(This story was updated at 5:37 p.m. ET)
Two West Virginia hospitals say they “remain committed” to a deal that the Federal Trade Commission has vowed to stop in spite of conditions set by the state's attorney general intended to protect consumers.
Federal antitrust officials on Friday filed a complaint (PDF) alleging the deal by Cabell Huntington Hospital to acquire nearby rival St. Mary's Medical Center would create a “near monopoly” in four West Virginia and Ohio counties for acute-care services and outpatient surgery. The hospitals would have 75% of the market share, the FTC said in a news release.
In a joint news release issued by the hospitals, Cabell Huntington CEO Kevin Fowler said the FTC challenge “misreads the highly competitive landscape” across the hospitals' three-state market of West Virginia, Kentucky and Ohio and “overlooks the enormous community benefits” that would come from the deal. St. Mary's Medical Center CEO Michael Sellards said, “It is our belief that this transaction is in the best interests of the communities and patients we serve.”
Hospital officials cooperated with the FTC review of the transaction and submitted 340,000 documents in the process, according to the release, and Cabell Huntington officials met with FTC commissioners to make their case.
The FTC action highlights misgivings of federal enforcement agencies when merging companies agree to obey price controls and regulatory oversight to protect consumers from reduced competition.
Huntington, which lies on the border of Ohio, is the second largest city in West Virginia with a population of about 50,000. The hospitals reached an agreement with West Virginia Attorney General Patrick Morrisey subjecting them to rate regulation by the West Virginia Health Care Authority for seven years. Under the agreement, they would have to reduce their rates for three years if their combined average operating margin exceeds 4% over a three-year period.
Federal antitrust officials are generally skeptical that such oversight can accomplish the same consumer protection as competition, said Robert Leibenluft, a partner with Hogan Lovells and former head of the healthcare division for the FTC. “It's very difficult to regulate price in a way that captures that the market might do,” he said.
The FTC said the agreement with the attorney general and another with the area's largest health plan “fall far short of replicating the benefits of competition.”
Other agreements that require courts and state agencies to oversee hospital conduct to resolve antitrust concerns have met with challenges.
In January, Massachusetts Superior Court Judge Janice Sanders rejected the acquisition of three hospitals by Partners HealthCare under an agreement with the state attorney general that would cap rate increase below the rate of inflation. “There is a lot of skepticism about these conduct decrees” and similar agreements, said Thomas Greaney, a law professor at St. Louis University and an expert in healthcare antitrust law.
The FTC also has clearly expressed reservations as states have moved to grant hospitals exemptions from antitrust enforcement under regulatory supervision known as certificates of public advantage, Leibenluft noted.
The break between federal and state antitrust enforcement in the deal raises questions about the role of each in enforcement of local healthcare markets, said Lisl Dunlop, a partner at Manatt, Phelps & Phillips.
