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FTC Scores Another Hospital Merger Court Victory

The Federal Trade Commission secured another court victory in its attempt to keep the hospital industry competitive, this time in its efforts to prevent the merger of Chicago hospitals Advocate Health Care Network and NorthShore University HealthSystem.

The 7th U.S. Circuit Court of Appeals ruled in favor of the agency by overturning a decision a lower court. The case will again be heard by that lower court, the U.S. District Court for the Northern District of Illinois, and may end up in the FTC’s administrative court.

The hospitals will have to determine whether to continue their fight to merge. In a joint statement, the hospitals called the appellate court’s decision a “loss” for consumers, while adding it “further underscores the conflicting message with the objectives of the Affordable Care Act.”

Debbie Feinstein, the FTC’s Bureau of Competition director, praised the appellate court’s decision in a statement Monday, particularly its rejection of the lower court’s “geographic market findings.” She added the agency is “looking forward to proving our case.”

Advocate Health Care and NorthShore University HealthSystem provide general hospital care services in the Chicago area, and they decided to merge last year. The move prompted the FTC to bring suit against the hospitals in December, alleging the deal would “significantly increase the combined system’s bargaining power with health plans” and in turn harm consumers by increasing prices and lowering the quality of care.

The U.S. District Court for the Northern District of Illinois denied the FTC’s preliminary injunction to stop the hospitals from merging in June. District Judge Jorge L. Alonso, presiding over the case, rejected the FTC’s geographic market definition, ruling it was too narrow, and didn’t take into account other hospitals in the Chicago area patients could visit.

However, a three-judge panel of the circuit court disagreed with Alonso, while highlighting the importance of determining the accurate measure of the geographic market for hospitals. It also said it’s important to decide whether the merger could lead to one dominant hospital system in the area that could raise prices on consumers and insurers.

The three judge-panel was unanimous in its decision to overturn the previous verdict and send the case back to the lower court.

David Hamilton, the circuit court judge appointed by President Barack Obama, called the lower court’s findings “clearly erroneous” in the ruling.

“The geographic market question asks in essence, how many hospitals can insurers convince most customers to drive past to save a few percent on their health insurance premiums?” Hamilton said in the ruling.

Hamilton went on to dispel the lower court’s theory that hospitals are interchangeable. “Getting an appendectomy is not like buying a beer,” Hamilton wrote, explaining the beverages may taste the same irrespective of where they were bought.

“For surgery patients, who their surgeon will be matters, the hospital’s reputation matters, and the hospital’s location matters,” Hamilton added.

The decision is a major boost for the FTC and comes a month after the 3rd U.S. Circuit Court of Appeals overturned a lower court’s decision in favor of the FTC’s geographic market area definition. In that case, merging hospitals PinnacleHealth System and Penn State Hershey Medical Center abandoned their merger attempt after the appellate court’s ruling.

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