Officials for ProMedica said they plan to continue to defend the deal in administrative proceedings with the FTC but will not appeal the ruling by U.S. District Judge David Katz.
Katz's 115-page decision gives the FTC its first federal court win in nearly 20 years in a hospital merger case, and may reinvigorate the FTC's effort to fight healthcare mergers it deems uncompetitive. “It's a lopsided victory,” said Mark Horoschak, member of the law firm Womble Carlyle Sandridge & Rice, in Charlotte, N.C., who was in charge of healthcare enforcement for the FTC from 1989 to 1995. “It certainly will embolden the FTC staff to be aggressive in enforcing the antitrust statutes in the area of healthcare mergers,” Horoschak said. “That's a given.”
He noted that in most such decisions the judge will at least acknowledge some merit to the losing party's case, but Katz really didn't do that. The FTC has not had a healthcare antitrust win in federal court since 2000, when it won a preliminary injunction seeking to prevent Tenet Healthcare Corp., Dallas, from purchasing a hospital in Poplar Bluff, Mo., and merging it with another that Tenet owned. But even then that case was lost on appeal and the merger went through. Before that, the FTC had lost several antitrust challenges in federal court.
But this win, coming under new FTC guidelines issued in August governing mergers and acquisitions involving competitors, was clearly a home run for the government agency. “We're very pleased with the ruling,” said Matt Reilly, assistant director of competition for the FTC and the lead litigator in federal court on the case. The judge “accepted many of our points and conclusions,” he said.
As far as the FTC is concerned, Reilly said, the ruling gave the agency the three main things that it sought: ProMedica cannot raise prices at St. Luke's, cut its services or change its staffing levels.
In addition, Reilly said the FTC will not be changing its approach as a result of the victory. “The approach we've been using we'll continue to use,” he said.
There were a number of issues that hurt ProMedica's case, said Jeff Miles, an attorney with Ober Kaler, in Washington. That is due in part to the new, broader merger guidelines, but Miles said ProMedica likely would have lost under the old guidelines as well. Documents cited in the ruling that said ProMedica planned to raise prices at St. Luke's certainly hurt their case, as did the expected market share and market concentration that would result from the merger, he said. Payer testimony that a merger would result in higher rates also was “very important” to the case, Miles said.
ProMedica's chief legal counsel, Jeff Kuhn, said the health system disagrees with the FTC's arguments and Katz's acceptance of them. “We were very disappointed” in the ruling, he said.
They plan to shoot down those arguments in the hearing, which will include testimony and witnesses and according to the ruling is scheduled to begin May 31 before Chief Administrative Law Judge D. Michael Chappell. The ruling stipulates that if the FTC action is not completed by Nov. 30, the court may take additional steps to ensure all parties are treated fairly.
“Ultimately, we feel we're going to prevail when we get a full trial,” Kuhn said.
Among other areas of the judge's findings, ProMedica disputes Katz's evaluation of market power gained with the acquisition and his conclusion that St. Luke's would not fail as a stand-alone hospital. “We don't think the community can support four community systems,” Kuhn said.
If the deal were to stand, ProMedica would operate four hospitals in Lucas County: St. Luke's; 594-bed Toledo (Ohio) Hospital; 223-bed Flower Hospital, Sylvania; and 72-bed Bay Park Community Hospital, Oregon.
One competitor, Mercy, a division of Catholic Health Partners, operates three hospitals in the county: 445-bed Mercy St. Vincent Medical Center and 100-bed Mercy St. Anne Hospital, both in Toledo; and 294-bed Mercy St. Charles Hospital, Oregon.
The other competitor is the University of Toledo Medical Center, with 228 beds.
Working in ProMedica's favor is the fact that the FTC law judge will start from scratch, and the district court ruling has no direct impact on the case going forward. “Based on the district court (ruling), it doesn't look good for ProMedica,” but one never knows how things will go in a live trial, Miles said.