A federal appeals court has put a proposed merger of
Advocate and NorthShore University health systems back on hold, saying a
federal judge who earlier this summer had denied government regulators’
requests for an injunction had not properly considered how large and influential
the proposed new health system could be on raising health care prices in the
region the new system would serve.
On Monday, Oct. 31, a three-judge panel of the U.S. Seventh
Circuit Court of Appeals reversed the decision of U.S. District Judge Jorge
Alonso to deny the injunction, sending the case back to him with an order to
reconsider, in light of the appeals’ court’s findings, the request from the
Federal Trade Commission and Illinois Attorney General Lisa Madigan to block
the proposed merger.
The opinion was authored by Seventh Circuit Chief Judge
Diane P. Wood, with judges William J. Bauer and David F. Hamilton concurring.
The case had landed at the Seventh Circuit in June, after
Alonso denied the injunction request.
The FTC and Madigan had challenged the merger in 2015, a few
months after Downers Grove-based Advocate, Illinois’ largest health system
company, and Evanston-based NorthShore announced a deal to merge their two
organizations. The merger would have created a large group operating 17
hospitals in and around Chicago and elsewhere in Illinois.
The FTC and Madigan had argued the deal would then leave
patients – and particularly those in Chicago’s north suburbs – with few
competitive choices for their health care, allowing the new Advocate/NorthShore
system to raise prices in the region.
Advocate and NorthShore countered with assertions the FTC
had erred in its analysis of the region’s health care market, particularly in
minimizing the competition Advocate and NorthShore face against the rapidly
expanding Northwestern Medicine system. That group has in recent years merged
with the former Cadence Health in west suburban DuPage and Kane counties, and
with the former KishHealth in DeKalb County. Northwestern has also announced
intent to merge with Centegra Health System in northwest suburban McHenry
Advocate and NorthShore also said the regulators had failed
to take into account the price-fixing leverage held by large insurers, such as
Blue Cross Blue Shield.
Alonso sided with the arguments presented by the hospital
But on appeal, the Seventh Circuit judges said Alonso’s
reasoning was flawed, discounting far too much the ability of the new proposed
health system to set prices for services in the region.
While the hospital operators had emphasized the willingness
of health care consumers to travel to receive care, the appeals judges said
evidence presented by regulators and their expert witness, identified as
economist Steven Tenn, in hearings before Alonso showed the opposite.
They noted market data showing “73 percent of patients
living in plaintiffs’ proposed market receive hospital care there” and “80
percent of those patients drive less than 20 minutes or 15 miles to their
“When it came to hospital care, the evidence was not
equivocal on Dr. Tenn’s central point,” the judges wrote. “As one insurance
executive put it: ‘Typically [patients] seek [hospital] care in their own
communities.’ The evidence on that point is strong, not equivocal.”
The Seventh Circuit judges also said Alonso had not strongly
enough considered the ability of the new health system to influence health insurers.
They noted “no evidence” had been presented to show it would
be possible to market a health insurance product to employers in the region
without offering access to Advocate and NorthShore hospitals.
And to see what might happen to prices following the merger,
the appeals judges pointed to the price increases that followed the merger of
three hospitals that created the NorthShore system about 15 years ago. A group
of insurers and patients continue to press a class action lawsuit over that
merger and its resulting price increases.
Alonso’s decision, they said, suffered from “a critical
flaw,” focusing “on the patients who leave a proposed market instead of on
hospitals’ market power over the patients who remain, which means that the
hospitals have market power over the insurers who need them to offer
commercially viable products to customers who are reluctant to travel farther
for general acute hospital care.”
“The geographic market question asks in essence, how many
hospitals can insurers convince most customers to drive past to save a few
percent on their health insurance premiums?” the appeals judges wrote. “We should not be surprised if that number is
very small. Plaintiffs have made a strong case that it is.”