Was it revenge or the pursuit of knowledge that prompted the Federal Trade Commission to begin looking back on previously cleared hospital mergers? With last week's antitrust lawsuit against three-hospital Evanston Northwestern Healthcare, the hospital industry says the agency's motive is clear.
"The FTC went into this to find a hospital merger to challenge to vindicate their losses in court," said American Hospital Association Chief Washington Counsel Melinda Hatton. "We are not surprised, but we are very disappointed that that was the intent and the result of the FTC retrospective discussion."
Others, however, say the AHA's rhetoric is just a smokescreen to deflect attention from the real possibility that merging hospitals, once their deals are initially cleared by the federal government, give in to temptation and use their new-found market clout to knock around payers and competitors.
Washington healthcare antitrust lawyer David Balto, a former FTC lawyer now with the firm White & Case, said the FTC looked for a merger with strong evidence of anticompetitive effects and price increases that did not achieve cost efficiencies.
"The courts educated them about certain pitfalls in past cases and they have learned to avoid those pitfalls," Balto said. "They've been seeking a case that would strengthen and clarify the law and they believe the retrospective study has provided some of that evidence."
FTC Chairman Timothy Muris formally announced the study in late 2002. Before the formal announcement, in May of that year Muris appointed Michael Cowie, assistant director of the FTC's Bureau of Competition, to head a newly formed hospital mergers section and lead the look-back review. Muris said the primary purpose was to gather accurate, current, relevant pricing data to review the results of mergers on competition. "But when appropriate, we will seek administrative redress," he vowed in 2002.
Cowie declined to comment on the AHA charge that the agency used the look-back review to gather evidence, not information, but conceded: "As part of the retrospective analysis, the FTC has evaluated several consummated hospital mergers."
Since the study announcement, the FTC has confirmed that at least five mergers, including the Northwestern deal, were reviewed to see whether the hospitals kept their promises to achieve efficiencies and cut or maintain prices. Last year, the FTC announced that one of those five, the 2000 merger of the only two hospitals in Waukegan, Ill., had been cleared. But the FTC has not formally given its blessing or announced its withdrawal from any of the other mergers under review.
Muris said at the onset of the study that court losses following attempts to prevent mergers weighed into the agency's decision to further study the market effects of previously consummated mergers. The FTC's unsuccessful 1998 attempt to block the union between the only two acute-care hospitals in Poplar Bluff, Mo., marked the last time the agency challenged a hospital merger.
The agency hasn't won a hospital merger case at the federal appellate level since 1991, when it successfully fought the merger of two Augusta, Ga., facilities: University Hospital and St. Joseph Hospital. Since then it and the U.S. Justice Department have lost hospital merger cases in Joplin, Mo.; Grand Rapids, Mich.; Long Island, N.Y.; and Dubuque, Iowa.