The Federal Trade Commission is conducting a follow-up investigation to determine whether the 3-year-old merger of the two largest hospitals in Grand Rapids, Mich., has had any anti-competitive effects, MODERN HEALTHCARE has learned.
The FTC initially challenged the merger of 332-bed Blodgett Memorial Medical Center and 529-bed Butterworth Hospital, arguing in a 1996 lawsuit that the deal would violate Section 7 of the Clayton Act, which prohibits mergers that reduce competition.
In a controversial 44-page opinion, U.S. District Judge David McKeague in Lansing, Mich., ruled in September 1996 that, although the FTC's legal position was sound, the merged hospital system wouldn't exercise its market share to the detriment of patients or payers because it is not-for-profit with a community board.
A federal appeals court affirmed McKeague's decision in July 1997.
Now the FTC wants to revisit the judge's decision to trust the hospitals, which now do business as two-hospital Spectrum Health Care.
Richard Feinstein, who heads the health division of the FTC's bureau of competition, hinted about the commission's approach at a recent healthcare antitrust conference in Chicago.
Speaking generally about revisiting old mergers, he said: "The general idea here is to test some of the assumptions about what happens when these consolidations occur. It's no secret that the courts have not been inclined to accept the arguments that the enforcement agencies have made and have been more inclined to accept that the deals won't harm competition."
Spectrum's antitrust attorney, William Kopit of the Washington firm Epstein, Becker & Green, said the review doesn't trouble him. Kopit, who defended the hospitals against the original FTC antitrust challenge, said the commission's effort is a policy issue, an attempt to reassess strategy and the criteria employed in its hospital merger challenges.
"I hope (the FTC will) be satisfied that in Grand Rapids, at least, the hospitals did what they said they'd do: freeze prices, establish efficiencies while cutting expenses, and free up additional monies for community projects," he said. "I don't think they'll see any exercise of market power."
O'Rourke said Spectrum suffered a
$4 million operating loss on $950 million in revenue for the fiscal year ended June 30, 1999. But with interest and other income from investments, the system posted a 2.5% total profit margin.
The FTC's office of policy and evaluation, which is conducting the "look back" review, explores how the FTC's enforcement resources are spent.
The review, which will begin later this month, will be conducted by FTC lawyers and economists, who will conduct on-site interviews with Spectrum officials, rival hospitals, payers, physicians and local employers. FTC officials said they'll produce a report this summer. The commission will look to see if the hospitals kept their promises and study the effect of the merger on the Grand Rapids healthcare market.
Both FTC officials and antitrust attorneys said the agency can take action against the Spectrum system if it uncovers anti-competitive behavior, but said it's unlikely there would be a move to break up the system. The purpose of the review, they said, is to study the impact of the merger as a potential guide for future FTC antitrust actions.
As a condition of approving the merger, McKeague required the merging hospitals to sign a consent decree in October 1996 that defined a community commitment agreement.
Spectrum agreed to:
* Limit profit margins and spend $6 million more per year than the $16 million the hospitals had spent before the merger on community health projects for the indigent and uninsured.
* Freeze prices for three years and limit price increases to the increase in Consumer Price Index during the remaining four years of the consent decree.
* Establish an independent financial advisory board to review Spectrum's budget, issue reports and hold public hearings.
* Level the playing field by offering managed-care companies the same discounts offered to Spectrum's HMO, Priority Health.
Lody Zwarensteyn, president of the Grand Rapids Alliance for Health, a community health planning organization, said Spectrum has taken its community commitments very seriously and is complying with those promises.