Sutter Health is cheering a federal appeals court decision that preserves the merger of two of the largest hospitals in the San Francisco Bay area.
Last week's three-page decision upholds a December 1999 federal district court ruling permitting the union of 420-bed Summit Medical Center in Oakland and Sutter's 468-bed Alta Bates Medical Center in Berkeley.
The state of California, which was seeking a preliminary injunction to block the merger as part of its overall antitrust lawsuit against the hospitals, appealed the district court's ruling in January.
The hospitals completed their merger days after U.S. District Judge Maxine Chesney denied the state's initial request for an injunction (Jan. 10, p. 6). Neither the judge nor the appeals court ruled on the merits of the state's antitrust suit.
Irwin Hansen, president and chief executive officer of the now-merged Alta Bates and Summit hospitals, said in a written statement that he was pleased with the appeals court's decision.
"We can now devote all our resources and energy into doing what we do best: providing care to our patients," Hansen said.
A spokeswoman for California Attorney General Bill Lockyer, who sued to block the merger in August 1999, said the state was "reviewing its options."
The state claimed the merger would violate federal antitrust laws because it would raise prices, reduce services and "create an unacceptable concentration of hospital ownership" for Sutter (Aug. 16, 1999, p. 2).
In its ruling, a three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco limited its denial of the state's appeal to its finding that Chesney's injunction decision was not based on erroneous findings of fact or incorrect legal standards.
If the state opts to pursue the matter, the case will return to the district court for a trial on its merits.
Last year, Sacramento-based Sutter announced its intent to buy Summit and merge its operations with Alta Bates. Sutter committed to pumping $450 million into capital improvements at Summit and assumed $100 million of Summit's debt.
The Federal Trade Commission cleared the deal in July 1999. However, the state believed the merger was anti-competitive and filed an antitrust lawsuit in federal court last August.
Struggling Summit, which threatened bankruptcy, successfully used the "failing firm" defense to win Chesney's permission to merge. The rationale behind the defense was that a merger was preferable to the alternative of closing a hospital.
For the fiscal year ended Feb. 28, 1999, Summit lost $10.9 million, according to Chesney's ruling. Data from the American Hospital Directory shows that in fiscal 1998, Summit lost $2.6 million on net patient revenue of $192.5 million.