FTC likely will concede to hospital merger with state oversight, expert says

By Karen Kidd | Apr 8, 2016

HUNTINGTON – The Federal Trade Commission has agreed to take a step back from the proposed merger between St. Mary's Medical Center and Cabell Huntington Hospital to see if legislation newly signed by the governor will make a difference.

Meanwhile, a legal healthcare expert says he thinks the merger ultimately will go through with state oversight.

Evidentiary hearing in the matter is set to begin April 25, after the FTC's order withdrawing the matter from adjudication for 30 days expires.

The FTC issued the order to allow time to consider legislation recently signed into law by the governor. That legislation might grant immunity from federal antitrust law and provide a new defense to the proposed merger.

"In light of those developments, Complaint Counsel and Respondents believe that there is good cause for the Commission to remove this matter from adjudication for thirty days," the order said. "They argue that withdrawing the matter from adjudication will enable the Commission to review the legislation – and to hear from both Complaint Counsel and Respondents as to the relevance of the legislation to this proceeding – prior to 'the expenditure of significant Commission, party, and third-party resources attendant to pre-trial preparations and the start of a full trial on the merits'."

The order does not specify the recently passed legislation but it probably refers to bipartisan legislation that passed the West Virginia Legislature on March 12 and was approved by Gov. Earl Ray Tomblin three days later. That newly passed legislation exempts state healthcare providers from federal antitrust scrutiny when the providers act under the jurisdiction of the West Virginia Health Care Authority.

Legal observers have noted this legislation could shield the proposed merger but also is the latest in a trend among state governments to attempt to exclude or limit action by federal antitrust authorities in state healthcare markets.

All of that could lead to an FTC decision to back down and leave it to the state. "My guess is that the FTC will concede," Norm Tabler, a healthcare law expert and counsel with the Indianapolis law firm Faegre Baker Daniels, said in an email interview with The West Virginia Record."They'll likely agree that the oversight of the merged hospitals by the state will be a sufficient level of state control to take the matter out of the FTC's jurisdiction."

In November, the FTC issued an administrative complaint alleging the proposed merger could lead to a near monopoly that likely would result in more expensive and lower quality healthcare for the residents of Cabell, Wayne and Lincoln counties in West Virginia and across the river in Lawrence County, Ohio.

The FTC also alleges the healthcare systems periodically have tried to limit their competition through collusion, including restrictive marketing agreements.

With the two hospitals only a few miles apart, the hospitals "are each other’s closest competitor for health plans and patients, and that the acquisition would substantially lessen competition between the hospitals for patients and for inclusion in health plan networks," FTC said in its November press release.

Two years prior, in November 2014, Cabell Huntington Hospital, Inc assumed control of St. Mary's when the Pallottine Missionary Sisters, after 90 years, ended sponsorship of the hospital. Pallottine Health Services was the sole member of St. Mary's Medical Center when the agreement was signed.

In July of the following year, West Virginia Attorney General Patrick Morrisey announced an agreement filed in Cabell County Circuit Court that would establish "a series of conditions to ensure the acquisition complies with the West Virginia Antitrust Act, the federal Sherman Antitrust Act, and all other applicable state and federal laws."

However, the FTC later alleged that agreement was reached to avoid a merger challenge. Its administrative complaint followed Nov. 5, 2015. The complaint alleged the proposed merger violates Section 5 of the FTC Act, 15 U.S.C. § 45, and, should the merger move ahead, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act.

It's FTC's job to protect consumers from the anticompetitive effects of too much concentration of market control, Tabler said. "If this merger goes through, the combined hospitals will have a huge market share," he said. "The FTC fears that that will enable them to raise prices without significant competition to keep them in check."

St Mary's is the larger of the two hospitals with 393 beds and ranks as Cabell County's largest private employer. Cabell Huntington is a not-for-profit, regional referral center with 303 beds and is a teaching hospital affiliated with Marshall University's schools of medicine and nursing.

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