Despite recent criticism by federal antitrust regulators, a recent Pennsylvania antitrust case demonstrates that state attorneys general will continue to occasionally intervene in hospital mergers and competition disputes, signing consent decrees that the Federal Trade Commission and the U.S. Justice Department's antitrust division call ineffective.
Last month, Pennsylvania Attorney General Jerry Pappert became the latest state attorney general to bless a hospital merger with a state consent decree, one that doesn't require price restraints or costly community commitments. The merger between the only two acute-care hospitals in Altoona, Pa., links 200-bed Altoona Hospital with crosstown rival 132-bed Bon Secours-Holy Family Regional Health System. The merged hospitals begin to operate as a single organization on Nov. 1; a new name has not been chosen for it yet.
Health lawyers said the Altoona consent decree does not signal a broad move by attorneys general to take the lead in challenging hospital mergers but rather maintains a tradition by one state's attorney general to resolve local problems themselves, though the practice is frowned upon by the FTC and the Justice Department.
The practice of resolving hospital merger challenges with state consent decrees came under fire in this summer's report on the federal agencies' joint hearings on competition in healthcare.
It's unclear whether Pappert's Oct. 13 approval is enough to stop federal regulators from challenging the merger if they believe it is anticompetitive. The 14-page consent decree was approved last week by a federal judge. Federal antitrust regulators rarely attempt to trump their state counterparts.
The consent decree does not confer the same antitrust protection from federal regulators as a certificate of public advantage, or COPA, which offers exemption from antitrust scrutiny in exchange for greater oversight and monitoring by state agencies. As hospital consolidation grew in the 1990s, state attorneys general intervened more frequently and resolved their merger investigations with consent decrees and COPAs that provided state-blessed immunity from federal antitrust intervention.
Washington healthcare antitrust attorney William Kopit of the firm Epstein, Becker & Green, who has negotiated consent decrees and COPA agreements with state attorneys general, said COPAs allow regulatory oversight of a merger's aftereffects and guarantee protection from federal antitrust action.
It's less clear, however, whether consent decrees offer the same protection. "Hypothetically, the feds can still intervene," Kopit said. "As a practical matter they never want to get involved in a battle with the states."
But in the 361-page report released in July, the Justice Department and the FTC said fed-eral antitrust agencies "do not accept community commitments as a solution to likely anticompetitive effects from hospital (or any other) mergers. The agencies believe community commitments are an ineffective, short-term regulatory approach to what is ultimately a problem of competition."
Few attorneys general use consent decrees or COPAs, which require a state law to invoke, Kopit said. Only 24 states have enacted COPA laws and two states have either repealed their laws or allowed them to expire.
The Pennsylvania attorney general's office, however, has a long history of negotiating consent decrees, he said. "If you're a merging hospital and you can get the state attorney general to bless the deal, the feds will generally back off. They don't want to get into a political fight with the states. For hospitals it (getting a state-brokered consent decree) is a common and time-honored strategy that generally works."
Toby Singer, an attorney with the Washington office of Jones Day who helped broker the Altoona merger, said that after President Reagan cut funding for federal regulatory programs in the 1980s, some states decided federal antitrust agencies were abdicating their obligations and beefed up their antitrust enforcement sections.
Pennsylvania, whose attorney general's office has signed four consent decrees to resolve hospital mergers, is one of a small group of states-including Wisconsin and California-that have been the most active in intervening in hospital mergers. In some other states, including Missouri and Florida, attorneys general have joined with the federal agencies in challenging hospital mergers.
In March, Altoona Hospital announced it would merge with crosstown rival Bon Secours-Holy Family, owned by Marriottsville, Md.-based Bon Secours Health System. The consent decree, filed Oct. 13 in U.S. District Court in Pittsburgh, prohibits the new system from discriminating against patients who purchase outpatient services from providers outside of the newly merged facility. The hospitals will merge medical staffs and will accept health plans currently accepted at either hospital and will open staff privileges to area physicians.
Pappert said his office was concerned that the merged system would control more than 80% of the inpatient hospital admissions and inpatient beds in Blair County.
"Our goal was to make sure that consumers continue to have a say in the delivery of healthcare services in Blair County," Pappert said in a news release. "We believe our agreement ensures that consumers will still be able to choose their own doctors and other healthcare providers as they have always done."
The merged system will operate under one corporate umbrella on two campuses, with each hospital becoming an affiliate of the merged system. A new board composed of 18 trustees, nine selected by each hospital, will govern the system. Altoona Hospital President and Chief Executive Officer James Barner will become president and CEO of the new system and Bon Secours-Holy Family CEO Daniel Duggan will serve as the system's executive vice president.
The hospitals estimated five-year savings of $32 million from the merger, $21 million from eliminating duplicated costs and $11 million in capital avoidance. The hospitals will reimburse the state $50,000 for investigating the merger.