy makes less sense today, said Kevin Rogols, Finley president and chief executive officer. Blocked from consolidating programs by a government lawsuit, the hospitals continued duplicative building programs, erasing much of the deal's potential $24 million in savings, Rogols said.
What's more, Rogols said he now believes Dubuque, a city of about 60,000 people, is large enough to support two competing hospitals. In 1992, when the deal was conceived, federal legislators were debating an overhaul of healthcare, and the future looked ominous, he said.
Economic efficiencies and the inability of small towns to support multiple hospitals are arguments often used to justify rural monopolies.
Mercy executives expressed regret about the outcome. Disagreeing with Rogols, Sister Helen Huewe, Mercy's president and CEO, said Dubuque isn't quite big enough for both hospitals. A joint regional health system would have made it easier to keep specialized services in the area, Huewe said.
Mercy, a member of the Midwest Catholic system Mercy Health Services, operates 320-bed St. Joseph Hospital in Dubuque and 95-bed St. Mary's Hospital in Dyersville, Iowa.
Rogols and Huewe said their split was amicable, and their hospitals might cooperate at some point.
"When the government decides to bring a case, you cannot simply think in terms of `What are my odds of prevailing?"' said Art Lerner, an antitrust attorney in the Washington law firm of Michaels, Wishner & Bonner. "This whole process drags out. There is a right moment to do these transactions, and sometimes the moment passes."
The fate of the high-profile antitrust case, which made it to the front page of the Wall Street Journal last year, is unknown. David Ettinger, the hospitals' antitrust attorney, said he didn't know if the Justice Department would pursue the case. Agency officials didn't respond to a request for comment.
The case remains a critical test of antitrust policy in two-hospital towns, observers said.
U.S. District Judge Michael Melloy in Cedar Rapids, Iowa, dismissed the government complaint in 1995 with a ruling that could play a role in other hospital merger cases. Melloy said determination of a competitive market must be based on where patients could go after a merger, not on historical data of patient origin. In that case, the Dubuque deal wouldn't represent an illegal concentration of market share because competition came from 70 to 100 miles away.
The Justice Department appealed the case to the 8th U.S. Circuit Court of Appeals in St. Louis. The case was argued last fall and a decision is pending.