Awaking from a three-year enforcement sleep, the U.S. Justice Department filed an antitrust suit last week against the proposed merger of two Long Island, N.Y., hospital systems.
The lawsuit, filed in U.S. District Court in New York, is the first antitrust case filed by the Justice Department against a hospital merger since 1994, when the agency challenged the proposed mergerlike partnership between the only two hospitals in Dubuque, Iowa. The hospitals won that case but scrapped the deal while the government's appeal was pending.
The department's antitrust division, headed by Anne Bingaman from June 1993 through November 1996, largely stayed on the sidelines during the hospital merger boom of the past several years.
Joel Klein, a department antitrust attorney, replaced Bingaman in March, and the case filed last week suggests the department is back in the hospital antitrust enforcement business (March 10, p. 8).
The lawsuit also is noteworthy because it represents the government's first attempt to stop a hospital merger in an urban market, where competitive boundaries are far less clear than in smaller markets.
The targets of the lawsuit are Long Island Jewish Medical Center, New Hyde Park, N.Y., and North Shore Health System, Manhasset, N.Y.
The systems, which collectively operate 12 hospitals, proposed their merger last December. The Justice Department launched its investigation of the deal shortly after that (March 17, p. 12).
In its suit, the government charged the systems with violating Section 7 of the Clayton Act, which bars acquisitions that substantially reduce competition, and Section 1 of the Sherman Act, which bars conspiracies that unreasonably restrain trade.
The two systems dominate the Long Island hospital market, and the objective of the merger is to prevent managed-care plans and others from forcing them to lower or moderate their prices, the government said. In its 17-page complaint against the hospital systems, the government cited internal documents from the providers in which they say the goal of the consolidation is to give them more negotiating power with managed-care plans and prevent the plans from playing the systems off each other for better prices.
The government also noted that North Shore was part of an alleged eight-hospital conspiracy to prevent managed-care plans from seeking hospital discounts. The hospitals settled those charges with the Justice Department in December 1994.
The systems denied the government's allegations and said the intent of the merger is to enhance their ability to provide high-quality, low-cost healthcare services. They said the merger would generate $188 million in operating efficiencies and capital avoidance costs.
They also said the merger wouldn't give them an illegally high market share, saying they compete with 30 other hospitals in the same market. And they said their not-for-profit status and community representation on their boards would prevent them from exploiting their market share or engaging in anti-competitive behavior.
"The Justice Department seems to have overlooked a very important point-our institutions are nonprofit. We don't have to satisfy shareholders or pay huge salaries to executives," they said in a statement.
David Dantzker, president and chief executive officer of Long Island Jewish, earns an annual salary of $450,000. John S.T. Gallagher, president and CEO of North Shore, earns $360,600.
Saul Katz, North Shore's board chairman, said he's confident the government won't prevail in court.
"There's no way they're going to win this one," he said. "There's no way they should win this one."