The Federal Trade Commission (FTC) and the Ohio Attorney General (Ohio AG) are challenging the acquisition by Toledo, Ohio-based ProMedica Health Systems (ProMedica) of St. Luke’s Hospital, a formerly independent general acute-care hospital in Lucas County, Ohio (St. Luke’s). In connection with the acquisition, ProMedica and St. Luke’s entered into a voluntary “hold-separate agreement,” the terms of which required ProMedica to refrain from taking certain actions to consolidate the operations of the hospitals while the FTC investigated the potential anticompetitive effects of the transaction.
Prior to the expiration of that hold-separate agreement, the FTC filed an administrative complaint alleging that the acquisition threatens to harm competition and will allow ProMedica to raise prices for general acute-care and inpatient obstetrical services. Specifically, the complaint alleges that:
- In the market for general acute-care services in Lucas County, the acquisition reduces the number of competitors from four to three, increasing ProMedica’s market share to almost 60%;
- In the market for inpatient obstetrical services in Lucas County, the acquisition leaves only one competitor to ProMedica, increasing ProMedica’s market share to more than 80%;
- The acquisition eliminates significant price and non-price competition between ProMedica and St. Luke’s in both the general acute-care and inpatient obstetrical markets;
- The principal motivation for the acquisition was for St. Luke’s to gain enhanced bargaining leverage with health plans and to raise prices for services; and
- The acquisition vests ProMedica with the ability to demand higher rates for services performed at its other hospitals as well, because the addition of St. Luke’s to the ProMedica hospital system makes ProMedica a “must-have” system for health plans seeking to do business in Lucas County.
The FTC, together with the Ohio AG, also filed an action seeking a preliminary injunction requiring ProMedica to preserve St. Luke’s as a separate, independent competitor pending resolution of the FTC’s administrative complaint. Following a two-day hearing last week, a federal judge is expected to decide in the coming weeks whether to grant the preliminary injunction or not. An administrative trial is scheduled for May 31, 2011.
This antitrust challenge by the FTC and Ohio AG may be a harbinger of the growing tension between antitrust enforcement and health care reform. A statement from ProMedica claims that the consolidation of St. Luke’s achieves the efficiency, integration and coordination goals of health care reform, and that the FTC’s action is inconsistent with those goals. The FTC’s response is that health care reform does not give hospitals and health care providers blanket authorization to eliminate competitors through mergers and acquisitions. This case makes it clear that, regardless of health care reform, the FTC will continue to closely scrutinize mergers and acquisitions among hospitals and health care providers to ensure they meet the requirements of antitrust laws.