A federal judge explained in a new court filing today why he switched from siding with two large suburban health systems that wanted to merge to favoring antitrust regulators that fought the union.
It was a stunning reversal March 7 that led to the demise of the proposed marriage between Advocate Health Care of Downers Grove, already the largest hospital network in Illinois, and Evanston-based NorthShore University HealthSystem. Combined, they would have created the 11th largest nonprofit hospital system in the nation.
In the redacted filing, U.S. District Court Judge Jorge Alonso's decision essentially boiled down to this: If he allowed the systems to merge, it might have been harder to break them up later and "recreate pre-merger competition."
Through a spokeswoman, NorthShore declined to comment. In a statement, a spokeswoman for Advocate said: "We move forward committed to the same core values that drove our decision to pursue the merger—improve quality, advance care delivery and lower costs."
In the filing, Alonso ticked off a host of reasons for why he ultimately changed his mind. He was forced to reconsider his ruling after the 7th U.S. Circuit Court of Appeals in October ruled that his decision not to pause the proposed merger over antitrust concerns was "erroneously flawed."
Among the highlights in today's filing:
— While some insurers said they couldn't sell a health plan to employers without both Advocate and NorthShore hospitals in the network, the hospitals argued the carriers' testimony, especially that of dominant Blue Cross & Blue Shield of Illinois, should be taken skeptically because they have competitive reasons for blocking it.
It's not so clear cut, Alonso wrote today: "The Court shares some of defendants' concerns about the credibility of the insurers' testimony, which may indeed be self-serving, but even taking their testimony with a grain of salt, the record as a whole supports the view that insurers genuinely believe that a plan that excludes Advocate and NorthShore is not viable in the North Shore Area."
Still, he added that some insurers' testimony in support of the merger wasn't credible. "In some cases, what lukewarm support the insurers mustered was expressed in terms of hope rather than expectation. The insurers are not in a position to know precisely how the merger will affect consumer welfare." They might have supported the merger believing doing so would improve their own competitive positions, Alonso wrote.
— Though the aspiring merger partners view prominent medical centers such as Northwestern Memorial Hospital in downtown Streeterville and Rush University Medical Center on the Near West Side as rivals, they are so-called "destination hospitals," Alonso noted. That's because they can't fill insurers' need for a hospital that provides local care on the North Shore, he said. The definition of the North Shore market was a key element of the original dispute.
— On the Advocate and NorthShore's criticism of the FTC's finding that the merger would harm consumers by hiking the cost of medical care, Alonso called the systems' critique "desultory and superficial, and therefore unconvincing."
— On Advocate not being able to offer its own health plan to employers without expanding east of Interstate 94, getting into NorthShore's territory: "In fact one employer has quite successfully done so: Advocate itself," Alonso wrote.
"Judge explains the flip-flop that spiked NorthShore-Advocate deal" originally appeared on Crain's Chicago Business.
