The Federal Trade Commission has launched an antitrust investigation of the proposed mergerlike partnership of three hospitals in New York's mid-Hudson Valley region, MODERN HEALTHCARE has learned.
A joint operating agreement between Cross River HealthCare's two secular hospitals and Benedictine Hospital, a 222-bed Roman Catholic facility, would place all hospital beds in the towns of Kingston and Rhinebeck under common control.
The fear of an acute-care monopoly, exacerbated by Cross River's agreement to abide by Catholic prohibitions on reproductive healthcare services, has concerned some local residents.
In a two-step transaction, 140-bed Kingston Hospital and 71-bed Northern Dutchess Hospital in Rhinebeck are merging to form Cross River HealthCare. The FTC cleared that merger earlier this month, and the deal is expected to close shortly.
After that deal is done, Cross River intends to form a mergerlike partnership with Benedictine, a stand-alone hospital operated by the Catholic Archdiocese of New York. Benedictine is the only other acute-care facility in Kingston.
The three hospitals' service area includes Ulster and Dutchess counties and portions of Columbia, Greene and Orange counties.
Three months before the FTC cleared the Kingston-Northern Dutchess merger, it launched an investigation of the proposed deal between those hospitals and Benedictine.
Cross River and Benedictine, which announced their proposed partnership last May, have yet to file their required pre-merger notification documents with the FTC for antitrust clearance. But the commission last November sent the two systems a letter asking them for information about their proposed transaction.
Representatives for the systems said they don't know how the FTC learned of their plans, but both have complied with its request for documents. They said the next move is the commission's.
FTC officials would neither confirm nor deny the investigation.
Despite the apparent federal probe, the systems' representatives said a mergerlike partnership between Cross River and Benedictine won't create an antitrust problem. "It's still a very competitive region," said Paul Heady, a Cross River spokesman.`'We're confident that this (partnership) will not be anti-competitive in nature."
Cross River and Benedictine officials say their hospitals compete with at least nine others in a wide geographic market.
But the hospitals closest to the Cross River facilities and Benedictine -- 257-bed Vassar Brothers Hospital and 317-bed Saint Francis Hospital -- are more than 20 miles away in Poughkeepsie.
The systems' confidence in getting federal antitrust clearance may be tested. In 1995 Vassar Brothers and Saint Francis formed a mergerlike partnership that gave them an acute-care monopoly in Poughkeepsie. The state of New York last week filed suit in federal district court charging the hospitals with using their monopoly to fix prices.
Heady said the Poughkeepsie lawsuit "will have no impact at all" on the Kingston hospital consolidation and called the Kingston and Poughkeepsie markets "different communities."
The Kingston-area hospitals say their proposed affiliation has three goals: reducing costs, improving the quality of healthcare and retaining local control of the community's hospitals.
"Economic pressures have made it increasingly difficult to stand alone," said Tracy Doolittle, director of marketing at Benedictine.
According to the hospitals, Northern Dutchess lost $260,000 on total revenues of $25.8 million in 1996, but Kingston posted profits of $1.6 million on $47.4 million in total revenues that year. Benedictine reported net profits of $313,000 in fiscal 1995 on total revenues of $49.5 million.
Benedictine and Kingston hospitals have discussed merging before and, in fact, agreed to collaborate on certain services four years ago. But Heady said those efforts have not generated the level of savings sought under the three-way partnership.
The systems said placing the three facilities under common control could generate savings of $35 million over the first five years of the deal.
The partnership will stop short of a full-asset merger. A new 33-member board with complete financial and operational responsibilities will govern all three hospitals. Operating income and expenses will be shared. However, Cross River and Benedictine will retain ownership of historic assets.
Even though the newly proposed parent corporation and Cross River's hospitals will remain secular, Cross River has agreed to abide by Catholic healthcare directives. As part of the agreement, Cross River's facilities will stop performing elective abortions and sterilizations.
Partially filling the void is the new Women's Care Center of Westchester County Medical Center, which opened Feb. 9 in Kingston. The center offers first-trimester abortions and sterilizations.
Local residents opposed a separate clinic because of the potential for opposition by anti-abortion groups.
Another problem is that the clinic does not deliver babies, so a woman who wants a tubal ligation after a Caesarean section must go to another city or have the procedures done separately.
"I'm not interested in going to Vassar to have my baby," said Gale Wolf, co-founder of Save Our Services, a grass-roots organization fighting the affiliation. "I don't know any doctors there and don't want to give birth there."
The local chamber of commerce, which has no position on the Cross River-Benedictine partnership, held a sold-out breakfast meeting for more than 300 attendees Jan. 29 to provide a public forum to discuss the deal.
"People are opposed to the terms of the merger, not the merger itself, on the basis of removing reproductive services from the hospitals," said Len Cane, president of the Ulster County Chamber of Commerce.
Residents say they hope Cross River and Benedictine can amend their affiliation plans to allow for the systems' economic needs while keeping existing services intact.
But the systems' plans seem set. "There were more paths of least resistance we could have gone down, but that would not have served the best interest of this community," Heady said. "We've taken the right path, and we're taking the heat for it. But we hope in the end that wisdom will be shown."