The two largest hospitals in Grand Rapids, Mich., have kept most of the promises they made after beating back an antitrust challenge to their merger.
But they've fallen short on the cost savings they said would happen.
That's according to the preliminary results of the Federal Trade Commission's post-merger investigation of 332-bed Blodgett Memorial Medical Center and 529-bed Butterworth Hospital, now known as Spectrum Health Care. Full results are expected in several months.
The FTC released the preliminary results of its so-called "lookback review" at a meeting of healthcare antitrust attorneys in Chicago last week. MODERN HEALTHCARE co-sponsored the meeting, the sixth annual Health Care Antitrust Forum at the Northwestern University School of Law.
Blodgett and Butterworth merged in 1997 after successfully defending themselves against an antitrust lawsuit by the FTC. The FTC said in its lawsuit the merger would violate Section 7 of the Clayton Act, which prohibits acquisitions that substantially reduce competition.
A federal district court judge in September 1996 ruled in favor of the hospitals, saying the FTC's legal case was sound but the hospitals' not-for-profit status and community boards would guard against any anti-competitive behavior. The FTC dropped the case after a federal appeals court affirmed the decision in July 1997, and the hospitals completed their deal.
As part of the district court ruling, the hospitals entered into a seven-year consent decree under which they made several promises. The hospitals agreed to limit their profits by freezing prices for three years and limiting increases to the general rate of inflation for the next four.
Richard Feinstein, assistant director of the FTC's healthcare services and products division, conceded that Blodgett and Butterworth appeared to have fulfilled most of the community commitments it made in the consent decree.
"While this is only the third year of a five-year implementation (period) and our lookback is still in progress, it looks like the hospital adhered to the community commitments," Feinstein said.
But Feinstein said many of the economic efficiencies promised by the hospitals have not materialized.
He said the hospitals promised more than $70 million in operating efficiencies over five years, much of it to come chiefly from consolidating most inpatient services at Butterworth and most outpatient services at Blodgett.
"But only a fairly modest portion of those efficiencies have been achieved," Feinstein said.
"It's not an assertion of bad faith," he was quick to point out. "The point may be that efficiencies are easier to describe than to achieve."
William Kopit, a healthcare antitrust attorney with the Washington office of Epstein, Becker & Green, took issue with some of the preliminary findings. Kopit represented the hospitals in the lawsuit.
"The FTC didn't give Spectrum credit for capital avoidance costs," Kopit said, pointing out that before the merger Blodgett had planned to build a new, $100 million hospital, money never spent because of the merger.