The Federal Trade Commission broke its losing streak in hospital merger cases last week, winning a preliminary injunction to halt the union of the only two private, acute-care hospitals in Poplar Bluff, Mo.
It's the first major hospital merger case the FTC has won since 1991, when the agency was granted an injunction against two hospitals in Augusta, Ga.
A spokeswoman for Tenet Healthcare Corp., speaking for both hospitals, said they were disappointed in the decision, but had not decided whether to appeal it or abandon the deal.
The government's victory should make hospitals more wary of joining forces with their neighbors, antitrust experts said.
"This clearly will rejuvenate hospital merger enforcement," said Mark Horoschak, an antitrust attorney at Womble Carlyle Sandridge & Rice in Charlotte, N.C., and a former FTC official.
"The more hospital cases the government loses, the more hospitals in the field think they have carte blanche to do whatever they want," said Jeff Miles, an antitrust attorney with Ober Kaler Grimes & Shriver in Washington. "That's simply not true. The government never really went out of the hospital merger business."
The FTC and Missouri's attorney general filed a lawsuit in April to block the $40.5 million acquisition of 187-bed Doctors Regional Medical Center by 185-bed Lucy Lee Hospital, which is owned by Santa Barbara, Calif.-based Tenet. Doctors Regional, also a for-profit hospital, is owned by a group of about 30 physicians. The physicians purchased the hospital for about $20 million in 1990.
In its complaint, the FTC and the state of Missouri contended that such a merger would give the hospitals a 78% market share, significantly lessen competition and lead to higher prices for healthcare services. The FTC began investigating the deal after it was announced in April 1997.
Unlike in cases past, the FTC had some advantages in Poplar Bluff. The agency teamed up with the state in a show of solidarity. Both hospitals were for-profit, making them unable to use the popular "not-for-profit defense," which saved a merger in Grand Rapids, Mich.-a case the FTC took on and lost in 1996.
The FTC and the state also introduced testimony from a bevy of local employers and health plans decrying the merger, possibly the biggest display of market discontent the agency has ever presented to a judge.
"The statistical evidence was de-emphasized, and anecdotal evidence by the purchasers of healthcare was crucial," Miles said.
In the 28-page opinion signed July 30, U.S. District Judge Catherine Perry riddled the hospitals' arguments and cited four main reasons why patients would not seek care outside Poplar Bluff if the merged hospitals raised prices:
It's not practical for patients to drive more than an hour for care.
Larger hospitals in St. Louis and Cape Girardeau, Mo., are just as expensive, if not more so, than the Poplar Bluff hospitals.
Patients are loyal to their primary physicians and aren't willing to use a hospital if they have to change physicians.
Smaller hospitals in the area offer a limited range of services and in some cases, are not accredited by the Joint Commission on Accreditation of Healthcare Organizations.
Many of the efficiencies the hospitals promised-more and better services, fewer beds, lower costs-could be achieved without a merger, Perry wrote. Competition between hospitals, not a merger, will encourage efficiency and benefit the community, she wrote.
The two hospitals are prohibited from merging while an administrative complaint is pending before the FTC. It was not immediately clear whether the hospitals would appeal.
Some speculated Tenet and Doctors Regional would call off the deal rather than face an administrative hearing before the FTC (June 1, p. 8).
"The chances of a successful appeal are extremely low," Miles said. "I'd also advise against going through the administrative process, because the chances there are even slimmer."