The U.S. Justice Department is conducting an antitrust investigation of the proposed merger of two hospital systems on Long Island, N.Y.
The investigation of North Shore Health System, Manhasset, and Long Island Jewish Medical Center, New Hyde Park, is significant because it could become one of the first major legal tests of healthcare market boundaries in the state.
Until the state's recent deregulation of hospital rates, such pairings had been few and far between. As a result, New York has largely escaped federal antitrust scrutiny.
Not anymore. Officials of both the Justice Department and the hospital systems confirmed last week that the agency is looking at the deal and the investigation is ongoing.
North Shore and Long Island Jewish agreed to pursue a merger about four months ago, said Carol Hauptman, a North Shore spokeswoman, who also acknowledged that the deal was never publicly announced.
The hospitals filed their required pre-merger notification documents with the federal government for antitrust clearance a day or two after Christmas, a spokesman for North Shore confirmed.
Typically, it takes 30 days from notification of a proposed merger or acquisition for the Justice Department or Federal Trade Commission to approve a deal, challenge it in court or request additional information as part of a full-blown investigation.
The deal was neither approved nor challenged. On Jan. 24, the merger partners received a second request from the government for additional information, according to the North Shore spokesman.
The systems are now compiling the requested information and submitting it to the Justice Department. They have no deadline for submitting the documents, but after they're handed over, the agency has 20 days to make a final decision.
Nine-hospital North Shore operated 3,231 beds in 1995, according to the most recent data available from HCIA, a Baltimore-based healthcare information company. Most of those beds are on Long Island and in the Queens borough of New York City, although North Shore stretched its service area westward last year by agreeing to sponsor 561-bed Staten Island University Hospital. Total assets of the nine hospitals top $1 billion.
Long Island Jewish, with 591 beds in service in 1995, had total assets of $386 million, according to HCIA. The medical center operates Long Island Jewish Hospital and Schneider Children's Hospital in New Hyde Park, N.Y., and Hillside Hospital in Glen Oaks, N.Y.
Neither North Shore nor Long Island Jewish would discuss specifics of the probe. But Hauptman said, "Everybody around here seems to be extremely optimistic."
Antitrust experts, however, say a second request for information from the Justice Department signals the possibility of trouble ahead.
It doesn't necessarily mean the deal won't get done, said Jon Joyce, executive vice president of Econsult, a Washington-based firm that conducts market analyses.
But the fact that the government asked for more information means the deal isn't "a slam dunk," and certain issues need to be resolved, he said.
Officials of Mid-Hudson Health in Poughkeepsie, N.Y., are all too familiar with the tortuous process of complying with a second request from the Justice Department.
In January 1995, Vassar Brothers Hospital and Saint Francis Hospital filed their pre-merger notification documents with the government seeking antitrust clearance for their Mid-Hudson "hospital without walls" affiliation.
To comply with the Justice Department's second request, the hospitals copied, collated and numbered some 240,000 documents.
A number of employees worked 12-hour days seven days a week to gather the necessary papers, and the hospitals even hired a moving company to ship the boxes of documents to Washington.
The cost of complying with the Justice Department's request exceeded $250,000, including attorney's fees, consulting fees, courier services and overtime pay for employees.
"It was a sad process, I will tell you," said Richard J. Henley, senior vice president of administration and treasurer of Vassar Brothers.
Federal officials cleared the deal in a one-sentence response dated May 24, 1995.
Henley believes it was not the submission of documents but rather the "very strong support from the New York State Department of Health" that got the deal "over the hurdle."
The federal clearance of Mid-Hudson's deal came at a time when New York hospital rates were controlled and managed-care negotiations, for the most part, didn't mean very much, Henley said. Gaining antitrust clearance in a deregulated environment may be a different game.
Under antitrust theory, competitors that merge may garner enough market share to arbitrarily raise prices without the fear of losing business. That's less of a concern in a market or industry where prices are regulated.
North Shore and Long Island Jewish aren't the only Long Island providers to test the federal government's market limits.
Peconic Health Corp.-a new holding company created by Eastern Long Island Hospital, Greenport; Central Suffolk Hospital, Riverhead; and Southampton (N.Y.) Hospital-filed for antitrust clearance with the FTC last month and is awaiting word on its fate. The hospitals serve about 50% to 60% of the market in the five towns on the eastern end of the island.