Government’s improperly defined relevant geographic markets doom challenge to combination of Philadelphia health systems.
Noting that the propriety of a relevant geographic market in the health care industry must be assessed "through the lens of the insurers," the federal district court in Philadelphia has ruled that the FTC and State of Pennsylvania failed to properly define the markets for purposes of challenging the combination of two Philadelphia health systems. With respect to general acute care (GAC) hospital services, the "Northern Philadelphia Area" and "Montgomery Area" markets offered by the FTC and State of Pennsylvania did not correspond to the commercial realities of the southeastern Pennsylvania healthcare industry, the court held. The government also failed to meet its burden to establish a relevant geographic market for inpatient "Acute Rehabilitation Services." Therefore, the court denied the government’s request for a preliminary injunction halting the combination of Jefferson Health and Albert Einstein Healthcare Network pending an FTC administrative trial (FTC v. Thomas Jefferson University, December 8, 2020, Pappert, G.).
In February, the FTC announced its plan to block the proposed combination of Einstein and Jefferson—two leading providers of inpatient GAC hospital services and inpatient acute rehabilitation services in the Philadelphia area. The FTC alleged that the proposed merger would reduce competition in both Philadelphia and nearby Montgomery County. Jefferson operates 11 general acute care (GAC) hospitals and two inpatient rehabilitation facilities or IRFs. Einstein operates three GAC hospitals and provides inpatient acute rehabilitation services at its nationally renowned MossRehab IRF and at four other IRF units.
The government contended that the proposed merger would substantially lessen competition in three relevant markets: (1) inpatient GAC services sold to commercial insurers and their members in the Northern Philadelphia Area, (2) inpatient GAC services sold to commercial insurers and their members in the Montgomery Area, and (3) inpatient acute rehabilitation services sold to commercial insurers and their members in the Philadelphia Area. The FTC argued that Jefferson and Einstein account for a combined 64.5% of inpatient GAC discharges within the Northern Philadelphia Area, and they account for a combined 49.9% of inpatient GAC discharges of commercially insured patients in the Montgomery Area.
Following six days of evidentiary hearings, which included the testimony of 20 witnesses and the presentation of voluminous documentary evidence, the court has now rejected the government’s proposed geographic markets and denied preliminary injunctive relief. According to the court, the FTC did something in this case that it had never attempted in an effort to block a merger in the healthcare industry—allege multiple geographic markets for the same product—GAC services.
The court rejected the government's "Northern Philadelphia Area" market for inpatient GAC services, which included 11 hospitals: Einstein’s Einstein Medical Center Philadelphia (EMCP) and Einstein Medical Center Elkins Park or EMCEP; Jefferson’s Abington and Frankford Hospitals; Prime’s Roxborough Memorial Hospital; Temple University Hospital; Jeanes; Tower Health’s Chestnut Hill Hospital; Fox Chase Cancer Center; Cancer Treatment Centers of America, Philadelphia; and St. Christopher’s Hospital for Children. It also rejected the government’s proposed "Montgomery Area" market for GAC services, which included Jefferson’s Abington Hospital, Prime’s Roxborough Memorial Hospital and Tower Health’s Chestnut Hill Hospital along with seven other hospitals: Jefferson’s Abington Lansdale Hospital; Einstein’s EMCM; Main Line Health’s Bryn Mawr and Paoli Hospitals; Prime’s Suburban Community Hospital; Tower Health’s Phoenixville Hospital; and Physician’s Care Surgical Hospital.
The record did not show, through the lens of the insurers, that insurers would pay a price increase for GAC services in the Northern Philadelphia and Montgomery Areas instead of looking to hospitals outside those markets, the court held.
Insurers’ views supporting government’s case. The court called into question the views of health insurance providers Independence Blue Cross (IBC) and Cigna that supported the government’s case. IBC, the area’s dominant commercial insurer, contended that it needed a combined Jefferson-Einstein in its network so much that it would pay higher rates.
"The evidence does not support the assertion that IBC would roll over and pay higher prices instead of turning to its network of hospitals outside the Government’s proposed geographic markets," said the court. Pointing to, among other evidence, a discussion during an Eagles game between IBC’s CEO and Einstein’s President/CEO regarding Einstein’s potential partnership with Pittsburgh-based provider and insurer University of Pittsburgh Medical Center (UPMC), the court found that record showed that IBC was concerned with hospitals joining forces and becoming a competitive threat in the insurance market.
The court was not swayed by the testimony of a representative from Cigna, the smallest of the region’s major insurers, that the insurer could not offer a marketable health plan to its Montgomery County members that excluded Einstein Medical Center Montgomery (EMCM), Abington Hospital and Abington-Lansdale Hospital or to members "around the Einstein Philadelphia Hospital" that excluded Einstein Medical Center Philadelphia (EMCP) and Abington Hospital and that Cigna would pay higher rates to include EMCM, Abington, Abington Lansdale and EMCP in its network.
Acute rehab services. Lastly, the court did not accept the government’s third proposed relevant market for inpatient "Acute Rehabilitation Services" sold and provided to commercial insurers and their members in the "Philadelphia Area." It was noted that this case represented another first for the FTC as it had never before litigated a case where it had attempted to define rehabilitation services as a relevant product market. However, the court focused on the geographic market. The court pointed out that the government again relied primarily on the testimony of IBC and Cigna executives.
In light of the improperly defined markets, the government did not show that it was likely to succeed on the merits of its case at the administrative hearing. Therefore, the preliminary injunction was denied.
Reaction from counsel for defendant Albert Einstein Healthcare Network. In response to the decision, Hogan Lovells Partner Virginia Gibson said: "We are gratified by today’s decision in which the court properly concluded that the government was unable to show that the transaction would reduce competition in the highly-competitive Philadelphia area. The ruling allows Einstein to continue to fulfill its vital public mission of providing necessary healthcare services to underserved Philadelphia communities during a particularly critical time."
The case is No. 2:20-cv-01113-GJP.
Attorneys: Charles E. Dickinson for the FTC. Paul H. Saint-Antoine and Alison M. Agnew (Faegre Drinker Biddle & Reath LLP) for Thomas Jefferson University. Virginia Gibson, Justin Bernick, Stephen Loney, Leigh Oliver, Robert Leibenluft, Katie Hughes, Molly Pallman, Alexander Bowerman, Garima Malhotra, Daniel Mader, and John Hamilton (Hogan Lovells US LLP) for Albert Einstein Healthcare Network.
Companies: Thomas Jefferson University; Albert Einstein Healthcare Network
MainStory: TopStory AcquisitionsMergers Antitrust FederalTradeCommissionNews GCNNews PennsylvaniaNews
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