(Story updated at 5:15 p.m. ET)
Attorneys for two Chicago-area hospital systems argued in federal court Wednesday that a recent decision in a similar antitrust case in Pennsylvania supports the systems' case for being allowed to merge.
Attorneys for the Federal Trade Commission, meanwhile, posited that the judge in the Chicago case shouldn't follow the lead of the judge in the recent Pennsylvania matter.
Both sides offered closing arguments Wednesday morning in federal court in Chicago. Their arguments capped eight days of testimony over whether the FTC's request for a preliminary injunction to temporarily halt a merger between NorthShore University HealthSystem and Advocate Health Care should be granted.
Advocate and NorthShore have said that if the FTC wins the injunction they will likely abandon the merger. If the FTC does not win its injunction, it could appeal the matter to a higher court or continue its own administrative proceedings against the merger, though it doesn't typically do so if it can't get an injunction.
The proposed merger is one of the largest healthcare deals to be challenged by the FTC in years. Many are watching the case closely as healthcare systems across the country continue to merge in what they say is an effort to improve quality and lower costs but others claim is an attempt to increase their negotiating power with insurers.
The FTC alleges that a combined NorthShore and Advocate would have enough bargaining leverage with insurers to increase prices because insurers would be hard-pressed to build marketable networks without Advocate and NorthShore hospitals. The FTC says a merger would lead to an 8%, or $45 million, price increase and the systems would control 60% of general-acute inpatient hospital services in Chicago's north suburbs if they combined.
The systems, however, say that if their market were properly defined that figure would be closer to 28%. Advocate has 12 hospitals and NorthShore has four. The systems say the FTC wrongly excluded competitors such as Northwestern Memorial Hospital, Rush University Medical Center and Presence Saint Francis Hospital from their supposed market.
The systems also say that if they're allowed to unite, they'll offer a new insurance product that would cost 10% less than the lowest-priced comparable product available, saving consumers $210 million to $1.1 billion a year.
A lawyer for the FTC argued Wednesday that those figures are no more than a “guesstimate” with no proof behind them.
The attorneys spent much time on the case's highlights such as the definition of the geographic market and the potential benefits of the systems' new proposed insurance product.
But they also focused on the recent Pennsylvania decision. Earlier this month, a federal judge handed the FTC a rare loss in a hospital merger case, refusing to grant it a preliminary injunction to stop a merger between Penn State Hershey (Pa.) Medical Center and PinnacleHealth System in Harrisburg. That merger is still on hold pending an appeal by the FTC, per an order by an appeals court late Tuesday.
In that decision, District Court Judge John E. Jones III wrote that his opinion recognized a need for everyone to adapt to “an evolving landscape of healthcare that includes, among other changes, the institution of the Affordable Care Act, fluctuations in Medicare and Medicaid reimbursement, and the adoption of risk-based contracting.”
“Our determination reflects the healthcare world as it is, and not as the FTC wishes it to be,” Jones wrote. “We find it no small irony that the same federal government under which the FTC operates has created a climate that virtually compels institutions to seek alliances such as the hospitals intended here.”
John Robert Robertson, an attorney for Advocate, cited that ruling during closing arguments Wednesday, saying in the Chicago case, “We don't think the FTC here is looking at the real world at all.”
He also said the Pennsylvania court ruling confirms the importance of the number of patients leaving a market for other hospitals and entering a market from other hospitals' areas. The systems have said that the FTC has ignored the fact that 27% of patients already leave their supposed geographic market in the North Shore Chicago suburbs for inpatient hospital services.
FTC Attorney Daniel Zach, however, said the Pennsylvania judge used outdated and incorrect standards to define the geographic market.
“We understand hospitals are reacting to a changing environment,” said FTC attorney James Green. He noted that the FTC only challenges a very small percentage of such mergers. “The deal before you will lessen competition.”
In recent years, courts and the FTC have not typically defined geographic markets based on how many patients leave or enter an area for healthcare services. Rather they've defined markets based on whether the merging entities could profitably raise prices by a small but significant amount once combined without driving customers to other hospitals. If the answer is yes, then those systems can constitute a geographic market.
Jeff Miles, an antitrust expert with law firm Ober Kaler, who is not involved in the case, has said if the judge in Chicago uses the same methodology that was used in the Pennsylvania case, he might also disagree with the FTC's market definition.
Barak Richman, a law professor at Duke University and antitrust expert who is not involved in the case, called the judge's reasoning in the Pennsylvania case an “unfortunate departure from standard antitrust law.” The rationale was more typical in antitrust cases 20 years ago, he said.
Richman said he hopes that doesn't represent a “pendulum swinging backward.”
A decision in the NorthShore/Advocate case is expected within the next 30 to 60 days.
