Apparently hoping to limit the legal value of a controversial hospital antitrust ruling, the U.S. Justice Department last week decided not to appeal the decision that allowed two Long Island, N.Y., hospital systems to merge.
Officials of the Justice Department wouldn't elaborate on why they chose not to pursue the case further.
With the government's challenge finally over, the new health system applauded the decision to drop the case.
"We believe that the judge's ruling was so clear and so definitive that there wasn't a lot of room for appeal," said David Dantzker, M.D., co-president and chief executive officer of 12-hospital North Shore-Long Island Jewish Health System. "We're obviously very pleased."
The system was created Oct. 30, when Long Island Jewish Medical Center in New Hyde Park, N.Y., and North Shore Health System in nearby Manhasset, N.Y., completed their merger.
The closing occurred just seven days after a federal judge in New York threw out the Justice Department's antitrust suit against the systems (Oct. 27, 1997, p. 4).
The government sued the systems last June, alleging that their consolidation would violate Section 7 of the Clayton Act, which bars acquisitions that substantially reduce competition.
The lawsuit was noteworthy because it was the first time the government attempted to block a hospital merger in an urban market where competitive boundaries are much harder to define than in smaller, more isolated markets.
Specifically, the government said the Long Island systems wanted to insulate themselves from discount-seeking payers. In its complaint, the government cited internal hospital documents that said with the merger, "there is no longer the threat of (payers) going `down the street' to the competition."
Also, North Shore in 1994 settled antitrust charges with the Justice Department that it engaged in an illegal conspiracy with other hospitals to fix prices charged to insurers.
But after a 13-day trial, U.S. District Judge Arthur Spatt in Uniondale, N.Y., said the government failed to prove its case, and he dismissed the lawsuit.
In his 67-page ruling, Spatt made a number of key findings. Among them:
The systems competed in a wider geographic market.
They didn't have the market clout to arbitrarily raise prices without a significant loss of business.
A consolidation would generate significant cost savings.
And the systems' not-for-profit status would act as a safeguard against them engaging in anti-competitive behavior.
One reason the Justice Department didn't pursue the case might be that winning an appeal is tough, said David Ettinger, a healthcare antitrust attorney with Honigman, Miller, Schwartz and Cohn in Detroit.
The government, he said, would have to show that the lower court judge acted outside the realm of reasonable decisionmaking.
Also, by stopping the case in lower court, the government can keep a lid on the legal precedent it sets.
"The danger is that if you lose on appeal, it has even more broad implications than if you lost at the trial court level," Ettinger said.
By not appealing, Spatt's decision is limited to the Long Island deal.
The government could have appealed Spatt's decision to the 2nd U.S. Circuit Court of Appeals in New York, which has jurisdiction over Connecticut, New York and Vermont.