The Federal Trade Commission announced today that it has ordered ProMedica Health Systems Inc. to divest an Ohio hospital it acquired in 2010, ruling that the deal was anticompetitive.
The merger would create a "combined hospital system with an increased ability to obtain supra-competitive reimbursement rates from commercial health plans, and, ultimately, from their members,” wrote Commissioner Julie Brill in an opinion on behalf of the commission. “We conclude that anticompetitive effects are indeed likely, resulting in higher health care costs for patients, employers, and employees in the Toledo area."
ProMedica counsel David Marx, a partner at McDermott, Will & Emery, said he was “disappointed but not surprised” by the decision, and that he anticipates it will be appealed to the U.S. Court of Appeals for the 6th Circuit.
In August 2010, ProMedica, a non-profit headquartered in Toledo, acquired rival St. Luke’s Hospital in Lucas County, Ohio. The FTC sued to block the merger five months after the fact, alleging in an administrative complaint that the deal gave ProMedica a market share approaching 60 percent for general acute-care services in Lucas County. For inpatient obstetrical services, the FTC said the market share was near 80 percent.
The FTC (along with former Ohio Attorney General Richard Cordray, now head of the Consumer Financial Protection Bureau) also obtained a federal court order requiring ProMedica to preserve St. Luke’s as a separate, independent competitor during the FTC’s administrative proceeding and any subsequent appeals.
In December, after a month-long trial, Administrative Law Judge Judge D. Michael Chappell found ProMedica's acquisition of St. Luke's eliminated competition between the two firms and reduced the number of competing hospitals in the Lucas County market for general acute-care inpatient hospital services from four to three. He found the deal violated of Section 7 of the Clayton Act, and ordered ProMedica to divest St. Luke’s to a FTC-approved buyer.
The FTC commissioners affirmed the ALJ's decision on liability, but altered his definition of general acute-care inpatient hospital services, excluding sophisticated "tertiary" services from its scope. (Tertiary services, like neurological intensive care, are considered to be complex, but not as complicated as so-called quaternary services like organ transplants). The commission also defined inpatient obstetrical services sold to commercial health plans as a separate market.
FTC Commissioner J. Thomas Rosch issued a separate concurring opinion, writing that he would have stuck with the administrative law judge’s market definition. “The ALJ’s relevant product market definition thus accords with the prior teaching of the courts and of this Commission, and there was no need for the Commission to revisit this issue,” he wrote. Further, defining a separate market for OB services was “redundant... neither Complaint Counsel nor the majority can point to any judicial precedent for defining a obstetrical services market [as] separate." Doing so makes the commission vulnerable to “accusations of ‘gerrymandering’ the relevant product market,” he wrote.
ProMedica counsel Marx said he thought both the ALJ and the commission relied on “an analytic framework that is too narrow,” he said. “The focus on a limited set of general acute-care inpatient services provided to commercially-insured patients does not represent an understanding of the true competition dynamics in which health care providers operate today – and leads to some wrong decisions on a case by case basis.”