What a difference a year makes. Or, what a difference high-paid antitrust attorneys and consultants make.
In one year, attorneys and consultants gave Vicksburg, Miss., a city of about 21,000 people, a makeover. They transformed it from an insulated healthcare market in which any consolidation could be viewed as anti-competitive to one that they say competes with providers miles away.
In doing so, they pushed control of the city's only two hospitals into the hands of a joint venture operated by two of the nation's largest for-profit healthcare chains: Columbia/HCA Healthcare Corp. and Quorum Health Group. Ownership began Nov. 1.
The limited-liability company formed by Columbia and Quorum made partners of two hospitals that less than two years ago were combatants in a federal antitrust lawsuit. The suit stemmed from a proposed merger between a local physician group and one hospital, 183-bed Parkview Regional Medical Center, which is owned by Quorum, based in Brentwood, Tenn. Nashville-based Columbia owns 154-bed Vicksburg Medical Center.
Quorum owns 65% of the new company, and Columbia, 35%.
The two companies agreed that one should take the lead in running the partnership, said Peter Ward, a healthcare antitrust attorney with Jackson, Miss.-based Baker Donelson Bearman & Caldwell, who represented Quorum in the deal. Because Quorum won the antitrust suit, it had the upper hand in becoming the majority player in the partnership, Ward said.
Both hospitals are profitable. Parkview Regional earned $1 million on net revenues of $61 million last year, according to Chicago-based SMG Marketing Group. Last year, Vicksburg Medical earned $6.5 million on net revenues of $41 million, according to SMG.
The two hospitals' competitiveness runs through their history. Vicksburg Medical opened in 1929. Not until 1982 was it purchased, by Nashville-based Hospital Corporation of America; Columbia merged with HCA in 1995. Parkview Regional, which opened in 1900 and ran under various names and owners, was purchased by Quorum in 1990 and renamed.
The competition came to a head in July 1996, when Columbia filed suit in U.S. District Court in Jackson against Quorum and the Vicksburg Clinic, a 20-member physician group. Columbia claimed the Quorum hospital's plan to buy the clinic violated federal antitrust laws by giving Parkview a monopoly of physician services.
Parkview's holding company, River Region Medical Center, already owned the other large group practice in town, 25-physician Street Clinic.
Columbia charged that Quorum's owning both practices would lead to higher prices for physician services in Vicksburg and possibly cut its local hospital out of managed-care contracts.
Judge David Bramlette didn't buy that argument. He dismissed Columbia's complaint and said in a February 1997 written opinion that Quorum's acquisition of a second group practice was "the natural byproduct of a rapidly evolving medical services market."
The purchase was not "likely to stifle competition to any substantial degree," said Bramlette, but was more likely to stimulate it.
Almost overnight, the Vicksburg hospitals began to paint themselves as different types of competitors -- rivals not with each other but with hospitals in other cities.
The closest acute-care facilities are about 35 miles east of Vicksburg, in Jackson, and about 70 miles west, in Monroe, La.
The antitrust attorneys for each hospital began singing the song of unified, broader competition. Instead of trying to win a losing battle, the two companies decided to join forces, Ward said.
"The end result of this is that Quorum as manager and Columbia as a partner will increase visibility" for both companies in the area, he said.
Ward's legal teammate agreed. The combination will enable the two to compete with neighboring cities, said Mark Horoschak, a healthcare antitrust attorney with Charlotte, N.C.-based Womble Carlyle Sandridge & Rice.
Horoschak, who until three years ago headed the Federal Trade Commission's healthcare antitrust division, represented Columbia in the joint venture deal.
"This creates another point of service and an opportunity to compete more effectively with hospitals in Jackson," Horoschak said. "Jackson is the medical center of central Mississippi."
But according to the Mississippi State Department of Health, 87% of Warren County patients -- Vicksburg is in the county -- stay in the county for their care. Only about 1% travel to Jackson, a state spokesman said.
Still, the combined forces in Vicksburg will mean more competition for the Jackson market, said Cameron Welton, president and chief executive officer at 319-bed Methodist Healthcare in Jackson.
Attorneys for both sides said the deal, which the FTC reviewed in July and approved about a month later, went fairly smoothly because the new company has the same board members who ran the hospitals before the merger.
The attorneys said FTC approval wasn't necessary, because of the deal structure. But a new agency policy will change that (See above story). The two companies also took pains to review the deal with State Attorney General Mike Moore, whose deputy Larry Clark said in a June 12 letter to company attorneys that he had no objections.
To convince local leaders that the merger was in the community's best interest, the companies hired Lawrence Wu, senior consultant at White Plains, N.Y.-based National Economic Research Associates. Wu was formerly staff economist at the FTC's Bureau of Economics.
Wu tried to show that a merged hospital would broaden services and create economies of scale, actually reducing costs for patients.
But Vicksburg Mayor Robert Walker remains unconvinced. Despite Quorum and Columbia's assurances that the venture will eliminate duplication and improve quality, he is concerned that a monopoly of acute-care services in the city may lead to higher prices.
"If there's one hospital, there is no competition," Walker said. "We talked with people at River Region, and they assured us they would be as concerned about costs as we would. But there were no assurances that processes would be affordable." Walker said he wouldn't mind seeing Vicksburg have as many as three hospitals.
Despite the skepticism, the city and county agreed to pony up $4.5 million in loans to help Columbia and Quorum build a replacement facility for the two aging smaller hospitals. The money is expected to come through in the first quarter of the year, Walker said.
The chains want to build a 250-bed replacement hospital at a cost of $100 million to $120 million. They hope to break ground for the new facility within six months, but River Region needs state approval.
The old hospitals may be used for nursing facilities or sold, said attorney Ward.