Advocates of special antitrust treatment of merging not-for-profit hospitals notched another victory last month when a federal judge said the tax-exempt status of two merging Long Island, N.Y., hospital systems would help them avoid engaging in anti-competitive behavior.
Although the judge didn't base his clearance of the Long Island merger solely on hospital ownership, his acknowledgment of not-for-profit status as a factor in the case bolsters the case law in that area.
In fact, judges have acknowledged not-for-profit hospital ownership as a point in the hospitals' favor in the past few hospital merger cases that have gone to court.
Such recognition has long been sought by the not-for-profit hospital sector, which argues that its tax-exempt status and governing boards of community leaders would inhibit merging hospitals from exploiting their market share unlike profit-maximizing investor-owned hospitals.
Not-for-profit status should matter when hospital mergers are challenged, said Dan Bourque, senior vice president of corporate and public affairs for VHA, a not-for-profit hospital alliance based in Irving, Texas.
"It seems to me that if these organizations are responsible and demonstrate responsibility in their community in one way, there is no reason to expect they won't in another," he said.
But Thomas Scully, president of the Federation of American Health Systems, which represents investor-owned hospitals, said tax status shouldn't matter.
"The idea that there should be a different antitrust treatment is silly," he said. "There's zero evidence that there's any behavioral difference."
Until the series of recent cases, the federal courts historically have agreed with Scully, throwing out the not-for-profit defense in hospital antitrust merger cases.
Last month U.S. District Judge Arthur Spatt dismissed the U.S. Justice Department's antitrust lawsuit against Long Island Jewish Medical Center in New Hyde Park, N.Y., and North Shore Health System in nearby Manhasset (Oct. 27, p. 4). Although Spatt based his decision primarily on his conclusion that the government failed to prove its case, he cited the systems' not-for-profit status as a safeguard against market abuses by the systems (See box).
The systems completed their merger Oct. 30, placing 12 Long Island hospitals and their related healthcare services under common control. The Justice Department had yet to decide at press time whether to appeal the case.
While the not-for-profit defense is getting an airing in court, hospitals shouldn't view it as an automatic get-out-of-jail-free card for their proposed mergers, said William Kopit, the antitrust attorney for the two largest hospitals in Grand Rapids, Mich., which recently beat back an antitrust suit by the Federal Trade Commission and completed their merger.
"I think it would be most unfortunate of people to misread these cases to assume that because they are not-for-profit hospitals they can merge without regard to any other consideration," Kopit said.
Despite his reservations, Kopit used ownership as one line of defense in the Grand Rapids case and recently argued for special antitrust treatment of not-for-profit hospitals during testimony before Congress.
In the Long Island case, which was tried in August, the two hospital systems touted their not-for-profit status as proof that a merger wouldn't be a bad thing.
It was a claim the government vigorously countered, arguing that not-for-profit status doesn't guarantee a rein on prices.
Citing the Grand Rapids case, Spatt said not-for-profit status can be considered in an antitrust case when it's supported by other evidence to prevent anticompetitive effects.
Spatt said the Long Island systems provide "millions of dollars" in charity care and funnel their profits back into the community through new programs and facilities.
While Spatt found no current evidence of anti-competitive behavior by the hospitals, he acknowledged there is no guarantee it won't happen in the future.
Because Spatt ended his not-for-profit analysis on that reflective note, attorney David Ettinger said he didn't see the ruling as a boost for not-for-profit hospitals.
"My read was that (Spatt) didn't see the nonprofit issue as mattering very much," said Ettinger, of Honigman, Miller Schwartz & Cohn in Detroit. "If that had been the only issue, it wouldn't have been enough."