Hospital executives and policymakers are grappling with the tension between a healthcare system that is rewarding size and scale more than ever before, and antitrust enforcers intent on stopping hospital consolidation that concentrates too much market power in a single player. The Federal Trade Commission is suing to stop hospital deals in Albany, Ga., and Maumee, Ohio, to name the most prominent examples.
The hospital leaders in Waterbury said bringing in a capital partner and consolidating the two hospitals is the only way forward. The two hospitals already jointly operate three services—a cancer center, open-heart surgery and pediatrics, said Darlene Stromstad, who became president and CEO of Waterbury Hospital and its parent, Greater Waterbury Health Network, on July 1.
“I like to, tongue in cheek, say that we've been negotiating a merger for a hundred years,” said Chad Wable, CEO of St. Mary's. “We've had talks on and off for the entire nine years that I've been here in Waterbury.”Under the proposed joint venture, LHP would contribute $216 million in cash to the joint venture, according to Dan Moen, LHP's president and CEO, and the hospitals would each contribute their facilities: 214-bed Waterbury Hospital and 175-bed St. Mary's Hospital. LHP would own an 80% stake and the not-for-profit partners would each own a 10% stake. The 12-member governing board would have six nominees by LHP (including two local physicians) and three from each of the not-for-profits. Over the next four or five years, a 375-bed replacement facility would be built to replace both current campuses.
All three executives expressed confidence that the deal would pass antitrust scrutiny. “I think it will be a routine approval process because it's a very logical solution for that community,” Moen said. “It's probably the only financially feasible way that the community is going to get a state-of-the-art-hospital. There's plenty of competition from the Hartford area.”
“We would never have been able to do this by ourselves,” Stromstad said.
Art Lerner, an antitrust lawyer with the firm Crowell & Moring, said antitrust enforcers do take into account whether a deal brings benefits to consumers that might outweigh the lessening of competition. They are skeptical if the tie-up does little more than give the two hospitals more bargaining power against commercial health plans, because then the benefits accrue to the hospitals, rather than consumers, Lerner said. “In this case,” he added, with “the plans to build a new hospital and shut down the two existing hospitals, it presumably gives more credibility to them, because they're putting their money where their mouth is.”
The FTC and the Justice Department also will consider the reactions from health plans, employers and the state's attorney general and health secretary, Lerner said. Connecticut Attorney General George Jepsen was not available for an interview, according to a spokeswoman, but he said in a written statement that he plans to review this deal under both antitrust and charitable assets laws.
David Marx Jr., an antitrust lawyer with McDermott Will & Emery, sees the tension between healthcare reform, particularly in the Medicare accountable care organizations that it supports, and the Obama administration's stricter antitrust enforcement.