Antitrust Law Daily Justice Department announces lawsuit to block hospital acquisition in central Pennsylvania
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Thursday, August 6, 2020

Justice Department announces lawsuit to block hospital acquisition in central Pennsylvania

By Nicole D. Prysby, J.D.

The Justice Department sued to enjoin an anticompetitive agreement between two hospital systems in central Pennsylvania.

The Department of Justice has announced that it sued to enjoin an anticompetitive agreement between two hospital systems in central Pennsylvania. The agreement, executed between Geisinger Health and its close rival, Evangelical Community Hospital, allowed Geisinger to partially acquire Evangelical. The two hospitals account for 71 percent of the inpatient general acute-care hospital services market for patients in a six-county area in central Pennsylvania. The complaint, filed in the U.S. District Court for the Middle District of Pennsylvania, alleged that the agreement fundamentally alters the relationship between the parties, raising the likelihood of coordination and reducing Defendants’ incentives to compete aggressively against each other. As a result, the transaction is likely to lead to higher prices, lower quality, and reduced access to high-quality inpatient hospital services (U.S. v. Geisinger Health, Case No. 4:20-cv-01383-MWB).

Geisinger Health is a regional, not-for-profit healthcare provider that operates hospitals, physician practices, outpatient facilities, and urgent-care centers in Pennsylvania and New Jersey. Geisinger’s flagship facility is Geisinger Medical Center, a 574-bed hospital located in Danville, Pennsylvania. Geisinger Health’s revenues in FY2019 were approximately $7.1 billion. Evangelical Community Hospital is a 132-bed non-profit independent community hospital located in Lewisburg, Pennsylvania. It owns physician practices and operates an urgent-care facility and several other outpatient facilities in central Pennsylvania. Its revenues in FY2019 were approximately $259 million. Geisinger and Evangelical are close competitors for inpatient general acute-care hospital services for patients in a six-county area in central Pennsylvania, with the two hospitals together accounting for approximately 71 percent of the market in the region.

The complaint alleged that the agreement fundamentally alters the relationship between the parties, raising the likelihood of coordination and reducing Defendants’ incentives to compete aggressively against each other. As a result, the transaction is likely to lead to higher prices, lower quality, and reduced access to high-quality inpatient hospital services for patients in central Pennsylvania.

According to the complaint, Geisinger has a history of acquiring community hospitals in Pennsylvania and initially sought to acquire Evangelical in full. Defendants recognized, however, that such an acquisition would likely violate the antitrust laws. Instead, on February 1, 2019, Geisinger and Evangelical entered into a partial-acquisition agreement, to avoid antitrust scrutiny.

The agreement, however, imposed significant entanglements between Defendants, reduced their incentives to independently compete against each other and increased the likelihood of coordination. For example, the agreement gave Geisinger a 30 percent ownership interest in Evangelical and required it to invest $100 million in Evangelical, much of which was earmarked for specified projects approved by Geisinger. These terms linked the two organizations financially and set Geisinger up as a critical source of funding to Evangelical for the foreseeable future. The agreement also gave Geisinger rights of first offer and first refusal for certain transactions and joint ventures, which would make it difficult for Evangelical to partner with other healthcare entities. And it provides the opportunity and means for Defendants to share competitively sensitive information when Evangelical requests that Geisinger disburse funds for strategic projects under the agreement because the agreement requires that these requests be "supported by appropriate business plans." This request necessarily would require sharing competitively sensitive information. The complaint also noted that Defendants have a history of picking and choosing when to compete with each other, and that the agreement is likely to increase coordination between Defendants at the expense of competition.

The complaint alleged that the provisions in the agreement work together to substantially lessen competition and unreasonably restrain trade in the market for inpatient hospital services in central Pennsylvania. Further, the agreement is not reasonably necessary to achieve any community benefits. For example, Evangelical could have obtained funds for capital improvements from sources other than Geisinger, its closest competitor. The complaint alleged a relevant market of inpatient general acute-care services in a six-county area in central Pennsylvania, and included claims under Section 1 of the Sherman Act, Section 7 of the Clayton Act. The Justice Department requested that Defendants be enjoined from carrying out the agreement and that Geisinger divest to Evangelical its 30 percent ownership interest in Evangelical; and Defendants be permanently enjoined and restrained from carrying out any other transaction that would allow Geisinger to partially acquire Evangelical.

Companies: Geisinger Health; Evangelical Community Hospital

MainStory: TopStory AcquisitionsMergers Antitrust AntitrustDivisionNews PennsylvaniaNews GCNNews

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