Hospital, insurer tensions over mergers playing out in ProMedica appeal

A case that touches a flashpoint between the hospital and insurance industries—whether hospital mergers are responsible for rising healthcare prices—is headed to a federal appeals court this week.

The case, ProMedica Health System v. Federal Trade Commission, includes evidence purportedly showing that officials with the independent St. Luke's Hospital in Maumee, Ohio, clearly thought that they could extract higher prices from insurance companies after being acquired by their larger competitor to the north, ProMedica, in Toledo.

St. Luke's CEO Daniel Wakeman told his board of directors in 2009 that such an affiliation “has the greatest potential for higher hospital rates. A ProMedica-SLH partnership would have a lot of negotiating clout,” according to evidence presented in the case that the FTC seized on as proof (PDF) of the hospitals' improper intentions.

St. Luke's joined with ProMedica in 2010, but ProMedicaagreed to hold the entities separate pending the outcome of an FTC challenge. The FTC has won at each stage of the case so far, convincing a U.S. District Court judge to order the entities held separate and then winning an administrative proceeding that included 30 days of testimony and more than 2,600 exhibits.

The FTC has ordered ProMedica to sell off St. Luke's, which the hospitals are appealing. The two sides will get a total of about 30 minutes for oral arguments Thursday morning before the 6th U.S. Circuit Court of Appeals in Cincinnati.

ProMedica maintains that it's not relevant whether prices would rise following the merger—known legally as a “joinder” in this case—because St. Luke's was losing money, on average, for every patient it treated.

“With or without a merger, St. Luke's was going to raise prices,” ProMedica's brief to the 6th Circuit (PDF) says. “Given this history of unsustainably low prices, a prediction that St. Luke's prices would increase post-joinder, even if true, fails to prove the resulting prices are anticompetitive.”

The FTC, though, argues in its brief that ProMedica had among the highest prices in Ohio, while St. Luke's was known as a “low-cost, high-quality” provider in the region.

Thomas Greaney, a director at the Center for Health Law Studies at St. Louis University School of Law and former assistant chief in charge of healthcare antitrust enforcement at the Justice Department, said the FTC may have an edge in the 6th Circuit because judges tend to give the commission some deference in interpreting the facts of a case.

“The big picture question that is important here for the FTC is that health reform really rests on a competitive market platform,” Greaney said. “And without competitively structured markets, the hope that more competition will drive down prices is … not going to work.”

The two influential trade groups for hospitals and insurers—the American Hospital Association and America's Health Insurance Plans—have filed friend-of-the-court briefs in the case that make the dispute a proxy for the larger tug-of-war over which industry ought to shoulder more blame for high healthcare costs.

AHIP argues that experience clearly shows that when healthcare providers like St. Luke's and ProMedica merge, the larger company gets more market clout to demand higher prices in managed-care negotiations. “Anticompetitive hospital mergers harm consumers by leading to higher prices and diminishing hospitals' incentives to innovate and improve quality,” AHIP said in the brief.

But the AHA said federal mandates for spending and quality improvement require coordinated care and corporate scale, factors that favor mergers in many cases. “For many hospitals—particularly stand-alone hospitals—merging with another hospital or system may be the only hope for remaining competitive in the future,” the AHA argues in the brief. “That is important because effective delivery of high quality care to a community depends on the hospital's ability to succeed in an increasingly competitive environment.”

Greaney said insurers are often blamed for spiraling costs, but that strong evidence would seem to support the insurance companies' argument.

“There's been a tendency to blame the insurance industry as the guys in the black hats … but I must say that they make a pretty persuasive case that it is the higher provider costs that are driving the higher prices,” he said.