The Federal Trade Commission must soon decide whether to continue challenging a merger between two West Virginia hospitals or drop the fight following the passage of a state law meant to shield such mergers from federal antitrust action.
West Virginia Gov. Earl Ray Tomblin on Friday signed a bill into law that protects hospital mergers from state and federal antitrust scrutiny. The governor's signature came less than three weeks before an FTC administrative trial is scheduled to begin over the merger.
At least one expert believes the FTC is more likely to walk away than continue the battle against Cabell Huntington Hospital's proposed acquisition of St. Mary's Medical Center, also located in Huntington. Some worry that if the FTC drops its challenge, it could inspire more states to pass similar laws.
“Should the FTC leave the matter unchallenged, this new West Virginia law will be the blueprint used by monopolists to avoid consumer protection laws,” Tim Duke, president and CEO of Steel of West Virginia, said in a statement. Duke opposes the merger, saying it could lead to higher costs that could hurt his steel production business.
Cabell Huntington did not respond to requests for comment Monday. An FTC spokeswoman said Monday the agency had not announced any change in plans regarding its challenge to the merger.
The FTC moved in November to block the hospitals' merger, saying it would create a near monopoly over general acute care inpatient hospital services and outpatient surgical services that would likely lead to higher prices and lower quality.
The two hospitals' leaders have said they believe the FTC challenge “misreads the highly competitive landscape” across their three-state market of Kentucky, Ohio and West Virginia. They have said they believe the acquisition would benefit the community and its patients.
Richard Feinstein, a partner at Boies, Schiller & Flexner and a former director of the FTC's Bureau of Competition, said he wouldn't be surprised if the hospitals now ask the court to dismiss the case because of the passage of the new law. The administrative law judge could then choose to agree to that request or begin the trial anyway, thus challenging the validity of the new law.
“The question here, I suspect, will be whether the law is sufficient to immunize the deal that's on the table,” Feinstein said.
States that want to immunize healthcare deals from federal antitrust action must prove two things. First, they must show that the state has a clearly articulated and affirmatively expressed policy of displacing competition with regulation. Second, the state must show it's actively supervising the conduct of merging hospitals.
The hospitals argue in court documents that the law meets both those requirements.
Jeff Miles, an antitrust attorney with Ober Kaler, said he suspects the FTC won't continue to aggressively fight the merger now. He believes the FTC will either drop the matter or take a wait-and-see approach, watching how the state supervises the merger and then deciding whether that supervision immunizes the deal from antitrust action. The first approach, however, he said is probably more likely because it's difficult to challenge a merger that's already occurred.
He said Virginia and Tennessee recently passed similar laws, and the FTC has not challenged a hospital merger in those two states alone. Other states have also passed similar laws in the past, he said.
“One concern the FTC probably has is there may well be more and more of these types of statutes, and I think the commission's feeling, and I would not disagree with this, is a lot of the time whether a statute like this is passed is based more on political considerations than what might be in the best interest of the public.”
The FTC's administrative trial over the matter is scheduled to begin April 5. The hospitals asked the administrative law judge earlier this month to hold off on the trial for several reasons, including the West Virginia bill. At that point, the bill had not yet passed, but the hospitals noted in documents filed with the administrative court that it was likely to become law and would erase the need for the trial.
The FTC filed a document arguing that the trial should move forward regardless.
The administrative law judge had not yet ruled on the hospitals' request to postpone the trial as of Monday.