On April 5, U.S. District Judge Frederick Kapala granted the FTC's request for a temporary injunction to halt the deal, saying the government had provided enough evidence in pre-trial arguments to show that it had a reasonable likelihood of success of winning an eventual trial on the merits.
Robert McCann, a healthcare antitrust attorney with Drinker Biddle, said the government's challenge of the Rockford acquisition reflected a widely held belief among industry attorneys that mergers reducing the number of competitors from three to two are viewed skeptically at the FTC.
“I think for the agencies, it takes a lot to get them to clear a 3-2 merger,” McCann said.
In a joint statement Thursday, the systems said they had formally withdrawn their merger filings with the FTC, though the systems remained confident that the deal would have benefitted consumers and the providers.
“The governing boards and leadership of OSF Healthcare Systems and Rockford Health System have, with great reluctance, decided to end efforts to merge our organizations,” the statement said. “We believe that the interests of both organizations and the Rockford community are best served by the decision to discontinue the pursuit of the affiliation.”
According to the hospitals, Kapala's decision to impose the preliminary injunction prompted a realization that a court fight could last as long as two years and would require a “substantial” outlay of time and money from the two organizations.
“The financial and human resources of both organizations that would have been committed to continuing the legal challenge will instead be dedicated fully to the achievement of important goals in the provision of healthcare services,” the statement said.
FTC Competition Bureau Director Richard Feinstein said in a written statement that consumers and employers in Rockford will benefit from the hospitals' decision to abandon their acquisition plans. "This deal would have caused significant consolidation among healthcare providers in Rockford, giving OSF greater leverage to raise prices, which ultimately would have been be passed on to consumers," he said.
The FTC had said the acquisition would have left the combined OSF-Rockford hospital with control of 64% of the local market for general hospital care and 37% of the market for primary-care physician services, essentially leaving only one competitor in both service lines: 320-bed SwedishAmerican Hospital.
McCann, who was not aware of the plans to scrap the Rockford merger Thursday, noted that the OSF-Rockford Memorial deal would have been the third time in 25 years that hospitals in the city had tried to merge.
In 1988, a federal judge granted an injunction to block a merger between SwedishAmerican and Rockford Memorial, and the deal soon after stalled. In 1997, SwedishAmerican explored a merger with OSF, but that deal fizzled over financial issues, even though the FTC approved it. Now a proposed combination of Rockford Memorial and OSF has faltered.
“All three permutations have been tried now,” McCann said.