A merger between two of the largest hospitals in the San Francisco Bay area was put on hold last week after the state sued to block the deal.
California Attorney General Bill Lockyer filed an antitrust lawsuit Aug. 10 in federal court to stop the merger of 420-bed Summit Medical Center, Oakland, and 555-bed Alta Bates Medical Center, Berkeley, part of Sacramento, Calif.-based Sutter Health system.
The two planned to merge Aug. 11.
Lockyer, who filed the lawsuit in U.S. District Court in Oakland, is treading where federal antitrust enforcers opted not to go.
In July, the Federal Trade Commission decided not to challenge the proposed merger after conducting a joint investigation of the deal with the attorney general, according to a letter obtained by MODERN HEALTHCARE.
"This is a very important issue in California," Lockyer said last week about his decision to proceed with a lawsuit.
The FTC has been on a losing streak with hospital antitrust cases. The agency suffered a stinging defeat last month when a federal appeals court reversed a lower-court ruling blocking the merger of the only two private hospitals in the small town of Poplar Bluff, Mo. (July 26, p. 2).
Lockyer contends the Summit-Alta Bates merger would raise prices, reduce services and "create an unacceptable concentration of hospital ownership" for Sutter.
Sutter, a 26-hospital system, already owns nine hospitals in the greater San Francisco Bay area, according to American Hospital Association data.
Under the proposed deal, Sutter would assume $152 million in Summit debts and acquire the hospital's assets, which are valued at about $257 million, according to Lockyer's office. Sutter would then merge the operations of Summit and Alta Bates into a single hospital with two campuses.
The state alleges the merger would violate Section 7 of the Clayton Act, which prohibits mergers or acquisitions that lessen competition or create a monopoly.
"We're really disappointed at the attorney general's decision to sue when (the state uses) the same antitrust laws as the Federal Trade Commission, and the Federal Trade Commission decided not to stop the merger," said Nancy Happel, Summit spokeswoman.
If the merger is completed, Sutter will be the largest hospital provider in the East Bay area, according to the attorney general's office. Summit is the closest competitor to Alta Bates, which is just a few miles away.
State antitrust enforcers wanted the merged organization to divest an unspecified part of its business to dilute its presence in the market. But Lockyer said the hospitals did not want to do that.
During a court appearance Aug. 11, the hospitals agreed to delay consummating their merger by one week while a judge is assigned to consider Lockyer's request for a temporary restraining order.
Summit has said that partnering with Alta Bates would solve its financial woes.
In a June news release, Summit's president and chief executive officer, Irwin Hansen, called Summit a "poster child" for the struggles many hospitals and health systems face in surviving under inadequate payments from the government and health plans.
The hospitals released financial data that showed Summit lost $13.5 million on hospital operations in the fiscal year ended Feb. 28. Alta Bates lost $5.6 million on hospital operations for the fiscal year ended Dec. 31, 1998.
Lockyer, who acknowledged that Summit is financially weaker than Sutter, said, "Our expert is convinced that Summit is not as (close to) the brink of bankruptcy as sometimes (hospital officials) claim."
Summit's Happel said, "We just absolutely don't agree."