The U.S. Supreme Court denied ProMedica's request Monday to review a ruling that the Ohio health system's 2010 hospital deal violated antitrust laws. The defeat ends a nearly five-year battle with the Federal Trade Commission.
ProMedica said in a statement Monday that the system and the hospital it acquired, St. Luke's in Maumee, Ohio, will work together over the next six months to develop a detailed divestiture plan to submit to the FTC.
“St. Luke's is in a much better place than it was five years ago when the hospital joined ProMedica,” the health system said. “St. Luke's will begin this new chapter in its history from a position of strength.”
ProMedica had hoped the Supreme Court would hear the case and reject the 6th U.S. Circuit Court of Appeals' conclusion that its merger with St. Luke's was anti-competitive.
The case attracted national attention from healthcare providers who are increasingly looking to expand and consolidate through mergers and acquisitions, which they say are necessary to deliver more coordinated care, improve quality and reduce costs as demanded under the Affordable Care Act.
Legal experts said Monday that it's not surprising the Supreme Court refused to hear the case, saying it didn't present any particularly new legal issues. But they said the court's decision Monday reinforces that providers looking to merge should be on alert for antitrust concerns.
“What this does demonstrate is even with a conservative Supreme Court, the FTC's views on how antitrust laws should apply to provider consolidations are not really controversial,” said Matthew Cantor, a partner at Constantine Cannon. Before completing transactions, providers “should very much think about how antitrust law could apply and whether or not they'll have any problems in the antitrust review process,” he said.
The Supreme Court's rejection of the case shows that mergers, even in markets with multiple competitors, may still face scrutiny especially when the acquiring provider is already large, said Tim Greaney, director of the Center for Health Law Studies at St. Louis University School of Law and a former assistant chief in charge of healthcare antitrust enforcement at the U.S. Justice Department. The merger between St. Luke's and ProMedica took the Toledo-area market from four hospitals to three.
The Supreme Court's decision to pass on the case also affirms precedent on certain defenses in merger cases, Cantor said.
ProMedica argued in its petition to the Supreme Court that the merger should be allowed because St. Luke's was in a weakened financial state at the time of the merger. The government's antitrust enforcement policy in healthcare has long included an exception for deals that appear anti-competitive but save a hospital that would otherwise fail. The argument that an acquired institution was financially weakened has not been accepted as a defense by the courts.
In its statement Monday, however, ProMedica emphasized that since joining ProMedica, St. Luke's has returned to financial stability.
“Our patients and community should rest assured that St. Luke's is financially stable, still accepts the same insurance plans, ProMedica Physicians will continue to see patients at St. Luke's, and patients can continue to expect the same excellent care and service they have come to expect,” the system said.
ProMedica said it is committed to a “seamless transition” and its employees and community members won't see any immediate changes as the divestiture plan is completed.
Greaney said that untangling St. Luke's and ProMedica, at this point, may be a challenge.
ProMedica and St. Luke's officially merged in August of 2010 while the deal remained under investigation by the FTC. Before closing the transaction, they entered into a “hold separate agreement” that prohibited ProMedica from terminating St. Luke's contracts with managed-care organizations, eliminating or transferring the hospital's clinical services or firing its employees without cause. The FTC filed its administrative complaint against the merger several months later.
“Even though there was a hold separate agreement, after years down the road, there may be some complexities in trying to really re-establish the hospital as a separate, ongoing entity given the almost inevitable business and other entanglements between ProMedica and the hospital,” Greaney said. “I'm guessing there will be some complications.”
Cantor said it's possible the hold-separate agreement will make it easier to undo the deal.
Typically, however, parties enter into hold-separate agreements when the FTC challenges a deal after it has already occurred, Greaney said. The FTC generally prefers to seek an injunction barring a merger before it happens.