Antitrust Law Daily FTC drops challenge to West Virginia hospital merger
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Thursday, July 7, 2016

FTC drops challenge to West Virginia hospital merger

By Jeffrey May, J.D.

An administrative challenge to the proposed combination of the only two hospitals in Huntington, West Virginia–Cabell Huntington Hospital and St. Mary’s Medical Center–has been dropped by the FTC. The agency decided not to continue pursuing the merger challenge in light of a new West Virginia law and the West Virginia Health Care Authority’s decision to approve a cooperative agreement between the hospitals (In the Matter of Cabell Huntington Hospital, Inc., FTC Dkt. 9366).

In November 2015, the Commission issued an administrative complaint challenging the transaction on the grounds that it would create a near-monopoly over general acute care inpatient hospital services and outpatient surgical services in the four-county region surrounding Huntington. The State of West Virginia, on the other hand, supported the deal, subject to a series of regulatory conditions. The state also passed a law exempting certain actions of the state’s Health Care Authority from state and federal antitrust laws and immunizing certain cooperative agreements approved and subject to supervision by the Health Care Authority.

The FTC had urged the state's Health Care Authority to deny Cabell Huntington Hospital’s application for approval of a cooperative agreement relating to its proposed acquisition of St. Mary’s. However, in June, the state agency approved the cooperative agreement, and the state attorney general concurred in the decision.

The FTC dismissed the administrative action yesterday. The agency warned that the decision to dismiss without prejudice in this case did not necessarily mean that it would do the same in other cases in which a cooperative agreement was sought or approved.

"Cooperative agreements that replace antitrust enforcement with state regulatory regimes often protect likely anticompetitive transactions that impose harms far exceeding their benefits," according to an FTC statement. "These laws and any accompanying promises providers may make, no matter how well-intentioned or sophisticated, are unlikely to replicate the manifold benefits of competition."

Affordable Care Act. The FTC statement also rejected the notion that antitrust enforcement undermines the policy goals of the Affordable Care Act (ACA) to improve quality and lower costs through greater coordination among healthcare providers. The ACA did not repeal the antitrust laws and does not condone mergers that substantially lessen competition, it was noted.

Department of Justice settlement. While St. Mary’s avoided antitrust sanctions over its proposed merger with Cabell Huntington Hospital, the hospital operator was unable to escape a recent Department of Justice Antitrust Division complaint and proposed consent decree. In April, the Justice Department challenged an alleged conspiracy to allocate territories for the marketing of competing healthcare services between St. Mary’s and Charleston Area Medical Center, Inc. (CAMC). CAMC operates four general acute-care hospitals in the Charleston area and is the largest hospital system in West Virginia.

CAMC and St. Mary's allegedly entered into a "gentleman’s agreement" under which each firm agreed not to market in the other firm's home territory, according to the Justice Department complaint. CAMC allegedly agreed not to place print or outdoor advertisements in Cabell County—where St. Mary’s is headquartered—and St. Mary’s agreed not to place print or outdoor advertisements in Kanawha County—where CAMC is headquartered.

Under the terms of the proposed final judgment, awaiting the approval of the federal district court in Charleston, West Virginia, CAMC and St. Mary’s would be prohibited from agreeing with other healthcare providers, including hospitals and physicians, to limit marketing or to divide any geographic market or territory. The proposed final judgment also would prohibit communications between the defendants about their marketing activities, subject to limited exceptions. The hospital operators also have agreed to implement compliance measures.

Two other pending hospital merger challenges. Despite the FTC’s decision to drop its action against the West Virginia hospital merger, the agency is continuing its efforts to block two separate hospital mergers in Pennsylvania and Illinois. The FTC filed appeals with the U.S. Court of Appeals in Philadelphia and the U.S. Court of Appeals in Chicago, after district court losses in those challenges.

In June, the federal district court in Chicago denied the FTC's motion for a preliminary injunction temporarily halting the proposed merger of Advocate Health Care Network and NorthShore University HealthSystem in Chicago’s north suburbs. A month earlier, the federal district court in Harrisburg refused to grant the agency’s request for a preliminary injunction, blocking a challenge to Penn State Hershey Medical Center’s proposed merger with PinnacleHealth System in Pennsylvania.

Attorneys: Alexis J. Gilman and Jeanine Balbach for the FTC. Kenneth W. Field (Jones Day), Thomas L. Craig (Bailes, Craig & Yon, PLLC) for Cabell Huntington Hospital, Inc. David W. Simon (Foley & Lardner LLP) for Pallottine Health Services, Inc. and St. Mary’s Medical Center, Inc.

Companies: Cabell Huntington Hospital, Inc.; St. Mary’s Medical Center, Inc.; Pallottine Health Services, Inc.

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