Eleven states have joined the Federal Trade Commission's fight to stop a merger between two Chicago-area health systems.
The states want a federal appeals court to pause a merger between Advocate Health Care and NorthShore University HealthSystem to give the FTC time to hold its own administrative hearings on the matter. In an amicus brief (PDF) filed Friday, the states argue that the lower court incorrectly sided with the health systems, creating a precedent that could dampen healthcare competition across the nation.
“Allowing this decision to stand ultimately inhibits the ability of law enforcers to carry out their statutorily imposed duty—ensuring that consumers receive the benefits of vigorous competition in healthcare markets around the country,” according to the brief.
States that filed the brief are Connecticut, Idaho, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Montana, Oregon, Pennsylvania and Washington.
Spokeswomen for Advocate and NorthShore declined to comment on the filing Tuesday. But the systems had argued in court that the FTC incorrectly defined their geographic market, leaving out key competitors such as Northwestern Memorial Hospital.
In his opinion denying the FTC's request for a preliminary injunction to halt the merger, U.S. District Judge Jorge Alonso agreed. He wrote that the criteria the FTC used to define the systems' geographic market were “flawed.”
The FTC has appealed that decision, and arguments are set for Aug. 19. Healthcare leaders across the country are watching the case closely, as systems increasingly look to consolidate. It's one of the largest deals to be challenged by the FTC in years.
In their brief, the 11 states say Alonso failed to consider whether an insurer would pay more for services if NorthShore and Advocate merged. It's a common test used to define a system's geographic market.
The court's failure to properly consider that test “marks a major shift in the law, setting forth a dangerous legal precedent with far-reaching policy implications,” according to the brief.
The states argue that the judge incorrectly focused on patient willingness to travel to farther, so-called destination hospitals when deciding the FTC didn't include enough hospitals in its market definition.
If the decision stands, the states argue, health systems will aggressively pursue partnerships, asserting that consolidations within any city won't seriously affect competition, leading to higher costs for consumers.
Lisl Dunlop, a partner at Manatt, Phelps & Phillips who is not involved in the case, said the states' argument is a strong one, though it doesn't do much to advance the argument the FTC has been making. Also, she noted that the judge looked closely at what he believed to be the realities of the healthcare industry and thought more attention needed to be paid to certain hospitals the FTC excluded from the systems' geographic market.
“What the (states) are pointing out is their concern that anything that makes antitrust enforcement harder is going to make life difficult for them,” Dunlop said. “They have an interest in keeping the thresholds for antitrust enforcement relatively low.”
Thirty-three economists also filed an amicus brief (PDF) in the case last week supporting the FTC. In their brief, the economists make an argument similar to that of the states', saying the judge should have used the test to evaluate the geographic market, not patient travel patterns. The economists don't take a position on whether the FTC accurately defined the systems' geographic market.
Those interested in filing briefs supporting the systems will likely do so in August after Advocate and NorthShore file their brief. The FTC's recent loss in the case followed another recent court defeat over a merger between Penn State Hershey Medical Center and PinnacleHealth System in Pennsylvania. The FTC is also appealing that case.
