Regulators Tamp Down on Mergers of Hospitals


In the latest sign that federal regulators are uneasy about the flurry of proposed health care mergers taking place, the Federal Trade Commission said on Friday that it planned to block the combination of two large Illinois hospital groups.

Regulators said the proposed merger of Advocate Health Care, which is already the state’s largest health system, and NorthShore University HealthSystem, could create a 16-hospital powerhouse that would dominate the North Shore area of Chicago.

“This merger is likely to significantly increase the combined system’s bargaining power with health plans, which in turn will harm consumers by bringing about higher prices and lower quality,” said Deborah L. Feinstein, director of the agency’s Bureau of Competition, in a statement announcing the decision.

“Competition between Advocate and NorthShore results in lower prices, higher quality and greater service offerings,” the F.T.C. argues in the complaint filed in the Eastern Division of the U.S. District Court for the Northern District of Illinois.

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James Skogsbergh, chief executive of Advocate Health Care.

The hospital groups say they plan to fight the government’s move, partly citing the effects of the federal health care law for encouraging the coordination of services and technology.

This is the third time in recent weeks that the agency has sought to scuttle a proposed hospital merger. The F.T.C. took similar action to halt the merger of two hospitals in West Virginia in November and, earlier this month, teamed up with Pennsylvania authorities to try to stop a deal between Penn State Hershey Medical Center and PinnacleHealth System.

While the agency has traditionally been concerned about hospital mergers, the recent activity underscores just how much deal-making is going on, said Martin Gaynor, a health economist at Carnegie Mellon University and a former F.T.C. official.

About 460 hospital mergers have taken place since 2010, he said, with little sign that the combinations are abating. “Is there a Tinder app for hospital mergers?” he asked.

The regulatory scrutiny of hospital mergers is occurring while other agencies are scrutinizing the proposed mergers of some of the nation’s largest health insurers, including Anthem and Aetna.

In interviews, the chief executives of the Chicago hospital groups defended the merger, saying the combination fit with the federal government’s overall goal of promoting alliances to help deliver better care at lower prices.

“All of this is good for consumers and very pro-competitive,” said James H. Skogsbergh, the chief executive of Advocate. He said that because the hospitals’ market was dominated by a major insurer, the systems were “price takers, not price setters.” He was referring to the state’s Blue Cross Blue Shield plan.

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Mark Neaman, chief executive of NorthShore University HealthSystem.

The hospital groups say the merger would shift health care from the traditional fee-for-service model of providing high volumes of care for high payments to one focused on a streamlined system aimed at achieving lower costs.

The F.T.C.’s position “is one of protecting the status quo,” said Mark R. Neaman, the chief executive of NorthShore.

Regulators’ main concern is former competitors’ joining forces, said Mr. Gaynor, who is one of the authors of a recent study on health care pricing. He says the paper provides additional evidence that regulators need to enforce existing laws to prevent markets from having too few competitors.

But hospitals argue the merger activity is a direct result of the Affordable Care Act.

“These consolidations are absolutely mandated,” said Rob Fuller, a former hospital executive and a lawyer who specializes in antitrust law at Nelson Hardiman in Los Angeles. He argues that the different government branches are sending conflicting signals to hospitals.

Ms. Feinstein of the F.T.C. denies there is any conflict. “We don’t think the A.C.A. and the antitrust laws are in tension with each other at all,” she said. Hospitals and doctors can collaborate without merging, and she noted that the agency had not challenged any of the so-called accountable care organizations, which were created to oversee the level of care required and its costs.

The F.T.C. has been successful in blocking some hospital mergers, said Matthew L. Cantor, a partner in the law firm of Constantine Cannon in New York. Those wins “demonstrate that a hospital merger that is anti-competitive cannot be defended by pointing out that the merger is consistent with the principal purposes of the Affordable Care Act,” he said in an email.

The agency is seeking an injunction to block the merger, which had been planned for more than a year.

Hospital executives contend, however, that their proposals draw more regulatory attention than those planned by big insurance companies. “Insurers seem to get a different look-see than the providers,” Mr. Neaman said.



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