Scott & White Healthcare, the physician-led and-managed system based in Temple, Texas, took ownership of the only other hospital in its home town earlier this year, planning to turn it into a children's hospital. It appears the Federal Trade Commission has different plans for it.
The FTC, according to Scott & White, concluded that the system's takeover of King's Daughters Hospital violated federal antitrust law. In what Chief Strategy Officer Peter Brumleve calls a settlement agreement—the FTC won't confirm there is such a deal—Scott & White has given an Ascension Health network to the south an opportunity to take King's Daughters off its hands.
The scenario shows the government is willing to contest hospital deals regardless of whether they're already done, as happened in the Evanston (Ill.) Northwestern Healthcare case—a 2000 hospital acquisition challenged in 2004—and most recently the Carilion Clinic systems, Roanoke, Va., in which the FTC forced divestiture of two outpatient facilities a year after their purchase.
It also would signal that the FTC is not inclined to overlook minor pickups by clinics, hospitals or systems that are already dominant, says former FTC lawyer Chul Pak, a partner at law firm Wilson Sonsini Goodrich & Rosati. Scott & White has grown from one to four acute-care hospitals, including the one in question, in the past three years.
“The government is saying, ‘We're going to stop this consolidation trend,' ” Pak says.
In 2008, the FTC similarly stopped Inova Health System, Falls Church, Va., which already had grown into the dominant player in the region, from buying Prince William Hospital in Manassas, Va.
FTC spokesman Mitch Katz would only say that the commission is investigating the situation with King's Daughters. He declined to say whether the staff reached any conclusions about it or to confirm Scott & White's description of an agreement. The commission has taken no action that would provide a public view into its analysis, findings and requests.
King's Daughters is listed in the American Hospital Association's 2010 directory as having 120 staffed beds, but Brumleve says the average daily census has been hovering around 20. The hospital was a “failing concern” when its board went in search of suitors in 2008, finally turning to Scott & White only after talking to others, Brumleve says.
The value of the transaction was too low to require pre-merger notification and review by federal antitrust authorities. Brumleve says Scott & White doesn't know how the FTC became interested, but King's Daughters, he says, got a demand letter from the commission warning the hospital not to go forward with the plan pending a review. Scott & White went ahead and took over the hospital April 1, but promised to hold off on transforming it into a children's hospital.
The FTC staff decided that what Scott & White considered the rescue of a failing hospital was bad for competition, Brumleve says, “which we do not agree with, respectfully,” he adds. “The FTC determined that the geographic market was very narrowly defined as the Temple-Belton area,” Brumleve says, meaning Temple and its smaller neighboring town. “We define the market as eight counties.”
The government apparently concluded that competition would be preserved if the hospital instead went to Ascension's Seton Family of Hospitals, based 70 miles south of Temple in Austin. On Oct. 30, Seton received a hand-delivered letter from Scott & White putting King's Daughters on the table, says Mark Hazelwood, Seton's president and CEO of the north market, which includes three of the network's 11 hospitals.
Seton, which was interested in King's Daughters when the struggling hospital first sought suitors in 2008 and delivered a letter of intent before the King's Daughters board, entered exclusive talks with Scott & White.
Seton would operate King's Daughters as a general acute-care hospital, and it might benefit from “synergies,” Hazelwood suggests, between Seton's facilities to the south and Providence Health Center, a 262-bed Ascension hospital in Waco, a short hop north from Temple on Interstate 35.
“We're giving very serious consideration to taking advantage of the opportunity to buy these assets,” Hazelwood says. “We're in the early part of our due diligence.” A decision by the end of November is the goal but the timeline depends on the availability of information, he says.
Submit a letter to the Modern Physician Reader Forum. Please include your name, title, company and hometown. Modern Physician reserves the right to edit all submissions.