Penn State Hershey (Pa.) Medical Center and PinnacleHealth System said Friday they are abandoning their proposed merger in the wake of renewed regulatory opposition from the Federal Trade Commission.
Last month, the U.S. Court of Appeals for the 3rd Circuit revived the FTC's antitrust challenge to the proposed hospital merger, paving the way for an administrative trial probing into the alleged anti-competitive effects of the deal. Rather than endure a long, costly battle with regulators, the central Pennsylvania health systems terminated their agreement.
“We firmly believe the integration of our two health systems would have served the best interests of patients and the entire central Pennsylvania community,” the health systems said in a statement. “Where circumstances allow and where it makes the most sense for our patients, we will continue to collaborate in the future.”
Penn State and PinnacleHealth initially triumphed against federal regulators' concerns over the merger. In May, a Pennsylvania federal judge rejected the FTC's case and said patients wouldn't be negatively affected by the proposed consolidation. But in late September, the 3rd Circuit overturned that analysis, finding insurers wouldn't be able to create a competitive health plan for the Harrisburg, Pa., market without Penn State-PinnacleHealth providers in their networks.
"The parties' decision to abandon this transaction preserves hospital competition in the Harrisburg area," said Debbie Feinstein, director of FTC's bureau of competition. "Had it been consummated, the merger would have likely led to lower quality and higher cost healthcare, at the expense of Harrisburg residents and their employers."
According to the federal appeals court, insurers rather than consumers feel the economic impact of hospital mergers. The FTC alleged the merger would raise prices and lower healthcare quality in the region while controlling 64% of the south-central Pennsylvania market and 76% of the Harrisburg market.
Pennsylvania State University's board of trustees voted unanimously via a conference call on Friday to end the merger agreement.
Penn State Hershey operates a 493-bed, not-for-profit hospital in Dauphin County, home of the state capital Harrisburg. PinnacleHealth is a not-for-profit, three-campus system with 662 staffed beds, also in Dauphin County. Hershey's total revenue for fiscal 2014 was $1.39 billion and Pinnacle's in fiscal 2015 was $1.07 billion, according to the FTC.