Geisinger Health and Evangelical Community Hospital allegedly suppressed workers' wages by agreeing not to recruit each other's employees, according to a new lawsuit.
Federal regulators' investigation of Geisinger's proposed partial acquisition of Evangelical revealed secretive no-poach agreements, according to a complaint filed Wednesday in Pennsylvania federal court that seeks class-action status. The executives of the neighboring providers allegedly conspired to steer clear of each other's employees since at least mid-2015, which artificially held down wages.
The agreements were part of a long history of "picking and choosing when to compete with each other," regulators claimed. If it wasn't for the discovery made public in the Justice Department's lawsuit to block the acquisition, the no-poach agreements likely would have remained hidden, according to the complaint.
The suit was brought by current and former registered nurses at Geisinger and Evangelical on behalf of their co-workers. They are seeking an unspecified amount of damages.
"As Evangelical's CEO described in an interview discussing Geisinger's proposed partial acquisition of Evangelical, 'There's an economic principle called co-opetition. And you can cooperate, and you can compete. And as longs as both sides win, it works.' Such statements epitomize how these close competitors behaved in the past: They have coordinated their activities to 'find wins' at the expense of robust competition," the complaint reads.
Geisinger said in a statement that they "adamantly disagree" with the allegations that Geisinger restricted its staff recruitment and that the claims are without merit.
"In fact, Geisinger regularly conducts outreach to gauge interest and hires talent locally, regionally and nationally, including those from Evangelical Community Hospital, and provides competitive compensation and benefits," the Danville, Pa.-based health system said.
In one case, as detailed in the complaint, the respective CEOs traded emails after Geisinger tried to lure Evangelical's nurses via Facebook, writing: "Can you please ask that this stop[?] Very counter to what we are trying to accomplish."
In response, the Geisinger executive emailed someone in human resources to "ask your staff to stop this activity with Evangelical," according to the lawsuit.
Geisinger employs about 32,000 employees while Evangelical employs around 1,800.
Geisinger is pursuing a 30% acquisition of Evangelical. Although regulators don't typically intervene on partial acquisitions, the Justice Department sued to block the deal out of concern that the transaction would lead to less independent expansion, continued sharing of competitively sensitive information, lower quality care and higher prices.
The competitors account for around 71% of the general acute-care hospital service market in their six-county region in central Pennsylvania, which raises some red flags, M&A experts said.
Regulators are closely scrutinizing how both mergers and no-poach agreements may be holding down wages.
Annual wage growth was 1.1 percentage point slower for skilled nonhealth professionals in concentrated markets (social workers, claims adjusters, insurance personnel, HR professionals) and 1.7 percentage points slower for nursing and pharmacy workers, an analysis of 84 hospital mergers from 2000 to 2010 revealed.
The Justice Department's Antitrust Division and the Federal Trade Commission issued guidance for no-poach agreements in October 2016, indicating that they plan to pursue these cases criminally. No-poach agreements "eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct," the guidance reads.
A UnitedHealth Group subsidiary was indicted last month on charges that it conspired with rivals to not poach each other's senior-level employees.
