The Federal Trade Commission wants more time and information before clearing a proposed merger between Illinois systems Advocate Health Care and NorthShore University HealthSystem.
It's a move some say might be part of a broader effort by the FTC to apply more scrutiny to proposed deals between hospitals in adjoining markets.
NorthShore CEO Mark Neaman and Advocate CEO Jim Skogsbergh wrote in a joint note to employees Tuesday that the FTC's action was not unexpected and the systems have already started gathering information to respond to the agency's requests.
“Obviously, we would have loved to have seen it receive final approval on the first go-around, but there's no concern,” said Kelly Jo Golson, Advocate's chief marketing officer and senior vice president.
If the two systems merge, they will have a combined 15 acute-care hospital campuses, a children's hospital and a large group of employed and affiliated doctors in the Chicago area. The system's name would be Advocate NorthShore Health Partners.
Not all large deals are subject to such “second requests” from the FTC, said Mitchell Raup, a shareholder with Polsinelli in Washington. But he said second requests aren't typically enough to scare merging parties away from deals.
“It may be time-consuming to respond to it, so it may delay the closing,” Raup said of second requests in general.
Jeff Miles, an antitrust expert with the law firm Ober Kaler, said parties wouldn't typically abandon a deal unless they first have a “very strong indication it would be challenged.”
NorthShore's Evanston (Ill.) Hospital and Advocate Lutheran General Hospital in Park Ridge, Ill., are about 10 miles apart, but the systems have few overlapping service areas despite their large footprints in the Chicago area.
Their merger comes amid a wave of deals creating regional mega-systems as providers adjust to declining inpatient volume and work to assemble the pieces to manage population health.
During a recent FTC and U.S. Justice Department workshop on healthcare competition, FTC Chairwoman Edith Ramirez said that federal antitrust enforcers are taking note. “We now also hear growing concern that provider consolidation in non-overlapping product or geographic markets may also lead to higher prices,” Ramirez said. She gave the example of a city hospital acquiring hospitals in outlying areas.
“The FTC has not brought a cross-market merger case, but there's a good deal of … economic research going on looking into a theory under which they can be challenged,” Miles said.
At the recent workshop, at least one speaker referred to a 2014 working paper by Matthew Lewis, an associate professor of economics at Clemson University and Kevin Pflum, an assistant professor at the University of Alabama. They found that negotiated prices at hospitals acquired by out-of-market systems between 2000 and 2010 increased by 14% to 18% compared with prices of independent hospitals.
NorthShore and Advocate say their merger would improve value. “Advocate's proven results in reducing costs through an advanced delivery model combined with NorthShore's leadership in developing a fully integrated system of care will allow the merged organization to deliver value to the broad communities we serve,” Golson said in an e-mail.
Still, the comments made by Justice and FTC officials at recent events should put health systems in different markets looking to merge on notice, Raup said.
“This is a new area and it's not clear where the FTC will go with this," Raup said. But hospitals and systems should no longer assume their transactions will sail through the review process because they're in different markets, he said. “The FTC may take a harder look at it than you'd expect.”