(Story updated at 3:04 p.m. ET)
The Federal Trade Commission is dropping its challenge of a West Virginia hospital merger in light of the passage of a state law meant to protect the deal from federal antitrust scrutiny.
The FTC filed a complaint late last year alleging a deal by Cabell Huntington (W.Va.) Hospital to acquire nearby rival St. Mary's Medical Center would create a near monopoly on services that could lead to higher prices and lower quality.
In March, however, West Virginia Gov. Earl Ray Tomblin signed a bill into law shielding hospital mergers from state and federal antitrust scrutiny, assuming they get certain other state approvals.
On Wednesday, the FTC voted unanimously to abandon the challenge. The FTC said in a statement Wednesday that it remains concerned about the merger but is walking away from the fight because of the new state law.
“This case presents another example of healthcare providers attempting to use state legislation to shield potentially anticompetitive combinations from antitrust enforcement,” according to the FTC statement. The FTC said it believes that laws such as the one in West Virginia “are likely to harm communities through higher healthcare prices and lower healthcare quality.”
The FTC also emphasized, however, that just because the West Virginia law led the commission to dismiss its complaint in this case doesn't mean that it will do the same in similar situations in the future.
St. Mary's Medical Center CEO Michael Sellards praised the FTC's decision to drop its challenge in a statement Thursday, saying the acquisition will benefit the tristate region. He said St. Mary's will now seek Vatican approval so the deal may move forward.
Cabell Huntington Hospital CEO Kevin Fowler and Monte Ward, chief financial and acquisition officer, said in a statement Thursday that the merger will improve the quality of healthcare and allow the hospitals to expand services for patients in their region in a cost-efficient manner.
They said they're grateful that the West Virginia legislature passed the law that ultimately protected the merger.
An attempt to reach state Sen. Robert Plymale, one of the sponsors of the bill that led to the new law, was also unsuccessful Wednesday.
But Plymale told Modern Healthcare earlier this year that he believed the FTC too narrowly defined the geographic area in which the hospitals compete and that the marriage would lead to better health outcomes.
“These decisions need to be made in the state of West Virginia,” Plymale told Modern Healthcare in March. “We understand West Virginia a lot better than someone sitting in an office in Washington, D.C.”
The FTC, however, as part of its three-page statement Wednesday, slammed laws such as the one in West Virginia, saying they “undervalue the important role that competition lays in the healthcare sector.”
The FTC also addressed the argument that antitrust enforcement is contrary to the goals of the Affordable Care Act, which has spurred greater coordination and consolidation among providers. The FTC said mergers are not the only way to achieve goals such as coordination of patient care, electronic health records and joint purchasing, among other things.
“The ACA did not repeal the antitrust laws, and it certainly does not condone mergers that substantially lessen competition,” the FTC said.
West Virginia is not the first state to pass such a law. In order for such laws to be valid, states must show two things. First, they must show that the state has a clearly articulated and affirmatively expressed policy of displacing competition with regulation. Second, states must show they're actively supervising the conduct of merging hospitals.
Whether the West Virginia law would have passed muster in court is unclear, but it seemed designed to meet criteria outlined by the courts and the FTC, said Tim Greaney, a former assistant chief in charge of healthcare antitrust enforcement at the Justice Department who is now co-director of the Center for Health Law Studies at St. Louis University School of Law.
Greaney said additional states looking to pass such laws might now look to the West Virginia statute for guidance. Whether more states, however, decide to pass such laws following this decision will likely depend on each state's politics and lobbying by provider groups, he said.
The FTC hasn't had much luck in recent months challenging hospital mergers. Last month, a federal judge in Chicago denied the FTC's request to temporarily halt a merger between Chicago-area systems Advocate Health Care and NorthShore University HealthSystem. Shortly before that decision, a federal judge in Pennsylvania denied the FTC's request to temporarily block a merger between Penn State Hershey Medical Center and PinnacleHealth System. The FTC is appealing both of those decisions, which followed years of wins in hospital merger cases for the FTC.
The recent turn of events "probably sends a signal to some that mergers are more feasible than previously thought," Greaney said.
