ProMedica ordered to undo Ohio deal

Last week's federal appellate ruling that ProMedica must unwind its 2010 acquisition of a suburban Ohio hospital is a setback for hospitals that argue they need to merge because they are financially weakened, legal experts say.

A three-judge panel of the 6th U.S. Circuit Court of Appeals in Cincinnati held that the Federal Trade Commission correctly decided that Toledo-based not-for-profit ProMedica was likely to increase prices after buying suburban St. Luke's Hospital in Maumee. The court rejected the so-called “weakened-firm” defense of the deal. Under that theory, a deal should be allowed to stand if it's the only way to keep a financially struggling hospital afloat, even if it might otherwise violate antitrust laws.

But evidence presented in the case showed that St. Luke's had enough cash reserves before the deal to pay its obligations and that its market share was on the rise, according to Judge Raymond Kethledge, who wrote the opinion. He called ProMedica's and St. Luke's weakened-firm argument “the Hail-Mary pass of presumptively doomed mergers—in this case thrown from ProMedica's own end zone.”

In a written statement, ProMedica said it was “extremely disappointed” by the decision and intends to appeal. It could ask for a hearing before the full 6th Circuit or appeal to the U.S. Supreme Court.

Douglas Ross, an antitrust lawyer with Davis Wright Tremaine in Seattle, said the ruling indicates that “unless a hospital is about to go out of business, the merger rules don't change, and (the hospital) should think about cutting services first before looking for a merger that would get antitrust attention.”

The FTC victory is likely to force hospitals to think more carefully about the antitrust implications of their merger and acquisition moves. “Hospitals that get to the stage of the FTC rattling their cage are going to have to take that very seriously, because the FTC's track record is very good,” said Matthew Cantor, an antitrust partner with Constantine Cannon in New York.

Earlier this year, the FTC won a federal district court case in Boise, Idaho, in which it challenged the acquisition of a large multispecialty physician practice by the state's largest healthcare provider, St. Luke's Health System. Last year, the FTC won a case before the Supreme Court questioning the right of a public-hospital authority in Georgia to buy its only competitor in a six-county area. Those court wins follow a string of hospital mergers that were called off in the past few years after the FTC threatened litigation.

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