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Pennsylvania win could boost FTC in antitrust campaign against Advocate/NorthShore merger

By Quinten Plummer | Oct 4, 2016

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CHICAGO – As it attempts to stop the merger of the Advocate and NorthShore health systems in Illinois, the Federal Trade Commission scored a possibly influential win in Pennsylvania as the regulatory body continues its campaign to keep healthcare systems as competitive as possible.

Last week, the U.S. Third Circuit Court of Appeals overturned a lower court's ruling dismissing petitions from the FTC and Pennsylvania's attorney general's office, which sought to block a merger between Pinnacle Health System and Penn State Hershey Medical Center.

The appeals court's decision will give the FTC more time to review the impact of the proposed merger, and it may add steam to the commission's antitrust campaign. In Illinois, that campaign led the FTC to file a court challenge to the pending merger of Downers Grove-based Advocate Health and NorthShore University Health System, based in Evanston, arguing the merger would restrict competition and harm health care consumers in the Chicago area, and in the north and west suburbs, in particular. 

The proceedings in Pennsylvania may have no legal bearing over the case in Illinois, but it could be persuasive for the FTC, said Roger Strode, partner and health care business lawyer at Foley & Lardner, LLP in Chicago.

"So, the Seventh Circuit isn’t bound to the Third Circuit’s approach to the hypothetical monopolist test or the use of the efficiencies defense, but they can cite it as persuasive authority," Strode told the Cook County Record.

While the FTC argued the hospital merger in Pennsylvania would reach near-monopoly status in a four-county region, the "factual standpoint" is different in the Cook County area.

The Third Circuit opined that the lower court in the Pinnacle Health System/Penn State Hershey Medical Center case focused too heavily on patients' response to price increases, private agreements between the two care systems and the amount of patients traveling into the hospital's coverage area for care,

In Cook County, the FTC has disputed Advocate and NorthShore's position that their merger would create an insurance plan that would be 10 percent lower than anything comparable in the area. Instead, regulators asserted that the merger would result in an 8 percent price increase at area hospitals.

A district court judge has ruled that the FTC doesn't have a strong enough case to warrant a temporary block on the merger between NorthShore and Advocate. However, the FTC has called for an injunction on the merger until its appeal is heard because moving forward with the consolidations before then would make it difficult or near impossible to "unscramble the eggs."

While the two cases won't have any hard implications on one another, the FTC will likely ensure that the hypothetical monopolist test, based on the geographic size of the market, is properly applied in the Advocate/NorthShore review, according to Strode.

"In addition, the Third Circuit was not impressed with the efficiencies defenses put forth by the hospitals," Strode said. "I believe that Advocate and Northshore posited efficiencies defenses as well. The FTC is going to hammer at those."

Though the lower court concluded that the FTC's case wasn't strong enough, Strode said he thinks the new ruling took a lot of people by surprise and has likely created some concern among them.

"Moreover, the FTC is likely emboldened and will look at the lower court losses as temporary setbacks," said Strode. "This win in the Third Circuit is going to give them a little stiffer back in the upcoming battle here in town."

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Organizations in this Story

Foley & Lardner LLPNorthshore University HealthsystemU.S. Federal Trade Commission Advocate Health and Hospital Corporation