CHICAGO – The decision by a Chicago federal court not to block a merger between Advocate and NorthShore University health systems may be a glimpse into a trend under which market pressures will push more hospitals to merge in order to survive, a health care attorney said.
U.S. District Judge Jorge Alonso earlier this month denied the Federal Trade Commission's request for a preliminary injunction against the proposed merger of the Advocate and NorthShore University health care systems. Alonso did, however, grant a request by the FTC and Illinois Attorney General Lisa Madigan to temporarily put the merger on hold until the U.S. Seventh Circuit Court of Appeals in Chicago can decide whether Alonso's order should stand. Lawyers for the health systems have asked the Seventh Circuit to expedite briefings in the case, potentially allowing the appeal process to be wrapped up by the end of July, clearing the way for the merger to proceed.
“The health care landscape has changed profoundly in recent years, partly because of the Affordable Care Act, but mostly because of market pressures on hospitals,” said Norman G. Tabler Jr., counsel at Faegre Baker Daniels, in Indianapolis. “I think – and this is just my opinion – that the tide has shifted or at least is in the process of shifting.”
In May, a federal judge in Pennsylvania also rejected the FTC’s request for a preliminary injunction in connection with a hospital merger agreement in central Pennsylvania, making Alonso's denial of the FTC's injunction request the second loss for the FTC at the district court level this year.
Tabler said the ruling in the Advocate/NorthShore merger likely does not create a game plan for other hospitals and health systems to successfully fight off future FTC attempts to block mergers.
Instead, Tabler said the district court ruling “reinforces the truth that, in order to prevail, hospitals need to show that the merger will not harm patients by driving up prices, and will actually lower them.”
Tabler said the judge’s ruling reflected a belief that the FTC could not prevail in its antitrust action at the trial level in proving that the merger would harm competition and drive up health care prices.
“(Alonso) probably accepted the hospitals’ argument that the FTC had defined the geographical market too narrowly and that the market should be defined more broadly, and therefore include more hospitals,” Tabler said. “He may also have accepted the hospitals’ argument that together they could offer a health insurance plan at premiums lower than the premiums of any other plans in the market.”
Despite the ruling, Tabler said the Advocate/NorthShore merger is not free and clear to proceed. Specifically, Tabler said that because the court denied the FTC’s request for an injunction, the hospitals may proceed, “but there is some risk, at least until the FTC formally drops the case.”
“The risk is that if they proceed with the merger and then the government takes action and succeeds, they could find themselves in the position of having to unscramble the omelet,” Tabler said. “That rarely happens, but sometimes it does.”
Tabler said more mergers can be expected, not only involving just hospitals, but also hospital acquisitions of physician practices, under which physicians become employees of the hospitals. He said the market could also see health insurance companies combine with hospitals, or hospitals create their own health insurance companies - as Advocate and NorthShore have proposed.