Mountain States Health Alliance and Wellmont Health System are taking time to tweak their merger application after federal regulators and prominent health economists slammed the deal.
The Tennessee Department of Health on Friday approved the systems' request to supplement their Certificate of Public Advantage application. Friday was the deadline for the health department to give its decision on the COPA, which must be approved by state regulators in both Tennessee and Virginia in order for the merger to proceed.
"Our objective is to ensure the record in both states reflects our vision for the improved health of our region, and that the record strongly supports a positive outcome,” said Alan Levine, president and CEO of Mountain States. “This is so important, and we are committed to leaving no doubt about our intent. This is not just about a merger.”
The systems have said the merger will lead to cost savings for patients and increased services in the communities, specifically in population health and mental health. The systems estimate the merger will result in approximately $121 million in annual cost savings after the first five years.
A spokesman for Wellmont Health said he is unsure how long it will take to add to the application, but “we hope we can supplement the application quickly.”
The Federal Trade Commission raised concerns over multiple aspects of the systems' COPA application in two separate letters to the Tennessee Department of Health. It's asked Tennessee to reject the merger and made a similar plea to Virginia regulators in October.
The agency said the merger would create an anti-competitive healthcare environment, leading to higher prices and lower quality of care for patients.
Mountain States and Wellmont Health have locations in Tennessee and Virginia. Johnson City, Tenn.-based Mountain States operates 13 hospitals, and Kingsport, Tenn.-based Wellmont operates six. The combined organization would span 29 counties.
The FTC concluded that Mountain States and Wellmont are each other's closest competitors in northeast Tennessee and southwest Virginia for inpatient and several outpatient services. Together, the systems would have a “near-monopoly” of services and control 71% of inpatient services in their markets, the FTC said.
The FTC also criticized the COPA application for failing to provide evidence that the systems attempted to merge or partner with other smaller providers before pursuing their merger plans. The agency also questioned both systems' argument that as rural providers they are struggling financially and must merge to survive.
In fiscal 2015, Mountain States reported $1 billion in total revenue, and Wellmont reported $813 million.
Mountain States and Wellmont said the FTC's analysis was full of errors. The systems argued that the FTC didn't investigate the details of their merger, and instead relied on broad studies.
Forty-six health economists wrote a letter in November opposing the merger. The letter, led by Leemore Dafny, a former healthcare antitrust official at the FTC who is now a professor at Harvard Business School, states the merger will lead to inflated prices for consumers because the systems will have market power over insurers and employers. The letter also questions cost savings associated with any healthcare mergers.