The Federal Trade Commission argued against the proposed merger between two Chicago-area health systems in a federal appeals court Friday, defending its market definitions that were rejected by a lower court in June.
In oral arguments to the 7th U.S. Circuit Court of Appeals, the FTC criticized the district court's decision to deny its request to temporarily block a proposed merger between Advocate Health Care and NorthShore University HealthSystem. U.S. District Judge Jorge Alonso argued the FTC didn't correctly define the systems' geographic market. The FTC immediately appealed the decision.
The appeals court will review the case and a decision is expected in roughly six months. If the court sides with the FTC, the case goes back to the lower court.
The case is one of the largest deals to be challenged by the FTC in years, and healthcare leaders across the country are watching it closely as healthcare providers increasingly consolidate. Experts have claimed that a loss by the FTC in the case could spur deals among hospitals and systems.
In court Friday, the FTC defended its market definition, claiming the merger will cause an anti-competitive environment and higher prices for insured customers. The FTC alleges that a combined NorthShore and Advocate would have enough leverage to increase prices because insurers would struggle to create marketable networks without Advocate and NorthShore hospitals.
U.S. Circuit Court of Appeals judges Diane Wood and David Hamilton questioned the FTC's decision to exclude Chicago hospitals from its market definition, specifically Presence St. Francis Hospital, which is about three miles from NorthShore's Evanston Hospital.
The FTC again defended its argument that Chicago hospitals that aren't competitive for both Advocate and NorthShore should be excluded from the analysis. The FTC also excluded hospitals such as Northwestern Memorial Hospital, Rush University Medical Center and the University of Chicago Hospital based on this argument, which was rejected by the lower court.
But the FTC also claimed that even if these Chicago hospitals were included in the market definition, the merger would still be anti-competitive.
Advocate and NorthShore defended Judge Alonso's decision, saying the FTC's move to exclude these Chicago hospitals is flawed because customers are more likely to go to a preferred hospital farther away than their local hospital for certain procedures.
Judge Wood questioned Advocate and NorthShore's emphasis on outpatient clinics as a competitive alternative to hospitals. Wood pointed to NorthShore's acquisition of Highland Park Hospital in 2000 (which also was challenged by the FTC). That purchase led to cost increases of 9%-10%, which the judge said suggests Chicago's market is smaller and more sensitive than the systems realize. An attorney for the two Chicago systems responded that the healthcare industry has changed dramatically in the last 16 years, with an increased emphasis on outpatient services.
Judge Wood also openly criticized the district court’s reasoning, going as far to say that it may have asked the wrong questions when it denied the FTC's request for a preliminary injunction.
The FTC claims the new system, which would be called Advocate NorthShore Health Partners, would create the 11th largest not-for-profit hospital network in the nation and account for 60% of hospital services in Chicago's northern suburbs.
Both systems have contested the FTC's figures, claiming their services would account for about 28% of the market. Advocate has 12 hospitals and NorthShore has four.
Advocate and NorthShore also say they plan to 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.