The AHAs Hatton challenged the notion that the FTCs breakthrough market analysis would survive outside of the friendly turf of its own venues of administrative review.
Just because the federal agencies have theories doesnt mean they have been persuasive to federal courtsin fact, quite the opposite, Hatton said.
But antitrust lawyers agreed with Brock; the analysis is sound and likely to change the way future antitrust cases are argued and decided.
Its probably the most important part of the case, said Jeff Miles, a partner in the Washington office of Ober, Kaler, Grimes & Shaw. Geographic markets might be defined much more narrowly in the future compared to the past.
Paul Slater, a partner at Sperling & Slater in Chicago, who is critical of the FTCs initial push to force divestiture of Highland Park and the economic data driving the decision, called it a positive development that the analysis weighs the systems actual power to raise prices rather than attempting to divine market power by crunching patient flow in and out of ZIP codes.
My problem is, I dont think they proved the power to raise prices, Slater said. They only proved that prices went up.
To fix the competitive environment, the FTC demands that ENH negotiate separately with payers, putting the bargaining team for Highland Park Hospital on the other side of a firewall from the team for the Evanston and Glenbrook facilities.
Neaman said that ENH suggested the remedy years ago and called it workable but challenging after so long.
It will add costs and complications for all of us, not only for us but for the HMOs, Neaman said. Were concerned that it will also cause confusion for patients.
What happens if, for example, a patient is admitted at Highland Park and is transferred to Evanston, Neaman suggested.
The system has until Sept. 10 to figure it all out, when a detailed proposal is due to the FTC.
Ed Bryant, a healthcare lawyer who is a partner in the Chicago office of Drinker Biddle & Reath, called the solution the most unrealistic approach Ive ever seen.
I cant imagine a court would say that makes any sense from a business point of view, said Bryant, who added that he has worked on about 140 hospital mergers and acquisitions. He characterized the commissions cure as a face-saving move that recognizes it doesnt make sense to separate the hospitals seven years after they became a single organization. They dont want to concede this is a case they should have lost.
ENH has invested more than $150 million in Highland Park, according to Neaman. The FTC didnt believe the improvements explained the price increases but cited deployment of an electronic health-record system and the addition of cardiac surgery at Highland Park as reasons why separating the hospitals at this point could hurt the quality of care.
Other observers, meanwhile, said that separate negotiating wont necessarily restore the competition the FTC says was diminished by the merger.
Knowing its part of the Evanston organization, (Highland Park) is going to try to bargain in a way that maximizes the benefit to the organization as a whole, said Ober Kalers Miles.
Arthur Lerner, a health antitrust lawyer who is a partner in the Washington office of Crowell & Moring, offered an analogy. If you had a monopoly and you had two operating divisions, Buick and Chevrolet, and you said well make Buick and Chevrolet behave separately. Both of them would try to set their product at a high price and not a competitive price. There would be no reason to compete with your own sister.
The FTC warns that this was a highly unusual case and its resolution wont be a model. Divestiture is the preferred remedy for challenges to unlawful mergers, regardless of whether the challenge occurs before or after the merger, Majoras wrote.
ENHs travails offer a few warnings for its peers. The fact that the FTC is not requiring divestiture is good news for Evanston Northwestern, but the ruling itself is very disturbing for the hospital industry, said James Unland, president of the Health Capital Group in Chicago. The ability of payers to divide and conquer hospitals and have fragmented contracting will have the potential to seriously impact the net cash flow of obligated groups and their access to capital.
With the case proving that payers can win a sympathetic ear from the FTC, Unland said, the velocity of price increases has to be carefully watched and correlated closely with the market.
The opinion might also inspire executives to be circumspect in the way they talk about the benefits of their mergers.